European Banking Authority Proposes Overhaul of Virtual IBAN Regulations

The European Banking Authority (EBA) has proposed a comprehensive overhaul concerning the treatment of virtual IBANs (vIBANs) by financial institutions and EU regulations.

According to the EBA, vIBANs are not universally recognized by the industry and national authorities, leading to a lack of clarity regarding their prevalence across EU member states. This ambiguity may hinder effective supervision and management of associated risks, particularly in terms of anti-money laundering and countering the financing of terrorism (AML/CFT) efforts.

vIBANs differ significantly from traditional IBANs in various aspects. While a standard IBAN is directly linked to a specific bank account, allowing transactions in a single currency, vIBANs permit multiple matches to a single bank account. They also enable receipt of payments in various currencies and the segregation of incoming funds without requiring separate bank accounts for each currency. Despite these common features, there is no consensus on the exact characteristics of vIBANs.

The absence of a legal definition of vIBANs at the EU level and the lack of uniform understanding among national competent authorities (NCAs) and the industry pose significant challenges. The forthcoming Anti-Money Laundering Regulation (AMLR) aims to address this by incorporating a definition of vIBANs within the AML framework.

While vIBANs offer consumer benefits, they also present risks related to money laundering and terrorist financing. The anonymity of end users poses challenges for payment service providers in monitoring transactions effectively. Additionally, the lack of visibility for NCAs regarding the scale of vIBAN offerings impedes their ability to assess the adequacy of controls implemented by payment service providers.

The EBA emphasizes the need for the development of a comprehensive legal framework to regulate vIBANs effectively across the EU. Moreover, it calls for enhanced supervision of vIBAN users, particularly concerning issues with fund traceability in the context of bank deposit guarantee schemes.

In summary, the EBA's proposal seeks to address the regulatory gaps and risks associated with vIBANs by advocating for clear definitions, enhanced supervision, and comprehensive legal frameworks within the EU banking sector. This initiative aims to safeguard the integrity and stability of the financial system amidst evolving technological advancements and emerging risks.

By fLEXI tEAM