The European Commission on 23 July 2024 published clarifications around the requirements of the instant payments regulation (IPR). In this series, we asked industry experts in Luxembourg about their key takeaways from the list of Q&As. Here’s what Baptiste Aubry, partner, head of financial services regulatory, and Carole Schmidt, knowledge counsel, financial services regulatory at A&O Shearman, highlighted for us.

“While EU legislators intended to boost the use of instant credit transfers (ICT) in euros through a limited number of amendments into Regulation (EU) 260/2012 (SEPAR), the implementation of the new regime by both traditional banking and non-banking payment service providers (PSP) raises a substantial number of queries and operational issues that the European Commission has addressed in an 82-pages’ Q&A document,” they explained. “As reiterated in the Q&A, payment and electronic money institutions are subject to the same requirements irrespective of the fact that they are direct participants in a designated payment system or not.”

Clarifications on the scope of application

“First, the Q&A provide useful clarifications on the scope of application of the new obligation set out in Regulation (EU) 2024/886 (IPR) to offer the service of sending and receiving ICT. Among others, the Q&A emphasise that the scope of this new obligation mirrors that of SEPAR. Therefore, the new regime applies exclusively to credit transfers under SEPAR, meaning only those originating from payment accounts as defined by Directive 2015/2366 (PSD2) and further interpreted by the Court of Justice of the EU (case C-191/17). PSP must therefore conduct a case-by-case analysis to determine which accounts are affected by the new rules. The denomination of the accounts (e.g. fiduciary accounts, electronic money accounts) is not conclusive per se.”

“Also, transfers between payment accounts held by different users within the same PSP or between payment accounts of the same user across different PSPs are in-scope. Guidance is provided on the sequencing for the execution of the relevant transactions and related obligations (including the specificities for bulk payment orders) from placing of the order via digital or non-digital channels to execution of the payment (and related confirmations).”

Addressing operational challenges

“Second, the Q&A address a number of operational challenges identified by PSPs to implement the new verification of payee service applicable to both instant and non-instant credit transfers,” said Aubry and Schmidt. “For certain aspects, a strict approach is adopted with the Q&A insisting that this service must be provided on a transaction per transaction basis, regardless of whether the accounts are within the same PSP or the payees are on a payer-created whitelist. On other aspects, the Q&A offer some relief, such as:

— allowing the match check to be based solely on the commercial trade name when the legal name of the payee is not provided; or

— enabling non-banking PSP holding a payment account on behalf of multiple payees at a banking PSP to contractually decide which entity will provide the service.”

“The Q&A provide clarifications on the information that may be disclosed to the payer in the context of the execution of the service notably in case of partial match or credit transfers to a payment account used for multiple payees. This will prove useful for GDPR and professional secrecy compliance purposes.”

Sanctions screening obligation

“Lastly, the guidance in the Q&A on the screening obligation of clients against applicable EU-wide lists of targeted financial restrictive measures will impose more operational constraints on PSP,” Aubry and Schmidt concluded. “Hence, if the lists are updated, an immediate re-screening is required after the new list becomes effective, which could lead to a second screening of the client database on the same day. The term ‘immediately’ is not defined, but the Q&A stress that the time gap should be minimal since the sanctions’ screening obligation is an obligation of result.”