The EU’s Transfer of Funds Regulation (Regulation (EU) 2023/1113), part of the broader MiCA framework, has introduced stringent requirements to bring crypto markets in line with anti-money laundering (AML) standards. At the heart of these efforts lies the Travel Rule: the requirement for crypto-asset service providers (CASPs) to collect and transmit originator and beneficiary information during crypto transfers.
But as implementation efforts grow, a crucial question remains:
Should Travel Rule data exchange be implemented in a pre-transaction handshake, or is a post-transaction (but immediate) flow a reasonable alternative?
In this article, we’ll explore both approaches from regulatory and practical standpoints, and share why we at CryptoSwift advocate for a gradual rollout that matches market readiness.
What the Regulation Actually Requires
The regulation mandates that Travel Rule data must be transmitted before or simultaneously with the execution of a crypto-asset transfer (Article 14(4)). However, it does not require the originator CASP to receive a confirmation or acknowledgment from the beneficiary CASP before executing the transaction.
If the beneficiary CASP receives a crypto transfer without the expected Travel Rule information, they are not obligated to automatically return it. Instead, they are empowered to withhold the funds and request the required data, using risk-based procedures (Article 17). This allows for flexible handling, especially in cases where counterparties have not yet adopted full Travel Rule messaging systems.
Pre-Transaction Flow: The Ideal State
A pre-transaction flow involves exchanging Travel Rule data between CASPs before the transaction is broadcast on-chain. Ideally, this includes:
- Sending originator/beneficiary information
- Validating its accuracy
- Receiving acknowledgment
- Then executing the crypto transaction
Pros:
✅ Strongest form of compliance, ensures all data is in place pre-execution
✅ Reduces the risk of remediation or funds return
✅ Creates a clean audit trail
Cons:
❌ Technically complex and intrusive to existing business flows
❌ Requires reliable interoperability and availability of counterparty CASPs
❌ Current market adoption is notably low, few CASPs respond in real time
❌ Can lead to frustration when no value is returned despite added complexity
Industry observations and early data from solution providers suggest that less than 10% of CASPs globally are consistently equipped to handle real-time pre-transaction data requests and acknowledgments across a broad range of counterparties. Few CASPs can currently respond effectively in real time. In fact, we frequently hear from CASPs who implement a sophisticated pre-transaction flow only to be disappointed when counterparties fail to respond in kind. At this early stage of Travel Rule adoption, such efforts often yield little real benefit and only introduce friction.
Post-Transaction Flow: A Practical Starting Point
A post-transaction flow sends Travel Rule data immediately after the crypto transaction is initiated. The beneficiary CASP checks this data before crediting the beneficiary. This allows compliance actions to occur without delaying the transaction itself.
Pros:
✅ Easy to implement using existing business logic
✅ Minimal changes required to begin compliance
✅ Fast-track onboarding of new CASPs into Travel Rule systems
✅ Lowers friction and disappointment for early adopters
✅ Enables smoother market adoption while maintaining compliance
Cons:
❌ No beneficiary identity verification before transaction
❌ Relies on beneficiary CASP to enforce hold/release logic
❌ Delayed remediation for missing or incorrect data
A common concern in post-transaction flows is: What should the beneficiary CASP do if they don’t receive a Travel Rule message for an incoming transaction?
In such cases, the regulation allows the CASP to use existing mechanisms to assess whether the funds should be withheld or released. This includes applying internal risk scoring systems or manual review, based on the transaction context, originator wallet behavior, and historical patterns. This flexibility ensures compliance without creating unnecessary disruptions.
Why Gradual Adoption Makes More Sense
At CryptoSwift, we believe the industry needs a realistic path to compliance—one that balances regulatory integrity with operational feasibility.
While pre-transaction Travel Rule flows represent the gold standard, they are not always practical or valuable today. The reality is that market adoption for such sophisticated, real-time interactive systems is still very low. This low adoption stems from several interconnected factors:
- Regulatory Newness & Phased Implementation: The comprehensive application of the Travel Rule to crypto-assets is a relatively recent global development. In the European Union, for instance, the Transfer of Funds Regulation (TFR) (Regulation (EU) 2023/1113) became fully applicable to crypto-asset transfers from December 30, 2024. While this deadline has passed, the period immediately following such a significant regulatory implementation is typically characterized by a ramp-up phase. Many CASPs are still in the process of selecting vendors, integrating solutions, and establishing new operational workflows.
- EU CASP Licensing and Transitional Periods: The broader Markets in Crypto-Assets (MiCA) regulation provides a licensing framework for CASPs in the EU. While the TFR applies directly, CASPs obtaining their MiCA licenses (with national transitional periods for existing entities potentially extending into 2026 for full MiCA authorization in some cases) are simultaneously navigating multiple new regulatory obligations. This means that while TFR compliance is mandatory, the maturity of these implementations across the entire ecosystem will naturally vary in these initial stages post-deadline as firms bed down all requirements. The majority are focused on achieving baseline compliance first, which doesn’t always equate to immediate readiness for complex pre-transaction handshakes with all counterparties.
- Technical and Interoperability Hurdles: Implementing Travel Rule solutions, especially pre-transaction ones, involves significant technical lifts. Achieving seamless interoperability between different CASPs using various solution providers is an ongoing industry-wide effort that takes time to mature.
Building advanced two-way pre-transaction handshakes delivers limited immediate benefit if a critical mass of counterparties isn’t yet equipped to respond effectively.
Instead, we advocate for a step-by-step approach:
- Start with post-transaction flows: begin sending Travel Rule messages alongside your transactions.
- Monitor counterparty behavior and gather insights on who responds in real time.
- Gradually shift high-risk or high-volume partners to pre-transaction models as maturity improves.
- Move to sophisticated enforcement only when the ecosystem is ready.
CryptoSwift supports both post-transaction and pre-transaction flows technically, and transitioning from one to the other is straightforward. This means CASPs can get started quickly with minimal friction and scale up to more advanced setups as the market matures.
Conclusion
Implementing the Travel Rule is not just a compliance challenge, it’s a coordination challenge. And right now, the ecosystem needs solutions that minimize friction and encourage participation rather than overwhelming early adopters with complexity.
The regulation offers flexibility, and we should use it wisely. Pre-transaction models may be the future, but post-transaction flows are the bridge that can get us there.
At CryptoSwift, we’re building tools to help CASPs implement Travel Rule compliance in a way that’s scalable, interoperable, and market-ready. Let’s work together to make adoption practical, one step at a time.
