Evolution and Oversight of the SCT and SDD Schemes: the Role of the Eu...

Evolution and Oversight of the SCT and SDD Schemes: the Role of the European Commission and of the European Central Bank

The SEPA payment schemes in the legal and regulatory context

29 July 14

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Recap: the role of the European Payments Council as the Credit Transfer and Direct Debit Scheme manager

In September 2001, the European Central Bank (ECB) reiterated: “Like the [European] Commission and the [European] Parliament, the ECB is fully committed to the objective of creating a single payment area for the euro. We therefore share the view that pressure should be kept on the banking industry to obtain the necessary improvements.” In response to these expectations, the European banking sector created the European Payments Council ( ) in 2002. At the request of the European Union ( ) authorities, the developed, in close dialogue with the stakeholder community, the harmonised Single Euro Payments Area ( ) payment schemes for electronic euro credit transfers and euro direct debits which help to realise .

The is an international not-for-profit association which makes all of its deliverables available to download free of charge on the Website. It is important to note that the is not part of the institutional framework. The has, therefore, no role in the adoption of any laws or other regulatory initiatives establishing compliance requirements. The is one stakeholder group among many impacted by the policy-maker-driven programme.

The Credit Transfer ( ) and Direct Debit ( ) Schemes as defined in the and Rulebooks contain sets of rules and standards for the execution of payment transactions that have to be followed by scheme participants, i.e. payment service providers that have formally adhered to the schemes. These rulebooks can be regarded as instruction manuals, which provide a common understanding on how to move funds between payment accounts within .

The and Schemes evolve based on a transparent change management process adhered to by the . This evolution reflects changes in market needs and updates of technical standards developed by international standards bodies, such as the International Organization for Standardization (ISO). The scheme change management process provides all stakeholders with the opportunity to participate from an early stage; i.e. to introduce suggestions for changes to the schemes. As part of the scheme change cycles, all proposed changes to the schemes are released with the change request documents for a three-month public consultation. (For details on the scheme change management process, refer to the link ‘ / Rulebook Release Management and Scheme Development’ included in the ‘related links’ below.)

It is important to keep in mind that the carries out the scheme management function subject to legal and regulatory conditions defined by the authorities.

The European Commission is empowered to make decisions regarding the features of the and Schemes through delegated acts

In February 2012, the co-legislators, i.e. the European Parliament and the Council of the representing governments, adopted the ‘Regulation ( ) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro’, also known as the Regulation (see ‘related links’ below). 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 of and in the Annex to the Regulation by 1 February 2014, subject to certain limited exemptions mentioned in the Regulation. The deadline in non-euro countries will be 31 October 2016. Effectively, this means that as of these dates, existing national euro credit transfer and direct debit schemes are replaced by and .

The and Schemes have to comply with the technical requirements detailed in Article 5 of and in the Annex to the Regulation. Article 13 of the Regulation empowers the European Commission to amend the technical requirements set out in the Annex to the Regulation through delegated acts (see also Article 14). The will be under the legal obligation to align the and Rulebooks with the technical amendments adopted by the European Commission.

Background on delegated acts

The Newsletter previously examined the procedure to be followed by the European Commission for determining and amending the technical requirements applicable to euro payment schemes in the article by Dermot Turing and Gail Orton, entitled ‘The New European Decision-Making Landscape: How the European Commission Rules Through Delegated Acts’, published in January 2012. This article reiterates the relevant principles first reported in January 2012.

Delegated acts are a new addition to the 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 co-legislators: the Council of the (made up of representatives of the  Member States)1 and the European Parliament (made up of the directly elected members), Article 290 TFEU allows the Council of the and Parliament to delegate the power to adopt non-legislative acts to the European Commission (the executive body)2.

Delegated acts are used when the Council of the 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 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 of the 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 Regulation will need to be updated. The Council of the 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 co-legislators.

The 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 13 and 14 of the Regulation. Power is delegated to the European Commission for a period of five years from the date of entry into force of the Regulation. This could be extended for a further five years, unless the European Parliament or Council of the opposes it three months before the end of the first 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 Regulation delegated power will play out is therefore not possible at this 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 European Commissioners (one from each Member State). A European Commission Communication from December 2009 (see ‘related links’ below), sets out how Article 290 TFEU should be implemented (the ‘2009 Communication’). For those who follow closely 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 Member States in the preparation of delegated acts, in accordance with established practice. (Representatives from all countries are members of the ‘Payments Committee’, an advisory group which helps the Commission with adopting implementing measures of the Payment Services Directive, and other issues linked to payments.) The Commission may also form new expert groups. It is currently unclear what (informal) role the European Banking Authority ( ) may play in relation to the Annex to the Regulation. (The is an independent authority which works to ensure effective and consistent prudential regulation and supervision across the European banking sector.)

