847/2015 – Friend or Foe?
No, it is not about 0.42034739454.
It is however a good way to:
- ensure a better trace of the transfers of funds for the Authorities
- help Authorities better identify the parties of international transactions
- forbid sanctioned persons or entities from having access to the financial system
- spot suspicious transactions
- infuriate your front-office colleagues because you block incomings of good customers that are waiting for their money in order to carry-on their business
- loose good customers who swear on their mother’s pie that no other bank has ever done this to them before and that they will never work with your bank ever again
- find yourself turned into the bad guy (girl in my case) that the Operations Manager MUST report to the Management of the Bank as a major peril for the activity of the bank
So what is this 0.4203?
My fellow colleagues working in European Union banks certainly smiled and immediately knew that this is not a mathematical fraction.
For my readers outside the European Union, 847/2015 is a European Union Regulation regarding the mandatory information on the payer and the payee that must accompany all transfers of funds that are performed or which arrive in the European Union.
It applies to all the transfers of funds, in any currency, where at least one of the banks (or Money Service Provider) is in a European Union country.
More specifically, it applies to:
- All transactions that are performed within the European Union
- All incomings that are received by European Union banks from banks outside the European Union
- All transactions that transit European Union banks
Being a Regulation, it has the force of law over all the Member States of the European Union and their Payment Institutions/banks.
What is the mandatory information?
Information on the Payer (ordering party in the transfer) – ALL points are mandatory
- Name of the payer;
- The payer’s account number;
- The payer’s address or official personal document number or customer identification number or date and place of birth – point (3) is mandatory only for transactions that come from banks outside the European Union.
For transactions performed inside the European Union, (1) and (2) are sufficient.
Information on the Payee (beneficiary of the transfer) – ALL points are mandatory
- Name of the payee
- The payee’s account number.
Where must this mandatory information be included?
In the SWIFT message.
What happens if it is missing?
All European Union Banks must have in place procedures and systems to allow them to identify the transactions that do not have the mandatory information and block those transactions for further investigations.
And this is where the party begins.
In some countries outside the European Union, it is common that customers (individuals but also big companies) have bank accounts while having only a PO Box address registered at the bank. From what I have seen, this is especially true for banks in the United Arab Emirates (UAE).
Let’s have an example
A UAE company pays an invoice to a European Union company through a bank transfer from its UAE bank account.
The SWIFT message contains the information held by the UAE bank, meaning the Payer’s name, bank account number and its PO Box Address.
The transfer arrives to a European Union bank and is filtered through its real-time transaction monitoring system.
The PO Box Address is identified and the incoming is blocked.
The EU Bank will contact the ordering bank from UAE through SWIFT message in order to ask for the missing information. The Guidelines provided by the European Banking Authority specify that a 5 working day deadline should be given to the UAE ordering bank.
During this time, the transaction remains blocked in the EU Bank and the money is not given to the EU customer (the payee / the beneficiary).
The EU customer is waiting for its money. It needs the money to make payments and carry on its activity. If the EU Bank is a smaller one and closer to its customer, the Payments Department will announce the front-office staff who will announce the customer that the incoming is blocked due to mandatory missing information. If it is a bigger bank… then the customer will most probably be unknowingly waiting for its money.
Let’s assume that the EU customer is announced of this delay. It will try to do its best to unblock the money – it will present the invoice, the contract and whatever other documents it has that contains the address of the UAEC Payee, hoping that this will convince the EU Bank to unblock the money.
Unfortunately, the Guidelines provided by the European Banking Authority specifically state that the EU Bank has to ask for the missing information from the ordering bank.
So the EU customer starts to huff and puff and wish it could blow the EU bank down. He considers that the EU bank is the sole responsible for its misery.
And that was a simple example.
Add to this example various variables like:
- The bank that stopped the incoming is an EU intermediary bank (a correspondent bank) and not the final bank in the transfer – there is no chance for the EU Beneficiary to know why the money from UAE is delaying so much, because the incoming doesn’t even reach its bank. It is blocked by the correspondent bank;
- The UAE payment institution is an exchange office where the Payee doesn’t have a bank account (the payee simply came and sent the money); so the UAE ordering institution doesn’t have the full address of the payee and cannot provide the missing information even if it wanted to.
Of course, this is a simple way to present things. On a risk-based approach, EU Banks can also consider public information, justification documents provided by the EU customers, etc. when analyzing whether to execute or reject incomings with missing information.
In the same way, EU Banks must also consider taking actions against the ordering banks/Payment Institutions which repeatedly send transfers with missing information or which fail to response to the SWIFT enquiries regarding missing mandatory information (eg. reject any future incomings from them, report them to the National Authorities from the EU Member States).
Such cases are usually complex and imply more banks in the chain, SWIFT communications between banks and angry customers. The purpose of this article was not to present the entire back-side kitchen of a EU bank when dealing with such transactions, but rather an ABC of Regulation 847/2015.
Regulation 847/2015 is a good way to identify the parties of cross-border transactions and help Authorities in their ML/CFT investigations.
It does place a burden on EU banks and especially on the EU customers that find themselves “innocent victims”, with their money blocked due to the fact that the SWIFT message doesn’t contain the address of the ordering party from outside the EU.
It is also a good way to “educate” non-EU banks to send the mandatory information through SWIFT message, even though they are not bound by EU Regulation 847/2015. They are however bound by business requirements to make their customers “happy”. And a customer whose transaction was rejected in the EU and returned to its non-EU bank (minus investigation costs) is not a happy customer.
This is why, non EU banks should know that 847/2015 is more than 0.4203.
By Andreea Tampu, ACAMS
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