The Crypto Travel Rule: Navigating Compliance in a Borderless Economy

As the world of cryptocurrency continues to evolve at breakneck speed, regulators are moving to catch up—sometimes clumsily, with rules designed for traditional finance. One such regulation is the Travel Rule, originally intended to help banks track suspicious transactions. Today, crypto companies are under increasing pressure to implement this rule despite the radically different nature of blockchain-based systems.

This article explores the concept of the Travel Rule, how it’s being implemented in the crypto space, the core challenges it faces, and how some companies, like Yellow Card, are navigating this complex terrain.

What is the Travel Rule?

In traditional finance, the Travel Rule requires banks to pass along certain customer information, such as the name, address, and account number, when money is sent from one financial institution to another. Think of it like mailing a package: you’re required to include the sender's and recipient's names and addresses on the parcel so it’s trackable and traceable.

Now, imagine applying this to crypto, where users are often pseudonymous and transactions are peer-to-peer, permissionless, and global. The goal, however, remains the same: to prevent money laundering, terrorism financing, and other illicit activities by ensuring authorities can trace the source and destination of funds.

Origins and Objectives of the Travel Rule

The Financial Action Task Force (FATF) is the global watchdog for anti-money laundering (AML) and counter-terrorist financing (CTF). Its guidance shapes how governments around the world enforce AML policies.

Initially, the Travel Rule applied to wire transfers between banks, requiring them to share both sender and receiver information to mitigate financial crime. However, in 2019, FATF updated Recommendation 16 to include Virtual Asset Service Providers (VASPs) such as crypto exchanges, custodians, and wallet providers.

A Tight Bind: Regulation vs. Decentralisation

Decentralised technologies like blockchain are built on principles of privacy, autonomy, and borderless interaction. On the other hand, regulators require identity, control, and jurisdictional boundaries. This creates a fundamental tension.

In the European Union, the MiCA (Markets in Crypto-Assets) regulation requires crypto firms to comply with the Travel Rule for transactions above a certain threshold. South Africa has also mandated similar rules, requiring crypto companies to comply with FATF-aligned obligations if they want to operate legally.

Key Challenges in Implementing the Travel Rule

a. Technical Infrastructure Gaps

There is no single, standardised messaging format for Travel Rule compliance in crypto. Unlike the SWIFT system in banking, crypto lacks a universally accepted protocol.

Efforts like TRISA (Travel Rule Information Sharing Architecture) offer open-source and interoperable solutions. But other providers, such as Notabene, operate closed networks, which means Travel Rule messages can’t be sent between incompatible providers. This lack of cross-network communication fragments the ecosystem and undermines the rule’s intent.

b. Privacy vs. Compliance

Sharing KYC (Know Your Customer) data conflicts with privacy norms and legislation like the GDPR in Europe. How do you ensure compliance without compromising user privacy or creating honeypots of sensitive information?

Over-collection of user data introduces risks of surveillance and data breaches, which could do more harm than good if not properly managed.

c. Decentralised Finance (DeFi) and Non-Custodial Wallets

Who sends user information in a smart contract transaction? Who is responsible when a user interacts with a non-custodial wallet? There is no clear-cut answer, which makes the Travel Rule practically unworkable in truly decentralised environments.

d. Jurisdictional Fragmentation

The timeline and enforcement of the Travel Rule vary from country to country. While some regulators are strict and clear (e.g., Switzerland), others are vague or lagging behind. This creates an environment ripe for regulatory arbitrage, where firms move operations to less strict jurisdictions.

e. Cost and Burden on Startups

Building compliance infrastructure is resource-intensive. Small or early-stage VASPs may struggle to implement the Travel Rule if they lack a dedicated compliance team.

Thankfully, open-source and low-cost solutions like TRISA lower the barrier to entry. Still, compliance remains a challenge for teams without specialised regulatory expertise or development resources.

Case Study: Yellow Card’s Implementation

Yellow Card, a leading crypto platform operating in 20 countries across Africa, went live with Travel Rule compliance in 2025.

Faced with a wide range of regulatory requirements, Yellow Card built a dynamic backend integration that allows the system to adapt Travel Rule enforcement based on local rules—without needing additional engineering work for each change.

For unknown or unregistered VASPs, Yellow Card skips the Travel Rule message exchange but continues with on-chain KYT (Know Your Transaction) monitoring, ensuring AML compliance even in non-standard cases.

This hybrid model of automated jurisdictional adaptation and fallback KYT measures demonstrates a practical approach to balancing innovation, scale, and compliance.

Strategic Recommendations

For Regulators

• Adopt principles-based, tech-neutral frameworks.

• Clarify the Travel Rule’s application to DeFi and non-custodial environments.

• Encourage open standards and interoperability to foster global coordination.

For VASPs

• Invest in a scalable and flexible compliance architecture.

• Join or collaborate on interoperable Travel Rule protocols.

• Educate compliance teams early and embed regulation into product planning.

For the Crypto Community

• Proactively engage with regulators and standard-setters.

• Contribute to open-source Travel Rule projects.

• Promote industry self-regulation to guide responsible innovation.

The Path Forward

To truly succeed, the Travel Rule must become interoperable and adaptable, with open standards at its core. This is essential for enabling VASPs to communicate securely and consistently across jurisdictions and platforms.

Clarity on how the rule applies to DeFi, smart contracts, and non-custodial wallets is also vital. Without this, the regulation risks becoming obsolete in the face of advancing technology.

Ultimately, only through global coordination, driven by FATF’s updated guidance and robust public-private collaboration, can the Travel Rule be effectively implemented.

Conclusion

The crypto industry stands at a crossroads where compliance and decentralisation must find balance. The Travel Rule, though imperfect, is a step toward making crypto more transparent and trustworthy. But it must evolve—technically and regulatorily—to match the decentralised realities of Web3.

Achieving this requires collaboration, innovation, and policy foresight. Only then can we ensure that financial freedom and regulatory responsibility go hand in hand.