Glossary of terms
At Freemarket, we try to keep things as straightforward as we can. However, if there are any terms that are unclear, we’ve compiled a glossary to help explain.
Criteria for Electronic AML Checks to verify the identity. This difference between the single and multi-source checks has come to be called 2+2 vs. 1+1 – electronic Identity Verification (eIDV). A 2+2 request is matching 2 different definitions of input against 2 different data sources. It requires a match based on two input elements verified against two independent data sources. For example, a match could be made on COMPLETE NAME plus DOB in a credit data source (1) and COMPLETE NAME plus ADDRESS in a government (2) data source.
2 Factor Authentication
See Multi-Factor Authentication
4 eyes principle
The four-eyes principle means that a certain activity, i.e. a decision, transaction, etc., must be approved by at least two people. This controlling mechanism is used to facilitate the delegation of authority and increase transparency. On the platform, this can be used by enabling the ‘Withdrawal Approval’ feature (roles Workflow Administrator and Withdrawal Approver).
ABA Routing Transit Number
American Bankers Association code originally used on US cheques now also used in Fedwire and US ACH payments.
Alternative Payment Method (APM)
This is a method of payment which isn’t based on one of the big card rails such as American Express, JCB, Mastercard, UnionPay and Visa. Examples of this could be; bank transfers, direct debits, eWallets, or prepaid schemes.
Anti-Money Laundering (AML) checks are set out by the Financial Conduct Authority (FCA) to prevent proceeds from criminal activity being filtered through the banking system. Describes the legal controls that require financial institutions and other regulated entities to prevent, detect, and report money laundering activities. There are multiple layers of checks undertaken by Freemarket:
A company’s annual accounts – called ‘statutory accounts’ – are prepared from the company’s financial records at the end of a company’s financial year. Copies of the statutory accounts must always be sent to:
API: Application Programming Interface
An application programming interface (API) is an interface or communication protocol between a client and a server intended to simplify the building of client-side software. It has been described as a “contract” between the client and the server, such that if the client makes a request in a specific format, it will always get a response in a specific format or initiate a defined action. Clients use our API to communicate with our system to initiate some action like an exchange or to get details like transfers.
API: Authorised Payment Institution
The UK Financial Conduct Authority defines an authorised payment institution as a person authorised as a payment institution under the Payment Services Regulations and included in the Financial Services register to that effect.
Articles of association:
Together the “Mem & arts”
Written rules about running the company agreed by the shareholders or guarantors, directors and the company secretary. A scan of the document is needed when the company is registering on the portal.
A legal statement signed by all initial shareholders or guarantors agreeing to form the company. A scan of the document is needed when the company is registering on the portal.
BACS: Bankers’ Automated Clearing Services
Bacs Payment Schemes Limited, previously known as Bankers’ Automated Clearing Services, is the organisation with responsibility for the schemes behind the clearing and settlement of UK automated payment methods Direct Debit and Bacs Direct Credit, as well as the provision of managed services for third parties.
A BACS payment is made directly from one UK bank account to another, usually taking up to three working days to arrive in the recipients bank account. It is still one of the most used payment methods in the UK.
Bacs became a subsidiary of Pay.UK (formerly known as the New Payment System Operator (NPSO)) on 1 May 2018, and as a result of this, overall responsibility for the operations of Direct Debit, Bacs Direct Credit, the Current Account Switch Service, Cash ISA Transfer Service and the Industry Sort Code Directory was handed over to Pay.UK
Basis Points (bp)
Often used in relation to fees, charges and variable mark-ups on currency rates. Each basis point is 1/100th of 1% i.e. 0.01%. By way of example, 50bp is half a percent i.e. 0.50%.
Basic Bank Account Number. In the UK this is the 6 digit sort code + 8 digit account number.
BEN: BENeneficiary fee
charging methodology (compare with OUR & SHA)
Type of payment fee associated with SWIFT messages. The Payee (recipient of the payment), will incur all of the payment transaction fees. Typically, the recipient will receive the payment minus the transfer charges.
