Two steps forward and one step back on the road to harmonisation?
The European Union (EU) 'Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro', commonly referenced as the Single Euro Payments Area () Regulation, effectively mandates migration to Credit Transfer () and Direct Debit () in the euro area by 1 February 2014. The Regulation provides certainty as to the timing of migration, which is an essential precondition to successful completion of the harmonisation exercise. At the same time, the Regulation - in an attempt to respond to a broad range of requests for flexibility articulated by various parties throughout the legislative process - 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.
To recap three essential provisions of the Regulation:
- Article 5 details the technical and business requirements that should be observed when carrying out euro credit transfer and direct debit transactions. These requirements relate, among other things, to the use of the IBAN, the BIC and the ISO 20022 XML message standards.
- Articles 6 (1) and (2) stipulate 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. (Article 16 (2) clarifies that non-euro countries will have to make the transition to by 31 October 2016.)
- Article 16 permits individual Member States in the euro area to extend the deadline for compliance with some of the regulation's provisions; i.e. use of the IBAN, the BIC and the ISO 20022 message standards, to 1 February 2016.
Market participants who supported inclusion of these exemptions in the Regulation expressed the view that a degree of flexibility would be required to support migration at national level to the new harmonised payment schemes and technical standards. As highlighted in an earlier Newsletter article on the impact of the Regulation on payment service users () by Dermot Turing and Maria Troullinou (see 'related articles in previous issues' below), it is however arguable that this attempt at flexibility breeds confusion and risks translating into a prolonged patchwork of national variations. The experience of pioneers on the demand side that have already successfully concluded the migration exercise indicates that the benefits arising from the migration are proportionate to the level of harmonisation achieved (see case studies with the 'related articles in previous issues' below). This is in line with the findings of a study carried out at the request of the European Commission (the Commission) in 2007, which demonstrates that the potential benefits are dependent on swift migration to harmonised payment schemes and technical standards by the demand and supply sides (see Capgemini study with the 'related links' below).
Article 16 (7) of the Regulation states that Member States must have notified the Commission by 1 February 2013 of the derogations that they intend to use. With publication of the Newsletter in April 2013, notification by some Member States however remains outstanding. The expectation is that Member States lagging behind the deadline will deliver this information as soon as possible. To ensure a smooth transition to by 1 February 2014 in the euro area, market participants urgently require clarification on which derogations will apply, when, where and how.
IBAN and BIC: possible derogations from the February 2014 deadline by Member States
In accordance with Article 5 (1) (c) of the Regulation, payment service providers () must ensure that (i.e. payers and payees) "use the payment account identifier specified in point (1) (a) of the Annex", namely the IBAN. A payee accepting credit transfers must communicate its IBAN and the BIC of its "but only where necessary", to its payers (see Article 5 (4)). Similarly, a payer wishing to make a payment by direct debit must communicate its IBAN and the BIC of its "but only where necessary" (see Article 5 (5)). The Regulation stipulates the timelines for application of the so-called 'IBAN only' rule. 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 that Member States have the option to defer application of the 'IBAN only' rule for national transactions to 1 February 2016. Moreover, the Regulation allows Member States to derogate from Articles 6 (1) and (2) by allowing to provide consumers with conversion services for national payment transactions, enabling them to continue using the national account identifier (Basic Bank Account Number - BBAN) instead of the IBAN until 1 February 2016 (see Article 16 (1)). According to Article 2 (14) BBAN means "a payment account number identifier, which unambiguously identifies an individual payment account with a in a Member State and which can only be used for national payment transactions while the same payment account is identified by IBAN for cross-border payment transactions."
ISO 20022 XML message standards: possible derogations from the February 2014 deadline by Member States
Article 2 (17) of the Regulation defines the ISO 20022 XML message standard as "a standard for the development of electronic financial messages as defined by the ISO, encompassing the physical representation of the payment transactions in XML syntax, in accordance with business rules and implementation guidelines of Union-wide schemes for payment transactions falling within the scope of this Regulation." The 'implementation guidelines of Union-wide schemes' referred to in this definition would include, for example, the implementation guidelines published by the with regard to the and Schemes, which are available on the Website (see ' Credit Transfer' and ' Direct Debit' included with the 'related links' below). Article 5 (1) (d) of the Regulation states that "must ensure that where a that is not a consumer or a micro-enterprise, initiates or receives individual credit transfers or individual direct debits which are not transmitted individually, but are bundled together for transmission, the message formats specified in point (1) (b) of the Annex are used." Point (1) (b) of the Annex to the Regulation specifies that such message formats are the ISO 20022 XML message standards.
Article 16 (5) of the Regulation allows Member States to waive the requirement to use the ISO 20022 message formats for that initiate or receive individual credit transfers or direct debits that are bundled together for transmission until 1 February 2016, except in cases where a requests such a service.
Other possible derogations from the February 2014 deadline by Member States
Article 16 (3) allows Member States to waive all or some of the requirements established with the Regulation for those credit transfer or direct debit transactions with a cumulative market share, based on the official payment statistics published annually by the European Central Bank (ECB), of less than ten percent of the total number of credit transfers or direct debit transactions respectively, in that Member State until 1 February 2016.
Article 16 (4), finally, allows Member States to waive all or some of the requirements established with the Regulation for those payment transactions generated using a payment card at the point of sale which result in a direct debit to and from a payment account identified by the BBAN or IBAN until 1 February 2016.
ECB and Commission make available information on the use of derogations permissible under the Regulation by Member States
The Commission published the document 'Usage of Member States Options - Article 16 of Regulation () N°260/2012' on its website. The ECB provides country-specific fact sheets on the transitional arrangements chosen by individual Member States. These documents published on the websites of the Commission and the ECB, respectively, can be downloaded by following the 'related links' below.
Etienne Goosse is the Secretary General.
Payments Regulatory Expert Group: 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
Related articles in this issue:
UNION TANK Eckstein: "SEPA Credit Transfer and SEPA Direct Debit Allow Everyone to Do More and Better Business across Europe". This company looks forward to 1 February 2014 when migration to SEPA will be completed in the euro area
Learn to Love SEPA: the 1 February 2014 Migration Deadline Mandated by European Union Law Will Not Go Away. The focus must now be on joining forces to ensure that every market participant in the euro area required to achieve SEPA compliance will meet this deadline
If You Have Not Migrated to SEPA Yet - Get Ready and Get Inspired: SEPA Pioneers on the Demand Side Share Best Practice. The SEPA deadline will not move from 1 February 2014 so act today to ensure your compliance
Sign up! The European Commission's Proposal for a Regulation on Electronic Identification and Trust Services for Electronic Transactions in the Internal Market. European Commission follows up on key actions defined with the 'Digital Agenda for Europe' to boost cross-border e-commerce
Related articles in previous issues:
The Time to Act is Now: Impact of the SEPA Regulation on Payment Service Users ( Newsletter, Issue 14, April 2012)
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