A coalition of some of the US's largest crypto firms is rolling out a solution to heightened anti-money laundering standards.
The so-called Travel Rule Universal Solution Technology, or "TRUST," allows crypto firms to securely collect and transmit customer data in accordance with the travel rule.
Last year, the Financial Action Task Force recommended that participating nations implement a travel rule for virtual asset service providers (VASPs) — essentially entities that facilitate transactions — in its finalized guidance. The travel rule seeks to curb money laundering and terrorist financing by requiring VASPs to gather and transmit names, account numbers and location information for both the sender and the recipient in a transaction.
The travel rule has long been part of the banking world, but until recently, crypto lacked the infrastructure to comply.
Now, a group of the US's biggest crypto players have rolled out their solution in the form of TRUST. Anchorage, Avanti, Bitgo, bitFlyer, Bittrex, BlockFi, Circle, Coinbase, Fidelity Digital AssetsSM, Gemini, Kraken, Paxos, Robinhood, Standard Custody & Trust, Symbridge, Tradestation, Zero Hash and Zodia Custody make up the founding members.
Coinbase heads up the coalition, announcing a white paper for a peer-to-peer information network operated by a governance body of participants. TRUST is the result. Though Coinbase kicked off the effort, members have equal stake and say in the decision-making, according to Anchorage's head of compliance Jennifer Lee.
The solution allows information to be directly transmitted between the platform's members through end-to-end encrypted channels. It allows for proof of address ownership, which lets financial institutions prove they are the intended recipient of the customer's information before that information is transmitted.
Former Coinbase chief compliance officer Jeff Horowitz explained the solution as a "centralized bulletin board" when he unveiled the white paper in 2020. VASPs would post to the bulletin board to see who may own an address in a transaction, and when another institution claims the address as part of their transaction, the two can engage in a peer-to-peer sharing of the information.
To utilize the solution, the VASP must be admitted into TRUST, a process that will involve a third party compliance audit and all current members collectively agreeing that an entity should be admitted, according to Lee. Currently, the group sits at 18 members, but there are plans to expand quickly, including outside the US.
"Depending on each member's timeline in terms of integration with the solution, we're going to see a phased rollout across our current members, and then we already have members who are outside of the US, specifically in Canada," said Lee.
As other jurisdictions figure out their specific travel rule requirements, the solution can be tweaked to meet local standards. It's unclear how that will look, given many jurisdictions are still firming up their requirements.
A centralized approach
As the group adds members, it will also have to scale its decision-making processes. It's not yet clear what that governance model will look like as it's still in the initial stages of integrating members.
Other travel rule solutions propose a more decentralized approach, in which the technology is usable by all, rather than a members-only platform where a group of firms decide who can compliantly transact. Those in favor of a decentralized solution have expressed concerns that if centralized solutions only allow some to compliantly transact, some funds could find themselves walled off from the compliant ecosystem. Still, TRUST is aiming for broad adoption, planning to provide "comprehensive compliance across the crypto industry," according to its announcement.
Lee said the advantage of a centralized solution is increased due diligence and security around who is receiving a user's personal information.
"Whenever there is a transmission of travel rule data on the blockchain, it would render itself basically readable to the public," she said. "That is also why we need to move it into this network among our members who have been vetted and who we've conducted due diligence on to ensure that that information is being stored and processed by people who can be trusted."
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