Delays can leave exchanges, brokers, and custodians operating under weaker AML/CFT controls, which increases the chance that illicit activity is missed or underreported. The report indicates that jurisdictions without effective licensing or registration may see their VASPs viewed as higher-risk by foreign counterparties. Over time, that can reduce market trust, strain partnerships, and harm a country’s broader virtual asset sector.
Why delayed VASP licensing weakens AML/CFT supervision
When licensing or registration is delayed, supervisors lose a clean way to distinguish legitimate operators from firms that should already be under formal oversight. That gap matters because virtual asset businesses can move value quickly, across borders, and at scale, so weak entry controls can leave customer due diligence, transaction monitoring, and suspicious activity reporting inconsistent or incomplete.
In practice, the delay also creates uneven obligations. Licensed firms may invest in controls while unlicensed or transitional firms continue operating with lighter scrutiny, which can distort competition and make it harder for regulators to enforce the same standard across the market. That is why international AML/CFT expectations for virtual assets are closely tied to licensing and registration discipline, including the FATF Recommendations.
Why travel rule delays create a correspondent trust problem
The travel rule is not just a reporting formality, it is part of the trust layer that lets counterparties exchange originator and beneficiary information with more confidence. If a jurisdiction delays implementation, exchanges, brokers, and custodians may find their local VASPs harder to assess, especially when foreign firms must decide whether they can safely process transfers without enough source information or consistent recordkeeping.
That uncertainty can become a commercial issue before it becomes a legal one. Foreign counterparties often respond to weak licensing and incomplete travel rule compliance by applying extra due diligence, restricting transfers, or limiting relationships altogether. For implementation guidance on the broader control patterns that support strong verification and records handling, teams often lean on the OWASP Cheat Sheet Series as a practitioner reference.
What the longer-term sector impact looks like
Delayed implementation does not only affect compliance teams. It can reduce market trust, increase friction with banks and counterparties, and make the whole jurisdiction look higher-risk to firms deciding where to list assets, hold accounts, or build services. In a sector where reputation and market access matter, that perception can be as damaging as the direct supervisory gap.
Over time, weak licensing and delayed travel rule adoption can also push activity toward less transparent venues, because serious firms prefer predictable rules and enforceable standards. That leaves the jurisdiction with a thinner regulated base, fewer high-quality partnerships, and less confidence that illicit flows are being surfaced quickly enough for enforcement action. For a broader control lens on protecting systems, records, and supervisory data, the NIST Cybersecurity Framework 2.0 remains a useful governance reference.
Risk and Threat Considerations
Delays create a window where higher-risk VASPs can operate before the jurisdiction has effective gatekeeping, information-sharing, and accountability mechanisms in place. That raises the chance that illicit transfers are not detected early, that counterparties treat the market as less trustworthy, and that the jurisdiction accumulates a reputation problem even after rules are eventually introduced.
Failure mechanism: Operators continue serving customers with weak or inconsistent licensing, registration, and travel rule controls, which breaks the chain of visibility needed for AML/CFT supervision and cross-border transaction screening.
Impact: Illicit activity is more likely to be missed or underreported, foreign firms may impose restrictions or enhanced due diligence, and the broader virtual asset sector can suffer reduced access, weaker partnerships, and slower growth.
Standards & Framework Alignment
This section maps relevant standards and security frameworks to the operational risks and controls described in this guidance.
NIST CSF 2.0 and CIS Controls v8 set the governance and control requirements practitioners need to meet.
| Framework | Control / Reference | Relevance |
|---|---|---|
| NIST CSF 2.0 | GV.OV-01 — Organizational Context | Licensing delays change the jurisdiction's risk context and market trust posture. |
| PR.AA-01 — Identity Management, Authentication, and Access Control | VASPs need reliable identity and access controls to support compliant onboarding and reporting. | |
| Recommendation — Define the VASP regulatory context and assign oversight for delayed licensing and travel rule implementation. Verify that onboarding and reporting systems can reliably identify parties and authorize record exchange. | ||
| CIS Controls v8 | 6 — Access Control Management | Travel rule implementation depends on controlled access to customer and transfer data. |
| Recommendation — Enforce controlled access to transfer records and counterpart data used for AML/CFT checks. | ||
Practitioner Guidance
What to prioritise: Treat licensing readiness and travel rule enforcement as linked controls, not separate policy tasks. If one is delayed, assume the other will be operationally weaker because counterparties will judge the jurisdiction on the least mature part of the stack.
What to verify: Confirm that VASPs can prove customer onboarding, record retention, transaction screening, and information exchange to a standard foreign firms can actually rely on. In practice, the test is whether a counterpart can understand who is sending value, who is receiving it, and whether escalation paths exist when information is missing or inconsistent.
Practitioner takeaway: The key decision is not whether the rules exist on paper, but whether the jurisdiction can enforce enough consistency that counterparties trust local VASPs as low-friction, supervised participants rather than higher-risk exceptions.
Related resources from NHI Mgmt Group
- Why does inconsistent Travel Rule implementation create operational risk for VASPs in the MEA region?
- How should VASPs embed Travel Rule compliance into transaction workflows?
- How should digital asset firms implement Travel Rule compliance across multiple VASPs and jurisdictions?
- Why do VASPs need ongoing transaction monitoring for Travel Rule and AML compliance?
Deepen Your Knowledge
Reviewed and updated by the NHIMG editorial team on September 17, 2026.
NHI Mgmt Group — the #1 independent authority on Non-Human Identity, IAM, and Agentic AI security. nhimg.org
