The EU has proposed reforms to its Wire Transfer Regulations which will increase “Know Your Customer” (KYC) requirements under EU anti-money laundering (AML) laws. The reforms are expected to be passed and come into force later this year. A link to a copy of the latest publicly available draft of the proposed amended Regulation is set out below.

Summary

Essentially the reforms will impose new obligations on payment service providers (PSP) acting on behalf of the recipient or “payee” of wire transfers. The goal of these new obligations is to ensure that a transfer of funds is accompanied by information on the payee (the payee’s name and account number/unique identifier). PSPs acting for payees will also be required to verify the information relating to the payee (where it has not already been verified) for transfers of funds (i) exceeding €1000 and (ii) where the payer’s PSP is situated outside of the EU. Where a transfer of funds amounts to less than €1,000 and the payer’s PSP is situated outside of the EU, there is no obligation to verify the identity of the payee, unless there is a suspicion of money laundering or terrorist financing.

Background

These new KYC/AML requirements relate to the Wire Transfer Regulations (EC Regulation 1781/2006) (WTR). The proposed revisions to the WTR are not yet in force (the “Revised Regulations”) (the WTR and Revised Regulations are together the “Regulations”).

The WTR forms part of the EU’s package designed to combat money laundering and applies to firms operating in the financial sector that act as PSPs in the EU when they make or receive a transfer of funds. PSPs have obligations imposed on them to ensure that electronic transfers of funds are accompanied by accurate and meaningful information.

We have set out below a brief overview of what is currently required by the WTR in relation to collection and verification of customer ID and set out some of the changes that will be made by the Revised Regulations if they are adopted (the Revised Regulations are expected to come into force later this year).

What is a PSP and what constitutes a transfer of funds for the purposes of the WTR?

A PSP is “a natural or legal person whose business includes the provision of transfer of funds services.” The term transfer of funds means “any transaction carried out on behalf of a payer through a payment service provider by electronic means, with a view to making funds available to a payee at a payment service provider, irrespective of whether the payer and payee are the same person.”

A payer is a natural or legal person who holds an account and allows a transfer of funds from that account or, where there is no account, who places an order for a transfer of funds. The payee is the natural or legal person who is the intended final recipient of transferred funds.

What are the obligations currently imposed on PSPs by the WTR in relation to the collection and verification of customer ID?

The WTR distinguishes between three types of PSPs: the PSP for the payer, the PSP for the payee and intermediary PSPs (i.e. those PSPs participating in the execution of funds, but who do not act for either the payer or the payee). The obligations imposed by the WTR depend upon which category the PSP fits into.

PSP for the payer

  • PSPs for the payer need to make sure that all transfers of funds are accompanied by complete information when the payee’s PSP is situated outside the EU. Complete information consists of the payer’s name, address and account number/unique identifier (i.e. a code that allows the transfer to be traced back to the payer) (although the address may be substituted by the date and place of birth, customer identification number or passport number).
  • Where the payee’s PSP is situated in the EU, the payer’s PSP only needs to provide simplified information, which is either an account number or unique identifier.
  • In certain circumstances, the payer’s PSP is also currently required to verify the information of the payer before the transfer of funds. If the transfer is from an account, then this obligation only kicks in if the PSP has not carried out the necessary due diligence when the account was opened, or if the payer falls within the scope of Article 9(6) of the Third Money Laundering Directive. However, if the transfer is not from an account, then the PSP is only required to verify the payer information where the transfer of funds exceeds €1,000 (or if a series of transactions appear to be linked and exceed €1,000).

Intermediary PSP

  • The intermediary must ensure that information accompanying the transfer of funds is kept with the transfer, subject to certain technical limitations.

PSP for the payee

  • The PSP for the payee is required to detect if any required information of the payer is missing. If information is missing, the PSP for the payee must either reject the transfer of funds or ask for complete information on the payer.

What amendments are being made to the WTR by the Revised Regulations in relation to the collection and verification of customer ID? New obligations will be imposed on the PSP of the payee to ensure that a transfer of funds is accompanied by information on the payee (the payee’s name and account number/unique identifier). PSPs acting for payees will also be required to verify the information relating to the payee where it has not already been verified for transfers of funds (i) exceeding €1000 and (ii) where the payer’s PSP is situated outside of the EU. Where a transfer of funds amounts to less than €1,000 and the payer’s PSP is situated outside of the EU, there is no obligation to verify the identity of the payee, unless there is a suspicion of money laundering or terrorist financing.

The Revised Regulation will also most likely amend the definition of “payment service provider” aligning it more closely with that in the Payment Services Directive – so, this will effectively cover entities providing payment services that are not licensed credit institutions (that is, banks or building societies) or electronic money issuers. As currently drafted, the WTR provides for its own definition of “payment services provider”- which is the definition used above. The Presidency of the Council of the EU published its latest compromise proposal on the European Commission’s proposed Regulation last June. Click here to view the draft.

There is not actually a final version of the agreed text available yet, although there is speculation that agreement has been reached.