Don't Count on 1 August 2014: Different SEPA Migration Deadlines Apply...

Don't Count on 1 August 2014: Different SEPA Migration Deadlines Apply Across the Euro Area During the “Additional Transition Period” Agreed by the European Commission, the European Parliament and EU Governments

20 February 14

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The European Commission commented on 20 December 2011 on the agreement by the European Parliament and the Council of the European Union (EU) on the 1 February 2014 deadline for migration to the Single Euro Payments Area () in the euro area: “The reasonable transition periods applied will allow customers and banks to get used to the adjustments in domestic payment transactions, provide legal certainty, avoid the cost of operating dual payments systems and bring forward the substantial future benefits of .” (The Council of the EU is the EU institution where the EU 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.

On 9 January 2014, the European Commission introduced a legislative proposal to “give an extra transition period of six months during which payments which differ from the format can still be accepted” after 1 February 2014. This blog updates on the EU legislative process that must be concluded for the “additional transition period” to take effect. Readers are invited to be mindful of the different migration deadlines that will now apply across the euro area until 1 August 2014. (Sources cited in this blog are included in the ‘related links’ below.)

Overview: the legislative procedure that must be followed to “give an extra transition period of six months” for migration in the euro area. (Note: the formal 1 February 2014 deadline will remain unchanged.)

The European co-legislators, i.e. the European Parliament and the Council of the EU, adopted the ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro’, also known as the Regulation, in February 2012. Article 6(1) and (2) of the Regulation mandates that credit transfers and direct debits (in the euro area) 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. According to Article 16(8) of this legislative act as currently in effect, the deadline for compliance in non euro countries will be 31 October 2016.

Article 10 of Regulation () No 260/2012 clarifies that Member States must designate the competent authorities at national level responsible for ensuring compliance with this Regulation. (The list of these designated national authorities is available on the European Commission Website, see link below.) Article 11 of the Regulation states: “Member States shall, by 1 February 2013, lay down rules on the penalties applicable to infringements of this Regulation and shall take all measures necessary to ensure that they are implemented.”

On 9 January 2014, the European Commission observed, in line with previous statements of the European authorities on the application of Regulation (EU) No 260/2012: “If no action were to be taken by the [European] Commission and the [EU] co-legislators, banks and payment services providers [] would be required to stop processing payments that differ from the format as of 1 February 2014.” The European Commission remarked that “this could result in serious difficulties for market participants that are not yet ready.” To avoid this situation for non-compliant market participants, the European Commission therefore introduced, on 9 January 2014, a proposal for a new EU Regulation amending the Regulation to “give an extra transition period of six months during which payments which differ from the format can still be accepted.”

On 4 February 2014, the European Parliament adopted a new draft 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 () No 260/2012, paragraph 1 is replaced by the following: (...) By way of derogation from Article 6(1) and (2), 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. [] Member States shall apply the rules on the penalties applicable to infringements of Article 6(1) and (2), laid down in accordance with Article 11, from 2 August 2014.”

The Council of the adopted this new Regulation amending Article 16 of Regulation () No 260/2012 on 18 February 2014.

This new Regulation will enter into force the day after its publication in the Official Journal of the (“to have a retroactive effect as from 31 January 2014”, as proposed by the European Commission). Publication of the new Regulation amending the Regulation in the Official Journal of the could take place by the end of February or at the start of March 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, will remain unchanged.

Different migration deadlines apply across the euro area during the “additional transition period”

The bottom line is: since 1 February 2014, payment service users and providers in the euro area are forced to determine their course of action based on assumptions regarding the future legislative situation governing euro credit transfers and direct debits. The European Central Bank commented in its legal opinion on the European Commission proposal: “The proposed regulation [amending Regulation (EU) No 260/2012] has given rise to confusion in the markets on the deadline for migration (...) It is therefore of the utmost importance to reinstate legal certainty, reduce the confusion in the markets and provide them with clear guidance about the deadline.”

This will be difficult to achieve even when the legislative process amending Regulation () No 260/2012 is concluded keeping in mind the following:

The draft Regulation amending Regulation () No 260/2012 adopted by the European Parliament on 4 February 2014 (and the Council of the on 18 February 2014) states that (italics added) “ 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” established with this EU law. However, it does not make it mandatory. This formulation creates an asymmetry as it is not certain that payments initiated by a payment service user based on legacy formats will be processed entirely. It may happen that, if not the of the initiator, the receiver may reject those transactions (they are allowed but not forced to process these). In a nutshell, at national level, provisions need to be taken to decide whether are mandated to remain connected to the legacy systems and are bound to process those operations. Guidance and clarity should be provided by the authorities on how to proceed until August 2014.

Last but not least, different euro area countries might decide on different timelines during which they would make use of the option to continue processing non- formats, i.e. some countries might do so during the full six months transition period agreed by the European Commission, the European Parliament and the Council of the EU while others might settle for a shorter timeline. To give two examples: in Belgium, the additional transition period will end on 1 April 2014. In Spain, the Spanish Automated Clearing House (ACH) (SNCE) has agreed to stop processing legacy credit transfers on 18 March 2014 and legacy direct debits on 10 June 2014.

The European Central Bank makes available country-specific information, including national migration plans and -related contact information, with ‘Fact Sheets on Regulation 260/2012’. Following the announcement of the European Commission proposal to amend Regulation (EU) No 260/2012 to “give an extra transition period of six months” for migration, these fact sheets now 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.)

It is the task of the authorities determining compliance requirements to ensure planning security for all market participants

The European Payments Council () emphasises that once the EU co-legislators have effectively modified the deadline for compliance with Regulation (EU) No 260/2012 in the euro area, it will be crucial that relevant public authorities clarify the implications to payment service users and providers immediately. It is the responsibility of the public authorities determining the compliance requirements to avoid a situation where uncertainty around applicable legal deadlines would impact ongoing migration efforts and further delay the completion of migration.

The recommends that organisations in the euro area still working towards achieving compliance with the Regulation aim to finalise the migration process as soon as possible. Banks and other service providers are standing ready to support payment service users to complete the transition.

“After 1 August 2014,” or so said the European Commission on 9 January 2014, “there will be no further transitional period.”

(Please note: the , representing the European banking industry in relation to payments, is not an EU legislative body. More generally, the is not part of the EU institutional framework. The has therefore, no role in the adoption or modification of any EU laws.)

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