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Sanction screening for Instant Payments - A technology perspective

Speed as the new Currency: Instant Payments and financial crime compliance

Jack Welch once famously said: "Speed is the new currency of business."

This adage has never rung truer than in the rise of instant payments.

The last few years have seen a seismic shift in the payment landscape, with instant payments emerging as a dominant force. Instant payments allow for the transfer of funds between accounts in seconds, exceeding the limitations of traditional payment methods.

With over 60 markets now equipped with live instant payment infrastructures, the adoption rates are remarkable. Systems like the UK Faster Payments, which pioneered instant payments back in 2008, processed over 4.5 billion transactions in 2023 alone. While primarily focused on domestic transactions, initiatives like RT-1 and TIPS are also paving the way for cross-border instant payments.

However, as with any innovation, instant payments bring their own set of challenges, particularly in financial crime compliance. The need for sanctions screening amidst the rapid flow of funds poses significant hurdles for compliance teams. Deciding which payments to screen and implementing the appropriate technology to handle the sheer volume within tight timeframes are critical tasks.

The debate over which instant payments should undergo sanctions screening is ongoing, with regulatory bodies like OFAC advocating for a risk-based approach. European initiatives, such as the new instant payments regulation, aim to streamline sanctions controls while facilitating seamless transactions. Yet, policy decisions are just one piece of the puzzle. The technology underpinning sanctions screening must also evolve to meet the demands of instant payments.

Factors like throughput, latency, efficiency, flexibility, and holistic transaction analysis come into play. Legacy systems are ill-equipped to handle the speed and volume of instant payments, necessitating the adoption of new screening technologies.

While consumers and businesses will directly benefit from this new payment instrument, it also comes with significant challenges for financial crime compliance teams in terms of how to handle the related sanctions screening aspects. These include deciding which of these instant payments should be screened (based on each bank’s specific context, risk appetite, and policies) and implementing the appropriate technology solution to efficiently process the expected large volumes within the very limited time allowed.

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