Highlights on local and regional regulations impacting cross-border payments and ecommerce

As if cross-border payments were not already plagued with disjointed processes, multiple regulations, and disparate groups of players across the ecosystem, the collapse of FTX did not do any favours. Though FTX is an exchange and is not directly involved in solving cross-border payment problems, its association with cryptocurrencies (e.g., stablecoins, digital currencies), blockchain, and distributed ledger technologies could mean one of two things: 1) the glimmer of hope and promise of faster, more efficient cross-border payments spawned by digital currencies and blockchain is going to be hampered by more stringent regulations to overcompensate for the lack thereof; or 2) the focus on regulating cryptocurrencies and related will bring together regulators and players in the space for more consistent and standard rules of the road that actually benefits the industry as a whole – ultimately being a positive uplift for cross-border payments holistically. Only time will tell. 

That being said, it has always been hard to mention ‘cross-border payments’ without saying the word ‘regulations’, and these past few years have been quite the attestation: this year alone has been riddled with various rules and regulations coming from local and regional regimes that continue to complicate (yet protect) cross-border payments and international ecommerce. These rules and regulations generally span across the following high-level themes that will be discussed further below: 

1. Anti-Money Laundering (AML)/Counter-Terrorist Financing (CTF); 

2. Taxes; 

3. Customer mandates. 

Note: This discussion does not incorporate complex international trade regulations (imports/exports). 

AML/CTF 

Anti-money laundering and counter-terrorist financing regulations continue to be a necessary yet thorny puzzle piece for cross-border payments and ecommerce. Even though the Financial Action Task Force (FaTF), the global money laundering and terrorist financing inter-governmental body, has set international standards, every jurisdiction implements them differently; and from a cross-border payments perspective, that means a company looking to remit money to freelancers around the world, for example, could be collecting and verifying hundreds of variations of Know Your Customer (and other) data fields and documents to satisfy the letter of the law. Not to mention, these AML/CTF standards change often in response to ‘bad behaviours’. Below is a sample of new or upcoming rules that will have an impact on cross-border payments and ecommerce: 

1. Canada: ‘Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its Regulations’ was amended to remove the exemption for merchant processing, thereby making those who process merchant transactions required to register as money service businesses (MSBs) (reported April 2022); 

2. The US: ‘Beneficial ownership rule’ will require certain entities to disclose beneficial ownership information starting in 2023 (finalised September 2022); 

3. Japan: ‘Act on Prevention of Transfer of Criminal Proceeds’ will be amended at a future date to include new remittance rules that will require the sharing of customer information between exchange operators (reported October 2022). 
   
   

Taxes (as if AML/CTF regulations were not complex enough) 

Albert Einstein once said, ‘The hardest thing in the world to understand is the income tax’. It would be interesting to hear what he would have to say today about the tax regulations impacting international ecommerce and cross-border payments lately. Local and regional governments are increasingly putting the onus on ecommerce companies and marketplaces to ensure that they are correctly charging, collecting, and paying taxes (for a recent example, refer to the Marketplace Facilitator Act in the US; Amazon does a nice job outlining requirements here). 

Further, below are a few more examples of upcoming tax rules and regulations that will have an impact: 

1. European Union: ‘VAT in the Digital Age’ is an initiative that will likely impact VAT treatment of the platform economy and single EU VAT registration in 2023 (initiative announced January 2022); 

2. Singapore: Goods and Service Tax (GST) will be expanded to apply to overseas suppliers that make B2C supplies of remote services in 2023 (announced August 2022); 

3. The Philippines: House Bill No. 372 will impose a 12% value-added tax (VAT) on foreign digital service providers (DSPs) in 2023 (announced in August 2022). 
   
   

Customer ‘mandates’ (a much less contentious topic but important nonetheless) 

A customer mandate is the permission or record of the permission that a customer has given a company to debit their payment method. Many countries already require this at ‘checkout’; however, there were two rules that went into effect late last year and early this year, respectively: 

1. India: ‘Processing of e-mandates for recurring online transactions’ requires e-mandates for initial and subsequent successive transactions (effective October 2021); 

2. The UK: PSD2’s Strong Customer Authentication (SCA) requires multi-factor authentication for online transactions (effective March 2022). 

The local rules and regulations featured above only cover a percentage of the rules and regulations facing ecommerce businesses and companies making cross-border payments today. Data security and data privacy were not even discussed, and those could have easily been topics on their own. Moreover, there are actually some exciting concepts coming from regulators and government bodies that are not necessarily regulations that impact cross-border payments and ecommerce (e.g., Bharat BillPay Cross-Border Bill Payments by Reserve Bank of India). 

All in all, as much as the governmental bodies and industry are trying to make doing business internationally easier, the contrasting and diversified set of rules and regulations is having the opposite effect. Payment operations, risk, and tax teams (not to mention the product and technology teams, who will have to implement these changes on behalf of their companies) will have their work cut out for them. 

Here is to hoping that future cryptocurrency, blockchain, and other regulations (that will most definitely be coming down in 2023) will be more aligned – so that they do not add to the already intricate cross-border payments and ecommerce space of today. 

Disclaimer: This content represents the views of the author(s) only, and does not necessarily represent the views or professional advice of KPMG LLP. 

This editorial piece was first published in The Paypers' Cross-Border Payments and Ecommerce Report 2022–2023, which taps into the fast-growing cross-border market and provides a comprehensive overview of trends and developments that are pivotal in this space, being the ultimate source of information for ecommerce businesses interested in expanding globally. 

About Michelle Swiec 

Michelle is a director in KPMG’s Deal Advisory and Strategy Practice. She serves as a trusted advisor to clients in the Payments and Fintech space and clients across industry verticals as it relates to payments. She leads strategy and performance transformation engagements and has managed her fair share of M&A projects. 

About KPMG 

KPMG LLP is the US firm of the KPMG global organisation of independent professional services firms providing Audit, Tax, and Advisory services. KPMG firms operate in 144 countries and territories with more than 236,000 partners and employees working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. For more detail about our structure, please visit home.kpmg/governance.