Issue 13 - January 2012
Legal and Regulatory Issues
The New European Decision-Making Landscape: How the European Commission Rules Through 'Delegated Acts'SEPA Regulation empowers the European Commission to mandate technical requirements applicable to SEPA payment schemes
30.01.12 By Dermot Turing and Gail Orton
Following months of negotiations, agreement on the final text of the 'Regulation Establishing Technical Requirements for Credit Transfers and Direct Debits in Euros' (the SEPA Regulation), was finally reached by European Union (EU) legislators in December 2011. It is expected to be formally adopted and published in the Official Journal of the EU in the coming months. The SEPA Regulation stipulates the mandatory deadlines for compliance of euro credit transfer and direct debit schemes with this legislative act. In the euro area, this will be 1 February 2014; in non euro countries, the deadline will be 31 October 2016. Effectively, the Regulation defines the dates for migration to harmonised SEPA payment schemes. The SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Schemes, developed by the European Payments Council (EPC), will have to comply with the technical requirements detailed in Article 4a and in the Annex to the SEPA Regulation. The SEPA Regulation will give power to the European Commission to amend the technical requirements set out in the Annex to the Regulation through 'delegated acts'. Dermot Turing and Gail Orton examine the procedure to be followed by the European Commission for determining and amending the technical requirements applicable to euro payment schemes. The authors point out that the details of how the European Commission intends to consult the market (demand and supply sides) on the evolution of the SCT and SDD Schemes are not yet available.
Key Information in this Article
‘Delegated acts’ are a new addition to the European Union (EU) decision-making landscape. They were introduced by the Lisbon Treaty, which entered into force in December 2009 and more specifically, by Article 290 of the Treaty on the Functioning of the European Union (TFEU).
Whereas European legislation is adopted by the EU legislators: the Council of Ministers (made up of representatives of the 27 EU Member States) and the European Parliament (made up of 754 directly elected members), Article 290 TFEU allows the Council and European Parliament to delegate the power to adopt non-legislative acts to the European Commission (the executive body).
In the future, the European Commission will be responsible for making decisions regarding the features of the SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Schemes. It will do this by means of 'delegated acts', which empower the European Commission to amend the Annex to the ‘Regulation Establishing Technical Requirements for Credit Transfers and Direct Debits in Euros’ (the SEPA Regulation).
When adopting these acts, the European Commission has committed to consulting experts appointed by EU governments in its preparatory work. It is uncertain to what extent the European Commission will consult SEPA stakeholders not appointed by EU governments on the evolution of the SCT and SDD Schemes.
The European Commission has reiterated that it has a lot of autonomy in relation to adopting delegated acts and “experts will have a consultative rather than an institutional role in the decision-making procedure”.
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The SEPA Regulation and delegated acts
The 'Regulation Establishing Technical Requirements for Credit Transfers and Direct Debits in Euros', commonly referenced as the 'Single Euro Payments Area Regulation' ('SEPA Regulation' for short), stipulates the mandatory deadlines for compliance of euro credit transfer and direct debit schemes with this Regulation. In the euro area, this will be 1 February 2014; in non euro countries, the deadline will be 31 October 2016. Effectively, the Regulation defines the dates for migration to harmonised SEPA payment schemes. A SEPA payment scheme will have to comply with the technical requirements set out in Article 4a and in the Annex to the SEPA Regulation. These technical requirements are applicable to the SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) Schemes developed by the European Payments Council (EPC).
The SEPA Regulation delegates power to the European Commission to amend the parts of these technical requirements that are set out in the Annex to the Regulation only (not the elements contained in Article 4a). The EPC will be under the legal obligation to align the SCT and SDD Rulebooks with the technical amendments adopted by the European Commission. All references in this article relate to the version of the SEPA Regulation as published by the Council, representing European Union (EU) Member States (the Council) on 16 December 2011 (see link below).1
Background on delegated acts
Delegated acts are a new addition to the EU decision-making landscape. They were introduced by the Lisbon Treaty, which entered into force in December 2009 and more specifically, by Article 290 of the Treaty on the Functioning of the European Union (TFEU). Whereas European legislation is adopted by the EU legislators: the Council of Ministers (made up of representatives of the 27 EU Member States) and the European Parliament (made up of 754 directly elected members), Article 290 TFEU allows the Council and Parliament to delegate the power to adopt non-legislative acts to the European Commission (the executive body).