Commonly thought to be the Bank Identifier Code, actually stands for Business Identifier Code (BIC). These codes are part of the SWIFT ‘address’ of the financial institution. They help to process payments automatically.
CDD: Customer Due Diligence
Customer due diligence is the process of identifying your customers and checking they are who they say they are. In practice this means obtaining a customer’s name, photograph on an official document which confirms their identity and residential address and date of birth.
This additional information helps to ensure the ‘right’ person is being onboarded, rather than a criminal or terrorist of the same name.
CHAPS: Clearing House Automated Payment System
Clearing House Automated Payment System (CHAPS) is a sterling (GBP) high-value / urgent wholesale payment system that guarantees same-day payment processing and settlement if the instruction is sent by 2pm on a working day. US equivalent is CHIPS. Australian equivalent is RITS.
CHIPS: Clearing House Interbank Payments System
The Clearing House Interbank Payments System is a United States private clearing house for large-value transactions.
Clearing generally means the process of confirming, documenting and settling a transaction as well as managing credit and collateral exposures and supporting monitoring and reporting processes. These processes are handled by a clearing house as they require a single, central, trusted entity which can trade with all its members on terms that enable certainty and consistency.
Central banks typically perform the function of a clearing house for payments. This means they run accounts for, and hold balances deposited by, the local commercial banks (clearing banks). They ensure each is funded and has the requisite capital to protect the financial system in the country and prevent failure.
A correspondent bank is a bank in one country that is authorized to provide services for another bank or financial institution in a foreign country. The most common services provided by a correspondent bank are currency exchange; completing payments in that country (via access to the national and local clearing processes); and handling trade finance documentation (letters of credit, bills of exchange, documentary collections, etc.).
Cross-border payment is a term referring to transactions involving individuals, companies, or banks operating in at least two different countries.
CTF: Counter-Terrorist Financing
A multitude of laws and regulations have been enacted to reign in the financing of terrorist activity, and are collectively known as counter-terrorist financing policy (this may be abbreviated as CFT). Under these policies, most financial institutions are required to fulfil many strict requirements regarding monitoring customers’ transactions and behaviour, conducting proper due diligence, and maintaining appropriate records.
A currency pair is a quotation featuring two different currencies, with currency being quoted in terms of the other.
D&B: Dun & Bradstreet
Known for the Dun & Bradstreet D-U-N-S Number, a unique nine-digit code assigned by D&B to identify businesses. The DUNS Number is used around the world to identify and access information on businesses. A DUNS Number identifies a company’s Dun & Bradstreet business credit file, which may include firmographic data (company name, address, phone number, etc.), corporate family relationships (headquarters, branches, subsidiaries, etc.), and scores and ratings that assess different financial health indicators.
Direct and cover
Non-serial payment messaging where the initiating bank sends a payment message directly to the beneficiary bank (MT103), and sends funds to cover the payment (MT202COV) on an FI-to-FI basis.
Advantages: facilitates payment in jurisdictions with currency controls (e.g. most of South America) and limits intermediary bank charges.
Disadvantage: overhead (cost and risk) for banks is very high, so not widely offered
Corporates are often required to show their auditors that there is more than one (usually 2, hence dual) administrator. This avoids the situation where excessive control sits with one individual as they could have the whole fate of the company in their hands. Should they behave criminally, they could bring down the whole company.
Administration access is often required for tasks such as creating new beneficiaries, creating new users, changing users’ permissions, etc. These tasks are undertaken on a “make / checker” basis – either administrator can input an admin change on the platform but the other must check and authenticate it.
EDD: Enhanced Due Diligence
Enhanced Due diligence is a KYC process that provides a greater level of scrutiny of potential business partnerships and highlights risk that cannot be detected by Customer Due Diligence.
Faster Payments Service
“FPS”, or just “Faster Payments”, allows you to send and receive GBP payments in a maximum of 2 hours, although it can often take less than 10-15 seconds.
FPS in the UK is managed by Pay.UK and is available 24x7x365.
