Ready, Set, Comply with IPR – Part 3

The Instant Payments Blog Series

Part 3  Instant Payments and Screening – Speed as the New Currency

Why speed matters in compliance, but only when paired with accuracy

“Speed is irrelevant if you are going in the wrong direction.” – Mahatma Gandhi.

This quote perfectly encapsulates the challenge faced by compliance teams in the age of instant payments. While speed is essential to meet customer expectations and regulatory mandates, it must never come at the expense of accuracy. The European Instant Payment Regulation (IPR) ushers in a new era where compliance teams must balance rapid transaction processing with robust sanctions screening. This blog explores how to achieve this balance, ensuring your organisation remains compliant while meeting the demands of an instant payments ecosystem.

Challenges in balancing speed and screening
As instant payments continue to grow, compliance teams face unique challenges:

• Volume and Velocity: The sheer speed of instant payments requires equally rapid screening processes.
• Regulatory Pressure: Non-compliance with IPR can lead to penalties and reputational damage.
• Operational Strain: Teams must ensure compliance frameworks are robust without introducing delays that could impact customer satisfaction.

The solution lies in leveraging modern technology and risk-based approaches to optimize screening processes without sacrificing accuracy.

Risk-based sanctions compliance controls for instant payments

A risk-based framework is crucial for managing compliance risks in real time. Instead of treating every transaction with the same level of scrutiny, this approach tailors compliance efforts based on assessed risks.

Key Pillars of Sanctions Compliance:

1. Data Quality: Accurate, up-to-date customer and transaction data is the foundation of effective screening.
2. Dynamic Risk Assessment: Continuous evaluation of customer and transaction risk profiles ensures that high-risk entities are prioritised.
3. Continuous Monitoring: Real-time monitoring enables organisations to detect and respond to suspicious activity promptly.

Practical Example: Risk scoring to streamline instant payments
Risk scoring models assign a risk level to each transaction based on predefined criteria. For instance:

• A low-risk payment between two established European financial institutions might be processed immediately.
• A high-risk cross-border transaction involving a sanctioned region would trigger enhanced due diligence.

This approach ensures compliance efforts are focused where they are needed most, minimising delays for legitimate transactions.

Throughput, latency, and adaptability – Is your software IPR-ready?

Compliance systems must meet the technical demands of instant payments. Here’s how:

1. Throughput: High transaction volumes are a hallmark of instant payments. Compliance systems must process these without performance bottlenecks. Scalability is key to handling future growth while maintaining efficiency.
2. Latency: Instant payments leave little room for processing delays. Compliance solutions must minimise latency, ensuring that sanctions screening happens in near real-time without holding up transactions unnecessarily.
3. Adaptability: Regulations and risk landscapes evolve. Compliance systems must be flexible enough to integrate new rules, lists, and monitoring capabilities seamlessly.

Checklist: Core features of instant payment-ready compliance solutions

• Real-time sanctions screening
• Advanced AI capabilities to reduce false positives
• Seamless integration with payment systems
• Automated updates for sanctions lists and regulatory changes
• Scalability to handle growing transaction volumes

The new era for screening technology

The IPR marks a shift from periodic screening to mandatory real-time or same-day screening. This shift demands advanced technologies capable of keeping up with speed and accuracy requirements.

Features of AI-powered screening tools:

• AI-Driven Analytics: Enhance precision in detecting suspicious activity while reducing false positives.
• Continuous Updates: Keep sanctions lists and watchlists current, ensuring compliance with evolving regulations.
• Workflow Integration: Streamlined alerts and case management empower investigators to respond faster.

Preparing your organisation for compliance in 2025 and beyond

To navigate the regulatory landscape, compliance teams should focus on the following steps:

1. Gap Analysis
   Assess existing systems against IPR requirements. Identify areas that need enhancement, such as data quality, screening speed, or risk assessment models.
2. Invest in Training
   Equip compliance teams with the skills needed to operate advanced tools and understand the nuances of IPR.
3. Partner with Technology Providers
   Choose vendors that offer scalable, AI-driven compliance solutions capable of handling instant payments.
4. Anticipate Broader Impacts
   Instant payments are reshaping compliance strategies. Beyond screening, organisations must adapt customer due diligence and transaction monitoring to align with the fast-paced environment.

Balancing Speed and Accuracy in Compliance
The phased implementation of the European IPR highlights the urgent need for action. By 9 January 2025, all bank-PSPs in the eurozone must ensure their systems can receive instant payments. This is followed by 9 October 2025, when the same institutions must also enable their customers to send instant payments.

For banks and PSPs in non-eurozone member states, the deadlines extend to 9 January 2027 for receiving and 9 July 2027 for sending instant payments. Non-bank PSPs, including electronic money institutions (EMIs) and payment institutions (PIs), must comply with both requirements by 9 April 2027.

These timelines emphasize a pressing challenge for compliance teams: ensuring systems are ready to handle the dual demands of speed and accuracy within tight deadlines. The transition to instant payments demands more than just technical upgrades—it requires a strategic focus on modernizing screening frameworks, enhancing team capabilities, and leveraging advanced technology to keep pace with evolving regulations.

Balancing speed with accuracy in sanctions screening isn’t just a regulatory obligation—it’s a competitive advantage in the instant payments era. Organizations that proactively adapt will not only ensure compliance but also strengthen trust with customers and regulators alike.