It is the task of European Union authorities driving the Single Euro Payments Area initiative to ensure planning security for all market participants
The European Payments Council () has frequently pointed out that the Single Euro Payments Area () is a European Union (EU) integration initiative in the area of payments. With the introduction of the euro currency in 1999, the political drivers of the initiative – EU governments, the European Parliament, the European Commission and the European Central Bank (ECB) – have focused on the integration of the euro payments market. (For details, refer to the Newsletter article, entitled ‘ Fact Check: The Benefits Projected by EU Governments, the European Parliament, the European Commission and the European Central Bank (1999 - 2013)’ included in the ‘related articles in previous issues’ below.)
The integration of the national euro payment markets into a single European one is a process that would have never occurred spontaneously. It is therefore, the task of the EU authorities driving the programme to set the legal and regulatory conditions required to conclude this market integration exercise.
(Please note: the European Payments Council (), representing the European banking industry in relation to payments, is not an EU legislative body. More generally, the is not part of the EU institutional framework. The has therefore, no role in the adoption or modification of any EU laws.)
European Commission in December 2011: “The reasonable transition periods applied will allow customers and banks to get used to the adjustments in domestic payment transactions, provide legal certainty, avoid the cost of operating dual payments systems and bring forward the substantial future benefits of .”
On 16 December 2010, the European Commission, which has the right of initiative to propose laws for adoption by the EU co-legislators, published the proposal for an EU Regulation to effectively mandate deadlines for migration to . In February 2012, the EU co-legislators, i.e. the European Parliament and the Council of the EU representing EU Member States, adopted the ‘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’ (the Regulation; see ‘related links’ below). It defines 1 February 2014 as the deadline in the euro area for compliance with the core provisions of this Regulation. In non-euro countries, the deadline will be 31 October 2016. Effectively, this means that as of these dates, existing national euro credit transfer and direct debit schemes will be replaced by Credit Transfer () and Direct Debit ().
The European Commission commented in December 2011 on the agreement by the EU co-legislators on the 1 February 2014 deadline for migration to : “The reasonable transition periods applied will allow customers and banks to get used to the adjustments in domestic payment transactions, provide legal certainty, avoid the cost of operating dual payments systems and bring forward the substantial future benefits of .” (European Commission Press Release of 20 December 2011: ‘Commissioner Michel Barnier Welcomes Agreement by Council [of the EU] and [European] Parliament Establishing Migration End-Date’, see ‘related links’ below).
Since then, the authorities frequently reiterated that there would be “no alternative to complying with the legal requirements” mandated with Regulation () No 260/2012 (sources cited here are included with the ‘related links’ below):
- In March 2013, the European Central Bank issued its first migration report and warned against the risks of late migration. “Adapting to involves adjusting a lot of technical and business procedures over a limited period of time. Projects of this kind should not be left to the last moment,” said Benoît Cœuré, Member of the Executive Board of the European Central Bank. “I hope that all stakeholders will take migration to payment instruments as a top priority.” (European Central Bank press release of 21 March 2013.)
- In May 2013, the Council of the , representing Member States, underlined with its latest conclusions on that the provisions of Regulation () No 260/2012 “have to be fully respected by all market participants” in the euro area. It also stressed that all payment orders not submitted in the format requested by this Regulation after 1 February 2014 “may not be processed by all [payment service providers] in euro area member states, which otherwise would be sanctioned.”
- In September 2013, the Council, which was chaired by the European Central Bank and the European Commission, addressed the progress of migration to payment schemes in the euro area1. Established in 2010, the Council brought together representatives of both the demand and supply sides of the payments market. According to the statement adopted by Council members present at its 23 September 2013 meeting, it “was highlighted that the migration requirements set by law have to be fully respected without exception. While [payment service providers] play a central and crucial role in migration to , end-users such as ‘big billers’, public administrations and in particular SMEs [small and medium-sized enterprises], have their own responsibility to ensure that they are able to send and receive payments in euro also from 1 February 2014 onwards.”
