Clearing House: FIFA’s New System for Training Compensation Payments
FIFA’s Incentive for Youth Development: Training Compensation
To explain the function of the Clearing House, one must first understand the concept of “training compensation/reward”. Under Article 20 of the FIFA Regulations on the Status and Transfer of Players (“RSTP”), a payment called training compensation is made to the player’s former club or clubs when the player signs their first professional contract and on each professional transfer until the end of the season of their 23rd birthday. Training compensation is payable whether the transfer takes place during or after the expiry of the player’s contract.
What changes does FIFA envisage in the calculation of training compensation?
Although no effective date has yet been set, under the new training reward system that FIFA plans to implement in the near future, a new categorisation of training rewards is envisaged. This categorisation will be based on two criteria: (1) the revenue generated, and (2) whether that revenue is invested in youth development.
It is observed that the training rewards which FIFA is expected to announce at year-end show a steadily increasing trend.
What is the Clearing House?
The Clearing House is the new system announced by FIFA to ensure that training compensation is paid correctly and in full between clubs and to monitor such payments.
How is training compensation paid?
Under the current system, clubs completing a transfer are obliged to pay training compensation directly to the clubs entitled to it. However, not every club is able to track the transfers of the players it has trained. In order to obtain training compensation, the entitled clubs generally send formal notices to, or initiate legal proceedings against, the clubs liable to pay. Some clubs have assigned their claims to companies or law firms in order to obtain the amounts due, preferring to receive less than they are entitled to. While training compensation can amount to significant sums in large transfers, in transfers of smaller economic scale the relatively small amounts are difficult for clubs to pursue and lead to lengthy legal proceedings. Although, taken together, training compensation can be an important source of income, especially for financially struggling clubs, it is often disregarded because of the workload and costs involved.
How does the Clearing House work?
The Clearing House system, which FIFA has announced it plans to introduce, aims to relieve clubs of the costs and effort involved in collecting training compensation. Under the Clearing House system, the process will run automatically, and training rewards will be paid to the entitled clubs without any claim being filed, in accordance with the procedure described below once a transfer takes place.
1. Transfer agreement / signing of the player’s first professional contract
Once the transfer agreement between two clubs has been signed and uploaded to FIFA TMS, or once a player is registered as a professional for the first time, training compensation may become due under RSTP Articles 20 and 21.
2. Provisional Electronic Player Passport
All registration data are obtained from the registration systems of the member associations and FIFA creates a provisional player passport. The member associations at which the player was trained may review and verify this provisional passport or raise disputes regarding the accuracy of the information it contains.
3. Allocation Statement
Following verification of the provisional player passport, FIFA sends the Clearing House payment instructions in the form of an allocation statement, including the contact and bank details of the clubs and member associations concerned.
4. Invoicing
The FIFA Clearing House invoices the player’s new club in accordance with the allocation statement. The FIFA Clearing House checks that the amount paid by the new club is distributed in compliance with national and international financial regulations, including anti-money laundering rules, and whether any party to the transaction is located in a country subject to sanctions such as embargoes.
In the event of non-payment, following up the process is the responsibility of the FIFA Clearing House. Enforcement steps following a payment reminder by the FIFA Clearing House are carried out by the FIFA administration.
5. Payment
The player’s new club pays the training compensation and solidarity contribution in accordance with the allocation statement.
6. Distribution
The FIFA Clearing House distributes the amounts set out in the allocation statement to the training club or clubs. The FIFA Clearing House is responsible for confirming and verifying the bank details of the clubs and associations concerned.
7. Monitoring and Enforcement
FIFA obtains the necessary information on payments made or owed from the FIFA Clearing House in the context of monitoring clubs’ finances and their compliance with the regulations. FIFA will remain the body responsible and competent to impose sanctions on clubs found to be in breach.