Navigating the 2023 Landscape: Pre-Transaction Crypto Travel Rule Compliance
Notabene's Insight into the 2023 State of Crypto Travel Rule Compliance
In June 2023, the Financial Action Task Force (FATF) published a Targeted Update report, shedding light on the global adoption of the Travel Rule. This report clarified that Travel Rule compliance must be carried out before the execution of a crypto transaction.
However, Notabene's comprehensive study, published in April 2023, highlighted that close to a staggering 40% of companies claiming to be compliant were not meeting their obligations pre-transaction.
In this article, we at Notabene dig deeper into the significance of pre-transaction Travel Rule compliance, the prevailing industry gaps, and how our innovative platform, SafeTransact, helps virtual asset service providers (VASPs) achieve pre-transaction compliance.
The FATF's Emphasis on Pre-Transaction Compliance
The FATF's June 2023 Targeted Update report, titled “Virtual Assets: Targeted Update on Implementation of the FATF Standards,” underscored the urgency of Travel Rule compliance preceding the crypto transaction. The report revealed a concerning trend: three-quarters of the surveyed jurisdictions were either 'only partially' or 'not compliant' with the FATF's requirements for virtual assets and VASPs.
The FATF explicitly labeled post-transaction compliance as non-compliance, emphasizing the criticality of submitting both the originator and beneficiary information to the Beneficiary VASP or financial institutions either before, simultaneously, or concurrently with the transaction. This procedure ensures effective sanctions screening at or before the transaction, enabling VASPs to halt transfers involving sanctioned individuals or entities.
Notabene's 2023 State of Crypto Travel Rule Compliance: Key Findings
At Notabene, we are committed to providing a clear picture of the virtual asset industry's compliance landscape. Our 2023 State of Crypto Travel Rule Compliance survey, conducted from December 2022 to January 2023, encompassed 69 VASPs and financial institutions globally. The key findings were:
Increased Compliance Endeavours
Our 2023 report showcased a 117% increase in VASPs reporting 'already compliant' compared to the previous year, rising from 11% in 2022 to 23% in 2023.
The Gap in Pre-Transaction Compliance
Despite the surge in VASPs claiming compliance, a mere 20% of VASPs transmitted Travel Rule information pre-settlement, marking a 50% increase from the previous year's 13%.
The Dominance of Post-Transaction Compliance
Our study pinpointed that 37.5% of firms adhering to the Travel Rule were only meeting the requirements post-transaction, a practice contrary to the FATF's directives.
The Intricacies of Implementing the Travel Rule: Striking a Balance
The essence of the Travel Rule is to ensure comprehensive checks before initiating a transaction. Traditional SWIFT payments, with their extended clearance times, offer banks ample time for data sharing and thorough checks. In stark contrast, cryptocurrency transactions, characterized by their instantaneous and irreversible nature, present a unique challenge.?
The speed of crypto transactions often leaves little room for pre-transaction checks, necessitating a compliance strategy that seamlessly integrates thorough checks without compromising transaction speed.
Notabene's SafeTransact: Providing Pre-Transaction Decision-Making for Crypto Transactions
At Notabene, we have always been at the forefront of crypto compliance innovation. Recognizing the challenges VASPs face, we introduced SafeTransact: The Crypto Pre-Transaction Decision-Making Platform.
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SafeTransact offers a comprehensive view of crypto transactions, enabling VASPs to automate real-time decision-making, conduct counterparty sanctions screening, identify self-hosted wallets, and seamlessly roll out global Travel Rule compliance in alignment with international regulations.
In Conclusion
The crypto landscape is in a state of continuous evolution, with regulations like the Travel Rule shaping its trajectory. At Notabene, we are dedicated to ensuring that VASPs can navigate this complex landscape with ease, ensuring robust pre-transaction compliance without compromising on the inherent advantages of cryptocurrency transactions. SafeTransact stands as a testament to our commitment to improving the way VASPs achieve and maintain compliance with crypto transactions.
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