# Virtual Accounts: leading payment expert calls for major changes in Wolfsberg Group guidance around “On behalf of” payments Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2018-06-06 Category: FINANCE Category URL: https://financedigest.com/category/finance Meta Title: Robert Lyddon: Analysis of Wolfsberg Group Payment Meta Description: Discover the insights on 'On behalf of' payments and Virtual Accounts from the expert in financial structures and Wolfsberg Group standards. URL: https://financedigest.com/virtual-accounts-leading-payment-expert-calls-for-major-changes-in-wolfsberg-group-guidance-around-on-behalf-of-paymentshtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/fd060618-8-1736842656410-compressed.jpg) _**Robert Lyddon** is the current Director of Lyddon Consulting and former General Secretary of the IBOS Association secretariat in London._ Major changes are needed to the section in the Wolfsberg Group’s Payment Transparency Standards 2017 on “On behalf of” payments, and to confirm salient facts about the Virtual Accounts that these types of payment are made across. “On behalf of” payments are, as the name infers, made by one party on behalf of another, and payment transparency should result in both of the parties being visible in the payment. This principle is not always adhered to, especially where the [payment traffic of very large corporates](https://www.financedigest.com/what-does-the-future-hold-for-corporate-payments.html "What Does the Future Hold for Corporate Payments?") is concerned. Indeed, these financial structures obscure the corporate’s internal arrangements from their external [trading](https://www.financedigest.com/trade-finance-the-small-brush-to-paint-the-big-picture.html "Trade Finance: The Small Brush to Paint the Big Picture") counterparties. Our analysis is based on a [case study](https://www.financedigest.com/demand-from-retail-food-and-beverages-sector-to-account-for-over-70-of-refrigerated-display-cases-sales-study.html "Demand from Retail Food and Beverages Sector to Account for over 70% of Refrigerated Display Cases Sales: Study") of a putative American bank as the organiser of such a scheme for a multinational client, using its London branch as the fulcrum and as the Account Servicing Institution for what it claims are the “real accounts” belonging to the client’s Shared Service Centre. The Virtual Accounts have no Account [Servicing Institution](https://www.financedigest.com/visa-launches-crypto-advisory-service-for-financial-institutions-merchants.html "Visa launches crypto advisory service for financial institutions, merchants") attached to them. However they each carry in their naming the identity of one of the [client’s Operating](https://www.financedigest.com/white-bullet-appoints-stuart-dickinson-as-director-of-advertising-operations-and-client-success.html "White Bullet appoints Stuart Dickinson as Director of Advertising Operations and Client Success") Companies, and they are mainly established in the bank’s non-UK branches, subsidiaries and partner banks. There is thus a hub-and-spoke arrangement, with the [coordinating bank and the corporate Shared Service Centre](https://www.financedigest.com/ukraine-grain-export-coordination-centre-opens-in-istanbul.html "Ukraine grain export coordination centre opens in Istanbul") constituting the hub. The [Operating](https://www.financedigest.com/stellantis-reshuffles-european-financing-operations-through-new-jvs-with-banks.html "Stellantis reshuffles European financing operations through new JVs with banks") Companies and the non-UK financial institutions establishing their Virtual Accounts are the spokes, and can be expected to exist in every country where the corporate group has an Operating Company. Set against this arrangement, Wolfsberg’s standards for payment transparency are far from complete. This has the effect of giving a clean bill of health to a range of services that are quite suspect given our understanding and analysis of applicable regulations on [Anti-Money Laundering](https://www.financedigest.com/anti-money-laundering-time-to-take-a-new-approach.html "ANTI-MONEY LAUNDERING: TIME TO TAKE A NEW APPROACH?") and Countering the Financing of Terrorism, or AML/CFT as they are known for short. All Wolfsberg Group’s 13 members figure in the Financial Stability Boards list of the world’s 30 [Global Systemically](https://www.financedigest.com/global-automotive-brake-system-market-is-expected-to-witness-a-rise-of-3-cagr-between-the-forecast-years-of-2020-2030.html "Global Automotive Brake System Market is expected to witness a rise of 3% CAGR between the forecast years of 2020-2030") Important Banks. Wolfsberg guidance has a meaningful [impact on market](https://www.financedigest.com/railway-bearing-market-size-2021-key-manufacturers-industry-share-investment-opportunities-future-trends-market-impact-revenue-demand-and-analysis-by-forecast-2030.html "Railway Bearing Market Size 2021 Key Manufacturers, Industry Share, Investment Opportunities, Future Trends, Market Impact, Revenue, Demand and Analysis by Forecast 2030") practice, and on international banking services. What is more, theWolfsberg members include in their number some of the main proponents of these financial structures, so there is an inevitable suspicion of students marking their own homework. The section that exists in the Payment Transparency Standards 2017 [falls short](https://www.financedigest.com/analysis-china-property-financing-tweaks-fall-short-of-investor-expectations.html "Analysis-China property financing tweaks fall short of investor expectations") in several ways. Firstly it only [deals with payments](https://www.financedigest.com/sabadell-in-talks-with-worldline-nexi-and-fiserv-for-payments-deal-sources.html "Sabadell in talks with Worldline, Nexi and Fiserv for payments deal -sources") i.e. with outgoing [payments looked at from the point of