Travel Rule for VASPs explained

The question of AML compliance in crypto markets has recently become a headline. Travelrule is either obligatory (as in Switzerland) or planned to be obligatory for VASPs in many European countries. Let’s have a better look at what the Travel rule is.

Travel rule is a key component of traditional financial regulation worldwide and is designed to combat money laundering and terrorist financing. It mandates VASPs and financial institutions to collect and share certain information about transactions over a certain value with their counterparties, including beneficiary and originator information. MarketGuard, a compliance solution provider, offers a suite of tools designed to help financial institutions and VASPs comply with regulatory requirements, including the Travel Rule. The solution allows digital asset businesses to prepare for sharing sensitive data with other authorised businesses involved in a transaction, ensuring compliance with the Travel Rule while protecting customer privacy.

The widespread adoption of the Travel Rule across jurisdictions can help to promote greater regulatory clarity and consistency in the crypto sector, which can ultimately promote greater trust and adoption of cryptocurrencies by the general public and institutional investors. Some jurisdictions, including those under the Financial Action Task Force (FATF), have already extended the travel rule to cover virtual asset service providers (VASPs), including cryptocurrency exchanges.

Many major cryptocurrency players voiced support for the implementation of the travel rule in the crypto industry from the start:

• Coinbase’s ex-Chief Compliance Officer, Jeff Horowitz, wrote, “We support the goals of the Travel Rule and believe that it is an important step towards improving the security and compliance of the cryptocurrency ecosystem.”
• Binance’s CEO, Changpeng Zhao, stated, “Binance is committed to complying with applicable legal requirements and the Travel Rule is no exception.”
• Circle’s CEO, Jeremy Allaire, stated, “Circle has been a strong advocate for applying the Travel Rule to the crypto industry, and we believe that it is important for regulators and industry participants to work together to establish clear rules and standards for compliance.”
• FinchTrade’s Board Member, Yuri Berg, also believes that the “Travel Rule is an important step in creating a more secure and compliant ecosystem for digital assets”.

FinchTrade, a VASP regulated by Swiss SRO VQF under FINMA, is committed to complying with AML and CTF regulations. To achieve compliance, FinchTrade has to do the following:

1. conducting due diligence on counterparties before sharing data
2. identifying its clients (originators)
3. obtaining necessary information from the originator, and
4. retaining a record of that information.

To make this process robust and automate manual routines, FinchTrade has created MarketGuard, which is a must-have tool for any VASP to ensure compliance.

• If used by an originating VASP, MarketGuard screens to confirm that the beneficiary is not a sanctioned name and monitors transactions for suspicious activity, reporting in a due form any such activity as required by regulations.
• If used by a beneficiary VASP, MarketGuard obtains necessary information from the originator’s VASP, verifies the accuracy and consistency of the necessary information, and retains a record of that information.
• Additionally, MarketGuard screens to confirm that the originator is not a sanctioned name and monitors transactions for suspicious activity, also reporting any such activity as required by regulations.

MarketGuard relies on leading KYC, KYB and KYT providers (Sumsub, Scorechain); besides, it has an API integration with a number of banking institutions (BCB Group, Clear Junction, Nexpay) and crypto custodians (Copper.co).

In a nutshell, any VASP must take a proactive approach to crypto compliance by conducting due diligence, verifying information, and monitoring transactions. If your business partners use MarketGuard, be sure that you will be well-equipped to be in compliance with AML and CTF regulations. Promoting a safe and secure environment for virtual asset transactions while considering innovation is our mutual task to make this world a better place.