Transfers of crypto assets (also known as virtual currencies) are subject to a mechanism known as the Travel Rule. This rule requires exchanges to share information about the sender and recipient with each other whenever a transfer takes place. Much like identity verification for bank transfers, it was introduced to prevent misuse.
[The crypto asset exchange service provider] must notify the other crypto asset exchange service provider, etc. (excluding the party entrusted with such notification), or the party entrusted with such notification, that manages the crypto assets involved in the transfer on behalf of the receiving customer, of the identifying information of both the requesting customer and the receiving customer, as well as other matters specified by the competent ministerial ordinance.
Reference: Act on Prevention of Transfer of Criminal Proceeds (APTCP)
Because of the Travel Rule, transfer processing can sometimes be halted depending on the circumstances. In particular, depending on the status of the destination exchange or wallet, the transfer itself may not go through at all.
This article focuses on transfer problems related to the Travel Rule and explains the specific situations in which a transfer can fail.
Main Reasons Transfers Fail Under the Travel Rule, and How to Fix Them
There is rarely a single cause for a Travel Rule transfer failure — in most cases, several conditions are involved at once. Continuing to retry a transfer without correctly identifying the cause can therefore make it take longer to resolve.
Below are the main transfer problems related to the Travel Rule, along with how to address each one.
Sending to an exchange that is not on the approved destination list
As part of their Travel Rule compliance, some crypto asset exchanges limit destinations to exchanges they have pre-vetted. Rather than letting users freely enter any destination, they require users to choose from a pre-approved list.
We have changed our service so that customers select a destination from our pre-vetted “List of Crypto Asset Transfer Destinations.” Transfers can only be sent to the crypto asset exchanges and financial institutions included on this list.
Reference: bitFlyer
In other words, if the destination is not on the list, the transfer cannot be processed in the first place. This is because sending to a counterparty with whom the required information cannot be shared could put the exchange in breach of the law.
If a transfer fails, therefore, the first step is to check whether the destination is on the approved list. If it is not, a practical solution is to route the transfer through a supported exchange or choose a different destination.
Sending to an overseas crypto asset exchange
When using a Japanese crypto asset exchange, a transfer assumes that the destination exchange also complies with the Travel Rule.
When sending to an overseas crypto asset exchange, Japanese law does not apply directly, so the level of Travel Rule compliance varies. Because the content and implementation of regulations differ by country, some overseas exchanges do not operate at the same standard as those in Japan.
Attempting to send funds to such an exchange can mean the required information cannot be shared, resulting in a restricted transfer. This is not a technical inability to send funds — rather, the exchange halts processing because the rule's requirements cannot be met.
For this reason, it is important to check an overseas exchange's Travel Rule compliance status before sending a transfer there.
Restricted by incomplete or incorrect recipient information
When using a Japanese crypto asset exchange, you are required to enter recipient information at the time of transfer. This is not an optional field — it is mandatory as part of regulatory compliance. As a result, a missing name, a spelling error, or a mismatch in the information can prevent the transfer from processing correctly.
When a customer withdraws (sends) crypto assets, we will newly collect and retain the following information:
Recipient information
Whether the recipient is the same person as the customer making the transfer request, and if not, information regarding the recipient's name (or company name, for a corporate entity)
The name of the crypto asset exchange service provider, etc.
Reference: bitbank Support
As this shows, collecting recipient information is a prerequisite for a transfer, and accurate input is required. In other words, if there is an input error, the transfer is deemed not to meet the Travel Rule requirements and is restricted.
If a transfer fails, start by reviewing the recipient information you entered. Carefully check details such as the English spelling of the recipient's name and the exchange name you selected — re-entering accurate information can resolve the issue.
Travel Rule Transfer Restrictions and Reversals
The Travel Rule is an obligation imposed on crypto asset exchange service providers (exchanges) and applies at the time of a transfer. Exchanges are required to collect sender and recipient information and, where necessary, notify the counterparty exchange.
For this reason, if the Travel Rule requirements cannot be met, the exchange will not execute the transfer. Because the process is halted before it reaches the blockchain, the assets themselves have not actually moved.
In addition, if the conditions are found not to be met partway through processing, the transfer may not be completed and can effectively revert to its original state. This is not a transaction being reversed on the blockchain — it results from the inter-exchange process failing to complete, and in practice it is treated as a “reversal.”
Transfer problems related to the Travel Rule should therefore be understood not as assets being returned after a transfer, but as a transfer that never completes and is reversed instead.
Transfer Problems Often Confused with the Travel Rule
Problems discovered after a transfer are generally caused by something other than the Travel Rule. Travel Rule issues take the form of the transfer never being executed in the first place, which is fundamentally different from a situation where the whereabouts of the assets become unclear after a transfer.
Without understanding this distinction, you may misjudge why a transfer failed and respond incorrectly. In particular, failing to check whether the transfer actually completed makes it impossible to narrow down the cause.
It is therefore important to first determine whether the transfer was never executed, or whether it was executed but simply has not been reflected yet. This lets you judge whether the issue stems from a Travel Rule restriction or from something else.
This section explains the transfer problems that are often mistaken for Travel Rule restrictions.
How this differs from selecting the wrong network
The same crypto asset can sometimes be handled across multiple networks. USDT, for example, is available on different networks such as Ethereum and TRON, and you must select which network to use when making a transfer.
If you select a network the destination does not support, the transfer itself will still be executed on the blockchain, but the recipient may not recognize the assets. The assets are not lost — they simply have not been correctly reflected because they were sent on an unsupported network.
The key difference from a Travel Rule restriction is whether the transfer was actually executed. With the Travel Rule, the transfer stops the moment the requirements cannot be met; with a network selection error, the transfer is completed, and the problem only comes to light afterward.
If a transfer problem occurs, it is therefore important to first check your transaction history to confirm whether the transfer was completed. If the transfer has already been completed, you should suspect a network selection error rather than the Travel Rule.
How this differs from an address input error
Sending crypto assets requires entering the recipient's wallet address. This address is a string of letters and numbers, and even a single incorrect character will be recognized as a different destination.
As a result, even a transfer sent to the wrong address is processed as a normal transaction on the blockchain. The transfer itself completes without issue, but because the assets are sent to a different address than intended, recovering them can become difficult.
The Travel Rule is a mechanism that requires the collection and sharing of sender and recipient information, and verification is based on the information as entered. If there is no problem with the format, the transfer proceeds, and processing does not stop even if the actual destination differs from what was intended.
The Travel Rule is not designed to prevent this kind of transfer mistake, so it is important to carefully verify the address before sending a transfer.
Summary
The Travel Rule is a mechanism that requires information sharing at the time of a crypto asset transfer. If the requirements cannot be met, processing stops before the transfer is sent, or the transfer cannot be made at all. As a result, many transfer failures are caused by restrictions based on the Travel Rule.
On the other hand, if a transfer has completed but is not reflected, the cause is more likely to be something else, such as a network selection error or an address input error. Because these problems surface only after the transfer, misidentifying the cause can prevent an appropriate response.
In addition, a transfer related to the Travel Rule may be reversed if the requirements are not met. However, please note that once a transaction is finalized on the blockchain, it generally cannot be undone.
If it is difficult to identify the cause, or if you are unsure how to proceed, please avoid making decisions on your own and consider consulting a professional. Responding appropriately to the situation can help prevent further damage. Clabo also accepts inquiries related to crypto asset problems, so please feel free to reach out if you need assistance.
This article is for informational purposes only and does not constitute financial or investment advice. Please consult a qualified professional before making investment decisions.
