FATF’s Proposed Disclosure Standards Might Raise Compliance Costs for Banks and Credit Card Companies

The Financial Action Task Force (FATF) is reportedly considering to introduce new disclosure rules for cross-border online transactions, including credit card payments and wire transfers. This can eventually result to higher compliance costs for banks and credit card companies, as per sources cited in a report by moneycontrol.

The proposed changes would include real-time tracking of the 'travel route' for wire transfers, according to the report. While this feature is currently accessible, it is not always available. This adjustment could affect both international and domestic transactions.

"India has been a proponent of enhanced transparency and disclosure. However, we are also committed to ensuring that these measures do not unduly hinder the fintech industry or the ease of conducting business," the source said.

The FATF is also reviewing its 'travel rule' to ensure detailed tracking of all cross-border online transactions. At present, credit card transactions only need to disclose the cardholder's name and country of origin. The proposed new standards would mandate more detailed real-time tracking, which could raise operational costs for credit card companies and financial institutions.

If adopted, the new standards would necessitate significant legal and procedural adjustments across countries. "The industry feels that the cost of compliance may be a burden on the credit card companies," said the Finance Ministry source. "Countries will need to update their legal frameworks accordingly."

There is also a chance that this new standard might result in significant legal and procedural changes across nations.

More problems for banks?

While most of the banks have delivered healthy bottom-line growth in the recent quarter, the pace of deposit growth continues to lag as compared to the credit growth. Meanwhile, the already high levels of bank's cost of borrowing have further put pressure on the lending institutions.

If the proposed standards come into effect, there is a chance that troubles for banks might increase as it can lead to higher compliance costs.