By Tobias Münsterberg

The European Commission has updated the reporting guidelines for the CESOP reporting obligation. In particular, the amendments contain clarifications pertaining to the rules for determining the country of origin of the payer and payee:

Until now, Art. 243c of the Directive has been interpreted in such a way that the reporting institution could rely on the IBAN or other “identifiers” with country codes in a transaction, in order to determine the relevant cross-border transactions. It was accepted that transactions could be omitted from the report if the institution’s country, on the one hand, and the payer’s or payee’s country, on the other, are different. In short: If an EU foreign national has an account with a German bank and receives a payment from another German bank, this payment was not categorised as a cross-border payment.

It is now clear that this is not permissible. If an institution knows the participant’s actual country of origin in the transaction based on its customer master data, it must use this as the basis for determining the CESOP reporting obligation.

The amendment sounds trivial, but it can make the implementation of SEPA transactions considerably more complex. Ultimately, it means that the bank must first determine the country of its customer for each individual transaction before it can decide to sort out a payment as “domestic”. Institutions that only process very few cross-border payments have so far often pursued the strategy of only including those payments in the verification process that involve a foreign IBAN. Instead of the remaining few hundred or thousand transactions, many millions may now have to be included in the review – only to end up being irrelevant after all. Without a suitable database, every system will reach its limits here.

The industry is rightly astonished by this change shortly before the start of the recording obligation.

However, the good news for our customers is: Our CESOP Compliance Service can easily deal with the new rules. We would be delighted to present our solution and the possible implementation strategies to you.