Key Challenges for EEA Banks and Payment Service Providers in the Real-Time Payments Landscape

What Is SEPA?

The Single Euro Payments Area (SEPA) is an initiative launched by the European banking and payments industry to synchronise and simplify electronic payments within the European Union (EU), and several non-EU countries. 

What Is a SEPA Instant Credit Transfer (SCT Inst)?

An enhanced version of SCT, SEPA Instant Credit Transfer (SCT Inst) supports money transfers of up to 100,000 euros between participating Banks or PSPs in the SEPA area in real or near-real time.  SCT Inst offers faster settlement; most transactions are processed in seconds, and this is available 24/7. Data from the European Payments Council (EPC) indicates that over 99% of SCT Inst transactions are completed in less than 5 seconds. 

The Regulators’ Expectation 

In October 2022, the European Commission put forward a legislative proposal to make instant payments available to all citizens and businesses through the EU and the EEA, with the stated goal of ensuring that “instant payments in euro are affordable, secure, and processed without hinderance across the EU”.

The Proposal’s Key Provisions

• Any PSPs that offer SCT will also be required to offer SCT Inst to their customers.

• Any charges to PSPs apply for sending or receiving SCT Inst payments and should not be higher than the equivalent SCT payment.

• PSPs will be required to verify the match between IBAN and the name of the beneficiary provided.

• PSPs will be required to verify their clients against EU sanctions lists daily, rather than screening transactions individually. 

The Problem

Financial institutions in the EU must screen customers against EU-sanctioned entities to avoid conducting business with them. These entities are announced on the EU website (EU Journals) before being added to the EU Sanctions Consolidated List.  With the rise of real-time SEPA instant payments, financial institutions struggle to keep their screening engines updated, as their current process, which is largely manual, is costly and prone to errors. 

There are broadly four main challenges faced to mitigate to ensure compliance: 

1. List Limitation: The EU Consolidated List is not meant to fulfil EEA Banks/PSPs obligations under Article 5d(1). 

2. Compliance Requirement: EEA Banks/PSPs must immediately comply with financial restrictions per Article 215 TFEU, regardless of the Commission’s list updates.

3. EEA Banks and PSPs’ Responsibility: EEA Banks/PSPs must independently ensure compliance with these measures. 

4. Commission’s Role: Effective compliance cannot rely on the Commission’s list updates.

The Solution to Enable SCT Inst Compliance

1. EU Journal Monitoring

• Regulation Check: Regulatory monitoring of the EU Journal for any new regulations related to restricted measures and asset freezes.

• Automated Data Retrieval: Configuring the system check for updates every 5 minutes (this interval can be updated as needed). 

2. Data Extraction and Notification

• Data Extraction Using Large Language Models (LLMs): Utilising advanced LLMs to extract relevant data from the EU Journal.

• Email Notifications: Automatically sending email notifications to users whenever there are updates, including the extracted data for easy access and consumption.

• File Delivery (SFTP): Delivering newly added records seamlessly via SFPT that can be integrated with the downstream systems.

• Integration: Using infrastructure to enable connectivity with the current workflows in place.   

3. Data Reconciliation

• Internal Record Reconciliation: Reconciling the new journal data against existing internal records for further enhancements.

• Commercial List Reconciliation: Cross-checking the journal data against the commercial list used by your organisation. If discrepancies are found, remove tactical internal records and update the actual source data.

Conclusion

SEPA Instant Payment Regulation (IPR) changes coming into effect in January 2025 present a new compliance problem to EEA Banks & Payment Processors, to find a solution by adopting new technology to integrate within current infrastructure.  At Facctum, we have developed next-generation technology tailored for EEA Banks and PSPs to address the compliance challenges associated with SCT Inst. We invite practitioners in the field to connect with us and explore how our innovative solutions can enhance your compliance strategies.