Delegated acts are used when the Council and European Parliament choose to delegate to the European Commission the power to adopt measures that they could have adopted themselves as an integral part of the legislation, but in the interests of efficiency chose not to. There can be various reasons for this but in the case of the SEPA Regulation, it is because (a) the technical requirements are considered to be precisely that: technical in nature rather than political and (b) delegated acts are more easily amended than legislation that must be passed by the European Parliament and the Council under the ordinary legislative procedure (formerly known as co-decision, see 'related links' below for detailed information on the procedure).
In relation to payments, the possibility of technological and other developments make it highly likely that the technical requirements contained in the Annex to the SEPA Regulation will need to be updated. The Council and European Parliament have therefore granted the European Commission the power to do this without the need to trigger another round of negotiations between the EU legislators.
The SEPA Regulation therefore grants the European Commission a quasi-legislative role to amend the Annex to the Regulation in order to take account of technical progress and market developments. The framework within which the powers are to be exercised by the European Commission are defined in Articles 12 and 13 of the SEPA Regulation. Power is delegated to the European Commission for a period of five years from the date of entry into force of the SEPA Regulation. This could be extended for a further five years, unless the European Parliament or Council opposes it three months before the end of the five year period.
The use of delegated acts is generally still in its infancy and there are institutional question marks about the practical arrangements. A detailed prediction of how the SEPA Regulation delegated power will play out is therefore not possible at this early stage. Some broad principles about how the European Commission should proceed have however, been agreed.
Process for adopting delegated acts
Delegated acts do not need to undergo the full legislative process, but are formally adopted by the College of 27 European Commissioners (one from each EU Member State). A European Commission Communication from December 2009 (see link below), sets out how Article 290 TFEU should be implemented (the '2009 Communication'). For those who follow closely EU decision-making, a similar 'comitology' procedure existed prior to the Lisbon Treaty and was known as the 'regulatory procedure with scrutiny'.
According to the 2009 Communication, the European Commission intends "systematically to consult experts from the national authorities of all the Member States", except where its preparatory work does not require any new expertise. This consultation will be carried out "in plenty of time, to give the experts an opportunity to make a useful and effective contribution to the Commission". In financial services, the European Commission has committed to continuing to consult experts appointed by the 27 Member States in the preparation of delegated acts, in accordance with established practice. It may also form new expert groups. It is currently unclear what (informal) role the new London-based European Banking Authority (EBA) may play in relation to the Annex to the SEPA Regulation.
On several occasions, the European Commission has reiterated that it has a lot of autonomy in relation to adopting delegated acts and "experts will have a consultative rather than an institutional role in the decision-making procedure". Indeed, the European Parliament and Council inserted new wording in Recital 22 of the SEPA Regulation requiring the European Commission to "carry out appropriate and transparent consultation during its preparatory work [on delegated acts], including with the European Central Bank and all relevant stakeholders". The European Commission issued a declaration in response, stating that it could not accept the new wording of Recital 22 because it was not consistent with what had previously been agreed in relation to delegated acts in a 'common understanding' between the three institutions, i.e. that the European Commission would "carry out appropriate consultations during its preparatory work, including at expert level".
These tussles between the three institutions are common. Despite delegated acts being intended as a process to speed up decision-making and leave technical decisions to the European Commission, what has resulted, is ever more highly politicised negotiations between the institutions and repeated efforts by the Council and European Parliament to ensure they maintain a tight control over how the delegation of power plays out.
Scrutinising the European Commission's use of the delegated power
It is always the legislators who choose to delegate power, but once it has been granted the European Commission has a fair degree of autonomy in exercising that power. There is however, a role for the Council and European Parliament in scrutinising its use through a right of revocation and / or a right of objection (within agreed time limits). In order to exercise either of these powers of control, the Council must act by a qualified majority and the European Parliament by a majority of its members. In relation to the SEPA Regulation, the exact manner in which these rights are to be exercised is set out in Article 13.
