The Instant Payment Regulation and EU restricted party screening

Regulation (EU) 2024/886, the “Instant Payment Regulation”, is intended to accelerate and streamline the making of instant credit transfers (i.e. payments settled within 10 seconds and available 24/7) in Euros across EU Member States. One of the ways it seeks to achieve this is by regulating aspects of restricted party sanctions screening conducted by payment service providers (“PSP”).

The Instant Payment Regulation and Sanctions Screening

According to EU lawmakers, when transaction-based screenings is undertaken "the large majority of… flagged transactions turn out, after verification, not to involve any of the persons or entities subject to targeted financial restrictive measures [i.e. restricted persons]" (Recital 25 to the Instant Payment Regulation). As a result, this creates "operational challenges for PSPs to offer the payment service of sending and receiving instant credit transfers to their [payment service users] across the Union in a reliable and predictable way" (Recital 25 to the Instant Payment Regulation). 

Amongst other things, the Instant Payment Regulation seeks to reduce the impact of such false-positives on the making of instant payments by regulating the manner restricted party screening is conducted for in-scope payments. 

Under Article 5d(1) to Regulation (EU) No 260/2012 (as amended by the Instant Payment Regulation), from 6 January 2025 PSPs are legally required to conduct EU restricted party screening of their clients:

• at least once every calendar day, and 
• immediately following the entry into force of any new (or amendments to existing) EU targeted financial restrictive measures (in practical terms, effectively when the EU designates new individuals/entities). 

In addition, the Instant Payments Regulation specifically prohibits PSPs from conducting transaction-based EU restricted party sanctions screening for in-scope payments (Article 5d(2), Regulation (EU) No 260/2012 (as amended by the Instant Payment Regulation)). 

In practical terms, this means that for such payments PSPs are now responsible for ensuring their own clients are not EU restricted parties, and will rely on other EU PSPs (e.g. recipient financial institutions) doing the same. 

Breach of the Instant Payment Regulation

EU Member States have until 9 April 2025 to introduce penalties for the infringements of the Instant Payments Regulation. Member States will have to ensure that such penalties include: 

• in the case of a legal person, maximum administrative fines of at least 10 % of the total annual net turnover of the legal person in the preceding business year; 
• in the case of a natural person, maximum administrative fines of at least EUR 5,000,000.

Implications for sanctions screening processes

The requirements stemming from the amended Instant Payments Regulation are likely to bring a new challenges for sanctions compliance professionals, including:

• Practical challenges, for instance completing screenings within the required time periods;
• Challenges complying with local Member State laws, such as AML laws, which may require PSPs to conduct transaction-based screenings. Complying with both the Instant Payment Regulation and these laws may prove challenging.
• Meeting non-EU sanctions compliance expectations, e.g. transaction screening to identify OFAC Specially Designated Nationals (“SDN”), whilst also meeting the requirements of the Instant Payment Regulation.  

In particular, the efficacy of the Instant Payments Regulation in practice could be somewhat diluted because the restricted party screening requirement only covers EU restricted party screening. In practice, PSPs will often need to screen against Member State maintained designation lists, as well as for example OFAC Specially Designated Nationals (“SDN”) and the UK Sanctions List. This means that PSPs may need to perform transaction-based screenings to address sanctions risks from other applicable sanctions regimes. However, such an approach would need to be carefully considered.  

Authored by Aline Doussin, Kate Poppitt, Daniel Shapland, Pierre Estrabaud, and Chris James.