Threshold vs. Derogation

In the world of wire transfer compliance, few terms are as frequently used and misunderstood as threshold and derogation. While they are closely related, they refer to distinct regulatory concepts that play very different roles in determining when simplified due diligence requirements may be applied. Getting this distinction right is critical to avoiding misapplication of rules and ensuring your compliance program holds up to regulatory scrutiny.

What Is a Threshold?

A threshold is a defined monetary limit set in regulation that determines whether simplified or full compliance obligations apply to a given transaction.

Under global standards such as FATF Recommendation 16, the EU Funds Transfer Regulation (EU 2015/847), and the UK Money Laundering Regulations (MLRs), this threshold is set at:

• EUR 1,000 under EU and FATF guidance

• GBP 1,000 under the UK’s implementation

Transfers at or below this amount may qualify for simplified information requirements. These typically involve collecting only the names of the payer and payee, along with their account numbers or a unique transaction reference. However, crossing this threshold (either through a single transaction or linked activity) automatically triggers the requirement to collect and verify full originator and beneficiary information (e.g., address, national ID, or customer number).

In essence, the threshold is the regulatory dividing line that determines whether a transaction enters a lighter or stricter compliance regime.

What Is a Derogation?

A derogation is a conditional legal exemption that allows a regulated entity to apply simplified rules even when the standard framework would normally require more.

In wire transfer regulation, a derogation is what allows firms to apply the simplified regime to transfers below the EUR/GBP 1,000 threshold as long as certain conditions are met. These conditions vary slightly between jurisdictions, but typically require that:

• The transaction is occasional, not part of an ongoing relationship

• There is no suspicion of money laundering or terrorist financing

• The transfer is not linked to other transactions that would exceed the threshold

• The transfer does not involve high-risk jurisdictions, sanctioned parties, or enhanced due diligence

If any of these conditions are not met, the derogation cannot be applied, even if the transaction value is well below the threshold. In that case, full originator and beneficiary details must be collected and verified, just as they would be for a high-value payment.

How Do They Work Together?

Though sometimes used interchangeably in informal contexts, thresholds and derogations are not the same:

Think of it this way:

• The threshold sets the scene indicating that a transaction may be eligible for reduced obligations.

• The derogation is the gatekeeper determining whether you're actually permitted to apply those reduced obligations.

For example, a payment of EUR 950 falls under the threshold. But if it is linked to others, sent from a high-risk jurisdiction, or subject to a Request for Information, then the derogation is invalidated. As a result, full compliance obligations still apply.

Why This Distinction Matters

Understanding the difference between thresholds and derogations helps prevent compliance shortcuts that may seem justifiable but violate regulatory expectations. Applying simplified due diligence based solely on value, without considering underlying risk, can expose your institution to enforcement action.

By embedding both threshold logic and derogation conditions into your transaction monitoring systems, staff training, and escalation processes, you ensure a defensible and risk-aligned approach to compliance.