Posted by: Lana Schwartzman (Notabene)
Challenge against illegal deposits
With the implementation of the Travel Rule, non-compliant deposits have become an inevitable challenge. Such situations can arise from a variety of scenarios, and beneficiary CASPs must be prepared to deal with all of the following scenarios:
Deposits from non-approved CASPs Deposits from approved CASPs that lack sufficient travel rules data Deposits from approved CASPs with inconsistent beneficiary information Deposits where the originator is not an eligible entity
Without clear policies and well-defined workflows, these issues can lead to significant operational disruption, poor user experience, and even loss of assets. Each scenario requires a strategic approach and well-structured workflows to ensure compliance with minimal impact to users.
Non-compliance under EU TFR (Regulation 1113/2023)
In the European Union, the Travel Regulation under the TFR (Regulation 1113/2023) imposes significant obligations on beneficiary CASPs. Articles 14, 16 and 17 of the Regulation require all transactions to include accurate originator and beneficiary information. The challenge is that the beneficiary CASP cannot pre-emptively block deposits and must rely on the originating CASP to meet compliance standards. This creates a complex balance between maintaining regulatory compliance and ensuring customer satisfaction.
Despite having less control over deposits, beneficiary CASPs still need to enforce compliance through methods such as post-mortem monitoring and suspension of suspicious transactions. In some cases, regulators may require you to submit a suspicious activity report.
Under Article 17, CASPs must implement risk-based procedures to determine whether to execute, reject, return, or suspend transactions for which the required information is missing. Each non-compliant deposit must be thoroughly investigated, from requests for missing details to the return of assets to the sender.
However, these processes are far from simple. For example, a deposit may be made from a wallet that is no longer owned by the sender, or the sender may not have an account with an approved CASP. How should the funds be returned in such a case? The answers are often unclear, and TFR enables a risk-based approach to address these complex scenarios…
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