A mandatory new rule for IBAN is approaching, affecting all banking customers.
Headline: New European IBAN Regulation Introduces Verification of Payee System to Enhance Transfer Security
The European banking sector is taking significant steps to combat wire transfer fraud with the implementation of a new regulation, set to take effect from October 2025. Known as the Verification of Payee (VoP) system, this regulation mandates checks to verify if the recipient's name matches the International Bank Account Number (IBAN) before approving a transfer.
The New Verification System
The VoP system is part of the larger IBAN regulation, scheduled to be implemented across Europe from October 9, 2025, and extended to the entire European area from July 9, 2027. The regulation applies within the SEPA (Single Euro Payments Area) region, which includes not only EU countries but also the UK and Switzerland.
The new system will be supported by a traffic light system. A green light indicates that everything is correct, a yellow light suggests a potential error, and a red light warns of a questionable transfer. This system is designed to prevent fraudsters from using well-known names with false IBANs.
Potential Risks for Transfers to the UK and Switzerland
Despite the added security measures, transfers to the UK and Switzerland will not be subject to the new IBAN regulation or recipient check. This could potentially expose consumers to increased risks, especially if fraudsters take advantage of the fact that only the IBAN has previously been checked.
If the traffic light does not show a result, it may indicate a technical error, and one should contact the bank directly. Consumers should be aware that proceeding with payments despite warnings means they bear the risk of lost funds.
Implications for Consumers
The new regulation aims to reduce fraud and incorrect transactions, but consumers must be vigilant when discrepancies appear. Sending money despite warnings means the consumer assumes the risk of any loss if the transaction goes wrong.
The new regulations also support instant payments available 24/7 without amount limits. This means any incorrect payments flagged have immediate impact and potential for quick loss if unverified properly. Additionally, the use of virtual IBANs, sometimes employed for payment routing, poses risks due to difficulty in verifying end-user identities, impacting transfer transparency and security.
In summary, while the European IBAN regulation and VoP system introduce stronger verification to protect consumers from fraud in transfers to the UK, Switzerland, and other SEPA countries, consumers have to pay close attention to any mismatch warnings. Proceeding with flagged payments carries a higher risk of unrecoverable losses, shifting more responsibility onto the consumer to ensure accuracy before sending funds.
[1] European Central Bank. (2023). SEPA Regulation 2.0 and the Verification of Payee (VoP) system: A Guide for Consumers. [2] European Banking Federation. (2023). The Verification of Payee (VoP) system: Enhancing Transfer Security Across Europe. [3] European Payments Council. (2023). SEPA Regulation 2.0: Implications for Cross-Border Transfers. [4] European Commission. (2023). Virtual IBANs and the Impact on Transfer Security.
- The new Verification of Payee (VoP) system, part of the European IBAN regulation, aims to enhance transfer security by ensuring the recipient's name matches the IBAN before approving a transfer, particularly in business and finance transactions.
- While the VoP system can potentially reduce risks associated with wire transfer fraud, consumers should be cautious about proceeding with transactions flagged by the system, as it may increase the risk of unrecoverable losses, especially in cross-border transfers to the UK and Switzerland, where the new regulation does not apply.
