SEPA Legal and Regulatory Framework
(Note: the European Payments Council (EPC) is not a European Union (EU) legislative body. More generally, the EPC is not part of the EU institutional framework.)
The history of the Single Euro Payments Area (SEPA) project reaches back to 1990 with the publication of the European Commission report: 'Making Payments in the Internal Market', which outlined a community vision of a single payments area. This document stated that "the full benefits of the single market will only be achieved if it is possible for business and individuals to transfer money as rapidly, reliably and cheaply from one part of the community to another as is now the case within most member states".
In September 1999, the European Central Bank commented in a press release: "Despite the introduction of the euro, however, there is still a clear gap between the service levels of domestic and cross-border retail payment systems (...). Indeed, the single currency environment argues strongly in favour of a single payment area." In November 2000, Commissioner Frits Bolkestein, then in charge of the Internal Market and Taxation, reiterated: "The [European] Commission's political objective is exactly that: a modern Single Payment Area for the entire EU where there is no frontier effect for cross-border payments."
To achieve this goal, the EU co-legislators, i.e. the European Parliament and the Council of the EU representing EU Member States, adopted several legislative acts designed to drive forward the integration of the euro payments market.
A brief introduction to the EU legislative process
The European Commission has the right of initiative to propose laws for adoption by the EU co-legislators, i.e. the European Parliament and the Council of the EU representing EU Member States. (The Council of the EU is the EU institution where the Member States’ government representatives sit, i.e. the ministers of each EU Member State with responsibility for a given policy area.) The vast majority of European laws are adopted jointly by the European Parliament and the Council of the EU under the so-called ordinary legislative procedure. This legislative procedure gives the same weight to the European Parliament and the Council of the EU in a wide range of areas.
EU Directives lay down certain end results that must be achieved in every EU Member State. National authorities have to adapt their laws to meet these goals; i.e. have to implement an EU Directive, but are free to decide how to do so. National implementation measures are texts officially adopted by the authorities in an EU Member State to incorporate the provisions of an EU Directive into national law.
EU Regulations are the most direct form of EU law. As soon as they are passed, they have binding legal force throughout every EU Member State, on a par with national laws. National governments do not have to take action themselves to implement EU Regulations.
For further information on the EU legislative process, refer to the last four links included within the information box at the end of this page.
Regulation (EU) No 260/2012 defines mandatory deadlines for migration to SEPA
In February 2012, the European co-legislators adopted 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' (the SEPA Regulation) (see links below). Article 6 (1) and (2) of the SEPA Regulation mandates that credit transfers and direct debits shall be carried out in accordance with the relevant requirements set out in Article 5 and in the Annex to the Regulation by 1 February 2014, subject to certain limited exemptions mentioned in the Regulation. In non euro countries, the deadline will be 31 October 2016. Effectively, this means that as of these dates, existing national euro credit transfer and direct debit schemes will be replaced by SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD).
The European Commission introduced, on 9 January 2014, a proposal for a new EU Regulation amending the SEPA Regulation to “give an extra transition period of six months during which payments which differ from the SEPA format can still be accepted” in the euro area after 1 February 2014.
In February 2014, the European Parliament and the Council of the EU, respectively, adopted a new EU Regulation “amending Regulation (EU) No 260/2012 as regards the migration to Union-wide credit transfers and direct debits” which states, among other things (bold added): “In Article 16 of Regulation (EU) No 260/2012, paragraph 1 is replaced by the following: (...) By way of derogation from Article 6(1) and (2), PSPs [payment service providers] may continue, until 1 August 2014, to process payment transactions in euro in formats that are different from those required for credit transfers and direct debits pursuant to this Regulation. [EU] Member States shall apply the rules on the penalties applicable to infringements of Article 6(1) and (2) (…) from 2 August 2014.” In the view of the European Commission, this procedure “does not change the formal deadline for migration of 1 February 2014.” Consequently, Article 6(1) and (2) of Regulation (EU) No 260/2012, which stipulates the 1 February 2014 compliance date, remains unchanged.
