Explanatory Memorandum to COM(2005)343 - Information on the payer accompanying transfers of funds - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2005)343 - Information on the payer accompanying transfers of funds. |
|---|---|
| source | COM(2005)343  |
| date | 26-07-2005 |
| 1. Context of the proposal | |
| 110 | - Grounds for and objectives of the proposal The present proposal for a Regulation aims to transpose Special Recommendation VII on “wire transfers” (SR VII) of the Financial Action Task Force (FATF) into Community legislation.1 The proposal lays down rules on information on the payer accompanying transfers of funds, in order to ensure that basic information is immediately available to the authorities responsible for combating money laundering and terrorist financing, to assist them in their task. According to its revised interpretative note, which was adopted on 10 June 2005, SR VII should be transposed by December 2006. |
| 120 | - General context The worldwide escalation of acts of terrorism in the last decade has mobilised the international community to develop appropriate measures to combat this phenomenon. Following the terrorist attacks of 11 September 2001 in the United States, combating terrorism has become a key political priority worldwide. At its extraordinary meeting on 21 September 2001, the European Council decided that the fight against terrorism will, more than ever, be a key objective of the European Union, and adopted a Plan of Action to Combat Terrorism. Following the attacks in Madrid of 11 March 2004, the European Council adopted, on 25 March 2004, a Declaration on combating terrorism and revised its Plan of Action to Combat Terrorism. The Declaration committed the Union and its members "(…) to do everything within their power to combat all forms of terrorism (…)" and identified a number of strategic objectives to help achieve this goal. These include a requirement on the Union and its members to take all necessary measures 'to reduce the access of terrorists to financial and other economic resources'. The revised 'EU Plan of Action on combating terrorism' acknowledges that the legislative framework created by the Union for the purpose of combating terrorism and improving judicial cooperation has a decisive role to play in combating terrorist activities and sets out detailed proposals for developing the fight against terrorist financing. One of these measures consists in close co-operation with the FATF and the adaptation of the EU legislative framework to the nine Special Recommendations on terrorist financing adopted by the FATF. In combination with the FATF Forty Recommendations on money laundering adopted in 1990 and revised in 2003, Special Recommendations I to IX set out the basic framework to detect, prevent and suppress the financing of terrorism and terrorist acts at international level. FATF rules are generally accepted as the international standard in the fight against money laundering and terrorist financing. EU Member States are committed to the implementation of FATF standards. Most of the measures set out in the nine Special Recommendations of the FATF have been or are in the process of being implemented either through Community legislation, or through the procedures established under Titles V and VI of the Treaty of the European Union. |
| 130 | - Existing provisions in the area of the proposal Council Regulations (EC) No 2580/2001 of 27 December 20012 and (EC) No 881/2002 of 27 May 20023 relate to the freezing of terrorists’ assets. The provisions of these Regulations however only apply to targeted individuals or groups which are considered as terrorists by the United Nations Security Council. On the other hand, Directive 2005/…/EC of the European Parliament and of the Council of ….2005 on prevention of the use of the financial system for the purpose of money laundering and terrorist financing contains a number of measures aimed at combating the misuse of the financial system for the purposes of money laundering and terrorist financing. However, the measures described above do not fully prevent terrorists and other criminals from having access to payment systems to move their funds. The proposal complements those measures by ensuring that basic information on the payer of transfers of funds is immediately available to appropriate law enforcement and/or prosecutorial authorities to assist them in detecting, investigating, prosecuting terrorists or other criminals and tracing the assets of terrorists. |
| 140 | - Consistency with the other policies and objectives of the Union The proposal is consistent with the objectives of the European Council's Plan of Action to Combat Terrorism, which specifically addresses the need to ensure that the legislative framework created by the Community for the purpose of combating terrorism and improving judicial cooperation is adapted to the nine Special Recommendations of the Financial Action Task Force on Money Laundering and Terrorist Financing. |
| 2. Consultation of interested parties and impact assessment | |
- Consultation of interested parties | |
| 211 | Consultation methods, main sectors targeted and general profile of respondents In its Communication to the Council and the European Parliament concerning a 'New legal framework for payments in the Internal Market', the Commission consulted interested parties on issues raised by the transposition of SR VII into Community legislation. In addition, The Commission extensively consulted major stakeholders by means of targeted meetings of consultative Committees (Payment Systems Government expert Group, Payment Systems Market Group and Money Laundering Contact Committee). |