the view of the remitting banks](https://www.financedigest.com/more-banks-join-european-instant-payments-pilot-from-end-2023.html "More banks join European instant payments pilot from end 2023"). Even that section needs to be expanded, because in the case study example, the [Operating Companies put on their invoices only their Virtual](https://www.financedigest.com/augmented-reality-ar-virtual-reality-vr-to-dictate-the-growth-of-mobile-operating-tables-market.html "Augmented Reality (AR)/Virtual Reality (VR) to dictate the growth of Mobile Operating Tables Market") Account details. Their customer paying them will be unaware of the existence of the “real” account sitting behind, so they will give their [bank its instruction quoting only the Virtual Account](https://www.financedigest.com/scams-avoided-how-to-prevent-bank-account-scams-in-2023.html "Scams Avoided: How to Prevent Bank Account Scams in 2023") details. Wolfsberg state that both sets of details should be quoted but that is clearly impossible when the existence of the “real” accounts is obscured. Secondly, there needs to be a whole new section on receipts, looked at from the angle of the beneficiary bank. This side is not addressed at all. Thirdly there is a question about the [Customer Due Diligence](https://www.financedigest.com/why-due-diligence-is-so-important-for-direct-debit-customers.html "Why due diligence is so important for Direct Debit customers") obligations of the financial institutions establishing Virtual Accounts for the Operating Companies. Wolfsberg Group should address this and confirm explicitly that any financial institution that issues unique banking details associated in its own records with a specific legal person is an Account Servicing Institution for that legal person and must have a compliant Customer [Due Diligence](https://www.financedigest.com/a-digital-first-world-means-investors-should-look-to-digital-due-diligence-first-too.html "A digital-first world means Investors should look to digital due diligence first too") file on the legal person. There is a need for industry-wide clarity around the AML/CFT implications of both “On behalf of” payments and receipts, and of Virtual Accounts, the type of account to which “On behalf of” payments and receipts are [normally posted](https://www.financedigest.com/preparing-for-normal-advice-on-post-pandemic-budgeting.html "Preparing for normal: Advice on post-pandemic budgeting"). Without the changesrequested to the guidance on the contents of payment and receipt messages, there is a specific risk of non-compliance with implementations of FATF Recommendation 16 – such as EU Regulation 2015/847 of 20 May 2015 on information accompanying transfers of funds – because messages may not contain the details of both (i) the party that owns the real account that funds are debited or credited to; and (ii) the party that has [entered into the contract for the supply](https://www.financedigest.com/trafigura-enters-3-billion-loan-to-supply-germanys-sefe-with-gas.html "Trafigura enters billion loan to supply Germany’s Sefe with gas") of goods/services that the payment or receipt relates to, and “on whose behalf” the payment or receipt is being made or received. Contrary to the inference of the [WolfsbergPayment Transparency Standards, though, it is not the details of Party (ii) – the “On behalf of” party – whose details are normally missing, but the details of Party (i) – the owner of the real account that is at the start or end of the payment chain](https://www.financedigest.com/eliminating-payment-barriers-the-future-of-supply-chain-payments-is-digitization.html "Eliminating Payment Barriers: The Future of Supply Chain Payments is Digitization"). **There are two other major problems with the** Wolfsberg **standards:** 1. The standards infer that the real account sits in front of the virtual, or “On behalf of”, account [towards the outside world](https://www.financedigest.com/why-the-it-industry-can-look-positively-towards-the-post-pandemic-world.html "Why the IT industry can look positively towards the post-pandemic world"), but in fact it is normally the virtual account that is presented to trading counterparties, and the real account that is invisible to them; 2. These structures are principally used for receipts rather than for payments, such that the Wolfsberg standards are completely missing this side of it. Virtual [Accounts](https://www.financedigest.com/now-is-the-time-for-banks-to-introduce-intelligent-account-analysis.html "Now Is the Time for Banks to Introduce Intelligent Account Analysis") involve a bank issuing unique banking details to a specific legal person on the corporate side. In the bank’s books the banking details are linked to records in which the [name of this specific legal person](https://www.financedigest.com/elon-musk-named-times-2021-person-of-the-year.html "Elon Musk named Time’s 2021 ‘Person of the Year’") is visible. The bank is also [aware](https://www.financedigest.com/selfie-awareness-the-cyber-risk-going-undetected-in-banks.html "Selfie-awareness: the cyber risk going undetected in banks") that the specific legal person will use the banking details, and no others, in their dealings with third-parties. These circumstances make the bank an Account Servicing Institution to that [specific legal person and should compel it to carry out Customer Due Diligence on the specific legal person as laid down in applicable](https://www.financedigest.com/application-specific-integrated-circuits-market-expected-to-reach-usd-33545-7-million-by-2026-tmr.html "Application Specific Integrated Circuits Market Expected To Reach USD 33,545.7 Million By 2026 – TMR") AML/CFT regulations. This seems to be an obvious truth, but it is not adhered to in “On behalf of” structures, and so it is vital that Wolfsberg Group explicitly confirm the obvious. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---