SANCTIONS
Instant payments :
A sanctionS revolution or burden
T en seconds ― that is all it takes to
break payment barriers across
European borders under the European Union ’ s ( EU ) new Instant Payment Regulation ( IPR ). Entered into force in April 2024 , it requires all payment service providers ( PSPs ) to receive instant payments as of January 9 , 2025 , and send such payments by October 9 , 2025 . 1 , 2
The changes that PSPs must implement to be aligned with the IPR ’ s requirements may spark a real compliance revolution . Know your customer ( KYC ) procedures will see the integration of Verification of Payee ― the process that ensures the payee ’ s details match the intended recipient before a payment is made ― and sanctions screening will transform from transaction-based to customer-based . 3
But with these advancements come a host of challenges : tight implementation deadlines , system overhauls , lack of guidance and shortage of resources for smaller PSPs .
The article will explore how the IPR is revolutionizing sanctions screening and the issues that PSPs are facing .
Out with the old
Up until the IPR was introduced , most European PSPs screened each individual transaction against sanction lists . 4 This included screening the names of the sender and the receiver , the payment reference and at times the international bank account number of the receiver .
As there is no EU legislation on how PSPs should carry out their sanctions screening process , other methods have also been employed by PSPs , such as batch screening , or the screening of groups of transactions in bulk at regular intervals rather than in real time . 5 , 6
These methods create a problem when it comes to instant payments . When a payment is flagged by a transaction monitoring system for a sanction alert , the system will block the payment until a compliance / anti-money laundering ( AML ) analyst investigates it .
Most transaction monitoring systems are notorious for producing large amounts of false positives with common systems producing up to 90 % of invalid hits , according to McKinsey & Company . 7
As each false positive is often discounted manually by a compliance / AML analyst , the current screening techniques are in breach of the IPR ’ s 10-second rule .
To tackle the problem of complianceblocked transactions , the IPR forces PSPs to throw out the old method and adopt a new approach . The regulation states that “ PSPs should periodically , and at least daily , verify whether their Payment Service Users ( PSUs ) are persons or entities subject to targeted financial restrictive measures .” 8
This means that compliance checks will focus solely on customer onboarding and the ongoing relationship , and not on transactions . All PSPs will need to screen their customers against sanction lists daily , after the immediate entry into force of a new targeted financial sanction and immediately after an existing financial sanction has been amended . Any sanctioned individual or entity found will have their accounts frozen , preventing them from sending or receiving payments . 9
During the 2022 press conference announcing the proposed regulation , former EU Commissioner Mairead McGuinness remarked that customerlevel screening “ will save money , while still ensuring maximum vigilance .” 10
56 acamstoday . org