- In October 2013, the European Central Bank reiterated: “Payment orders that do not comply with the legal requirements as laid down in the Migration End-date Regulation will not be allowed to be processed by [payment service providers] after 1 February 2014.” Benoît Cœuré, member of the Executive Board of the European Central Bank stressed: “Everybody has to be ready on 1 February 2014 or risk disruptions in their individual handling of payment orders.” He pointed out that this is also the position of the Council of the EU representing EU Member States and the European Commission. Mr Cœuré added: “We have been emphasising the fact that both payments providers and users are responsible for being sufficiently prepared. And our message to them is still the same: don’t leave it to the last minute.”
Mindful of the unambiguous message propagated by the authorities (diligently repeated by many other stakeholders including the ) that there would be “no Plan B”, thousands of market participants in the euro area including businesses of all sizes, public administrations and government agencies shouldered the resources required to adapt systems and operations in line with the provisions of the Regulation by 1 February 2014.
European Central Bank in January 2014: “The December  figures show that, if the current pace of migration continues, the vast majority of stakeholders will complete their migration by 1 February 2014.”
The progress of migration is monitored by the Eurosystem, which comprises the European Central Bank and the national central banks of EU Member States whose currency is the euro. On 9 January 2014, the European Central Bank commented in a press release (see ‘related links’ below): “Strong and successful migration efforts have been carried out by stakeholders in the euro area. The most recent information from national communities suggests that the pace of migration is high and accelerating, and the vast majority of stakeholders will complete their migration on time.”
On 20 January 2014, the European Central Bank confirmed in a further press release, entitled ‘New statistics show migration gathers pace in December’ (see ‘related links’ below): “According to the latest figures provided by national central banks, 74 percent of credit transfers in the euro area were already -compliant at the end of December (from 64 percent in November). For direct debits, the figure stands at 41 percent, a very steep increase from the 26 percent registered in November. The December figures show that, if the current pace of migration continues, the vast majority of stakeholders will complete their migration by 1 February 2014.” The European Central Bank “urges all market participants to continue their current migration pace and to complete the transition of all credit transfer and direct debit transactions to the standards by 1 February 2014.”
This very positive development reflects, among other things, the fact that payment service providers and other service providers have been making available the assistance and tools which help payment service users to achieve compliance by 1 February 2014. According to the qualitative indicators published by the European Central Bank in January 2014 (see ‘related links’ below), all payment service providers will be -ready by 1 February 2014. In the majority of euro area countries, payment service providers had already completed preparations in the third quarter of 2013. The qualitative indicators measure the level of preparedness by stakeholder groups at country level. They reflect the assessment by national central banks as of end-January 2014 with regard to readiness of banks, corporates, small and medium-sized enterprises (SMEs) and public administrations in the 17 euro area countries.
(For more information, refer the Newsletter article, entitled ‘ Facts and Figures (January 2014): “If the Current Pace of Migration Continues, the Vast Majority of Stakeholders Will Complete Their Migration by 1 February 2014,” Says European Central Bank’ included with the ‘related articles in this issue’ below.)
European Commission on 9 January 2014: “The [European] Commission has adopted a proposal to give an extra transition period of six months during which payments which differ from the format can still be accepted (…).”
In a press release published on 9 January 2014 (see ‘related links’ below), the European Commission observed, in line with previous statements of the regulators on the application of Regulation (EU) No 260/2012: “If no action were to be taken by the [European] Commission and the [EU] co-legislators, banks and payment services providers would be required to stop processing payments that differ from the format as of 1 February 2014.” The European Commission further commented in its 9 January 2014 press release, that “this could result in serious difficulties for market participants that are not yet ready.” To avoid this situation for non-compliant market participants, the European Commission therefore, introduced a proposal “to amend the Regulation and minimise the risk of possible disruption. The introduction of a transitional period of six months, until 1 August 2014, means that the end-date remains the same but banks and payment institutions will be able to agree with their clients to process payments that differ from the standard until then. After 1 August 2014, there will be no further transitional period.”
In a press release published on 22 January 2014 (see ‘related links’ below), the Council of the representing Member States remarked: “The Permanent Representatives Committee2 today approved, on behalf of the Council [of the ], an agreement with the European Parliament on a proposed regulation that postpones to 1 August 2014 the end-date in the euro area for the migration of domestic and intra-European credit transfers and direct debits in euros towards credit transfers and direct debits. The draft regulation, presented by the [European] Commission on 9 January, amends regulation 260/2012 on the migration to -wide credit transfers and direct debits, which had set a deadline of 1 February 2014. (...) The [European] Parliament is expected to vote accordingly in its plenary session in February. The Council [of the ] will subsequently formally approve the legislation without further discussion.”