FPS is also the UK’s Local Automated Clearing House (Local ACH).
The maximum value threshold for individual payments that can be processed through Faster Payments is currently £250,000 however individual banks and building societies set their own value limits.
There are other Faster Payments and Instant payments services springing up around the world. E.g. Faster Payment System is a RTGS payment system in Hong Kong
FATF: Financial Action Task Force
A US-centric organisation specifically tasked with combating financial crimes such as money laundering, terrorist financing, and other forms of financial crime and corruption.
FCA: Financial Conduct Authority
The Financial Conduct Authority is a financial prudential regulatory body in the United Kingdom specifically supervising the conduct and activity of all UK financial services firms. It operates independently of the UK Government, and is financed by fees (including fines) levied on members of the UK financial services industry.
Distinct from the Prudential Risk Authority (PRA) (part of the Bank of England), which supervises capital requirements (rather than conduct).
Forwards (FX Forwards)
A forward contract is an agreement, usually with a bank or financial provider, to exchange a specific amount of currencies sometime in the future for a specific rate.
Transactions which are shorter than Spot are mathematically Forwards and traded as such, but from a regulatory perspective are considered to be Spot.
The risk of forwards is that the client will go into liquidation before the final settlement date and the contract must be terminated (this risk is called “pre-settlement risk”). There will almost certainly have been a change in the value of the forward since the contract was struck. Where there is a loss this will be borne by the counterparty (unless the loss can be offset by collateral).
FPS: Faster Payments Service
Faster Payments Service is for sending sterling payments electronically in the UK. Generally, the receiver see the credit on the account within seconds and also be able to access the funds.
FX / Forex / Foreign Exchange
Foreign exchange, FX or Forex is the market in which currencies are traded. Financial institutions and payments providers trade trillions a day.
G10 “Major” currencies
The 10 most traded and most liquid currencies in the world. Comprises:
Sometimes includes Danish krone (DKK).
Any currency outside G10 is considered “Minor”, Tertiary or Exotic
Global FX Code of Conduct
Voluntary code of practice which all major global market-making banks have signed-up to adhere to.
IAIS: International Association of Insurance Supervisors
The International Association of Insurance Supervisors is a voluntary membership-driven standards-setting organization of insurance supervisors and regulators from over 190 jurisdictions in more than 140 countries.
Every bank account has an International Bank Account Number (IBAN). It is a unique code which provides a standard way to identify any account, worldwide. Made up of the country code (GB), 2 digit check-sum, 4 character bank code (from the BIC) then the local BBAN (in the UK the 6 sort code +8 account number). BBAN differs in length between countries, but the structure of the first 8 characters (2 + 2 + 4) is common.
The institutional, or interbank rate is the price banks use to exchange a currency with each other. It is usually very close to the mid-market rate. At Freemarket, we use this rate to buy currency to cover users’ requirements that aren’t matched in a scheduled exchange, and we pass the price on.
Refers to an exchange payment instruction.
An Interchange is a fee paid between banks from the acquirer to the card issuer each time a card payment transaction occurs.
IOSCO: International Organization of Securities Commissions
The International Organization of Securities Commissions is an association of organizations that regulate the world’s securities and futures markets. Members are typically primary securities and/or futures regulators in a national jurisdiction or the main financial regulator from each country.
The IOSCO Objectives and Principles of Securities Regulation sets out 38 Principles of securities regulation, which are based upon three Objectives of securities regulation. These are: protecting investors; ensuring that markets are fair, efficient and transparent; reducing systemic risk.
International Standards Organisation (ISO) 20022
International Standards Organisation (ISO) 27001
International Standards Organisation (ISO) 9001
Quality Assurance, Quality Control
Know Your Business
identifying the beneficial owner and taking reasonable measures to verify that person’s identity so that the obliged entity is satisfied that it knows who the beneficial owner is, including, as regards legal persons, trusts, companies, foundations and similar legal arrangements, taking reasonable measures to understand the ownership and control structure of the customer; EUR-Lex
“Beginning on the Applicability Date, covered financial institutions must identify and verify the identity of the beneficial owners of all legal entity customers (other than those that are excluded) at the time a new account is opened (other than accounts that are exempted).”
