FedNow is a real-time payment service developed by the U.S. Federal Reserve, launched in 2023. It allows financial institutions to transfer money instantly, 24/7, every day of the year. FedNow is designed to make payments faster, cheaper, and more accessible for U.S. businesses and consumers.
However, the speed and scale of FedNow also create challenges for anti-money laundering (AML) and counter-terrorist financing (CTF) compliance. Instant payments give criminals fewer barriers to moving illicit funds, which makes real-time sanctions screening and transaction monitoring essential.
The Federal Reserve and FinCEN emphasize that the same AML compliance rules, such as sanctions screening under the Office of Foreign Assets Control (OFAC) and the Bank Secrecy Act (BSA), fully apply to real-time payment services like FedNow.
Definition Of FedNow
FedNow is a U.S. instant payment infrastructure operated by the Federal Reserve. It enables:
Settlement of payments in real time.
Transfers available 24/7, including weekends and holidays.
Payments processed directly between participating financial institutions.
While FedNow improves efficiency, it does not replace AML obligations. Institutions remain responsible for ensuring transactions are compliant with U.S. law.
Why FedNow Creates AML And Sanctions Risks
Instant payments remove delays that banks traditionally used for compliance checks, making AML controls more urgent.
Real-Time Sanctions Screening
Transactions must be checked instantly against OFAC sanctions lists to avoid regulatory breaches. Payment Screening provides real-time filtering to block prohibited payments.
Customer Due Diligence (CDD)
Firms must confirm the identity of customers using FedNow. Customer Screening supports accurate onboarding and ongoing checks.
Transaction Monitoring
Suspicious activity such as structuring, unusual transfers, or rapid movements must be flagged. FacctGuard, Transaction Monitoring applies configurable rules in real time.
Challenges Of AML Compliance In FedNow
Implementing effective AML controls in FedNow transactions is complex.
Latency
Compliance checks must be completed in milliseconds to avoid slowing payments.
False Positives
Uncalibrated fuzzy matching can overwhelm compliance teams with unnecessary alerts.
Integration
Screening systems must integrate seamlessly into FedNow’s infrastructure.
Cross-System Fraud
AML and fraud risks overlap in instant payments, requiring integrated monitoring.
Best Practices For FedNow Compliance
Financial institutions can strengthen their FedNow compliance posture by:
Embedding sanctions screening into instant payment flows.
Using harmonised, up-to-date sanctions and PEP lists.
Applying a risk-based approach to transaction monitoring.
Documenting alert reviews with clear audit trails.
Integrating AML with fraud detection systems.
The Future Of FedNow And AML Controls
FedNow is expected to expand rapidly in the U.S., and AML controls will need to evolve alongside it. Trends include:
AI-Based Detection: Machine learning to improve real-time anomaly detection.
Global Alignment: As cross-border instant payments expand, U.S. regulators may coordinate more closely with EU frameworks like SEPA.
Continuous List Updates: Streaming sanctions list updates into screening engines.
Closer Regulator Oversight: FinCEN and OFAC may issue additional guidance specific to instant payments.
Strengthen AML Compliance For FedNow Transactions
FedNow introduces new opportunities for faster payments but also increases AML risk. Institutions must ensure their sanctions screening and transaction monitoring systems can operate in real time without adding friction to payments.
Our solutions; FacctView, Customer Screening, FacctShield, Payment Screening, and FacctGuard, Transaction Monitoring - help U.S. financial institutions comply with AML obligations while leveraging the benefits of FedNow.
Contact Us Today To Learn How Facctum Can Support AML Compliance For Instant Payments
