With the much-publicized UK Faster Payments Service finally hitting the shelves for the benefit of banking consumers throughout Britain on May 27, we now find that this long-overdue initiative comes with limitations and caveats from the banks that are supporting the service.

The basic premise of Faster Payments is simple: instead of a domestic Sterling payment taking three working days to reach the beneficiary, as is the case using BACS, the payment would now be credited to the final beneficiary’s account within hours of the remitting customer’s account being debited. So the question arises: will Faster Payments herald the beginning of the end for the costly CHAPS payment system? “No” is the simple answer as there are many differences between the two payment schemes that preclude any competition in the foreseeable future.

First of all, Faster Payments values are capped — the maximum amount allowed for transfer in one transaction will be £10,000 (although standing order arrangements will be able to exceed this limit up to a maximum of £100,000). These value parameters are only general guidelines from APACS who also announced that individual member banks will have the autonomy to set their own (lower, but not higher) limits and phased approach in offering the service to their client base. As CHAPS is uncapped and is used to move around large value payments such as settlements of interbank transactions, CLS Funding, house purchases and large corporate remittances, it is unlikely that any of these payments can be completed through the Faster Payments system.

Secondly, CHAPS is a Real Time Gross Settlement (RTGS) system so once a payment is made it’s irrevocable (like Fedwire in the U.S. and TARGET2 in Europe). Faster Payments is a net settlement system so even when the payment is sent, there is still time to retrieve the funds if the payment message is “in situ” and the final delivery has not been executed (like CHIPS in the U.S. but lacking the high-value capacity). The possibility of having the cash snatched back isn’t so attractive to beneficiaries who want guaranteed and immediate use of the funds, another win for CHAPS there.

So what value does Faster Payments bring to the UK clearing market? Not a lot at first. In addition to the payment value caps, according to APACS, volumes will be “carefully managed” during the initial days. On day one, it is expected that only 5% of the system‘s clearing members’ Internet and phone payments will be processed as Faster Payments. The full service won't be available to all until sometime in Q1 2009 and it may take until then to fully discern the actual benefit to the market. It seems that the expensive CHAPS system will maintain the monopoly on the high-value payments market in the UK for the immediate future, or maybe longer, until Faster Payments can offer a fully-available and higher-value service that is comparable to the net settlement systems in other countries.

AML seminars you can’t afford to miss.
In waging the war against money laundering, we’re aiming at a rapidly moving target. Don’t stay behind. Join our experts at the ACAMS and Moneylaundering.com seminar “The Essential U.S. Laws, Rules and Regulations that AML Specialists Must Know.” Designed for new AML professionals, but great for veterans, this program will offer you a unique opportunity to update your AML knowledge, get practical training, case studies, and roundtable discussions. Join us in the various cities across the US and leave with critical knowledge, continuing education credits, invaluable AML reference materials, and vital industry contacts.

For further information go to www.moneylaundering.com/seminars.

A recent article in Securities Industry News entitled “MSBs: Friend or Foe?” raises some interesting points about how banks are coping with the AML risk that their Money Services Business (MSB) clients might pose. Some banks have chosen an ultra conservative route and have severed all ties with their now former MSB clients, while others have decided to identify them and monitor their AML practices and transactions much more closely than other types of clients. No matter which side of the fence a bank lies, all are still faced with the problem of identifying which clients are, in fact, MSBs.

This is much easier said than done. The term “MSB” can be applied to some of the largest money transmitters in the world just as accurately as it can to the local businesses that cash checks for their customers. Additionally, some MSBs may have long-standing relationships with their banks, pre-dating some of the customer identification and verification regulations passed in the last 5-7 years. The only dependable method for a bank to accurately identify its MSB clients is to examine its entire client base. Thankfully, there are MSB lists and filtering applications available to help complete this task and, once done, monitoring these clients can become part of the bank’s compliance processes.