Process of a business verifying the identity of its clients and assessing their suitability, along with the potential risks of illegal intentions towards the business relationship.
Know Your Customer (KYC) checks are part of the Anti-Money Laundering procedures set out by the Financial Conduct Authority. They protect companies and their customers from fraudulent behaviour, and we carry them out as standard when we verify a new Freemarket member.
KYCC: Know Your Customer’s Customer
Where KYC must be conducted on an underlying service user who is not directly contracting with the provider of those services. May be required in certain circumstances for named vIBANs.
Lines of defence
Generally accepted approach to risk management:
Majors / Major Currencies
Usually, financial institutions make money by charging different prices for buying and selling a currency. The mid-market rate eliminates this margin, and is the exact halfway point between the two. At Freemarket, is the rate we use for our matched, scheduled currency exchanges.
The Markets in Financial Instruments Directive is the EU legislation that regulates firms who provide services to clients linked to ‘financial instruments’ (shares, bonds, units in collective investment schemes and derivatives), to improve the functioning of financial markets making them more efficient, resilient and transparent.
Relevance (i) “means of payment” exemptions for Forwards; (ii) Use of Non Financial Company (NFC and NFC+) designations.
Minor / Tertiary / Exotic Currencies
Non-G10 currencies. See G10.
MLD4: The Fourth Money Laundering Directive
The Fourth Money Laundering Directive ((EU) 2015/849) is designed to strengthen the EU’s defences against money laundering and terrorist financing, while also ensuring that the EU framework is aligned with the Financial Action Task Force’s (FATF) international anti-money laundering (AML) and counter-terrorist financing (CTF) standards. MLD4 repealed and replaced the Third Money Laundering Directive (2005/60/EC) (MLD3) and the MLD3 implementing Directive (2006/70/EC). Member states were required to transpose MLD4 by 26 June 2017.
This note provides an overview of MLD4, including its scope and key provisions, the changes that will be made by the Fifth Money Laundering Directive ((EU) 2018/843) (MLD5), as well as future initiatives required by MLD4.
MLR: Money Laundering Regulation
The Money Laundering Regulations 2017 were enacted in the UK in June 2017 to curtail money laundering and terrorist financing activities.
MLRO: Money Laundering Reporting Officer
Sometimes referred to as a ‘nominated officer’ – provides oversight for a firm’s anti-money laundering (AML) systems, and acts as a focal point for related inquiries.
MRZ: Machine Readable Zone
The machine-readable zone of a Type 3 travel document spans two lines, and each line is 44 characters long. The following information must be provided in the zone: name, passport number, nationality, date of birth, sex, and passport expiration date. The values are requested when entering passport details on the portal during the onboarding process.
MSB: Money Services Business
Defined as one of (i) Cheque cashing; (ii) Bureau de Change, or (iii) Money Transmission. Usually refers to the cash-to-cash agency model for remittances.
MT103: Message Type 103
MT103 is a SWIFT payment message type/format used for cash transfer specifically for cross border/international wire transfer. MT103 alone is a ‘serial’ payment message (see ‘direct-and-cover’ for a description of non-serial).
SWIFT messages consist of five blocks of the data including three headers, message content, and a trailer. Message types are crucial to identifying content. All SWIFT messages include the literal “MT” (Message Type). This is followed by a three-digit number that denotes the message category, group and type. Consider the example MT103:
The first digit (1) represents the category. A category denotes messages that relate to particular financial instruments or services such as cash transfer (1), treasury (3), or cash management (9). The category denoted by 1 is cash transfer.
The second digit (0) represents a group of related parts in a transaction life cycle. The group indicated by 0 is a financial institution transfer.
The third digit (3) is the type that denotes the specific message. There are several hundred message types across the categories. The type represented by 3 is a notification.
