Glossary term
Travel Rule
Subject: Financial Crime, AML/CFT Framework and Standards
Also known as: FATF Recommendation 16, Wire transfer rule
The travel rule requires financial institutions and virtual asset providers to pass identifying details about the sender and recipient along with a transfer, so each firm in the chain can screen and monitor it.
Explanation
The name describes the effect: the customer data travels with the payment. For a wire transfer, the sending firm must collect the originator's name, account number and address or other identifier, plus the beneficiary's name and account number. Intermediary and receiving firms must keep this information, pass it on and check that it is present. Missing or meaningless details are a warning sign that can lead to rejection or a query. The rule gives investigators a trail, and lets each firm screen names against sanctions lists. Many countries apply lower detail requirements for small transfers, with thresholds that differ. FATF extended the same idea to virtual asset service providers, where it has been hard to apply, because blockchain addresses carry no names and firms need shared technical standards to exchange data. With no names attached, a payment cannot be screened, and the trail goes cold at the first hop.
Example
A customer sends an international payment through a bank. The bank attaches the customer's name, account number and address to the message and includes the beneficiary's details. An intermediary bank notices a message that has only a business name with no account details for the sender, returns it with a query and records the exception.
Not to be confused with
- Wire Stripping
- Wire stripping is removing or altering payment details to hide parties. The travel rule is the requirement that stops it.