Adapting to SEPA ICT: Overcoming compliance hurdles with technology

With the rollout of new instant payment regulations under the SEPA Instant Credit Transfer (ICT) scheme, Europe’s cross-border payments landscape is significantly transforming. While these changes aim to standardise and enhance consumer protection, they also present substantial challenges for financial institutions (FIs) operating across SEPA borders. From overhauling existing systems to adjusting sanctions screening processes, firms need to navigate these complexities to stay compliant and competitive. 

This article explores three common challenges I’ve heard from firms when adapting to SEPA ICT and how leveraging advanced technologies can provide effective solutions.

Upgrading payment infrastructures

The shift towards instant payments under SEPA ICT demands significant adjustments from FIs. The timeline to develop and implement the necessary infrastructure is tight for firms not currently offering instant payment services. By January 9, 2025, all payment service providers (PSPs) in the EU must be able to receive instant payments. By October 9, 2025, eurozone PSPs must offer the facility to send instant payments at an affordable rate.

Many firms may find their current payment infrastructures need significant upgrades to keep pace with these deadlines. Investing in technology to build systems capable of instantly processing payments will be crucial. The infrastructure must also be scalable to handle increased transaction volumes without compromising performance, and real-time fraud prevention measures will become increasingly important in this high-speed environment.

Integrating financial crime controls

Integrating refined financial crime controls may be challenging as firms transition to SEPA ICT. Key processes such as know your customer (KYC), name screening, payment screening, and fraud detection each involve distinct applications that must be integrated to ensure effective compliance.

The primary challenge lies in synchronising these various applications within the fast-paced environment of instant payments. Each process needs to function efficiently and in harmony with the others to avoid delays that could disrupt the speed of transactions. In the SEPA ICT framework, where payments must be processed in real-time, the latency introduced by slow or disjointed applications can undermine the efficiency of the entire payment system.

Enhancing sanctions screening

Moreover, under the new regulations, banks and PSPs must verify—at least daily—whether their users are subject to targeted financial restrictive measures. The challenge here lies in balancing the need for thorough sanctions screening with the demands of processing payments quickly. To combat this, firms must invest in technology that supports high-speed operations and integrates comprehensive compliance checks.

Additionally, FIs will be required to move beyond traditional batch processing and adopt real-time processing capabilities. This transition is essential not only for managing the increased speed and volume of instant payments but also for integrating real-time sanctions screening without compromising accuracy or thoroughness.

The technology opportunity

While the challenges posed by SEPA ICT regulations are significant, they also give firms a unique opportunity to innovate and strengthen their compliance frameworks. Advanced technologies, such as AI and ML, are at the forefront of this transformation and can be pivotal in addressing these challenges. Here’s how:

• Enhanced sanctions screening: The speed of instant payments demands equally swift sanctions screening processes. The most effective solutions can enable real-time screening that adapts to rapidly changing global sanctions lists. These technologies can continuously update and cross-reference vast amounts of data, ensuring transactions are screened against the most current information available. This reduces the risk of false positives and negatives, enhancing the accuracy and reliability of sanctions screening.
• Unified IT infrastructure: Since sanctions screening is just one component of the payment process and must occur within a tight window of 500 milliseconds to one second, a streamlined IT infrastructure is crucial. By consolidating customer segmentation, risk models, screening configurations, and alert management into a single platform, firms can ensure that all compliance functions are handled efficiently. This integration enhances processing speeds, reduces the risk of errors, and supports robust regulatory oversight, enabling firms to meet real-time payment demands effectively.
• Predictive analytics for financial crime detection: ML algorithms can analyse transaction patterns to identify suspicious activities that might indicate financial crime. These predictive analytics can evolve, learning from new threats and adapting to emerging typologies, providing firms with a dynamic defence mechanism.