The ‘Regulation (EU) No 248/2014 of the European Parliament and of the Council of 26 February 2014 amending Regulation (EU) No 260/2012 as regards the migration to Union-wide credit transfers and direct debits’ (see links below) was published in the Official Journal of the EU on 20 March 2014. Article 2 of Regulation (EU) No 248/2014 states: “This Regulation shall enter into force on the day following that of its publication in the Official Journal of the European Union. It shall apply, with retroactive effect, from 31 January 2014.”
For details and background information on the amendment of Regulation (EU) No 260/2012 as agreed by the European Commission, the European Parliament and the Council of the EU, refer to the EPC Newsletter article, entitled: ‘SEPA 2014: EPC Calls on European Parliament and EU Governments Represented in the Council of the European Union to Provide Clarity on SEPA Compliance Requirements As Soon As Possible.’
Different euro area countries have decided on different timelines during which they make use of the option to continue processing non-SEPA formats, i.e. some countries do so during the full six months additional transition period agreed by the European Commission, the European Parliament and the Council of the EU while others settle for a shorter timeline. The European Central Bank makes available country-specific SEPA information with ‘Fact Sheets on Regulation 260/2012’ (see link ‘European Central Bank SEPA-by-Country Hub’ below). These fact sheets also feature information obtained from Eurosystem national central banks concerning migration timelines envisaged at national level in each euro area country during the additional transition period. (The Eurosystem comprises the European Central Bank and the national central banks of EU Member States whose currency is the euro.)
SCT and SDD Schemes have to comply with Regulation (EU) No 260/2012 (the SEPA Regulation)
The SCT and SDD Schemes have to comply with the technical requirements detailed in Article 5 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.
For more information, refer also to these dedicated pages on the EPC Website:
- SCT/SDD Rulebook Release Management and Scheme Development.
- IBAN and BIC.
- ISO 20022 Message Standards (SEPA Data Formats).
- The SDD Mandate.
- The Creditor-Driven-Mandate Flow (CMF).
Article 10 of the SEPA Regulation details how this legislative act is to be enforced. It clarifies that EU Member States must designate the competent authorities responsible to ensure compliance with this Regulation (see link to European Commission Website below to see the list of designated authorities).
The text of the SEPA Regulation and other sources related to this legislative act are included in the information box on this page (see links below). For more information, visit also this dedicated page on the EPC Website: The EPC Migration Tool Kit: Get Ready for SEPA.
Transitional arrangements in EU Member States permissible under Regulation 260/2012 (the SEPA Regulation)
The 'Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro' (the SEPA Regulation) mandates that credit transfers and direct debits in the euro area shall be carried out in accordance with the core provisions of this Regulation by 1 February 2014. At the same time, the SEPA Regulation has introduced several possible exemptions regarding the use of the International Bank Account Number (IBAN), the Business Identifier Code (BIC) and the ISO 20022 XML message standards by the February 2014 deadline. EU Member States have discretion as to whether they will use any or all of the options to derogate from the 1 February 2014 deadline with regard to the use of the IBAN, the BIC and the ISO 20022 XML message standards. EU Member States were required to notify the European Commission by 1 February 2013 which derogations they will use.
Information on transitional arrangements in EU Member States permissible under the SEPA Regulation is published by the European Commission and the European Central Bank (see links below).
Directive 2007/64/EC on payment services in the internal market (Payment Services Directive)
The European Commission recognised that integration of the euro payments market would only be possible within a common legal environment that would remove the local anomalies and differences. The first version of a 'New Legal Framework for Payments', designed to harmonise the fragmented national legal provisions, was issued in 2001. This working document ultimately resulted in the Directive 2007/64/EC of the European Parliament and of the Council of the EU of 13 November 2007 on payment services in the internal market (see link below). This Directive is generally referred to as the Payment Services Directive (PSD). The PSD was implemented by most EU Member States by 1 November 2009. The PSD aims at establishing a modern and comprehensive set of rules applicable to all electronic payment services - not just SEPA services - in the EU. The PSD is not a 'SEPA Directive', but rather, the very broad and ambitious scope of the PSD makes it the most significant and comprehensive piece of EU financial services legislation in relation to the payments market ever seen. The PSD is of particular relevance with respect to the roll-out of SEPA Direct Debit services due to the fact that the PSD introduces common rules for the authorisation and the revocation of direct debits.
