On September 30, 2022, the Office of Foreign Assets Control (OFAC) published compliance guidance for instant payment systems. The guide highlights the need for emerging payment technology companies to assess their sanctions risks and implement compliance programs that mitigate those risks. Specifically, the guidance: (i) reaffirms that financial institutions should take a risk-based approach to managing sanctions risks; (ii) highlights key factors that may be relevant in determining that risk-based approach; (iii) encourages the development and deployment of innovative sanctions compliance approaches and technologies to address identified risks; and (iv) encourages developers of instant payment systems to incorporate sanctions compliance considerations as they develop new payment technologies.
Instant payment systems allow users to send and receive funds almost instantly - in real time. The financial sector has increasingly developed the availability of these systems which presents unique questions about OFAC compliance because each instant payment system is different -with varying characteristics such as the geographic location of its customers or the nature and value of the payment.
- Customers' History Provides Opportunities for Risk Assessment: OFAC highlights how companies should monitor patterns and customer history to assess risks. For example, a customer's prior history that is inconsistent with a payment (significantly higher than previous payments or made to a foreign person to whom the customer has not been previously involved with) may indicate a potential sanctions risk.
- Domestic Instant Payment Systems Face Lower Risks: Domestic systems in which all transactions involve only accounts maintained at U.S. banks, excluding foreign correspondent accounts are less likely to risk sanctions exposure. OFAC notes that U.S. banks are likely already performing the necessary due diligence on their customers for any potential sanctions nexus. Non-U.S. banks may not be subject to a similar regulatory regime.
- Technology Solutions Can Support Your Sanctions Compliance: New and emerging technological sanctions compliance tools are available that can help mitigate a financial institution's sanctions risks. Some tools use information sharing mechanisms across financial institutions, which may enhance sanctions screening functions and reduce false positives. OFAC encourages the use of such technological tools and solutions.
- Certain Compliance Features Could Be Integrated Into Instant Payment Systems: When instant payment systems are being developed, OFAC encourages developers to incorporate sanctions compliance features. One example includes a messaging system that allows participating financial institutions involved in processing payments to communicate with each other so that they can gather the necessary information related to potential sanctions alerts and effectively adjudicate them. Another example is exception processing, which allows a transaction to be removed from the automated process to provide sufficient time for a financial institution to investigate potential sanctions concerns.
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