In addition, Article 13 stipulates that the European Commission must notify the European Parliament and Council simultaneously "as soon as it adopts a delegated act".
For commentary on the impact of the European Commission's power to amend the Annex to the SEPA Regulation on the SCT and SDD Rulebook change management please refer to the article by EPC Chair Gerard Hartsink 'SEPA Regulation: European Legislator Mandates Migration to SEPA by 1 February 2014 in the Euro Area and Transfers the Responsibility for SEPA Scheme management to the European Commission' in this issue of the EPC Newsletter.
Dermot Turing is a Partner in the international financial regulatory team at Clifford Chance. Gail Orton is a Public Policy Advisor in the Clifford Chance EU public policy practice.
Proposal for a Regulation of the European Parliament and of the Council establishing technical requirements for credit transfers and direct debits in euros and amending Regulation (EC) No 924/2009 - Approval of the final compromise text, 16 December 2011 register.consilium.europa.eu/pdf/en/11/st18/st18222.en11.pdf
For more information on the 'ordinary legislative procedure' (co-decision) governing the European Union legislative process, click here
Related articles in this issue:
SEPA Regulation: European Legislator Mandates Migration to SEPA by 1 February 2014 in the Euro Area and Transfers the Responsibility for SEPA Scheme Management to the European Commission. EPC Chair comments on the new regulatory reality governing the integration of the euro payments market
EPC Scheme Change Management 2012 (and Beyond) - Call to Stakeholders: Stay Engaged and Prepare for Impact of SEPA Regulation. Suggestions for changes to SCT and SDD must reach the EPC by end February 2012
Reflections on Recent Contributions from the European Commission Directorate General Competition to the Innovation in Payments Debate. Seeking common ground between policy makers and technical experts
Related articles in previous issue(s):
Brave New World: the European Commission Becomes the SEPA Scheme Manager. The EPC offers the regulator some insight on scheme development and rulebook release management (EPC Newsletter, Issue 12, October 2011)
1The final text of the 'Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009' was published in the Official Journal of the European Union on 30 March 2012: http://www.europeanpaymentscouncil.eu/news_detail.cfm?news_id=315.
Other articles in this issue
30.01.12 EPC Scheme Change Management 2012 (and Beyond) - Call to Stakeholders: Stay Engaged and Prepare for Impact of SEPA Regulation - Suggestions for changes to SCT and SDD must reach the EPC by end February 2012 By Javier Santamaría 30.01.12 EPC Plenary Meeting Update - Main decisions taken in December 2011 By Gerard Hartsink 30.01.12 Version 6.0 of the SEPA Cards Standardisation Volume - Book of Requirements Published - SEPA cards standardisation continues to move forward By Ugo Bechis 30.01.12 The History and Vision of EBICS - The EPC Newsletter series provides an overview of banking communication standards in Europe By Narinda Viguier and Axel Weiß 30.01.12 The 2012 Payment Services Directive Review: Too Much too Soon? - The European Commission must present its report on the application of the Payment Services Directive by 1 November 2012 By Ruth Wandhöfer 30.01.12 SEPA Migration: Facts and Figures - The state-of-play in January 2012 By Etienne Goosse 30.01.12 Mobile Technology Predicted to be the ATM Industry Game-Changer Over the Next Five Years - Main findings of the ATM Future Trends Report 2012 By Kim Williams 30.01.12 Reflections on Recent Contributions from the European Commission Directorate General Competition to the Innovation in Payments Debate - Seeking common ground between policy makers and technical experts By Javier Santamaría 30.01.12 Ahead of the Curve: Deutsche Post Pension Service Completes SEPA Migration - This early mover currently disburses 22.5 million SEPA payments monthly By Stefan Scheidgen (Interview) 30.01.12 Public Consultation on 2nd Edition of the EPC White Paper on Mobile Payments - EPC calls for stakeholder feedback by 23 March 2012 By Dag-Inge Flatraaker 30.01.12 SEPA Direct Debit for Billers: the SDD Business To Business Scheme Timelines - EPC Newsletter series provides support for billers preparing migration to the SDD Schemes By Javier Santamaría and Herman Segers
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