On 13 June, the Financial Action Task Force (FATF) adopted a revised travel rule for payments and value transfers – known as Recommendation 16 (R.16). This decision followed two years of intense internal discussions and two rounds of public consultations, which drew over 300 responses. Financial institutions will need to comply with the updated rule by the end of 2030, a notable departure from the FATF’s typical practice in which changes take effect immediately. The adoption of the rule raises some important questions – why was this revision required and what is the scope of the changes?
Background to the revision
The original “travel rule” set out in the FATF’s R.16 was adopted in October 2001 after the 9/11 attacks, to support the fight against the financing of terrorism. The rule requires financial institutions involved in wire transfers to collect and transmit information about the originator and beneficiary of a payment, making this data available to other institutions in the payment chain and to law enforcement.
Since the last revision in 2012, payments technology and business models have evolved significantly. The G20’s roadmap for enhancing cross-border payments also prompted updates to the rule. The revisions to R.16 aimed to: (i) ensure that the FATF Standards remain technology-neutral, following the principle of ‘same activity, same risk, same rules’, and (ii) support faster, cheaper, safer, more transparent, and more inclusive cross-border payments while maintaining their safety and security. A key element of the update was to strengthen payment transparency by increasing the amount of information about the originator and the beneficiary shared between the financial institutions facilitating the transactions.
Scope and selected elements of the new rule
The new rule covers several different areas aimed at clarifying responsibilities across the payment chain, standardizing the information required in the accompanying payment messages, and introducing verification and alignment checks.
It requires financial institutions to include enhanced and verified information about the originator, and enhanced beneficiary information in cross-border payments, value transfers, and related messages (see Table 1). Where possible, this information should follow structured formats in accordance with standards such as ISO 20022.
Different rules apply to different types of payments and contexts. The FATF also allows countries to set a de minimis threshold at a value no higher than USD/EUR 1,000 where less information may be required. The following are general features of the new scheme:
- For cross-border payments and value transfers above USD/EUR 1,000, the payment message must include the name and account number (where applicable) of both the originator and the beneficiary, or a unique transaction reference number. For individuals, the message must also include the originator’s address and beneficiary’s country and town name (or nearest alternative). For legal entities, it must include a business identifier code (BIC) or the Legal Entity Identifier (LEI) or another unique official identifier. The required originator and beneficiary data must be verified. For transactions below the de minimis threshold, the required data can be limited to the name and account number (or other unique transfer reference number) of both the originator and beneficiary, except in the case of cross-border cash withdrawals (see below). These data points do not have to be verified unless there is a suspicion of money laundering or terrorist financing.
- No changes were made to the requirements applicable to domestic payments under R.16. For domestic payments and value transfers above USD/EUR 1,000, the same originator information requirements as for cross-border payments apply – unless this information can be made available to beneficiary financial institution and authorities by other means – but no information on the beneficiary is required. For payments below the de minimis threshold, the data can be limited to the name and account number (or other unique transfer reference number) of the originator. These details do not have to be verified unless there is a suspicion of money laundering or terrorist financing.
- Card-based purchases of goods and services continue to be excluded from the full set of R.16 requirements as long as the card number accompanies the transfer and the names and locations of the financial institutions involved are available upon request. However, card-based payments for any other purpose (such as person-to-person payments) must meet the applicable cross-border or domestic rules.
- New requirements were added for card-based cross-border cash withdrawals. These transactions must include the card number and, if requested by the foreign acquiring institution, the cardholder’s name should be provided within three business days.
Table 1: Required Originator and beneficiary data for transactions above USD/EUR 1000 for cross border payments
The revised rule also provides increased protection against certain misdirected payments. For cross-border payments and value transfers above USD/EUR 1,000, the beneficiary financial institution should use the beneficiary information received to detect misdirected payments, including due to fraud and error, to prevent transfers to unintended parties.
In this revision, the FATF also updated the section on the objectives of the rule. Due to the rule’s historical origins, an emphasis on preventing terrorism financing was maintained. Combatting fraud, as a predicate offense to money laundering, was added as an explicit objective of the recommendation, along with a direct reference to United Nations Security Council Resolutions (UNSCRs) relating to the prevention, suppression, and disruption of proliferation financing.
Importantly, the revised rule explicitly states that it is not FATF’s intention for the implementation of R.16 to negatively impact financial inclusion through overly rigid standards.
As the financial inclusion community assesses these updates, questions remain about how the new rules may be implemented in practice, and whether they will hinder or help vulnerable populations. In the next blog, we explore these potential implications in greater depth.