MTIC: Missing Trader Inter-Community
Missing trader fraud (also called missing trader intra-community or MTIC) and the related carousel fraud is the theft of Value Added Tax (VAT) from a government by organised crime gangs who exploit the way VAT is treated within multi-jurisdictional trading where the movement of goods between jurisdictions is VAT-free.
This allows the fraudster (person who commits fraud) to charge VAT on the sale of goods, and then instead of paying this over to the government’s collection authority, to abscond, taking the VAT with them. This is termed “missing trader” as the trader goes missing with the VAT. “Carousel” refers to a more complex type of fraud in which VAT and goods are passed around between companies and jurisdictions, similar to how a carousel goes round and round.
Multi Factor Authentication
Authentication is the act of ensuring that a sensitive instruction is authentic. The sensitivity to others having control arises from the potential to lose confidentiality of information, control over a sensitive system or results in the user controlling financial assets.
Multi-factors (and within this 2-factor authentication) means that to open the platform or execute a change the user would have to provide evidence from more than one factor. The factors are:
NCA: National Crime Agency
The National Crime Agency is a national law enforcement agency in the United Kingdom. It is the UK’s lead agency against organised crime; human, weapon and drug trafficking; cyber crime; and economic crime that goes across regional and international borders, but can be tasked to investigate any crime.
The account that a respondent bank holds at a correspondent bank, usually for the purposes of payment clearing. Described as the Nostro by the respondent bank (as derives from the Latin for ‘ours’).
The correspondent bank describes its provision of these accounts to other FIs as a ‘Vostro’ or ‘clearing’ service (Vostro derives from ‘yours’).
The total principal amount specified in the contract.
Most accurately it is used to calculate the cash flows to be exchanged in a derivative contract. It is therefore ‘notional’ i.e. not real. It is usually not the actual amount the counterparties will exchange.
Some parties do use ‘notional’ when they mean ‘real’ so talk about the ‘notional value’ of a spot FX deal. This does not make logical sense, but could be acceptable if both parties are making the same mistake and there is consequently a ‘meeting of minds’ in contract formation.
OFAC: The Office of Foreign Assets Control
Financial intelligence and enforcement agency of the U.S. Treasury Department. It administers and enforces economic and trade sanctions in support of U.S. national security and foreign policy objectives.
OFSI: Office of Financial Sanctions Implementation
The Office of Financial Sanctions Implementation helps to ensure that financial sanctions are properly understood, implemented and enforced in the United Kingdom.
UK’s regulatory response to the Competition and Markets Authority (CMA) review into competition in UK Banking. Led to the opening up of the CMA-9 banks (who were the focus of the review).
Open Banking requires publication of APIs which enable other PSPs to (i) view the transaction history in the account (using the Account Information Service (AIS) call); and (ii) initiate payments from the account (using the Payment Initiation Service (PIS) call).
Roles defined in the Payment Services Regulations (PSRs), although as stated the UK was implementing changes ahead of PSRs coming into force.
Type of payment fee. The Payer (sender of the payment) will bear all of the payment transaction fees. Normally billed separately for the payment transfer.
Payment Authorisation Groups
Requires a payment system to manage groups and also assigns a role profile to people. Usually important where (say) more than 8 staff (in addition to the 2 administrators) have access to the payment platform.
A payment confirmation can be a receipt (either a scan, a photo or a PDF) or a screenshot from an online bank showing details, recipients’ bank details, date, amount, currency, and reference. Corresponding data for Freemarket transactions and use here.
At Freemarket, you exchange your currency with other members, rather than buying from a bank; this is an example of a peer-to-peer service. Our members supply and demand the currency, and our service matches those requirements and calculates a fair rate (based on the mid-market).
PEP & Sanctions Checks:
PEPs and Sanctions checks are often discussed simultaneously as they are both required by KYC laws. These checks allow you to see if a company has been sanctioned or if a politically exposed person is connected to the company.
PEP: Politically Exposed Person
Someone who has been entrusted with a prominent public function. A PEP generally presents a higher risk for potential involvement in bribery and corruption by virtue of their position and the influence that they may hold.
