SEPA Instant payments are transforming Europe’s financial ecosystem, but they also create new compliance challenges. Consumers expect instant, convenient, and seamless execution – while regulators demand strict adherence to AML/CFT and sanctions requirements.
The recent amendments to the EU regulation on credit transfers in euro – commonly referred to as the Instant Payments Regulation (IPR) – mark a major turning point for the regulator itself that is actively nudging the penetration of speed and convenience into the market.
While SEPA Instant has existed for years, it was until recently governed largely by self-regulation in Europe. While SEPA Instant existed under self-regulation, it is now mandated: euro transfers must be executed within 10 seconds, 24/7/365, at no higher cost than standard transfers (the SEPA Instant essential flow is demonstrated in Picture below). This regulatory push creates a fundamental tension — how to deliver speed without undermining financial crime controls.
This article provides a brief overview of the key aspects of the Instant Payments Regulation (IPR) and why it represent both an opportunity and a challenge for AML/CFT teams.
Verification of Payee: A Useful but Limited Tool
Payment service providers offering SEPA Instant are now required to implement Verification of Payee (VoP) services, which inform the payer instantly if the beneficiary’s IBAN does not match the name provided. This measure is intended to help reduce the risk of fraud. Already tested in the Netherlands, VoP reduces fraud but is no cure-all. Fraud schemes evolve faster than regulation, and the Instant Payments Regulation introduces no further fraud safeguards (unlike the upcoming EU Payment Services Regulation).
As the EBA Opinion highlights “instant payments, executed in 10 seconds, 24/7, present challenges for effective transaction monitoring”. In other words, regulators are essentially challenging regulators: the very speed requirements meant to modernize payments can limit the ability to detect fraud or money laundering in real time. The Opinion explains that AML/CTF and fraud prevention techniques may be hindered because the speed of execution reduces the effectiveness of monitoring and complicates ex ante risk-based oversight.
This underscores that while tools like VoP are valuable, they cannot fully substitute for broader fraud detection and AML/CTF measures in a real-time payments environment.
Sanctions Screening: Relief and New Pressures
Two key shifts redefine sanctions compliance under Instant Payments Regulation:
1. Immediate dataset updates
PSPs must verify users immediately after EU restrictive measures are adopted or amended, and at least daily.
Do not be deceived by the seemingly minor wording nuance – the insertion of the term “immediately” has caused significant turbulence in the market. As later clarified by the European Commission in its FAQs, the policy intent behind this term is to set a stricter expectation regarding the permissible time gap between updates to restrictive measures and the operational execution of sanctions screening. The choice of “immediately” – rather than “as soon as possible” or “without undue delay” – establishes a far higher compliance threshold. Payment service providers that fail to manage this gap effectively risk not only penalties under the Instant Payments Regulation, but also potential liability for financial damages claimed by a counterparty Payment service provider involved in the same transaction.
2. Removal of transaction screening obligation
Additionally, the Instant Payments Regulation introduces a major shift in payment screening practices. When executing an instant credit transfer, neither the payer’s nor the payee’s payment service provider is required to verify whether the parties involved are persons or entities subject to targeted financial restrictive measures.
This relief was based on three premises:
- speed of execution of transaction;
- poor performance of transaction screening (with 99.8% false positives, as per the European Commission);
- trust in institutions and supervisors to implement sanctions effectively.
When the Instant Payments Regulation was still under discussion, Eric Ducoulombier, the European Commission’s Head for Retail Finance at the time, commented on the effectiveness of sanctions screening systems:
“Currently the system of transaction screening gives rise to millions of aborted or rejected instant transactions, because software has signalled that there is a possibility that one of the people involved in the transaction might be covered by the sanctions list. And of course, the bank has to verify whether it is the case. And we know (because we have all the figures) that in 99.8% of cases it turned out to be a false alarm.” Source: EU Finance Podcast
This quote clearly demonstrates the headaches surrounding SEPA Instant and the way the European Commission attempted to address them.
