COMPLIANCE
Understanding compliance in international payments
Paul Unwin BA(Hons) MCIPP, payments integration manager at Caxton, provides an overview of the key aspects employers and individuals must be aware of in order to ensure compliance when making international payments
W hen conducting international payments, businesses and individuals must navigate a complex landscape of regulations that vary across jurisdictions. Each country has specific compliance requirements, designed to prevent financial crime, ensure transparency and maintain the integrity of global payment systems. This article highlights some main compliance points to consider when making international payments. Know your customer (KYC) requirements One of the primary components of compliance is KYC, which mandates that financial institutions verify the identity of both the sender and the recipient of funds. This process ensures that payments are not linked to illegal activities like money laundering, terrorism financing or tax evasion. KYC requirements differ by jurisdiction but are universally essential in maintaining global financial security. Fabian Bennett, head of compliance at Caxton, explains, “Understanding and adhering to KYC obligations is crucial in today’s globalised payment ecosystem. It’s not just about ticking a box, but about maintaining the integrity of the entire financial system.” Anti-money laundering (AML) regulations AML rules work in tandem with KYC procedures and are aimed at identifying and preventing the movement of illicit funds. Financial institutions are required to monitor transactions, report suspicious activity and implement systems to detect unusual patterns in payments. Failure to adhere to these regulations can result in significant penalties. Amrita Maraj, deputy
Australia: Australia’s payment system is regulated by the Australian Transaction Reports and Analysis Centre. A significant feature of Australia’s compliance framework is its strong focus on reporting large transactions (more than AUD 10,000) and suspicious activity. However, Australia is known for its rapid adoption of new payment technologies, making it essential for businesses to stay updated on changing compliance regulations as digital solutions evolve. European Union (EU): Within the EU, the Revised Payment Services Directive (PSD2) governs cross-border payments. PSD2 focuses on increasing transparency and security, particularly with the introduction of strong customer authentication to reduce fraud. An interesting point is the growing emphasis on data protection, as compliance with General Data Protection Regulation intersects with payment compliance, ensuring that personal information in transactions is securely handled. Monitoring changes Navigating international payments requires a detailed understanding of local laws and regulations. A payment that complies with regulations in one jurisdiction may face barriers in another due to differing rules. For businesses handling payments across multiple countries, it’s critical to maintain robust systems to monitor changes in compliance requirements. Regularly reviewing local and international laws, investing in compliance technology, ensuring thorough staff training and working with partners who understand the compliance eco-system are essential steps to avoid legal penalties and ensure smooth global transactions. n
money laundering reporting officer at Caxton, adds, “The real challenge in AML compliance is not just detection but prevention. With global transactions growing more complex, the focus must be on advanced monitoring systems and continuous risk assessments.” Sanctions and embargoes Various countries maintain sanctions lists that restrict or prohibit transactions with certain individuals, companies or nations. Before making a payment, businesses must ensure that neither the sender or the recipient appears on any of these lists. This is particularly crucial for payments between countries with strict sanctions policies, such as the United States (US). Interesting compliance facts by region US: In the US, compliance around payments is governed by a range of regulations, including the Bank Secrecy Act (BSA) and the Patriot Act. One notable fact is that when making international payments, financial institutions must comply with the Office of Foreign Assets Control sanctions, even if the recipient country itself is not sanctioned. Payments can be blocked simply based on indirect links to restricted parties or countries. Canada: In Canada, one unique requirement for international payments is the mandatory inclusion of the beneficiary’s full address. Without this key detail, banks will not process cross-border payments. This strict rule, governed by the Canadian Payments Association, is part of Canada’s broader compliance framework to enhance transparency in payment flows.
| Professional in Payroll, Pensions and Reward | November 2024 | Issue 105 32
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