Navigating the Challenges of the Beneficiary IBAN Name Check Regulation

The financial landscape is evolving rapidly as are the regulations that govern it. One such regulation that banks need to grapple with is the new Beneficiary IBAN Name Check regulation.

In our last blog post, we highlighted the motivation and the benefits of this new security-enhancing functionality for end users and banks. However, to achieve this goal, the regulators and banks have to solve major challenges. In this blog, we delve into the key challenges associated with this new regulation.

Scheme and Specification:

The Beneficiary IBAN Name Check will pose several technical challenges, which banks will need to overcome in order to be compliant and adopt this service. It could therefore make sense that this functionality is embedded in a new or existing scheme that defines the legal, potentially the commercial, and technical rules for the participating entities. One most important task of such a scheme is defining the technical interface for beneficiary banks to provide the required information. We hope that regulators learn from open banking, in making this specification more concrete and prescriptive to avoid massive implementation and integration efforts.

Provision of Information:

The most important prerequisite for the success of this new check is the provision, by the beneficiary bank, of the mapping between the beneficiary’s IBAN and bank account holder name. This data needs to be provided by all banks in order for the payer's bank to fulfill their obligation to offer this service to the payers. If the data cannot be provided, the liability should be shifted to the beneficiary bank. As it is not planned to have a central routing hub, one significant remaining question will be how the payer's bank can prove this non-provisioning of the data, and to claim the liability shift.

Liability for Data:

The exchange of data, as part of the Beneficiary IBAN Name Check scheme, raises concerns about data security and liability. Banks must ensure that robust data protection measures are in place to safeguard this sensitive payment information. Clear guidelines on data sharing, storage, and usage must be established to minimize the risk of data breaches and potential legal repercussions. Additionally, rules need to be established for situations where data from the beneficiary banks is incorrect or outdated. Once again, a liability shift must be implemented (with the challenge of its deployment, as discussed in the last point).

Ensuring Interoperability:

One of the biggest challenges is related to the reach of the IBAN Name Check. The obligation for the payer’s bank to provide this functionality for all instant credit transfers can only be successfully realized if the payer’s bank has access to (potentially) every European (beneficiary) bank. Creating such a network would be a huge undertaking, and one does not exist today. In fact, we believe that such a network probably cannot be built directly by a single provider. This underscores the importance of interoperability between different providers, this is a critical aspect of successful implementation. To ensure seamless communication and data exchange between these providers, standardization of data formats, APIs, protocols, and business rules are essential. Collaboration and open communication among providers will be instrumental in achieving interoperability and a smooth user experience.

Preventing Cherry-Picking:

Looking at the current installations of similar services across Europe, we see a potential threat of providers only connecting their service to large and mid-size banks, leaving many smaller institutions uncovered. This cherry-picking could result in an uneven playing field and potentially weaken the effectiveness of the regulation, and potentially lead to different pricings of the service. Regulators should work closely with the banking industry to encourage widespread adoption, potentially offering incentives for participation or disincentives for non-compliance.

Conclusion:

The new Beneficiary IBAN Name Check regulation presents both opportunities and challenges for the European banks. As the financial landscape continues to evolve, banks must be agile and adaptable in embracing new regulations and technologies. Collaboration between regulators, industry stakeholders, and technology providers is crucial to address the challenges of this regulation effectively.