The cryptocurrency industry is rapidly evolving, accompanied by the development of global regulatory standards that crypto asset service providers must adhere to. One such regulation, the Transfer of Funds Regulation (TFR) (aka Travel Rule for EU), set to take effect in the EU on December 30, 2024, marks a significant step towards enhancing the security and transparency of crypto payments, addressing the increasing demand for accountability in the digital asset space.
For businesses handling digital assets, the Travel Rule enhances the safety of transactions and strengthens trust in the industry. This article explains the Travel Rule, its role in aligning crypto payments compliance with traditional systems, and how Fipto leads its adoption through seamless integration.
Understanding regulatory statuses in crypto
Before exploring the Travel Rule, it's essential to understand the key regulatory statuses and their implications:
- VASP (Virtual Asset Service Provider): A term specifically used globally by the Financial Action Task Force (FATF), for entities that handle virtual asset transactions and follow the anti-money launder (AML) rules.
- DASP (Digital Asset Service Provider): A term specifically used in France and under European Frameworks. DASPs operate similarly to VASPs but are registered locally to meet regional compliance requirements.
- CASP (Crypto Asset Service Provider): Introduced under the EU’s Market in Crypto-Assets (MiCA) regulation, CASP includes a wider range of crypto-related services and follows stricter rules to ensure safety and transparency across the EU region.
As the EU implements MiCA, many service providers will soon be passporting their local VASP or DASP registration to a CASP registration in order to be able to operate across the EU. With this in mind, the most impactful requirement for CASPs can be explored: the Travel Rule.
What is the Travel Rule?
The Travel Rule is an Anti-Money Laundering rule (AML) established by the Financial Action Task Force (FATF) to ensure transparency in crypto transactions and prevent illicit activities, such as money laundering, terrorist financing, and other financial crimes, within the cryptocurrency ecosystem. The Travel Rule requires CASPs to share key details about the origin and destination of transactions.
To comply, CASPs exchange the following data:
- Originator’s name
- Originator’s account number or wallet address
- Originator’s identifying information (e.g. Address, or official personal document number, customer identification number, or Date and Place of Birth)
- Beneficiary’s name
- Beneficiary’s account or wallet address
By enforcing these requirements, the Travel Rule enhances transparency and reduces illicit activities by curbing money laundering and other financial crimes, aligning the crypto payments sector with traditional compliance standards.
How the Travel Rule secures transactions
The Travel Rule builds on the longstanding practice in traditional finance, where key information about the transaction's sender and recipient must be shared between financial institutions and governing authorities to detect illicit transactional activities and ensure compliance with international sanctions.
However, the Travel Rule goes even further in the realm of crypto payments. Unlike traditional finance, where institutions primarily rely on shared data, CASPs are required to verify the recipient before processing a transaction. This added layer of compliance ensures that crypto transactions adhere to standards that are not only on par with but often stricter than those of traditional finance (until DSP3). By securely transferring and verifying transaction data, CASPs reinforce trust, enhance security, and support broader adoption of cryptocurrency payments.
Fipto’s approach to compliance
At Fipto, compliance is central to our mission. Our goal is to not only meet regulatory standards but also enhance the security and trustworthiness of our platform for our users. The Travel Rule is a significant advancement in the crypto space, and our dedicated team works towards integrating the newest guidelines directly into our operations to minimise disruptions for users and ensure compliance is implemented early and effectively.
“At Fipto, we are committed to being active participants in implementing regulations to make the crypto payments space more secure and transparent. Compliance isn’t just about meeting regulations– it’s about supporting guidelines that protect our clients and fostering trust in every transaction,” says Bertrand Godin, co-founder and COO of Fipto.
Prioritising compliance for users
Fipto prioritises creating a secure environment for all its users, and compliance with the Travel Rule plays a key role in achieving that. To meet the regulation’s requirements, our users are asked to provide additional information about the recipient or sender of a payment. These steps are designed to protect and validate user transactions while minimising disruptions to the user experience.
Ensuring simplified compliance for users
Our commitment to simplifying compliance for our users is realised through a combination of external expertise and internal implementations:
External: Notabene integration
With compliance at the core of Fipto's operations, partnering with the leading Travel Rule service provider, Notabene, was a natural choice. This partnership enables us to leverage their expertise and meet regulatory requirements efficiently while reducing the burden on our users.
“The quick implementation of the Notabene solution makes Fipto compliant with the Travel Rule, increases its risk prevention capacity as well as reaffirms its role as a reliable partner for our customers, other CASPs and external stakeholders”, says Ivaylo Asparuhov, Head of Compliance at Fipto.
Internal: Fipto team
As proactive players in the industry, our product and engineering teams are briefed on the latest compliance guidelines to constantly refine our solutions and design workflows that minimise user disruption while adhering to regulatory requirements. These internal efforts aim to provide a smooth and secure experience as we implement the Travel Rule.
“Our team worked hard to navigate the regulatory requirements while prioritising user experience. While compliance introduces additional steps that can be overwhelming, we have designed a process that minimizes friction to ensure our users can transact securely and with confidence”, says Zineb El Fathi, Product Manager at Fipto and Product Lead on Travel Rule Implementation.
These efforts reflect Fipto’s commitment to making compliance a key component of its solutions.
Fipto’s commitment to compliance
As the crypto industry matures and evolves, Fipto places regulatory compliance at the core of its solutions. Regulations like the Travel Rule are more than legal obligations; they are essential for embedding trust and security into the crypto ecosystem.
By aligning with these standards, Fipto safeguards its users and contributes to the global trust and growth of the industry. As businesses navigate the rapidly evolving crypto regulatory landscape, Fipto’s compliance-driven approach ensures that businesses using Fipto’s payment infrastructure can focus on growth while we handle the complexities of meeting global and European standards.
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