European Union legislator has introduced detailed provisions on the use of the International Bank Account Number (IBAN) and the Business Identifier Code (BIC)
The IBAN and the BIC are the only permissible account and bank identifiers for Single Euro Payments Area () transactions. Whereas in the pre- era the IBAN and the BIC have been used only for cross-border payments in most countries, with this applies to national payments as well. The IBAN and the BIC allow the identification of any account in all countries. These technical standards were developed by the International Organization for Standardization (ISO). The IBAN is ISO standard 13616; the BIC is ISO standard 9362. The European Union (EU) ‘Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro’ (the Regulation; see ‘related links’ below) includes detailed provisions on the use of both the IBAN and the BIC by payers and payees. The Regulation, specifically, states that a payee accepting credit transfers must communicate the IBAN of the account to which the payment should be credited and the BIC of its payment service provider () “but only where necessary”, to its business partners (see Article 5 (4) and point (1) (a) of the Annex to the Regulation). Likewise, a payer wishing to make a payment by direct debit must communicate the IBAN of the account which should be debited and the BIC of its “but only where necessary”, to the payee (see Article 5 (5) and point (1) (a) of the Annex to the Regulation).
The Regulation stipulates the timeline for application of the so-called ‘IBAN only’ rule. This provision is relevant for both and payment service users (). Article 5 (7) of the Regulation, states: “After 1 February 2014 for national payment transactions and after 1 February 2016 for cross-border payment transactions, shall not require to indicate the BIC of the of a payer or of the of a payee.” Article 16 (6) however, provides Member States with the option to defer application of the ‘IBAN only’ rule for national transactions to 1 February 2016. The legislator, i.e. the European Parliament and the Council of the (made up of representatives of the 28 Member States), introduced the ‘IBAN only’ rule at the last stage of the legislative process leading to the adoption of the Regulation in February 2012. Recital (8) of the Regulation simply states that “in the vast majority of payment transactions in the [European] Union, it is possible to identify a unique payment account using only IBAN without additionally specifying BIC.” For payments, a “vast majority” – as stated in Recital 8 – is however not enough for ; they need as close as possible to 100 percent reliability when determining the of the receiver in order to ensure timely and proper execution of the payment instruction.
Credit Transfer and Direct Debit Schemes have been aligned with the legal requirements on the use of IBAN and BIC
The Credit Transfer () and Direct Debit (SDD) Schemes developed by the European Payments Council () in close dialogue with the customer community have to comply with the technical requirements detailed in Article 5 and in the Annex to the Regulation. The and SDD Schemes have relied on the provision of both the IBAN and the BIC since their inception. With the introduction of the ‘IBAN only’ rule; i.e. Article 5 (7) of the Regulation, the EU legislator however has effectively removed this requirement. Consequently, the has aligned the wording of the Rulebook version 7.0, the Rulebook version 7.0 and the Rulebook version 5.0 to take effect on 1 February 2014, where necessary with the Regulation. (For more information on the and SDD Rulebook versions to take effect on 1 February 2014, refer to the Blog published on 30 November 2012 included with the ‘related links’ below).
For the time being, it is recommended that businesses and public administrations now preparing migration to the harmonised payment schemes continue to collect the BICs related to customer accounts taking into consideration the following: as mentioned above, the 1 February 2014 deadline for application of the ‘IBAN only’ rule for national transactions can be extended at the level of Member States to 1 February 2016. The European Commission (the Commission) publishes the document ‘Usage of Member States options - Article 16 of Regulation () No 260/2012’. The European Central Bank (ECB) provides country-specific fact sheets on the transitional arrangements chosen by individual Member States. These documents can be downloaded by following the links to the Commission’s and the ECB’s websites included at the end of this article. The BIC may still be required for cross-border and SDD transactions until 1 February 2016, as specified in Article 5 of the Regulation.
Impact of the ‘IBAN only’ rule with regard to the processing of and SDD transactions
The ‘IBAN only rule’ prohibits to require that provide the BIC. will however have to indicate the BIC when executing a payment transaction on behalf of a in the interbank space; i.e. when moving funds (money) from account A to account B. The IBAN identifies the account that should be debited or credited; the BIC identifies the bank (branch) where this account is held. To give an analogy: you are supposed to attend a meeting. The party requesting the meeting sends you information which includes the name of the street (IBAN) where the venue is located however, does not specify the street number (BIC) corresponding to the venue. Chances are high that you will not make it on time or wind up at the wrong meeting.
In more technical terms: a payment is processed based on the ISO 20022 message standards. In the interbank space, it is mandatory to include the BIC with the ISO 20022 payment message that is exchanged between the payer’s bank, the clearing and settlement mechanism (CSM)1, and the payee’s bank in the process of executing a payment transaction. As a result, offering and SDD services will need a tool which allows them to derive the BIC from the IBAN. This will then enable the of the party originating the payment to add the mandatory BIC information required to send the ISO 20022 payment message to the CSM or directly to the of the beneficiary. Contrary to the statement made in Recital 8 of the Regulation, both the IBAN and the BIC are indeed necessary to uniquely identify an account in that should be debited or credited.
