IBAN discrimination still harms consumers, says EU auditors

EU consumers continue to face discrimination as a result of the geographical location of their bank accounts, despite the 2014 Single Euro Payments Area (SEPA) Regulation outlawing this, according to a new report published by the European Court of Auditors (ECA).  

The phenomenon is also known as ‘IBAN discrimination’ and refers to cases where a company or institution refuses to accept a SEPA transfer or payment because the IBAN is from a different EU/EEA country to the one in which the bank or company is based.   

“IBAN discrimination can be very annoying for consumers as it might force you to open multiple bank accounts when you live in different EU member states or prevents you to use newer banking services offered by Fintechs,” Anna Martin, Head of financial services at European consumer organisation BEUC told Euronews.  

The Luxembourg-based ECA said the Commission’s efforts to eradicate the practice are being hampered by regulatory loopholes and varying penalties for IBAN discrimination, with minimum fines ranging from €250 to €10,000 and maximum fines from €3,500 to €10 million plus up to 10% of annual turnover in the case of companies.  

Discrimination based on the location of the bank account has also led to an increase in virtual IBANs, which the European Banking Authority (EBA) says pose several risks related to money laundering, consumer and depositor protection, authorisation, and passporting. 

“Virtual IBANs cannot be the solution to IBAN discrimination as it makes fraud prevention and resolution more difficult and creates confusion for consumers about their legal protections, such as refund rights in case of fraud or the protection of their deposit in case of bankruptcy,” Martin said.  

The EU executive has acknowledged that despite its actions, IBAN discrimination remains an unresolved issue a decade after the regulation came into force, but claims it is not an EU-wide phenomenon.   

According to the ‘Accept my IBAN’ initiative, led by fintech company Wise, most alleged cases of IBAN discrimination in 2023 relate to Germany, Spain, France and Italy — although these estimates are conservative, as the initiative only acts as an intermediary with the reporting authorities and there are more ways to complain about such issues. 

“Enforcement gaps continue to exist today, and the European Fintech Association (EFA) believes that stronger and more uniform penalties across member states, along with proactive monitoring and enforcement by regulators, are essential to ensure compliance with the SEPA regulation,” EFA told Euronews in a statement.  

Similarly, the European Third Party Provider Association (ETPPA) board member Fanny Rodriguez said that to address these issues, it is imperative that European authorities enforce existing regulations more effectively and promote the acceptance of non-domestic IBANs in all member states.

Ideally, EFA added, Europe should benefit from a single EU IBAN number, further strengthening the single market rather than making companies see the EU as a fragmented market where it is more difficult to do business. 

The EU Commission accepted the recommendations but made it clear that the effectiveness of its action depends to a large extent on the determination of the competent national authorities to implement and enforce dissuasive and punitive measures at the national level.