The Challenge

In June 2019, the Financial Action Task Force (FATF)’s updated its Recommendation 16 - the so-called ‘Travel Rule’ - to include Virtual Asset Service Providers (VASPs) such as exchanges, payment processors and custodians. 

Since then, the international regulatory body has kept up the pressure, compelling crypto industry players to recognize, record, report and store information that ‘Travels’ from one VASP to another. 

The message from the FATF is clear: VASPs that fail to adhere to the rule will soon be unable to escape the regulatory axe. However, despite the dangers of failing to adhere to the rule(s), compliance remains patchy and elusive for many actors in the crypto industry, for a variety of different reasons. 

Common challenges to compliance for VASPs include:

  • The high costs of expanding compliance teams.
  • A legacy of anonymity in both the technical architecture and corporate attitudes of VASPs. 
  • A lack of clarity from regulatory authorities on how they plan to enforce the FATF’s updated recommendations. 

There are a number of interesting projects that have emerged over the last few years, which are attempting to provide solutions to the challenge of regulatory compliance for VASPs, in particular in relation to the FATF Travel Rule. 

The best out there each offer certain benefits in specific, unique ways that are suited to different situations and objectives. All of them are contributing to the creation of safer, more effective and efficient systems for crypto-based activity, and KYCC is proud to be a part of this global, decentralized movement to improve the ways individuals and companies transact with one another. 

So, with that in mind, let’s take a look at some of the solutions found on the market. 

OpenVASP

OpenVASP is a non-profit organization that has created a decentralized, open-source network for VASPs to exchange information in compliance with the Travel Rule. 

As a non-profit, OpenVASP offers the clear benefit of being open to any VASP that seeks to use it. The organization also promotes innovation in the VASP/Compliance space by funding the implementation of open-source technology that can help VASPs comply with FATF regulations. It currently does not have membership fees, but OpenVASP network users are required to implement its protocols through the use of one of its private implementation partners.

Netki

Netki is one of the veterans in the Travel Rule compliance space: its TransactID solution has been around since 2016, and works across all private and public blockchains with both custodial and non-custodial wallets, so it’s primed for interoperability. TransactID also supports privacy coins, and is an open standards-based solution, though certificates are fee-based. 

Netki’s TransactID offers a complete end-to-end compliance solution for VASPs. 

TRISA

TRISA is a non-profit, open-source Travel Rule compliance project that implements the InterVASP Message Standard 101 (IVMS) “to standardize Travel Rule message data fields” using the TRISA VASP Directory, which includes location data and contact information for over 800 VASPs. TRISA works by providing VASPs with a way to assess whether data transmission requests are compliant with the Travel Rule through the use of a proven Certificate Authority (CA) model. 

While TRISA is open source and free to join, it does have certain limitations. Being a fully open source project with no initial signup costs, VASPs that do choose to use the network for data transmissions will need to take responsibility for maintenance and integration themselves. 

Sygna Bridge

Sygna Bridge allows VASPs to share Personally Identifiable Information (PII) with each other through an encrypted ‘privacy-secure tunnel’ using a centralized API. Sygna Bridge is geared towards custodial wallet users, and VASPs using the system need to pay a signup fee as well as an annual fee. 

Shyft Network

Shyft has created a system for VASPs to transmit data in compliance with the Travel Rule that is called the Veriscope Network. Shyft’s Travel Rule Solution is directed primarily at VASPs seeking to comply with the data transmission requirements set by the Travel Rule in their interactions with other crypto exchanges, OTC desks and custodial wallets. 

Conclusion

While it’s clear that there is now a healthy variety of different TR compliance solutions for VASPS, the strength of each is highly dependent on cooperation and connectivity between the various stakeholders. 

If innovative compliance projects are able to continue expanding and enhancing their interoperability, a large network of solution providers can emerge, ensuring all transactions are compliant, and paving the way for a more stable and accepted crypto industry. That’s the important next step. 

Want to learn how KYC-Chain can help your business with KYC and AML compliance? Get in touch, or book a demo.