What Is the Travel Rule Protocol (TRP)?
With the ongoing global implementation of the Financial Action Task Force's Travel Rule, Virtual Asset Service Providers (VASPs) have had to seek technical solutions to comply with these requirements to continue business as usual.
The Travel Rule Protocol (TRP) is a protocol that can be leveraged by VASPs and built into technical solutions to comply with FATF’s Travel Rule Recommendations.
What Is the Meaning of Protocol Within the FATF Travel Rule Context?
For a VASP to transact with another VASP, both parties need to understand each other. A protocol is a set of rules to exchange data; more simply put - the language 2 types of software use to converse.
As the Travel Rule requires VASPs to exchange originator and beneficiary personal information with their counterparties, both businesses need to use the same protocol, for example, the Travel Rule Protocol (TRP), to be able to communicate. In this example, TRP provides the rules for transmitting the Travel Rule data between entities in a standardized manner.
Read more about protocols here.
What Is the Travel Rule Protocol (TRP)?
TRP is a free standard for permissionless communications between VASPs. It meets the regulatory requirements stipulated by the FATF’s Travel Rule by enabling compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.
VASPs and software vendors, such as 21 Analytics and Blockchain Intelligence Group, have implemented TRP.
“OpenVASP and TRP bring great technology and compliance expertise with robust governance to the ecosystem.”
Lucas Betschart, OpenVASP Board Member and CEO of 21 Analytics.
One of the key features of TRP is that it is designed with practical application in mind. TRP is designed by and for VASPs who want to be compliant today. With TRP, custom implementations can be developed, and the protocol can be easily integrated into existing products.
Unlike other Travel Rule protocols, TRP is entirely decentralized and is not owned by a sole company. TRP was built to accommodate the ever-evolving cryptocurrency market and actively encourages the participation and input of everyone in the ecosystem.
TRP has evolved with that broad input from the ecosystem to its current standard. Throughout this improvement process, the needs of VASPs were considered. Its latest version, version 3, is the official protocol of the OpenVASP Association. It enables permissionless peer-to-peer compliance with the Travel Rule as defined in the principles of the OpenVASP Association.
Delphine Forma, OpenVASP Board Member explains:
“Using TRP allows full customisation of Travel Rule compliance processes while respecting the philosophy of crypto by being open, decentralized and allowing full encryption of data to preserve and protect the anonymity of clients' data.”
Read: What is the OpenVASP Association?
How Does the Travel Rule Protocol (TRP) Benefit VASPs?
TRP offers VASPs ease and intelligence at their fingertips.
TRP is different from other Travel Rule protocols as it is truly decentralized. All data transfers happen on a peer-to-peer basis, with no centralized server through which the data would flow, a typical structure of other protocols. This allows companies to have total control over which parties can see their Travel Rule data.
TRP builds on existing technology, such as LNURL, HTTP and mTLS. It also leverages standards of the Travel Rule ecosystem, such as the interVASP messaging standard.
Since no centralized aspect is involved in TRP, it allows everyone to pick up the specification and start implementing it immediately. This reduces risk and cost. The product team can immediately strategise how to accommodate Travel Rule compliance in their product.
The Travel Address
Additionally, VASPs who use TRP have the added benefit of solving a critical Travel Rule implementation problem: the discovery of their counterparties.
The FATF’s Travel Rule requires VASPs to know exactly where to send data on beneficiary and originator. Are the virtual assets being sent to an unhosted wallet or another VASP? If it is sent to another VASP, which VASP is it being sent to? TRP solved this problem with the introduction of the Travel Address.
A Travel Address is generated by the TRP-compatible VASP and looks similar to a Bitcoin address, but it holds more information, such as:
Which VASP the coins are to be sent,
Where the Travel Rule data needs to go.
The Travel Address has the same functionality as an IBAN in the fiat banking world. TRP allows automatic identification of VASPs, resulting in speedy operations for the compliance team and the user.
Andrew Davidson, TRP Working Group Chair and OpenVASP Board Member, says:
It was important to the TRP Working Group that the end user experience was as easy as possible and no more difficult than typical existing pre-Travel Rule industry practices.
With the LNURL-based workflow (the Travel Address), we have allowed end users to have an almost identical user experience to that they are used to with existing Virtual Asset platforms while at the same time being compliant with the FATF recommendations and solving the complexity of VASP discovery.
The Advanced Workflow
Another functionality that further helps VASPs is TRP’s advanced workflow. It allows compliance officers to accept or reject a transaction before allowing the transfer of funds.
VASPs can check the transaction details, like sanctions screening results, address risk ratings and decide if they would like to allow the transaction or decline it.
This functionality has many advantages for VASPs, such as
Avoid transactions from sanctioned countries and persons,
Avoid transactions of unsupported currencies,
Avoid having to quarantine received funds after compliance checks failed,
Opportunities for in-depth screening: transaction details can be scrutinised before proceeding with the transaction,
Provide additional safety measures: the payment address is only visible after the VASP has accepted the payment.
TRP provides a minimal, pragmatic solution to the FATF’s Travel Rule while facilitating the workflow for VASPs.
Find out more about TRP by clicking here.