Article 87 of the PSD requires the European Commission to present a report on the implementation and impact of the Directive, together with proposals for its revision, in November 2012. On 24 July 2013 the European Commission published a ‘payments legislative package’ which includes the European Commission proposal for a revised PSD (PSD2) (see link to ‘payments legislative package’ below).
Regulation (EC) No 924/2009 on cross-border payments in the Community
Regulation (EC) No 924/2009 of the European Parliament and of the Council of the EU of 16 September 2009 on cross-border payments in the community (see links below) and repealing Regulation (EC) No 2560/2001, introduced additional provisions which - in the eyes of the regulator - further promote EU financial integration in general and SEPA implementation in particular. It has significant impact due to the introduction of the following provisions:
- The price parity requirements are extended to direct debits.
- The setting of clear rules for transaction-based multilateral interchange fees until November 2012.
- Since November 2010, banks in the euro area offering direct debits in euro to debtors are mandated to be reachable for cross-border direct debit collections.
Regulation (EC) No 924/2009 became applicable across all EU Member States on 1 November 2009. The provisions regarding interchange fees set out in Regulation (EC) No 924/2009 were amended in accordance with 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'.
Regulation (EC) No 2560/2001 on cross-border payments in euro
The European legislator laid the foundations of the SEPA policy through Regulation (EC) No 2560/2001 of the European Parliament and of the Council of the EU of 19 December 2001 on cross-border payments in euro. The Regulation states that banks are not permitted to impose different charges for domestic and cross-border payments or automated teller machine (ATM) withdrawals within the EU. This Regulation has also generally been understood as a turning point in the financial integration policy of the European legislator beyond its formal stipulations, as the Regulation was clearly intended to shock the banking sector into stepping up its efforts to achieve SEPA. Regulation (EC) No 2560/2001 was superseded by Regulation (EC) No 924/2009 (see above).
Selection of articles from the EPC Newsletter and other sources
- EPC Newsletter: All Articles Published in the ‘Legal and Regulatory Issues' Section
- 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 (the SEPA Regulation)
- Regulation (EU) No 248/2014 amending Regulation (EU) No 260/2012 as regards the migration to Union-wide credit transfers and direct debits
- European Commission Website: Information on Transitional Arrangements in EU Member States Permissible Under Regulation 260/2012 (the SEPA Regulation) and List of Competent Authorities Responsible for Ensuring Compliance
- European Central Bank SEPA-by-Country Hub: National SEPA Contact Links; Fact Sheets Providing Country-Specific Information Related to Regulation (EU) 260/2012 (the SEPA Regulation)
- EPC Newsletter: The Time to Act is Now: Impact of the SEPA Regulation on Payment Service Users
- EPC Newsletter: The New European Decision-Making Landscape: How the European Commission Rules Through 'Delegated Acts'
- Payments Regulatory Expert Group (PREG): Practical Guidance for the Implementation of 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
- Euro Banking Association: Banks Preparing for SEPA Migration. A Guide to the SEPA Migration End-Date Regulation
- European Commission (24 July 2013): Payments Legislative Package
- EPC Newsletter: PSD2 – EPC Key Considerations Address Aspects Related to Third Party Payment Service Providers and Article 67 (Refund Rights for Direct Debits)
- EPC Response to European Commission Green Paper 'Towards an Integrated European Market for Card, Internet and Mobile Payments'
- Directive 2007/64/EC on payment services in the internal market (Payment Services Directive - PSD)
- PSD Expert Group: PSD Guidance Document (August 2009)
- PSD Expert Group: Addendum to PSD Guidance Document (June 2010)
- Regulation (EC) No 924/2009 on Cross-border payments in the Community and repealing Regulation (EC) No 2560/2011
- European Parliament/EuroparlTV Website: Video 'How it works: European Laws'
- European Parliament Website: Legislative Powers
- European Commission Website: Application of EU Law/Regulations
- European Commission Website: Application of EU Law/Directives