In currency exchange, Pip stands for “point in percentage”; it is used to describe how values change between currencies. It is usually measured at the fourth decimal point. For example, if the GBP/EUR rate is 1.1425, and the Pound depreciates by five Pips against the Euro, the new rate would be 1.1420; a depreciation of €5 in every £10,000.
POBO: Payments On Behalf Of
A regional treasury centre (RTC) or shared service centre (SSC) makes payments “on behalf of” its participating group of companies through a single account (usually by currency). These payments are booked on the originating entity’s intercompany account. The beneficiary uses the entity name held on the remittance information to identify on whose behalf a payment is made, and reconcile the payment.
POO: Payment Originated Overseas
A Payment Originating Overseas (POO) is any transaction you believe is subject to Wire Transfer Regulations. Both the sending and receiving PSP should conduct Sanctions screening in line with their own policy. At all times, PSPs should follow the prevailing legislative requirements regarding AML and KYC. The ‘Originating Credit Institution’ field (tag 42 of the ISO8583 message) must be a BIC (Bank Identifier Code), not a Sort Code. This is the only method whereby the Receiving PSP identifies a payment as being a POO. Failure to correctly populate this field could result in the Receiving Participant being in breach of AML and / or KYC legislation.
POO applies in the event any PSP we engage are originating UKFP demand from outside UK
PSD2 is an EU legislation which sets requirements for firms that provide payment services. As well as promoting innovation, PSD2 aims to improve consumer protection, make payments safer and more secure, and drive down the costs of payment services.
Payment Services Regulations 2017
The UK’s implementation of the EU’s Payment Services Directive.
PSP: Payment Service Provider
A payment service provider (PSP) provides payment services to payment services users (PSUs). Domestically, may include acceptance of electronic payments by a variety of payment methods including credit card, bank-based payments such as direct debit, bank transfer, etc. Internationally, provide the ability to send funds overseas.
Purchase of Currency. For example, for a GBP/EUR exchange we give pounds and purchase euros. Different from a bank transfer made on the platform.
RFP: Request For Payment
A payment request, also known as a request for payment, is a nonstandard request by a department for approval of payment by the company for goods or services. It is often used for purchases when an invoice is not provided. Organizations often allocate budgets to departments for purchase of supplies, goods and services. Requests for payment are used to gain approval for payment toward a nonstandard purchase, or in some instances to provide reimbursement for a payment.
RFP: Request For Proposal
The formal initiation and response document when Tendering for new business process (or to retain existing business).
A structured request to bid for business. An RFP document usually has questions that indicate the needs of the the issuing company and which the bidding companies are required to answer.
Request to Pay
A ‘pull’ of funds using Payment Initiation under Open Banking legislation and using Open Banking Payment Initiation Service (PIS) API.
Open Banking also enables Account Information Service (AIS) APIs for sharing balances and transaction history.
“Reliance” (capital ‘R’) has a specific meaning in Money Laundering Regulations 2017. The application of Reliance has changed since the 2007 act.
A firm placing Reliance on another firm, both of which are regulated entities, to conduct Due Diligence. The conditions include (i) the firm which has conducted the DD must give its consent to the Reliance, and (ii) the firm requesting reliance must have the right to request copies of the supporting KYC documents.
Careful use should be made of “to rely” or “place reliance”
RITS: Reserve Bank Information and Transfer System
The Reserve Bank Information and Transfer System is Australia’s high-value settlement system, which is used by banks and other approved institutions to settle their payment obligations on a real-time gross settlement (RTGS) basis. Final and irrevocable settlement is achieved by the simultaneous crediting and debiting of Exchange Settlement Accounts (ESAs) held at the Reserve Bank of Australia. Transactions are entered into RITS directly, or delivered via external feeder systems including SWIFT and Austraclear. These include payments that settle through CLS, a multi-currency settlement system designed to reduce foreign exchange settlement risk.
