The European Union’s introduction of instant payments in 2024 has significantly changed the landscape for payment service providers (PSPs). This new regulation mandates that all PSPs, including banks, must be able to process euro payments within 10 seconds. Traditionally, PSPs would screen each transaction against sanctions lists, a process that can be time-consuming and delay payments. To address this, the new regulation requires PSPs to shift their focus from transaction-based screening to ongoing monitoring of their customer lists.
The Instant Payments Regulation 2024, which came into effect on April 8th, 2024, facilitates secure, instant euro payments within the SEPA. Nevertheless, payment service providers are required to implement substantial changes to their sanctions compliance procedures to accommodate this new service.
Key Changes for PSPs
- Customer List Monitoring: PSPs must regularly check if their customers are on sanctions lists.
- Reduced Transaction Screening: Transaction-based screening for sanctions is prohibited for instant payments.
- Stricter Compliance Deadlines: PSPs have specific deadlines to comply with the new rules.
Why the Change? The goal of these changes is to expedite payments without compromising on sanctions compliance. By focusing on customer-level monitoring, PSPs can reduce the risk of processing payments for sanctioned individuals or entities.
Implications for PSPs
- System Overhaul: PSPs may need to invest in new systems and processes to comply with the new regulations.
- Increased Compliance Costs: The shift to customer-level monitoring could increase compliance costs.
- Risk of Non-Compliance: PSPs that fail to comply with the new rules could face significant penalties.
PSPs will be required to screen their customer lists:
- Immediately following the implementation of any new targeted financial sanction.
- Promptly upon the modification of any existing targeted financial sanction.
- At a minimum, once per calendar day. In theory, these measures should fully address the limitations of transaction-by-transaction screening.
Additional Considerations
- Non-EU Sanctions: While the regulation focuses on EU sanctions, PSPs may also need to consider sanctions imposed by other countries.
- Complexity of Sanctions: The interplay between EU sanctions and other legal requirements (e.g., anti-money laundering) can create complex compliance challenges.
- Technical Challenges: Implementing automated systems for customer monitoring and sanctions screening can be technically challenging.
The new EU regulation on instant payments has introduced significant changes for PSPs. By understanding the new requirements and investing in the necessary technology and processes, PSPs can ensure compliance and continue to offer efficient payment services to their customers.