The Crypto Travel Rule Made Easy with Sumsub

Cryptocurrencies have seen rapid growth, with 580 million users worldwide by late 2023, a 34% increase from the start of the year. This growth has also attracted fraudsters, with $24.2 billion received by illicit crypto addresses in that same year. 

In response, global regulators are tightening crypto regulations. This includes the FATF introducing the Travel Rule to combat the risks of anonymous transactions. However, its implementation bears a number of difficult challenges. Let’s explore how crypto businesses can easily overcome them with Sumsub.

What is the FATF Travel Rule?

The Travel Rule refers to FATF Recommendation 16, which addresses measures to combat money laundering and terrorism financing (ML/TF). It mandates that financial institutions involved in virtual asset (VA) transfers and virtual asset service providers (VASPs)—in other words, crypto companies—collect and share “required and accurate originator information, and required beneficiary information” with counterparty institutions during or prior to transactions.

The regulation earned the “Travel Rule” moniker because the personal data of the transacting parties ‘travels’ with their transfers. The FATF suggests a de minimis threshold of 1,000 USD/EUR for VA transfers triggering the Travel Rule, noting that requirements for transfers below this threshold are comparatively less stringent than for those above it. 

Suggested read: What is the FATF Travel Rule? The Ultimate Guide to Compliance (2024)

What are the most frequent compliance challenges with the Travel Rule?

Based on the FATF’s annual report and feedback from businesses, the most frequent Travel Rule-related issues include: 

• Non-uniformity among jurisdictions, meaning that countries adopt the Travel Rule based on their own regulations, which may deviate from FATF standards. In particular, jurisdictions may have different de minimis thresholds, varying originator and beneficiary data to be collected and transferred, etc.
• Lack of interoperability, meaning that VASPs use various protocols and solutions that are not always able to interact with each other, complicating communication and data exchange.
• The “sunrise issue”, which refers to uneven implementation of the Travel Rule worldwide, since VASPs may or may not be subject to the Travel Rule given the implementation status in their jurisdiction. “The sun is up” where the Travel Rule is enforced, and “down” where it’s not enforced yet. The “sunrise issue” therefore occurs when one VASP isn’t yet obliged to follow the Travel Rule and therefore doesn’t have the resources to cooperate with one that does.
• Wrong data collected and transferred (e.g., transaction ID transmitted instead of the originator’s wallet address)
• Wrong chain of communication (e.g., the ordering VASP obtains beneficiary information from the beneficiary VASP instead of collecting it itself)
• Originator and beneficiary information is sent after the transaction is executed 
• Only certain types of virtual assets (VA) and/or transaction amounts are supported
• Transmitted information can’t be downloaded or otherwise retained 
• Counterparty VASPs can’t be located for all VA transfers.

Suggested read: Travel Rule Challenges: FAQ

How Sumsub can help

For crypto-asset service providers, navigating the complex landscape of regulations  requires robust compliance solutions. Crypto businesses require the widest possible connectivity. Therefore, partnering with a provider that supports as many protocols as possible, and a broad network of VASPs, is crucial for seamless compliance and fraud-free operations. 

Sumsub has 1,700+ VASPs in the ecosystem and 10,000 supported assets, offering comprehensive compliance solutions that can help service providers meet regulatory requirements efficiently.

Sumsub’s platform provides tools for identity verification, transaction monitoring, AML screening and regulatory reporting, ensuring that VASPs can comply with the Travel Rule and other regulatory mandates without compromising on user experience or operational efficiency. Moreover, Sumsub successfully handles the “sunrise” and other issues related to the Travel Rule implementation in different jurisdictions.

The key benefits of Sumsub Travel Rule solution are:

• Smooth integration with other Sumsub products: Use the Travel Rule solution alongside the user verification, transaction monitoring, and AML check features for detailed transaction information.
• Popular data exchange protocols: Supports TRP, GTR, Sumsub custom protocol, and email notifications to streamline Travel Rule data exchange. The system automatically chooses the fastest and easiest method to obtain counterparty data.
• VASP attribution: Identifies if the VA transaction is with a VASP or an unhosted wallet and establishes the counterparty VASP’s identity.
• Screening against watchlists: Checks VA transaction participants against global sanctions lists (OFAC, UN, HMT, EU, DFT, etc.) and adverse media.
• Secure ecosystem: Provides access to the latest verification data and documentation related to other Travel Rule ecosystem members for quick transaction confirmations.
• Simple solution for interoperability and sunrise issues.
• Extensive functionality: Allows you to configure specific fields for data exchange to comply with regulations.
• Supports over 10,000 virtual assets.
• 1,700 VASPs in the ecosystem.
• Crypto wallet scoring: Enables automated transaction rejection based on the wallet’s status.

Sumsub offers a six-month free trial of its Travel Rule compliance solution. This product enables secure information transfers between VASPs, ensuring crypto firms can send and receive Travel Rule messages for corresponding transactions in compliance with regulatory requirements. It also ensures readiness for global regulations, including the EU’s Transfer of Funds Regulation (TFR) and the Markets in Crypto-Assets (MiCA) regulations. Try our Travel Rule solution today to avoid substantial regulatory fines, build customer trust, and maintain a flawless reputation.