The European Banking Authority (EBA) today published a Report on the issuance of what is commonly referred to as ‘virtual IBANs’ (vIBANs). In the absence of a common definition, the Report observes that the industry issues vIBANs in different ways and for different purposes and national authorities diverge in interpreting and applying regulatory requirements. The Report also identifies resulting issues in terms of money laundering and terrorist financing, consumer and depositor protection, authorisation and passporting, and regulatory arbitrage, and provides recommendations on how to address them.
The Report sets out the characteristics of virtual IBANs, explains various use cases the EBA has observed in the market, summarises potential benefits as perceived by market actors, and identifies challenges and issues associated with this practice. The latter includes divergences between national authorities in interpreting and applying existing EU financial services law to vIBANs, in particular the Anti Money Laundering Directive, the Payment Services Directive, the Capital Requirements Directive, and the SEPA Regulation. These divergences undermine the EU Single Market and give rise to regulatory arbitrage.
The EBA’s findings also suggest that vIBANs are not always recognised as such by the industry and national authorities, due to the lack of a definition that would be commonly applicable and that would take into account the different use cases that exist. As a result, the full extent of the issuance of vIBANs across EU Member States is currently not known, which might prevent national authorities from effectively supervising and assessing the adequacy of firms’ internal controls framework to manage the risks arising from vIBANs, in particular from an AML/CFT perspective.
The Report, therefore, includes recommendations on how EU law could be clarified and what actions national competent authorities could take to address these issues.
Legal Basis and Background
Articles 8, 9, and 9a of the Regulation (EU) 1093/2010 (‘EBA Founding Regulation’), mandates the EBA, inter alia, to monitor and assess market developments, to monitor new and existing financial activities, and to contribute to protecting the EU’s financial system against money laundering and terrorist financing.
The EBA drew on a number of sources to inform this Report, including the EBA Opinion on ML/TF risks in the EU financial sector (EBA/Op/2023/08), information gathered from national competent authorities, and interviews with selected payment service providers that issue vIBANs.
