EBA Finds Divergences in Issuance & Regulation of 'Virtual IBANs' Across EU

The European Banking Authority (EBA) has published a report highlighting divergences in how "virtual IBANs" are issued and regulated across the European Union. The report identifies issues stemming from these divergences and provides recommendations to address them.

Virtual IBANs, lacking a common definition, are issued by the industry in different ways and for different purposes. National authorities also differ in their interpretation and application of regulatory requirements related to virtual IBANs.

The EBA's report outlines the characteristics of virtual IBANs, explains their various use cases observed in the market, summarizes potential benefits perceived by market participants, and identifies associated challenges and issues.

Key issues identified include divergences between national authorities in applying existing EU financial services laws to virtual IBANs, particularly the Anti-Money Laundering Directive, Payment Services Directive, Capital Requirements Directive, and SEPA Regulation. These divergences undermine the EU Single Market and give rise to regulatory arbitrage.

The report also suggests that virtual IBANs are not always recognized as such by the industry and national authorities due to the lack of a common definition accounting for different use cases. As a result, the full extent of virtual IBAN issuance across EU member states is currently unknown, potentially preventing effective supervision and assessment of firms' internal controls to manage risks, especially from an AML/CFT perspective.

To address these issues, the EBA's report includes recommendations on how EU law could be clarified and what actions national competent authorities could take.

The EBA's analysis drew from various sources, including its Opinion on ML/TF risks in the EU financial sector, information from national authorities, and interviews with selected payment service providers that issue virtual IBANs.

The report aims to contribute to protecting the EU's financial system against money laundering and terrorist financing risks associated with virtual IBANs while supporting the EBA's mandate to monitor market developments and new financial activities.

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