European Banking Authority Reports on Virtual IBANs

The European Banking Authority has published a report on the issuance of virtual IBANs (vIBANs). The report summarizes the EBA's observations from its fact-finding exercise on the issuance and use by payment service providers of vIBANs. It highlights risks and challenges that vIBANs may present to consumers, financial institutions, national competent authorities and to the integrity of the overall EU financial system, based on the six most common vIBAN use cases in the EU. Uses of vIBANs include the automation of payment reconciliation and overcoming IBAN discrimination by associating the vIBAN with a particular Member State's IBAN country code.

The report recognizes the current absence of a definition of vIBANs and as such sets out some common vIBAN characteristics that the EBA has observed, e.g., that vIBANs have the same functionality as standard IBANs but are linked to a payment account (known as a "master account") with a separate IBAN. In the report the EBA identified ten key risks and challenges arising for financial institutions, NCAs and users of vIBANs, including:

• An unlevel playing field and regulatory arbitrage issues due to divergent interpretations of the applicable legislation by NCAs in different Member States.
• Money laundering and terrorist financing risks as the end users of vIBANs may be unknown to PSPs, including counterpart PSPs.
• Risks to end users of vIBANs arising in circumstances where they are not holders of the master account.
• Consumer detriment due to the lack of transparency of certain key information on, for example, the applicable complaints procedures or the deposit guarantee scheme under which the consumer is covered.

The report also offers some suggestions about the actions that could be taken by PSPs, the co-legislators and NCAs to mitigate the risks identified in this report. A list of risk factors can be found in the annex to the report to help PSPs and NCAs identify ML/TF risks.

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