| 212 | Summary of responses and how they have been taken into account The main issues addressed in the Communication on a 'New legal framework for payments in the Internal Market' were: (1) the transposition of SR VII by Community legislation versus national legislation; (2) the information regime applicable within the EU; (3) the need for derogation from the principle of complete information on the payer as regards batch transfers between jurisdictions and i the need for exemptions or thresholds. The transposition of SR VII through Community legislation versus national legislation The results of the consultation have shown overwhelming support from all stakeholders (the banking community, national central banks, the European Central Bank and Member States) to transpose SR VII through Community legislation rather than national legislation. The information regime applicable within the EU: the contents of information on the payer as regards transfers of funds within and between Member States According to SR VII, information on the payer accompanying transfers of funds inside a jurisdiction can be limited to the account number of the payer, provided complete information on the payer (name, address and account number) can be delivered within three working days, upon request, by the PSP of the payer to the PSP of the payee. As this rule is enforceable within the Community by way of Community legislation, it is sufficient to require transfers of funds within the EU to be accompanied by the account number of the payer. In cases where either the PSP of the payer or of the payee are situated outside the EU, complete information on the payer should be transmitted. The present proposal therefore establishes that simplified information (the account number of the payer or a unique identifier) has to be applied to transfers of funds within the EU, whereas complete information on the payer has to be applied to transfers of funds between the EU and other jurisdictions. This is fully in line with the results of the public consultation. The need for derogation from the principle of complete information on the payer as regards batch transfers between jurisdictions The FATF's original interpretative note on SR VII (INSR VII) exempted batch transfers between jurisdictions (except those sent by money remitters) from carrying complete information on the payer. By derogation from the complete information regime that applies between jurisdictions, batch transfers needed only carry the account number of the payer or a unique identifier. However, the term 'batch' was not defined in the original FATF's INSR VII. This absence of definition made the scope of the derogation unclear. In the context of payment systems, the term 'batch transfers' can have very different meanings. Without a harmonised definition, a common understanding of the derogation by PSPs was unlikely, and maybe not even possible. The banking community and the majority of Member States recognise the need for this derogation as regards individual transfers from a single payer that are contained in a batch file for transmission to payees outside the Community. This process specifically refers to bundling together groupings of individual transfers from a single payer to several payees (typically certain type of routine transfers, like social security payments), which does not allow, for cost/efficiency reasons, to include complete information on the payer with each individual transfer, but only on the batch file which contains them. The same understanding now applies in the FATF, after a revision of the original INSR VII. The present proposal therefore contains a specific provision allowing for transfers of funds from a single payer which are contained in a batch file for transmission to payees outside the Community, to only carry the account number of the payer, provided the batch file contains complete information on the payer. The need for exemptions or thresholds The initial interpretative note on SR VII established that jurisdictions could have a de minimis threshold (no higher than USD 3 000). This exemption was nevertheless meant to be temporary and subject to review by the FATF in 2004. This review took place between February 2004 and June 2005 and materialised in a revised INSR VII, which was approved on 10 June 2005. Such review gave rise to an extensive consultation of the payments industry as well as of the Member States. The results of the consultation show that the payments industry is in general opposed to the application of thresholds, as this would necessitate putting in place dual systems for dealing with transfers of funds below and above thresholds. Other stakeholders (Member States, national central banks and the European Central Bank) are generally not supportive either. In addition, a study by the FATF shows that even small amounts can be used to finance terrorism. On the other hand, there are concerns that too strict identification requirements may drive transactions underground, where the ability of authorities to obtain any information is considerably compromised. Consequently, the present proposal does not retain any threshold either for outgoing transfers from the EU or incoming transfers in the EU, as regards the collection and transmittal of information on the payer. It therefore provides for incoming anonymous transfers in the EU to be subject to special vigilance and to appropriate measures destined to get missing information on the payer. It also establishes that outgoing transfers of funds from the EU shall be accompanied by complete information on the payer, but in order to take into account the risk of driving transactions underground, flexibility is however allowed as regards the extent of verification of information on the payer, on a risk-sensitive basis. |