ROBO: Receivables On Behalf Of
A Regional Treasure Center or Shared Service Center collects incoming payments “on behalf of” its participating group of companies through a single account (usually by currency). These incoming payments are reconciled centrally and booked on the relevant entity’s intercompany account. Virtual accounts are often used to help identify incoming flows to improve automatic reconciliation.
RTGS: Real-time Gross Settlement
Generic term for high-value, urgent and wholesale payments. Funds are moved at the Clearing Bank’s account with the central bank as soon as the instruction is received; there is no assumption that netting the flow with a payment in the opposite direction will take place.
In the UK the RTGS clearing process is CHAPS.
RTP: Real-time Pricing
Real-time pricing gives customer information about the actual cost of the transaction at that point in time. For example we will provide the actual exchange rate along with the cost for an exchange that customer could get if the customer choose to execute the transaction at that point in time.
Payment Service Providers acting as Authorised Payment Institutions require their partner banks to open accounts for them The accounts are named e.g. FreemarketFX Ltd client funds or FreemarketFX Ltd Safeguarded funds. The bank then provides a warranty to the PSP which states that the funds in that account cannot be classed as assets of the PSP in the event of a liquidation, and further noting that that the monies are held in-trust for the underlying Payment Services User in-line with Payment Services Regulations 2017.
SAR: Suspicious Activity Report
Suspicious Activity Reports alert law enforcement to potential instances of money laundering or terrorist financing. SARs are made by financial institutions and other professionals such as solicitors, accountants and estate agents and are a vital source of intelligence not only on economic crime, but on a wide range of criminal activity. They provide information and intelligence from the private sector that would otherwise not be visible to law enforcement.
SCDD: Standard Customer Due Diligence
In the majority of cases, standard due diligence is the level of due diligence that will be used. These are generally situations where there is a potential risk but it is unlikely that these risks will be realised. Standard due diligence requires you to identify your customer as well as verify their identity.
SDD: Simplified Due Diligence
Simplified due diligence is the lowest level of due diligence that can be completed on a customer. Often customers that are required to disclose information regarding their ownership structure and business activities or companies that are subject to the Money Laundering Regulations are seen to be a lower risk. SDD has effectively been removed from legislation under Money Laundering Regulations 2017 as is not used by Freemarket.
SEPA (Single Euro Payments Area) is an initiative set by the European union to make European payments as easy and cheap as domestic ones by creating a single market for euro-denominated payments. SEPA is made up of the Eurozone, countries within the EU and EEA and a few other countries which also support Euro bank transfers.
SEPA: Single Euro Payments Area
SEPA is the new format for cross-border Euro bank transfers. SEPA aims to make cross-border Euro transfers within this area equivalent to a domestic transfer within your own country. SEPA is made up of the Eurozone, countries within the EU and a few other countries which also support Euro bank transfers.
The Payer (sender of the payment) will pay all fees charged by the sending bank and is charged separately for the payment transfer. The Payee (recipient of the payment) will pay all fees charged by the receiving bank. The recipient will receive the payment minus any correspondent/intermediary bank fees.
SIC: Standard Industrial Classification
Standard Industrial Classification is a system for classifying industries by a four-digit code. The first two digits of the code represent the major industry sector to which a business belongs. The third and fourth digits describe the sub-classification of the business group and specialization, respectively. For example, “36” refers to a business that deals in “Electronic and Other Equipment.” Adding “7” as a third digit to get “367” indicates that the business operates in “Electronic, Component and Accessories.” The fourth digit distinguishes the specific industry sector, so a code of “3672” indicates that the business is concerned with “Printed Circuit Boards.”
When you register a company at Companies House, you must provide at least one SIC code to describe what your business does, even if it is dormant (inactive/not trading). You can choose up to four SIC codes if required.
Sending multiple smaller transactions spaced over a period of time, rather than one large transaction to avoid hitting a size that leads to greater financial crime scrutiny and checking.
