Regulated crypto businesses are increasingly required to send customer information to each other alongside transfers. The obligation is an old banking rule extended to a settlement system it was not designed for.
The original rule was written for wires
Anti-money-laundering standards have long required that a payment message carry identifying details of the sender and the intended recipient.
In banking this is simple, because the payment instruction and the information travel together through the same messaging network. The data rides with the money by design.
The point is traceability. Investigators can follow a chain of payments through institutions that each hold the customer records for their leg of the journey.
Extension to crypto separated the two flows
An intergovernmental standard-setting body recommended applying the same principle to transfers between regulated crypto service providers, and many jurisdictions implemented it.
A blockchain transaction has no field for a customer name. It carries an amount and two addresses, and adding personal data to a public ledger would be an obvious privacy failure.
So the information must move over a separate channel while the value moves on chain, which means two systems have to be matched up after the fact.
Matching is where the difficulty sits
The sending institution must identify which business controls the receiving address before it can send anything to them, and the address alone does not reveal that.
Providers rely on address attribution data, shared directories and analytics services to work out the counterparty, none of which is complete or authoritative.
Several competing messaging protocols exist for the transmission itself, so two compliant firms may be unable to exchange data simply because they implemented different systems.
Self-hosted wallets sit outside the design
The rule assumes an institution at each end. A transfer to a wallet an individual controls has no receiving institution to send the data to.
Jurisdictions have handled this differently, with some requiring extra verification that the customer controls the destination address and others applying lighter treatment below certain thresholds.
These requirements vary considerably and are still being adjusted, so the practical experience of withdrawing to a personal wallet differs sharply from one country to the next.
What it changes for users
Withdrawals may prompt questions about who the recipient is, and deposits from unattributed sources can be held pending review.
Providers also decline transfers to counterparties they cannot identify or that fall outside their risk appetite, which is a commercial decision layered on top of the legal one.
The overall direction is that transfers between regulated venues increasingly resemble bank payments in their information requirements, while the underlying settlement remains a public ledger entry.