Client Alert: Instant Payment Systems and OFAC Sanctions Compliance

Instant payment systems have revolutionized payment services across the globe. The global volume of instant payment transactions reached 70.4 billion in 2020. It is also expected to grow at an annual rate of over 30% by 2024. With the increasing prevalence of this technology, OFAC recently issued guidance to help instant payment service providers better manage their sanctions compliance risks.

Similar OFAC compliance guidance has long been applicable to payment service providers (PSPs) offering payment platforms where users can send and receive payments as direct customers of the PSP. This time, the language of OFAC’s recent compliance communiqué suggests differently. They intend for it to be applied by operators of digital payment networks enabling payments on behalf of the clients of member banks and other financial institutions.  In the context of a digital payments network clearing payments for the customers of multiple member banks and financial institutions, OFAC emphasizes the need for network operators to develop mechanisms for effective sanctions compliance risk mitigation and internal coordination as core elements of the payment network’s design and operations.

OFAC Compliance Considerations for Instant Payment Systems

OFAC encourages developers of instant payment systems to consider incorporating sanctions compliance controls during the platform design and development process. This is so sanctions compliance controls are incorporated directly in the architecture of new payment technologies. Sanctions compliance contractual clauses should also be incorporated in customer agreements. Therefore, it maintains a sanctions compliance program commensurate with sanctions risk exposure.

Since the digital payments network operator acts as the gatekeeper for the overall instant payment system and member participation, the network operator is responsible for:

• Establishing minimum due diligence for platform admittance
• Setting payment message standards including minimum requirements for payment instructions
• Ensuring each member’s continued adherence to those standards.

Suggested compliance features of a payment network include:

• Establishing minimum sanctions compliance program requirements for members. This includes customer onboarding, ongoing due diligence, and transaction screening to help mitigate sanctions risks.
• Creating an exception processing workflow to remove a transaction from automated processing and provide sufficient time for a financial institution to investigate potential sanctions concerns.
• Developing mechanisms to facilitate communication between participating financial institutions to bolster capabilities in assessing and adjudicating alerts of potential sanctions concerns.

How Exiger Can Help

As a key service provider to the crypto industry Travel Rule Universal Solution Technology (TRUST) platform, Exiger provides onboarding and monitoring support for the TRUST group. Exiger ensures participants meet anti-money laundering, sanctions compliance, and security standards set by the group.

Our award-winning technology and FCC experts can help digital payment network operators design, build, and operate sanctions compliance program elements. This includes member due diligence processes, sanctions screening alert management and transaction monitoring.

Contact us today to discuss how Exiger can support your sanctions compliance program.

This client alert was compiled by Cassandra Quek, Matthew Saxonmeyer, and Chris Andre of Exiger.