The key features of the repealed conventions
Introduced in 2002 and 2003 respectively, the Convention for Cross-border Payments in Euros and the Interbank Charging Principles (ICP) Convention have historic significance as the first market conventions concerning pan-European payments in euros published by the . Both conventions were agreed by the EPC, which was created in 2002, at a very early stage in the process. At the time, these conventions marked an important self-regulatory response to the call by the European institutions for more efficient and cheaper cross-border euro payments as set out in the following two regulatory interventions:
- Directive 97 / 5 / EC on cross-border credit transfers, which established minimum information and performance requirements for cross-border credit transfers, aimed at ensuring that funds could be transferred throughout the EU rapidly, reliably and inexpensively.
- The former Regulation (EC) No 2560 / 2001 on cross-border payments in euros which stated that the charges levied on payments in euros between different member states must be the same as those levied on corresponding payments in euros within a member state.
The stated objective of the Convention for Cross-border Payments in Euros was to develop "a standard for the efficient and low-cost execution of euro retail cross-border credit transfers", falling under the scope of Directive 97 / 5 / EC on cross-border credit transfers. The key features of this convention included:
- A maximum execution time of three banking business days following the date of acceptance (two days for the sending bank to transfer the funds to the beneficiary bank and a further day for the beneficiary bank to credit the beneficiary's account).
- The credit transfer should be executed on a 'fully automated basis from debiting of the originator's account to crediting the beneficiary's account'. To this end, sending banks were required to adhere to the specific technical 'Definition of Straight Through Processing [STP] for Euro Transactions', which formed the technical appendix to both conventions.
The ICP Convention, as a complementary deliverable, proposed a number of additional processing principles for these 'EU Regulation-compliant basic cross-border credit transfers' including the following:
- Sender and beneficiary of such basic cross-border euro payment to only be responsible for the fees of their own bank.
- Intermediary bank charging principle: no deduction from the principal amount.
- The MT102+/MT103+ SWIFT1 messages to be considered as the appropriate payment message standards for EU regulation-compliant basic cross-border credit transfers in euros.
So what has changed?
Whilst both conventions served their purpose well and achieved positive results, since their adoption a number of significant changes have taken place in the market as well as in the legal environment, which make these conventions obsolete.
In the SEPA environment, both conventions have effectively been superseded by the EPC's SEPA Credit Transfer () Scheme launched in January 2008. The SCT Scheme further develops the general concepts agreed in the Convention for Cross-border Payments in Euros and the ICP Convention. The material difference between the conventions and the SCT Scheme is that payment service providers () were expected to voluntarily observe the principles set out in the conventions. These principles, however, could not be enforced. By contrast, the SCT Scheme is a multilateral contract which establishes obligations that can be enforced. Scheme participants, i.e. PSPs adhering to the SCT Scheme, must comply with the obligations set out in the SCT Rulebook.
Furthermore, both conventions are based on outdated EU legislation. Directive 97 / 5 / EC on cross-border credit transfers and Regulation (EC) No 2560 / 2001 on cross-border payments in euros have been superseded by Regulation (EC) No 924 / 2009 and the Payment Services Directive (PSD). As a result of this, key features of the conventions are no longer aligned with applicable regulation.
For example, the one day additional processing time that a beneficiary bank could previously take to credit the funds to the beneficiary's account has been overtaken by the PSD's requirement in Article 73(1), requiring immediate crediting of the beneficiary upon receipt of funds by the beneficiary's PSP. Furthermore, there is no longer any basis within current EU payments legislation to support the maintenance of a standardised industry definition of what an STP message is, as set out in the appendix to the old conventions. Neither does the current legal environment provide the ability for banks to potentially levy additional so-called 'non-STP charges' in case the criteria of the industry definition of STP, as laid down in these conventions, are not complied with.
Regulatory reality, therefore, made the Convention for Cross-border Payments in Euros and the ICP Convention already obsolete in November 2009, when both Regulation (EC) No 924 and the PSD came into force. It became apparent during 2010, however, that some market participants continue to occasionally reference these conventions, in particular, to justify their charging principles. For example, individual PSPs were continuing to levy charges claiming that a transaction would not be compliant with the STP principles set out in these conventions. As pointed out above, such claims (and related charges) are no longer compatible with existing EU legislation.
The declaration of obsolescence
To emphasise the fact that reference to the Convention for Cross-border Payments in Euros and the ICP Convention is no longer permissible, the EPC decided that a clear and unambiguous statement to the market was required to the effect that these conventions are obsolete and should not be quoted from or used in future operational practices or inter-bank / PSP dialogues. Hence the EPC stated on 15 December 2010 "that the convention on a basic standard for euro retail cross-border credit transfers in the countries of the EU and the Interbank Charging Principles (ICP) Convention, are declared obsolete as based on outdated legislation and being superseded by a combination of the PSD, Regulation 924 / 2009 and EPC's SCT Rulebook. The EPC shall remove all references to these conventions from the EPC website".
Ruth Wandhöfer Chairs the PSD Expert Group and is a member of the EPC Plenary. She also Chairs the EPC Information Security Support Group.
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1SWIFT is a member-owned cooperative that provides the communications platform, products and services to connect more than 9,500 banking organisations, securities institutions and corporate customers in 209 countries. SWIFT enables its users to exchange automated, standardised financial information securely and reliably, thereby lowering costs, reducing operational risk and eliminating operational inefficiencies. SWIFT also brings the financial community together to work collaboratively to shape market practice, define standards and debate issues of mutual interest. For more information visit www.swift.com.
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