Understanding FATF Rule 16

FATF’s Recommendation 16, known as the Travel Rule, is a critical piece of the international anti-money laundering guidance. It mandates that originator and beneficiary information must accompany certain types of financial transactions, especially cross-border transfers. While the intention for traceability and transparency in global finance is clear, implementation is not always straightforward. This blog explains what FATF Recommendation 16 requires, why it matters, and how the LEI can help institutions simplify compliance.

 

What is FATF Recommendation 16?

Recommendation 16 forms part of FATF’s broader effort to curb money laundering and terrorist financing by making financial transactions traceable. It requires financial institutions to ensure that specific originator and beneficiary details are included in payments. The information must be accurate, complete, and available for scrutiny by regulators and law enforcement.

In practice, the Travel Rule applies to:

  • Banks and Payment Institutions
  • Virtual Asset Service Providers (VASPs)
  • Other financial institutions facilitating transfers

Its goal is to prevent criminals from moving illicit funds through anonymised or untraceable methods.

 

What information must be verified?

FATF requires clarification over who is responsible in the payment chain for including information in payment messages and ensuring it remains unchanged. For payment transparency, verified, structured data must accompany the transaction:

  • The name of the originator and beneficiary
  • the account number of the originator and beneficiary
  • The address of the originator and the country and town name (or the nearest alternative) of the beneficiary
  • Where the originator is a natural person, national identity number, or customer identification number, or the date and place of birth of the originator
  • where the originator and/or beneficiary is a legal person, (i) the connected business identifier code (BIC), or (ii) the Legal Entity Identifier (LEI), or (iii) the unique official identifier of the originator and/or beneficiary.

Institutions must verify the originator’s identity before sending the transfer and must ensure the beneficiary information is accurate and recorded.

 

Where FATF compliance can get difficult

While the Travel Rule is conceptually simple, implementation across global financial systems is complex:

  • Data fragmentation: there is no global standard for how entity information is stored or shared.
  • Cross-border inconsistencies: jurisdictions interpret and enforce the rule differently.
  • Technology limitations: legacy systems often struggle to handle structured identity data.
  • Crypto challenges: pseudonymous transactions lack standard identifiers and trusted registries.

In many cases, firms rely on manual processes or incomplete data, introducing risk, inefficiency, and audit exposure.

 

Why the Travel Rule now extends to VASPs

One of FATF’s more recent expansions has been to apply Recommendation 16 to Virtual Asset Service Providers (VASPs). These include crypto exchanges, custodians, and wallet providers involved in the transfer of virtual assets. As digital finance matures, VASPs are expected to meet the same transparency obligations as banks.

This creates pressure for crypto businesses to adopt interoperable identity systems that can work across platforms and jurisdictions. This is an area where the Legal Entity Identifier (LEI) can be especially helpful.

 

How the LEI supports Travel Rule compliance

The LEI offers several key benefits when applied to Recommendation 16 Travel Rule workflows:

  • Unique, global identifier: every LEI is issued via a globally standardised process overseen by the Global LEI Foundation, ensuring consistent and reliable entity representation.
  • Structured, accessible data: information such as official name, address, country, and legal form is available in a standardised format.
  • Relationship data: parent-child (Level 2) data adds context to identify beneficial owners or control relationships.
  • Cross-border recognition: LEIs are accepted and trusted in financial ecosystems globally.

This makes the LEI an ideal alternative over ad hoc or jurisdiction-specific identifiers.

 

Why LEIs are preferable to alternative Organisation Identifiers

We have previously taken a deep dive into comparing Organisation Identifiers.

Global use of identifiers, such as Business Registration Numbers or internal customer IDs, are constrained due one or more of the following issues:

  • Lack of international recognition
  • Difficulty accessing structured data
  • Inconsistent, or unreliable, verification methods

By definition, such constraints led to the creation of the LEI, which by contrast, is:

  • Global
  • Publicly accessible
  • Maintained by an accredited network of issuers (LEI Issuers like RapidLEI)
  • Open data structure – including legal entity search
  • Backed by open data standards

For compliance teams, this means easier integration and greater audit confidence.

 

Implementing LEIs in Your Workflow

To incorporate LEIs into your Travel Rule compliance framework, consider the following steps:

  1. Update KYB onboarding flows to include LEI registration or validation
  2. Link LEI data via GLEIF and RapidLEI APIs to enrich transaction monitoring systems
  3. Include LEIs in Travel Rule message schemas
  4. Train compliance staff on when and how to use LEI data
  5. Encourage counterparties to register for LEIs, especially in high-risk or cross-border scenarios, or register LEIs on behalf of counterparties to reduce KYB costs and improve reliability

 

Conclusion: Turning the Travel Rule into an Opportunity

FATF’s Travel Rule continues to expand in scope. While it presents compliance and operational challenges, it also offers an opportunity to build smarter, more reliable, and more consistent identity frameworks. By adopting the LEI as part of your approach to Recommendation 16, you can improve traceability, reduce manual effort, and prepare for the next wave of global regulation.

Next in the series: FATF and Beneficial Ownership: How LEIs Help