Developing minimum requirements for ‘BIC from IBAN derivation’ solutions for cross-border transactions: invites stakeholders to join forces
An internal survey carried out by the at the end of 2012 indicated that solutions which allow deriving the BIC from the IBAN are or will be available in time with regard to and SDD transactions processed at national level. These solutions are offered by national central banks, CSMs or national banking associations, respectively. The survey, however, also indicated that at that time no mature solution seemed to be in place which allows deriving the BIC from the IBAN with regard to cross-border transactions. To ensure continued smooth processing of cross-border and SDD transactions based on the ‘IBAN only’ rule established with the Regulation, the invites stakeholders representing both the demand and supply sides of the euro payments market to join forces to design the minimum requirements for cross-border ‘BIC from IBAN derivation’ solutions. Such solutions must allow to identify the corresponding BIC based on the IBAN for any account in all countries.
All stakeholders are invited to indicate whether they are interested in attending a workshop to discuss minimum requirements for ‘BIC from IBAN derivation’ solutions for cross-border transactions
The intends to host a workshop on 24 September 2013 in Brussels to initiate a dialogue on the minimum requirements for possible future ‘BIC from IBAN derivation’ solutions. The event will be open to any interested party. The confirmation of the workshop will be subject to sufficient interest being expressed by both the demand and the supply sides in to jointly work on the minimum requirements for any reliable cross-border ‘BIC from IBAN derivation’ solution.
Organisations interested in contributing to the minimum requirements for cross-border ‘BIC from IBAN derivation’ solutions are invited to confirm their participation in the workshop proposed to be hosted on 24 September 2013 by e-mailing IBANfirstname.lastname@example.org by 9 August 2013. For logistical reasons, the number of participants will be restricted to one representative per organisation. Subject to confirmation of the workshop, the will communicate details on the venue and other organisational details in due course. Any party interested in participating in the workshop is invited to share suggestions for specific aspects to be discussed at the workshop by emailing IBANemail@example.com.
The intended workshop with participation from all interested parties is meant to ensure that the development of minimum requirements for cross-border ‘BIC from IBAN derivation’ solutions is as transparent and inclusive as possible from the beginning and that this process is launched early enough for solutions to be finalised and available in time. Subject to the views expressed at the planned workshop to take place in September 2013, the would be willing to assist in the discussion and development of requirements for ‘BIC from IBAN derivation’ solutions for cross-border transactions in close dialogue with both the Council and the Customer Stakeholder Forum (CSF). The Council, which brings together representatives of both the demand and supply sides of the payments market including the , was established by the Commission and the ECB in June 2010 (for more information, refer to ‘related links’ below). The CSF, established mid 2007, specifically addresses the requirements of with regard to the and SDD Schemes and related technical specifications. CSF members represent a wide cross-section of interest groups acting at the European level including consumers, corporates, and small and medium-sized enterprises. The would, in addition, suggest using available communication channels including the ’s social media platforms and the Newsletter to regularly update the public on work in progress throughout the development process.
The proposed requirements for ‘BIC from IBAN derivation’ solutions for cross-border transactions would be subject to a public consultation prior to being finalised. These minimum requirements jointly developed by stakeholders representing the demand and supply sides in would then become freely accessible and should allow any supplier operating in the commercial environment – on a voluntary basis – to develop and offer related services.
The stresses that it will not be involved in the development of any ‘BIC from IBAN derivation’ solution. The is confident that based on the minimum requirements to be jointly developed by interested parties; market forces will generate the most appropriate solutions. With its intention to organise a related workshop, the only plans to facilitate the dialogue between all stakeholders to agree on minimum requirements for any cross-border ‘BIC from IBAN derivation’ solution.
The looks forward to initiating this broad dialogue on how to ensure a smooth transition to the full ‘IBAN only’ environment mandated by the legislator to materialise by February 2016.
Jean-Yves Jacquelin is the Chair of the Payment Schemes Working Group.
EPC Blog (30 November 2012): SEPA Credit Transfer Rulebook Version 7.0, SEPA Direct Debit (SDD) Core Rulebook Version 7.0, SDD Business to Business Rulebook Version 5.0 and Associated Implementation Guidelines to Take Effect on 1 February 2014 Published
Related articles in previous issues:
The Long Road to Harmonisation: Transitional Arrangements in European Union Member States Permissible Under Regulation 260/2012 (the SEPA Regulation). European Commission and European Central Bank provide information on national derogations ( Newsletter, Issue 18, April 2013)
1 The term payment system as defined in the Payment Services Directive (PSD), means a funds transfer system with formal and standardised arrangements and common rules for the processing, clearing and / or settlement of payment transactions. In other words, a funds transfer system enables the exchange of funds (money) and messages between two executing a payment transaction. These funds transfer systems can be as well as separate business - public or private - entities (which may or may not be owned by banks). In the SEPA context, a payment system which is a ‘funds transfer system’ is referred to as a clearing and settlement mechanism (CSM).
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