The travel industry is facing a surge in regulatory scrutiny as new regulations and payment methods come into play, leading to increased compliance issues.
Travel Industry Sees Spike in Compliance Issues Following Introduction of New Regulations and Payment Methods
Key Drivers of Travel Rule Compliance
The growth in dollar- and euro-pegged stablecoins as a payment method is one factor driving compliance. ‘Stablecoin giant Circle recently announced that it would be using stablecoins as a payments method for its new product networks.’ This shift towards stablecoins has led to an increase in VASPs blocking withdrawals until beneficiary information is confirmed, jumping from 2.9% in 2024 to 15.4%.
A stablecoin is a type of digital currency pegged to the value of a fiat currency, such as the US dollar.
This means that its value remains relatively stable and predictable, unlike other cryptocurrencies like Bitcoin.
Stablecoins are often used for trading, investing, or as a hedge against market volatility.
They can be issued by central banks, commercial banks, or private companies.
Examples include Tether (USDT), USD Coin (USDC), and Binance USD (BUSD).
Stablecoins offer convenience, low transaction fees, and fast processing times.
The Impact of Favorable Regulations and Digital Asset Rules
The U.S. government’s favorable stance towards crypto and the implementation of digital asset rules in Europe have made the Travel Rule a priority for firms. The EU Transfer of Funds Regulation (TFR) has also had a significant impact on compliance. With these regulations in place, VASPs now return deposits if the originator fails to provide required data.
Challenges in Achieving Full Compliance and the Need for Open Loop Systems
Achieving full compliance remains challenging due to interoperability issues. Building an open loop Travel Rule layer is essential for supporting stablecoin payment networks at scale. Currently, firms have created closed-loop systems, but these lack the necessary functionality. Notabene CEO Pelle Braendgaard emphasizes the need for open loop systems in crypto and stablecoins, highlighting the ongoing challenge in creating seamless, industry-wide compliance.