Navigating the Compliance Twilight Zone
Regulations often use the phrase “without prejudice” to address one area while deliberately leaving another unspoken, creating what I like to call a “twilight zone” of uncertainty. The Instant Payments Regulation is a prime example. It relieves the market from screening instant transactions against EU targeted financial sanctions to preserve speed, yet it explicitly excludes any obligations related to other restrictive measures or AML/CFT actions.
This leaves financial institutions with several pressing questions:
National sanctions: EU Member States maintain their own national restrictions, often aimed at fighting terrorism or to preserve national security (going beyond EU common foreign and security policy). How should PSPs incorporate these into instant payments?
Extraterritorial sanctions: Some countries apply their sanctions policies extraterritorially, leveraging their political and economic weight. For compliance teams, this raises a difficult question: should SEPA Instant transactions also be screened against, for example, U.S. sanctions lists (SDN and non-SDN)? After all, even though SEPA Instant is an internal EU system (unlike SWIFT payments), no financial institution wants to risk falling within OFAC’s reach by opting not to screen against U.S. designated persons. Ultimately, it becomes a matter of risk appetite – but a very uncomfortable one.
Payment purpose screening: Certain EU supervisors (e.g., Lithuania) along with EBA Guidelines on internal policies, procedures, and controls to ensure the implementation of both Union and national restrictive measures require payment purpose checks. Historically, these checks generate more false positives than counterparty screening. Altogether these checks consume time, creating tension with SEPA Instant’s 10-second execution mandate.
Sectoral sanctions and supervisory expectations: Unlike targeted sanctions, sectoral sanctions restrict broader sectors or transaction types. PSPs are expected to enforce these, even in real time, which often conflicts with the operational demands of instant payments. In above mentioned EBA opinion SEPA Instant was explicitly mentioned as an additional challenge in “the screening of SEPA instant credit transfers, which may expose PSPs to a heightened risk of breaching restrictive measures that are not targeted financial sanctions – such as sectoral sanctions.”
As the EBA highlights – and as a few national supervisory authorities already strictly impose – financial institutions are expected to act as gatekeepers for the application of sectoral sanctions. This raises an important question: how does such an expectation align with the speed and execution requirements of EU internal market instant payments?
AML/CFT requirements: AML/CFT rules require freezing funds and reporting suspicious activities to local FIUs. But how does that reconcile with the Instant Payments Regulation’s strict 10-second execution requirement? If a transaction triggers a red flag, should it be rejected in order to comply with the Instant Payments Regulation? And if so, would that breach AML/CFT obligations, which require freezing the funds and filing a report instead?
Balancing Speed, Compliance, and Judgment
The cliché still holds true: compliance is not a checkbox – it’s a mindset.
For compliance officers, SEPA Instant means constantly weighing:
- Speed vs. risk,
- Customer experience vs. regulatory duty,
- False positives vs. true financial crime detection.
Every unnecessary freeze, every flood of false positives, not only frustrates customers but also consumes resources and creates blind spots. Real success lies in separating signal from noise and applying judgment where it matters most.
By blending real-time execution with risk-conscious oversight, SEPA Instant payments can be both fast and safe.
How AMLYZE Helps
At AMLYZE, we believe speed and safety can coexist.
Our screening solutions have achieved less than 1% false positive rates in real production environments – proving that instant payments don’t have to mean instant headaches.
👉 Explore more about our Customer Screening and Payment Screening solutions.
👉 Read a real-world success story in our Vialet case study, where we helped a fintech reduce false positives by 10x.
👉 Or deep dive into our SEPA Instant Payments: Practical Implementation Guide, which provides actionable steps, real-world insights, and expert tips to help banks and fintechs stay fast and compliant. Get your free PDF here.
Ready to see how your institution can balance speed, compliance, and trust in the age of instant payments?
Book a free consultation with AMLYZE experts.
