Ensuring compliance with crypto Travel Rule: Here’s how

Sumsub, an AI-based identity verification and anti-fraud platform, provides streamlined integration and multi-protocol connectivity to help VASPs meet Travel Rule regulatory standards.

As the clock ticks toward Dec. 30, 2024, the crypto world braces for a transformative shift with the implementation of the crypto Travel Rule regulation for all European Union virtual asset service providers (VASPs). However, the need for Travel Rule compliance is not confined to the EU; it is a global issue with legislation being implemented at different rates across various jurisdictions.

The Travel Rule, or Financial Action Task Force (FATF) Recommendation 16, aims to combat financial crimes by mandating cryptocurrency service providers to collect, verify and share transaction information.

The shared information includes the names and wallet addresses of both senders and receivers for transfers exceeding a defined threshold. To meet these regulatory standards, VASPs and financial firms must promptly comply with the Travel Rule.

Streamlined integration for the Travel Rule

The introduction of the Travel Rule presents a significant challenge for VASPs, necessitating the sharing of sensitive transaction information. This is where Sumsub — an artificial intelligence-based identity verification and anti-fraud solution — steps in, offering a full-cycle compliance solution that meets regulatory demands and simplifies the process for crypto exchanges.

Sumsub offers a broad ecosystem for crypto businesses looking to comply with the Travel Rule. Source: Sumsub

Unlike standalone protocols, where businesses need to build, support and upgrade the functionality internally, Sumsub provides a comprehensive solution with full functionality and native connectivity to multiple protocols.

Tailored compliance and automated processing

Central to this solution is Sumsub’s VASP Discovery feature, which accurately identifies and verifies VASPs to ensure secure and compliant transactions. The feature utilizes multiple advanced blockchain analytic tools, such as Chainalysis, Crystal and Elliptic.

In addition to VASP discovery, Sumsub performs thorough due diligence on VASPs, employing the Wolfsberg Questionnaire established by global banks. This standardized approach enhances trust and reliability in counterparty screening.

Source: Sumsub

Anti-Money Laundering (AML) screening is also integrated into Sumsub’s platform, conducting checks on both counterparty VASPs and beneficiaries. Ensuring all parties involved in transactions are compliant with regulatory standards, AML screening checks users against global watchlists and custom risk factors such as politically exposed persons (PEPs) and adverse media.

Additionally, Sumsub enhances security with its unhosted wallet verification feature, which confirms the ownership of self-hosted or non-custodial wallets using a cryptographic signature.

Another key feature of the solution is Sumsub’s flexible and customizable rule engine. The engine allows for the creation of custom rules and updates tailored to meet local Travel Rule requirements. This flexibility helps overcome issues like interoperability and the “sunrise issue.”

Ensuring connectivity across jurisdictions

The sunrise issue arises when one VASP is not yet required to follow the Travel Rule because it is not fully implemented in their jurisdiction. As a result, it lacks the resources to work with another VASP that is obligated to comply.

Sumsub clients can verify non-Travel Rule eligible transactions by contacting counterparty VASPs via a secure data exchange protocol or through an email notification for VASPs not within the supported networks. If the counterparty is prepared to transfer or receive the necessary information, Sumsub provides a free account to facilitate the required data exchange.

VASPs can join over 1700 participants in the Sumsub client ecosystem and access free crypto Travel Rule transfers, both sending and receiving, for six months.

Source: Sumsub

The platform is also integrated with multiple protocols, including Binance’s Global Travel Rule (GTR), Travel Rule Protocol (TRP) and South Korea-based CODE, with two more integrations expected this year.

Highlighting the importance of such partnerships, Sumsub chief growth officer Ilya Brovin said:

“These partnerships not only enhance the infrastructure of the global crypto ecosystem but also foster trust both within and outside the industry. Looking forward, Sumsub is empowered to work toward natively integrating all protocols into its Travel Rule solution in the future.”

Looking ahead, Sumsub plans to integrate additional protocols and enhance its compliance features, ensuring that its clients remain at the forefront of regulatory standards.

With the EU’s new regulations approaching and global jurisdictions continuing to implement the legislation, swift compliance with the Travel Rule is more crucial than ever. Platforms like Sumsub streamline the process and build industry trust, helping companies align with the latest regulations.