| 213 | An open consultation was conducted over the internet from 02/12/2003 to 15/02/2004. The Commission received 103 response(s). The results are available on europa.eu.int/comm/internal_market/payments. |
- Collection and use of expertise | |
| 229 | There was no need for external expertise. |
| 230 | - Impact assessment The proposal was not submitted for impact assessment as it derives from international obligations and has no significant cross-cutting impact. In addition, it was submitted to extensive consultation by all stakeholders. It transposes SR VII of the FATF in a way that minimises costs for the payments industry while at the same time ensuring a high standard in the fight against money laundering and terrorist financing. |
| 3. Legal elements of the proposal | |
| 305 | - Summary of the proposed action The proposal establishes rules aimed at establishing the traceability of transfers of funds, which are applicable to all the PSPs involved in the payment chain. The PSP of the payer must ensure that transfers of funds contain complete, accurate and meaningful information on the payer. Any intermediary PSP must ensure that all information on the payer that accompanies a transfer is retained with the transfer or that appropriate records are kept. The PSP of the payee must be able to detect a lack of presence of information on the payer when receiving transfers and take appropriate steps in order to correct this situation, so that received transfers of funds do not remain anonymous. While doing so, it must exert a special vigilance regarding such transfers and, on a risk sensitive basis, taking into account other pertinent factors, report suspicious transactions to the authorities responsible for combating money laundering and terrorist financing. PSPs should also keep appropriate records and respond fully and rapidly to enquiries by the authorities responsible for combating money laundering and terrorist financing of the Member State where they are situated. |
| 310 | - Legal basis Aricle 95 of the Treaty establishing the European Community. |
| 320 | - Subsidiarity principle The subsidiarity principle applies insofar as the proposal does not fall under the exclusive competence of the Community. |
| The objectives of the proposal cannot be sufficiently achieved by the Member States for the following reason(s). | |
| 323 | Non-coordinated action by Member States alone in the field of cross-border transfers of funds could significantly impact on the smooth functioning of payment systems at EU level, and therefore damage the Internal Market in the field of financial services. |
| Community action will better achieve the objectives of the proposal for the following reason(s): | |
| 324 | By the scale of its action, Community action shall guarantee a uniform transposition of SR VII throughout the EU, and in particular, that there is no discrimination between national payments within a Member State and cross-border payments between Member States. This principle was established by Regulation (EC) No 2560/2001 on cross-border payments in euro, which was the first significant step towards the establishment of a Single Payment Area in the EU. |
| 325 | There is a general consensus, emanating from all stakeholders (in particular Member States and the payments industry), that the objectives of the action can be better achieved by the Union. |
| 327 | The scope of the proposal, which coincides with the measures foreseen in SR VII cannot, by its nature, and in order to avoid inconsistencies, be divided into Community action and action by Member States. |
| The proposal therefore complies with the subsidiarity principle. | |
- Proportionality principle The proposal complies with the proportionality principle for the following reason(s). | |
| 331 | In conformity with the results of the consultation process, the proposal transposes SR VII in the simplest way, by providing a simplified regime within the EU and a cost-effective system in order to ensure the traceability of transfers of funds to and from third countries. It does not go beyond what is necessary to achieve its objectives. |
| 332 | By establishing obligations applicable to payment service providers, which minimise the cost for the payments industry, the proposal therefore minimises the financial burden for national governments, economic operators and citizens. |
- Choice of instruments | |
| 341 | Proposed instrument: regulation. |
| 342 | Other means would not be adequate for the following reason(s): Payment systems in the EU are in the process of being integrated into a Single Payment Area and, consequently, SR VII should be implemented in a harmonised manner throughout the EU. All stakeholders called for the use of a regulation, which would be the most effective way of guaranteeing uniform implementation and thus a level playing field. |
| 4. Budgetary implication | |
| 401 | Meetings of the Committee on the Prevention of Money Laundering and Terrorist Financing. |
| 5. Additional information | |
| 560 | - European Economic Area The proposed act concerns an EEA matter and should therefore extend to the European Economic Area. |