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”. However, with Recital 30 of the Regulation the European Parliament and Council of the require the European Commission to “carry out appropriate and transparent consultation during its preparatory work [on delegated acts], including with the ECB and all relevant stakeholders”.

To date, the European Commission has not made publicly available details of to what extent it will consult stakeholders not appointed by governments when considering amending the technical requirements applicable to and set out in the Annex to the Regulation.

Scrutinising the European Commission’s use of the delegated power

It is always the legislators, (i.e. the European Parliament and the Council of the ), 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 of the 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 of the must act by a qualified majority and the European Parliament by a majority of its members. In relation to the Regulation, the exact manner in which these rights are to be exercised is set out in Article 14.

In addition, Article 14 stipulates that the European Commission must notify the European Parliament and Council simultaneously “as soon as it adopts a delegated act”.

It remains the 's objective to ensure that the and Rulebooks evolve in response to proven market needs, based on a predictable release schedule. The must, however, clarify that moving forward, it may be required to adapt the rulebook release schedule at short notice to ensure compliance with technical requirements set out in the Annex to the Regulation as amended by the Commission (or with any other relevant legislation).

European Central Bank (ECB) exercises the oversight of the and Schemes

Following a public consultation in 2009, in October 2010 the Eurosystem, which comprises the ECB and the national central banks (NCBs) of the euro area, published the final versions of the ‘Oversight Framework for Credit Transfer Schemes’ and the ‘Oversight Framework for Direct Debit Schemes’ (see ‘related links’ below).

The two frameworks build on the Eurosystem’s ‘Harmonised Oversight Approach and Oversight Standards for Payment Instruments’ (see ‘related links’ below), while accommodating the specifics of the payment instruments in question. The ECB applies these frameworks to the and Schemes, i.e. exercises the oversight of the payment schemes. Individual NCBs may also decide to apply these standards for the oversight of other national (non- ) payment instruments, if they deem this to be appropriate.

The ECB stated in a related press release published in October 2010 (see ‘related links’ below) that these oversight frameworks “help strengthen the soundness and efficiency of credit transfers and direct debits schemes by highlighting risks that could have an overall impact on the confidence of users of the instrument. In this way, they will ultimately contribute to maintaining confidence in the currency and promoting an efficient economy.”

Jean-Yves Jacquelin is the Chair of the Payment Schemes Working Group.


Related links:

EPC Website: SEPA at a Glance – the Infographic. (This infographic provides an overview of the actors involved in the process at the European level and their interaction.)

EPC Website: SEPA Legal and Regulatory Framework 

EPC Website: SCT / SDD Rulebook Release Management and Scheme Development 

Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro (the SEPA Regulation) adopted by the EU legislator in February 2012 

European Commission Communication (2009) to the European Parliament and the Council [of the European Union]: Implementation of Article 290 of the Treaty on the Functioning of the European Union COM(2009)673 

Council of the European Union: Common Understanding on Practical Arrangements for the Use of Delegated Acts (14 April 2011)

European Parliament Website: Legislative Powers

European Commission Website: Application of EU Law/Regulations 

European Central Bank Press Release (13 October 2010): ‘Eurosystem Publishes Oversight Frameworks for Credit Transfer and Direct Debit Schemes’ 

European Central Bank: Oversight Framework for Credit Transfer Schemes 

European Central Bank: Oversight Framework for Direct Debit Schemes 

European Central Bank: Harmonised Oversight Approach and Oversight Standards for Payment Instruments 


Related articles in this issue:

SEPA 2.0: an Overview of Regulatory Action Now in the Pipeline Impacting the European Payments Market Going Forward. The European authorities have clarified that migration to harmonised SEPA payment schemes and technical standards does not conclude this EU integration project

EPC Publishes ‘Guidance on Reason Codes for SEPA Direct Debit R-transactions’. Scheme participants are reminded to apply the specific reason codes described in the rulebooks when reporting a failed collection


Related articles in previous issue:

Next Generation SCT and SDD Rulebooks: Three-Month Public Consultation Starts on 19 May 2014. All stakeholders are invited to provide feedback on possible modifications to the SCT and SDD Rulebooks ( Newsletter, Issue 22, April 2014) 

Join the Debate on the Further Evolution of the SCT and SDD Schemes: Less Flexibility, More Harmonisation? An overview of the options, variations, exceptions and exemptions possible in SEPA today ( Newsletter, Issue 22, April 2014) 

Newsletter: Articles Published in the Section ‘SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD)’ 

Newsletter: Articles Published in the Section ‘Legal and Regulatory Issues’


The Council of the is the institution where the Member States’ government representatives sit, i.e. the ministers of each Member State with responsibility for a given policy area.

The European Commission has the right of initiative to propose laws for adoption by the European Parliament and the Council of the . The European Commission is also responsible for ensuring law is applied throughout all Member States.

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