21 Travel Rule's VASP Auto-discovery Assists VASPs

In the past, transactions could be conducted with just a wallet address, VASPs did not need additional data, like knowing who their counterparty was. 

Now, with the Travel Rule, the FATF has specified that VASPs must know who their counterparties are before a transaction occurs, a requirement repeated in their most recent Targeted Update, to avoid transactions with illicit or sanctioned jurisdictions, wallet addresses, and entities. Moreover, per the FATF, VASPs can only transmit the required Travel Rule information once they have identified and conducted due diligence on their counterparty.  

These prerequisites were mirrored in the Transfer of Funds Regulation (TFR) and further implementations of the Travel Rule, placing VASPS in a sticky situation: How do they ascertain this information before a transaction in a manner that is both reliable for compliance purposes and still user-friendly for their customers? 

21 Analytics has successfully solved this problem via the Travel Address teamed with 21 Travel Rule’s latest feature “VASP auto-discovery” 

Why Is VASP Auto-discovery Useful? 

VASP auto-discovery, along with the Travel Address are some of 21 Travel Rule’s many features to facilitate Travel Rule compliance processes for VASPs. 

With this feature, VASPs will automatically discover who their counterparty is before the transaction occurs, thereby 100% in line with regulations.  

Furthermore, VASPs no longer need to rely on VASP networks, contact customers, or contact other VASPs to discover who their counterparties are, as this feature automatically discovers this information. Additionally, the effect is viral - through increased Travel Address usage, more VASPs are auto-discovered. Therefore, upfront registration of a VASP’s counterparties becomes unnecessary. 

How Does VASP Auto-discovery Work? 

VASP auto-discovery can be utilised in both sending and receiving digital assets from an unknown counterparty. When a transaction is sent to or received from an unknown counterparty using a Travel Address, the receiving VASP will receive a notification within their software advising them of the intended transaction.

In this instance, the Travel Address has automatically identified the counterparty, even if you’ve never interacted with them before, as it contains additional information a standard wallet address does not, such as: 

• The VASP that controls the receiving address,

• The VASP’s URL to receive Travel Rule data.

At this time the receiving VASP can conduct the required due diligence procedures and allow for the transaction to be processed accordingly, allowing for quick and easy counterparty discovery and Travel Rule compliance. 

Is VASP Auto-discovery Travel Rule Compliant? 

Yes, VASP auto-discovery is compliant with all implementations of the Travel Rule as it still requires the receiving VASP to conduct due diligence processes before a transaction can continue to be processed, in other words, before any blockchain activity occurs. Further ensuring that Travel Rule data is only shared with these trusted counterparties. 

Through this feature, VASPs are guaranteed Travel Rule compliance while actively reducing the risk of data breaches and unauthorised access by maintaining a list of trusted (vetted) VASPs. This further ensures that sensitive information is exchanged securely and in a controlled environment.

Learn how your Compliance Team can benefit from 21 Travel Rule's many features.