Know-Your-Transaction (KYT)

Know-your-transaction (KYT) is the process of monitoring and analysing financial transactions to identify suspicious activity, unusual patterns and potential money laundering or terrorist financing risks.

KYT involves assessing transaction details and activity against established risk indicators. In the cryptocurrency sector, this can include analysing blockchain transactions, wallet addresses and the movement of virtual assets to identify potential links to illicit activity, sanctioned entities or high-risk services.

KYT is an important component of anti-money laundering (AML) and counter-terrorist financing (CFT) procedures. It helps virtual asset service providers (VASPs) assess transaction-related risks and identify activity that may require further investigation. Depending on the solution, KYT capabilities may include transaction monitoring, risk scoring, alerts and blockchain analytics.

KYT and the Travel Rule

The Travel Rule, established under FATF Recommendation 16, requires VASPs to obtain and maintain specified originator information and required beneficiary information for applicable virtual asset transfers, and to transmit that information to the beneficiary institution where required.

KYT and the Travel Rule address different aspects of crypto compliance. KYT focuses on understanding transaction activity and identifying potential financial crime risks. The Travel Rule focuses on the required information accompanying applicable transfers between financial institutions and VASPs.

For example, a VASP may use a blockchain analytics tool to assess whether a wallet address is associated with a sanctioned entity or other high-risk activity. Separately, its Travel Rule solution can facilitate the required exchange of originator and beneficiary information with the counterparty VASP.

KYT does not replace Travel Rule compliance. Although both can contribute to a VASP's broader AML/CFT framework, they address distinct compliance requirements.