Compliance with the travel rule is required for which type of transfer?

The travel rule is a provision set forth by regulatory bodies that requires financial institutions to collect and send specific information about the parties involved in a transfer of funds, particularly in the context of money transmission systems. This rule is primarily applicable to external transfers, which involve moving funds between different financial institutions or across state or national borders.

When a transfer is categorized as external, it refers to transactions that occur outside of the originating financial institution's network. This typically requires the originating institution to provide identifying information related to the sender and recipient to ensure transparency and assist in monitoring for potential illicit activities, including money laundering.

Additionally, regulatory scrutiny is heightened for external transfers due to the higher risks associated with cross-border transactions, which can obscure the trail of money and make it more challenging to track illicit activities. Therefore, compliance with the travel rule is primarily focused on these external transfers to ensure that proper protocols are followed in monitoring and reporting.

Understanding that internal transfers occur within the same institution, they do not typically require the same level of detailed tracking and reporting under the travel rule, as the originating and receiving parties' information is already within the same system. Hence, the requirement for compliance with the travel rule applies specifically to external transfers.