The Amending Regulation raises as many questions as it purports to answer
On 20 March 2014 ‘Regulation ( ) No 248/2014 of the European Parliament and of the Council [of the European Union ( )]1 of 26 February 2014 amending Regulation ( ) No 260/2012 as regards the migration to Union-wide credit transfers and direct debits’ was published in the Official Journal of the (the Amending Regulation) (see ‘related links’ below). This amends ‘Regulation ( ) No 260/2012 of the European Parliament and of the Council of 14 March 2012 establishing technical and business requirements for credit transfers and direct debits in Euro and amending Regulation (EC) No 924/2009’ (the Single Euro Payments Area ( ) Regulation) by giving the option to postpone to 1 August 2014 the end-date set thereunder.
The Amending Regulation states, among other things, that (italics 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), [payment service providers] 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) (…) from 2 August 2014.”
The European Commission (the Commission) is of the view that this procedure “does not change the formal deadline for migration of 1 February 2014”.2 Consequently, Articles 6(1) and 6(2) of the Regulation, which stipulate the above-mentioned compliance date, remain unchanged.
The Amending Regulation was the subject of an accelerated legislative timetable and will apply with retroactive effect from 31 January 2014. The Amending Regulation is aimed at giving market participants more time to migrate, in light of the lack of progress that the Commission perceived in this respect. Interestingly, despite the Commission's aim of promoting legal certainty, the Amending Regulation raises as many questions as it purports to answer, primarily due to its permissive language, which may result in different payment service providers and different Member States following a different approach. Moreover, the wording of the Amending Regulation is not clear as to whether the non-formatting requirements of the Regulation also get the benefit of the derogation.
No time to relax
The Commission's proposal for pushing back the migration deadline amounted to indicating to the market that something had not gone as planned. Indeed, since the entry into force of the Regulation, some parties had raised alarm bells that market participants were not on track for meeting the migration deadline. Concerns had been voiced as to whether this meant that payment service providers would be obliged, as of 1 February 2014, to refuse payment instructions that did not meet the technical standards of the Regulation. Giving market participants who had not achieved compliance with the Regulation by 1 February 2014 more time to comply may have been – in the Commission's view – essential, but it should not be interpreted by market participants as condoning a "take your time" approach; the August deadline (where applicable) is just around the corner and the Commission this time will not be sympathetic to complacency.
An interesting legacy?
Although the Commission's rationale and aim behind the Amending Regulation is clear, the same cannot be said about the wording of the Amending Regulation itself, which on certain issues raises as many questions as it purports to answer. Specifically:
- The regulation uses a permissive approach, "allowing" payment service providers to continue to process transactions under their legacy schemes and to offer conversion services to users who have yet to migrate. On a literal interpretation, a payment service provider is free to chose not to accept payments that are formatted in a manner that is not Regulation compliant, provided of course that (in line with its regulatory obligations) such payment service provider has clearly explained to its client its formatting requirements in its terms and conditions. It also has to be noted that this permissive approach (and the fact that payment service providers have discretion as to whether or not they will continue to process legacy formats) creates uncertainty as to whether legacy format payments initiated by a payment service user could be rejected by the receiving payment service provider. Therefore a decision needs to be made at national level as to whether payment service providers are mandated to remain connected to the legacy systems and are bound to process such transactions. Guidance and clarity should be provided by the authorities on how to proceed until August 2014.
- The regulation states that the derogation from the migration deadline relates to Articles 6(1) and 6(2) of the Regulation and specifically to the processing of transactions in euro in formats that are different to those prescribed for in the Regulation. This begs the question as to whether the non-formatting requirements of the Regulation (for example, the Article 5 checking obligations and/or the consumer protection provisions3) also get the benefit of the derogation, or whether these should be complied with before 1 August 2014 in respect of legacy direct debits. On a purposive interpretation of the Amending Regulation, an argument can be made that the Article 5 obligations were meant to only apply to Regulation compliant mandates (rather than legacy ones).
- Different euro area Member States have decided on different timelines during which they will continue to permit the processing of payment transactions in non- formats. Accordingly, some Member States will allow such processing for the whole of the six month transition period agreed by the Commission, the European Parliament and the Council of the , while others have opted for a shorter timeline.
The European Central Bank makes available country-specific information with ‘Fact Sheets on Regulation 260/2012’ (see ‘related links’ below). Following the announcement of the Commission proposal to amend the Regulation to “give an extra transition period of six months” for migration, these fact sheets now also feature information obtained from Eurosystem4 national central banks concerning migration timelines envisaged at national level in each euro area country during the additional transition period.
It will be interesting to see how the European payments market will interpret the Amending Regulation's provisions. Market participants should aim to migrate as soon as possible - it remains to be seen whether the Amending Regulation offers an adequate level of legal certainty or whether the next few months will be characterised by divergent approaches being followed in different Member States.
Dermot Turing is a Partner and Maria Troullinou is an Associate in the financial regulation group at Clifford Chance in London.
EPC Blog (20 February 2014): 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
Related articles in this issue:
SEPA 2.0: Reflections on Realising the Potential of SEPA Going Forward. SEPA roll-out so far suggests that there is room for improvement as regards alignment of policies and coordination among the EU institutions and governments driving EU integration in the area of payments
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. EPC recommends that organisations in the euro area still working towards achieving SEPA readiness complete the migration process as soon as possible
Related articles in previous issues:
SEPA 2014: EPC Calls on European Parliament and EU Governments Represented in the Council of the European Union to Provide Clarity on SEPA Compliance Requirements As Soon As Possible. On 9 January 2014, the European Commission introduced a proposal to effectively postpone the deadline for compliance with Regulation (EU) No 260/2012 from 1 February 2014 to 1 August 2014 ( Newsletter, Issue 21, January 2014)
1 The Council of the is the institution where the Member States’ government representatives (i.e. the ministers of each Member State with responsibility for a given policy area) participate.
2 European Commission press release of 9 January 2014 (http://europa.eu/rapid/press-release_IP-14-6_en.htm?locale=en).
3 Article 5 of the Regulation sets out, among other things, the rights of consumers with regard to direct debit collections.
4 The Eurosystem comprises of the European Central Bank and the national central banks of Member States whose currency is the euro.
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