SOF: Source Of Funding
Sources of funding include credit, venture capital, donations, grants, savings, subsidies, and taxes. Fundings such as donations, subsidies, and grants that have no direct requirement for return of investment are described as “soft funding” or “crowdfunding”. Funding that facilitates the exchange of equity ownership in a company for capital investment via an online funding portal as per the Jumpstart Our Business Startups Act (alternately, the “JOBS Act of 2012”) (U.S.) is known as equity crowdfunding.
SOW: Source Of Wealth
Source of wealth is how the individual involved in the transaction has accumulated assets and general wealth. It is less concerned with the legitimacy of the transaction and more with the legitimacy of the payer of funds.
The spot rate is the price quoted with settlement usually for settlement in T+2 (fulfilment / delivery 2 business days after contractual execution) on a commodity, security or currency transaction. The spot rate, also referred to as the “spot price,” is the current market value of an asset at the moment of the quote.
When an institution buys a currency at one price and sells it at another, the difference between the two rates is called the spread margin. It is often denoted in Pips or Basis points.
SSI – Standard Settlement Instructions
The Standard Settlement Instructions (SSI’s), refer to a Legal Entities Settlement Instruction for which key information remains the same from one cash settlement to another (i.e., bank, account number and account name), with only the amount and value date modified. Each instruction and any subsequent update to it should have a unique instruction identifier.
Strong Customer Authentication (SCA)
Strong Customer Authentication (SCA) is a European regulatory requirement, designed to make paying online more secure, and consequently, reduce payment fraud. For further information on Strong Customer Authentication – read our article here.
SWIFT / BIC
The bank that holds your account has a unique Business Identification Code (BIC), which enables other banks to send and receive secure messages about payments. The Society for Worldwide Interbank Financial Telecommunications (SWIFT) code is one format of BIC. SWIFT BICs are most commonly used for international wire transfers and are comprised of 8 or 11 alphanumeric characters.
SWIFT: Society for Worldwide Interbank Financial Telecommunication
An internationally-recognized identification code for banks around the world. SWIFT codes are most commonly used for international wire transfers and are comprised of 8 or 11 alphanumeric characters.
TARGET2: Trans-European Automated Real-time Gross Settlement Express Transfer System
Real-time gross settlement (RTGS) system for the Eurozone, which is also available to non-Eurozone countries. It was developed by and is owned by the Eurosystem.
TARGET2 is based on an integrated central technical infrastructure, called the Single Shared Platform (SSP). SSP is operated by three providing central banks: France (Banque de France), Germany (Deutsche Bundesbank) and Italy (Banca d’Italia).
TCH: The Clearing House
The Clearing House is a banking association and payments company that is owned by the largest commercial banks and dates back to 1853. The Clearing House Payments Company L.L.C. owns and operates core payments system infrastructure in the United States and is currently working to modernize that infrastructure by launching a new, ubiquitous, real-time payment system.
Third Party Deposit
UBO: Ultimate Beneficial Owner
The person or entity that is the ultimate beneficiary of the company. The underlying reason for identifying UBO is to prevent natural persons with malintent, such as money-laundering or financing terrorism, from being able to hide behind a company, foundation or other legal entity. The ultimate beneficial owner of a legal entity is the natural person who: holds an interest of at least 25% in the legal entity’s capital; OR can exercise at least 25% of the voting rights at the general meeting of shareholders OR is the beneficiary of at least 25% of the legal entity’s capital.
UKFP: UK Faster Payments
UK banking initiative to reduce payment times between different banks’ customer accounts from the three working days that transfers take using the long-established BACS system, to typically a few seconds.
vIBAN: Virtual IBAN
A virtual IBAN is an IBAN (International Bank Account Number) reference issued by a bank to allow incoming payments to be rerouted to a different, physical bank account. Virtual IBAN accounts can be used to send and receive payments worldwide, allowing businesses to extend their value chain to provide settlement services to its global customers. From the customer’s point of view, a virtual IBAN works in exactly the same way as a regular IBAN account – once they make a payment, their funds will end up in the physical bank account linked to the virtual IBAN.
A virtual IBAN (International Bank Account Number) is issued by a bank to allow incoming payments to be rerouted to a different, real, physical bank account.