The New Regulation (EU) 2024/886 of the European Parliament and of the Council of 13 March 2024 amending Regulations 260/2012 (SEPA) and 2021/1230 and Directives 98/26/EC and 2015/2366 as regards instant credit transfers in euro, the Instant Payments Regulation, was published in the EU Official Journal on 19 March 2024 and came in force on 8 April 2024. In today’s fast-paced digital world, instant payments have become a necessity rather than a luxury. The ability to transfer money instantly, 24/7, has transformed the way we conduct financial transactions, offering unparalleled convenience and efficiency. Recognizing the growing importance of instant payments, regulatory bodies around the world have introduced regulations to govern this rapidly evolving sector.
1.General Remarks
An “instant credit transfer” is defined as “a credit transfer which is executed immediately [i.e. in less than 10 seconds], 24 hours a day and on any calendar day” as per Art. 2 (1a) of the Instant Payments Regulation. For that reason, payment services providers (PSPs) offering instant credit transfers must ensure that all payment accounts they maintain for their payment services users (PSUs) are reachable at any moment – 24/7/365. So, citizens and companies will be able to transfer money within ten seconds at any time of day, even outside business hours, not only within the same country but also across EU member states. While transfers will predominantly focus on the euro, they will also take into consideration the particularities of non-euro area entities. Money transfer fees must not be higher than the charges that apply to current, standard credit transfers.
Thus, the regulation will help foster faster and more efficient cash flows, in turn bringing greater benefits for citizens and companies with the creation of new innovative value-added services.
Moreover, the regulation also emphasises the importance of data protection and security in instant payments. PSPs are required to implement robust security measures to safeguard customer data and prevent fraud and cyberattacks. By ensuring that personal and financial information is protected, the Instant Payments Regulation aims to build trust and confidence in the instant payments’ ecosystem.
Another significant aspect of the Instant Payments Regulation is the interoperability requirement. This means that PSPs must ensure that their instant payment systems can communicate and exchange payments seamlessly with other providers, promoting a more interconnected and efficient payment landscape.
PSPs already offering credit transfers, located in the Eurozone, must comply with the requirement to offer instant payments by 9 January 2025 when receiving instant credit transfers and by 9 October 2025 when sending instant credit transfers. PSPs located in the EU but outside the Eurozone must comply by 9 January 2027 and by 9 July 2027 respectively.
2.Verification of Payee
Worth noting, to avoid mistakes or fraud the Instant Payments Regulation mandates a “service ensuring verification” of the payee for all credit transfers regardless being instant or regular. The verification of the payee must be offered by the payer’s PSP regardless of the payment initiation channel (e.g. online banking, mobile banking app, ATM) used by the payer to place a payment order directly with that PSP.
Currently, if a payment order is executed in accordance with the IBAN stated by the payer, the payment order is deemed to have been executed correctly regarding the payee, and if the IBAN provided by the payer was incorrect the payer’s PSP cannot be held liable. The payee’s PSP may be liable if the IBAN was correct but its beneficiary did not match the name of the intended recipient only when the transfer was suspicious for money laundering and/ or terrorism financing, and even so, the payee’s PSP did not duly perform the required due diligence, as referred to in our article Successful Litigation in Bulgaria Fraud Case https://www.lexology.com/library/document.ashx?g=ea69dece-4121-4ffc-abc4-ee01012b8791
Pursuant to the Instant Payments Regulation payer’s PSPs are required to offer the verification in relation to the payee to whom the payer intends to send a credit transfer, namely a service for matching the beneficiary’s IBAN with the name of the payee/ intended recipient of the funds (it could be the name/ surname for a natural person, or the commercial/ legal name for a legal entity). It works on a basis of different levels of verification matches (e.g. no match, almost match) that are notified to the payer before the transaction is made, so that the payer may realise the mistake or fraud and decide whether or not to authorise the payment.
PSPs’ compliance with such new verification obligation is crucial in terms of potential liability for non-execution, defective or late execution of payment transactions. If a payer provided the PSP with an incorrect IBAN, and the payer’s PSP failed to inform the payer that there was no match between the IBAN and the name of the payee, but nonetheless executed the payment, the payer’s PSP will be held liable, and the payer must be refunded by the payer’s PSP.
3.Sanctions Screening
EU sanctions laws directly apply to all parties conducting business in the EU, including when providing services on a pure cross-border basis (i.e. without physical presence). Those requirements essentially take the form of a prohibition on doing business with anyone appearing on a sanctions list. On that basis, PSPs active in the EU are required to conduct a form of sanctions screening when doing business with other parties, and particularly when executing payment transactions (e.g. sanctions screening the payer, but sometimes also the payee). These sanctions screening obligations are separate from any customer due diligence obligations that would arise under national anti-money laundering regulations.
The Instant Payments Regulation introduces specific sanctions screening obligations in the SEPA Regulation by requiring PSPs offering instant credit transfers to verify whether any of their PSUs are persons or entities subject to “targeted financial restrictive measures”. Performing sanctions screening when executing an instant credit transfer may prove to be rather challenging. Accordingly, PSPs must sanctions screening their PSU periodically (i.e. immediately after the entry into force of any new targeted financial restrictive measures, and immediately after the entry into force of any amendments to such targeted financial restrictive measures), and at least daily. All PSPs must comply with their new sanctions screening obligations by 9 January 2025.
4.Conclusion
The Instant Payments Regulation signals a paradigm shift in the financial industry, moving towards a future where instant payments are the norm rather than the exception. By setting clear guidelines and standards, this regulation is paving the way for greater innovation, competition, and consumer choice in the instant payments space.
As the world continues to embrace the digital age, the Instant Payments Regulation is instrumental in shaping a more efficient, secure, and customer-centric payment ecosystem. With its focus on speed, security, and interoperability, this regulation is driving a new era of instant payments that is revolutionizing the way we transact, shop, and do business.
