SEPA 2.0: The New Regulatory Reality Governing the Integration of the Euro Payments Market Viewed 3175 times

08-02-2012 By Gerard Hartsink, EPC Chair

In February 2012, the European Parliament adopts the ‘Regulation Establishing Technical Requirements for Credit Transfers and Direct Debits in Euros' (the SEPA Regulation, see link below), which will define 1 February 2014 as the deadline in the euro area for compliance with the core provisions of this Regulation. Effectively, this means that as of this date, existing national euro credit transfer and direct debit schemes will be replaced by SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD). The majority of market participants recognise the value of setting a deadline for migration to harmonised SEPA payment schemes through European Union (EU) Regulation. The EPC shares the view that an end date for phasing out legacy euro payment schemes for credit transfers and direct debits ensures planning security for all market participants.

The SEPA Regulation also sets the conditions to fully realise the benefits inherent to the harmonisation of the euro payments market. A study carried out on behalf of the European Commission already in 2007 (see link below), found that the replacement of existing national euro credit transfer and direct debit schemes by harmonised SEPA payment schemes holds a market potential of up to 123 billion euros in benefits cumulative over six years to the advantage of payment service users. As confirmed by the findings of this study, these benefits for bank customers are however contingent upon swift migration to a single set of SEPA payment instruments by both the demand and the supply sides.

The EPC has frequently pointed out that full migration to SEPA is subject to the appropriate legal and regulatory environment which must be established by the EU legislator. The substantial efforts of the banking industry to develop harmonised SEPA payment schemes, as requested by the EU authorities, did not - and, in light of EU antitrust law, could not - entail a responsibility of the industry to impose the replacement of existing national schemes by the new SEPA instruments. The fact that the mere existence of harmonised SEPA payment schemes did not trigger mass migration on the customer side did not come as a surprise. It must be highlighted as often as necessary that the SEPA process would never have occurred spontaneously; bank customers never asked for it. The integration of the euro payments market requires the political will and mandate to achieve it. By comparison: the EU monetary union did not materialise either by simply throwing euro notes and coins at people in the hopes they would enthusiastically abandon national currencies in the event. European integration is not a grassroots movement. The SEPA process confirms this rule. The SEPA Regulation is the fourth major regulatory intervention within a decade designed to achieve a harmonised euro payments market (see link ‘SEPA Legal and Regulatory Framework' below). With adoption of the SEPA Regulation, the EU lawmaker forcefully reiterates that SEPA is a policy-maker driven EU integration initiative.

This legislative act also redefines the process governing the evolution of the SCT and SDD Schemes. To-date, the EPC develops the SEPA payment schemes and frameworks, based on global technical standards developed by international standardisation bodies, in close dialogue with the customer community. Going forward, the SCT and SDD Schemes will need to be amended as mandated by the European Commission.

This means that the schemes will have to comply with the technical requirements detailed in Article 4a and in the Annex to the SEPA Regulation. The SEPA Regulation empowers the European Commission to amend the technical requirements set out in the Annex to the Regulation through ‘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 European Parliament to delegate the power to adopt non-legislative acts to the European Commission (the executive body).

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. 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".

In light of this new regulatory reality, the EPC has no choice but to recognise that the expertise of payment experts employed by the banking industry may come second to the requirements defined by the EU legislator and the European Commission as regards the debate on the evolution of the SEPA payment schemes. The banking industry also calls again on the European authorities to refrain from stating that SEPA would be a "self-regulatory project run by the banking sector". As demonstrated above, this claim was erroneous in the past and is untenable today.

Related links:

• 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 final compromise text, 16 December 2011
• Capgemini (2007): SEPA: Potential Benefits at Stake. Researching the Impact of SEPA on the Payments Market and its Stakeholders
• EPC Newsletter Article (January 2012 Edition): 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 Newsletter Article (January 2012 Edition): The New European Decision-Making Landscape: How the European Commission Rules Through ‘Delegated Acts'
• EPC Newsletter Article (January 2012 Edition): EPC Scheme Change Management 2012 (and Beyond) - Call to Stakeholders: Stay Engaged and Prepare for Impact of SEPA Regulation
• EPC Website: SEPA Legal and Regulatory Framework

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