Sep 07, 2023
< 1 min read

Ask Sumsubers: What Are the Main Challenges in Regulatory Implementation for the Travel Rule?

Let’s see what Sumsub’s Chief Legal Officer has to say about one of the most pressing questions in the world of crypto.

Sumsub keeps getting questions from our followers about the specifics of regulatory compliance, verification, automated solutions, and everything in between. We’ve therefore decided to launch a bi-weekly Q&A series, where our legal, tech, and other experts answer the most frequently asked questions. Check out The Sumsuber and our social media every other Thursday for new answers—and don’t forget to ask about the things that interest you.

This week, our Chief Legal Officer, Tony Petrov, will briefly discuss the challenges of implementing the controversial crypto Travel Rule. 

Follow this bi-weekly series, and submit your own questions to our Instagram and LinkedIn!

Initially introduced for banks, FATF Recommendation 16, also known as the Travel Rule, requires financial institutions to share information about their customers and assume the responsibility to report suspicious activities. Later on, this recommendation was expanded to include Virtual Asset Service Providers (VASPs). The main purpose of sharing the originator and beneficiary information is the prevention of money laundering and terrorist financing. While implementing Travel Rule requirements, VASPs are indeed facing the same challenges previously experienced by the traditional banks, including:
  • 1) Integration of efficient and secure protocols and compliant technical solutions, which will also incur additional costs. In fact, any new regulatory requirements usually increase operational workload and require significant investment in technology, training, and resources.

  • 2) Differences in regulations by country, also known as the ‘Sunrise issue’. Since the regulatory framework varies from one jurisdiction to another, there might be a situation where one VASP doesn’t adhere to the same approach to unhosted providers or de minimis thresholds as the other.

  • 3) Compliance with existing data privacy laws. VASPs, especially those operating globally, need to ensure they have all applicable data protection measures in place to safeguard customer information.

  • 4) Lack of clarity from regulators. This can be mitigated by regulators engaging market players in consultation, which could help VASPs handle the Travel Rule more efficiently. This is because full compliance includes the prompt reporting of suspicious transactions to regulators, as well as cooperation with competent authorities on request.

  • 5) Customer education and interaction. VASPs will need to educate their customers about the requirements and implications of the Travel Rule, including the need to provide accurate and complete information. Clear instructions and guidance for customers can help prevent errors, omissions and further consequences.

Regulators, on the other hand, also face challenges while introducing the Travel Rule requirement, including

  • 1) Keeping pace with technological advancements

  • 2) Cross-border coordination with foreign authorities and enforcement mechanisms, especially for global or unlicensed providers

It’s time to admit that the crypto world is not going to stay the same. The best strategy for smooth compliance would be an openness to collaboration, transparency, and involvement in global standardization in order to reduce financial crime in the crypto industry.

Tony Petrov

Chief Legal Officer at Sumsub

On September 1, Sumsub launched a six-month free trial of its Travel Rule compliance solution. The product facilitates secure information transfers between VASPs in accordance with compliance requirements, enabling crypto firms to both send and receive Travel Rule messages for corresponding transactions. The product will also ensure readiness in meeting global rules, including the EU’s Transfer of Funds Regulation (TFR) and Markets in Crypto-Asset (MiCA) regulations coming into effect in 2024. Try our Travel Rule solution today to steer clear of huge regulatory fines, gain customer trust, and keep your reputation flawless.

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Comply with the Crypto Travel Rule easily
FATFMoney LaunderingTerrorism FinancingTravel RuleVirtual Assets