(An overview of the legislative procedure that must be followed to “give an extra transition period of six months during which payments which differ from the format can still be accepted” after 1 February 2014, i.e. adoption of a new Regulation amending the Regulation () No 260/2012, as proposed by the European Commission and actors involved, is included in the first information box at the top of this article.)
Market reactions to the European Commission proposal to “give an extra transition period of six months” for migration in the euro area
While it appears that neither the European Parliament nor the ministers representing EU governments in the Council of the EU have identified any need for a thorough discussion of the European Commission proposal to effectively postpone the migration deadline in the euro area to 1 August 2014, it has sparked an intense debate across Europe. The sources included here provide a snapshot of the range of opinion articulated by various stakeholders.
Impact on further progress of migration: “The regulator who cried ‘No plan B!’ may find that they have now created a series of problems for themselves.” (Gareth Lodge)
The article by Neil Ainger in Bobsguide.com, entitled ‘EC to extend deadline by six months due to slow uptake’ (see ‘related links’ below), cites Micah Willbrand, European, Middle-Eastern and African (EMEA) director of risk and payments at Accuity. “The delay will be most beneficial for the SME market,” says Willbrand, “which was going to bear the brunt of non-compliant charges and fees post-. The move gives these businesses the time to implement their changes and get ready for the new 1 August 2014 date.” He also raises this question: “The extension will help ensure a smoother transition for and payments, but it is now unclear what barrier the [European] Commission [EC] wants to see overcome in order to fully enforce the switchover - does the EC require payments to be at 100 percent prior to shifting over, for example? Or would 75 percent of and SDDs suffice? Today’s action may cause an undercurrent of thought that will allow companies to continue to push off implementation.”
This thought is echoed by Arn Knol in a contribution for gtnews, entitled ‘ Deadline Postponed - Just in Time?’ (see ‘related links’ below): “This raises the question just how much the new deadline of 1 August 2014 is worth. It could be argued that the same risks that existed for the 1 February 2014 might still exist on 1 August. (…) As such, it can be expected that a number of large billers will simply postpone their migration to just before 1 August, implying that six months from now the adoption rate for direct debits might still be lower than one might hope for.” In his view, the “last-minute postponement of the end date and the already postponed deadlines for EMIR [European Market Infrastructure Regulation] seriously undermine the credibility and perceived ability of the EC [European Commission] as a body that can effectively drive regulatory change.”
In a blog published for Celent, entitled ‘Better Late Than Never’ (see ‘related links’ below), Gareth Lodge observes: “This move seems to show desperation from the regulator and perhaps a lack of understanding. The migration numbers show volumes from those companies that have migrated; it doesn’t show those who *could* migrate, but who have chosen not to do so yet. (...) Did the regulator blink too soon?” Gareth Lodge adds: “In conversations so far, the market is not grateful but angry. It has created confusion and complication, rather than helped the situation. Firstly, it’s sent the wrong message to the corporates. As one corporate has said: we were in a standoff, but the regulator blinked first; therefore we believe that at [a] minimum they might blink again, so perhaps we should just sit tight and not migrate at all? (...) But, just as the boy who cried wolf was eventually ignored, the regulator who cried ‘No plan B!’ may find that they have now created a series of problems for themselves.”
“The proposed regulation [amending Regulation () No 260/2012] has given rise to confusion in the markets on the deadline for migration and thus there is an urgent need for clear guidance,” says European Central Bank
Public debate across media and social media platforms, last but not least, identified a host of questions regarding the specific implications for payment service users and, in particular, payment service providers resulting from the amendment of Regulation () No 260/2012 now envisaged by the European Commission, the European Parliament and the Council of the representing Member States. To give just two examples:
The amendment to Regulation () No 260/2012 proposed by the European Commission states that payment service providers “may continue, until 1 August 2014, to process payment transactions in euro in formats that are different from those” established with this law however, it does not make it mandatory. This formulation creates an asymmetry as it is not certain that payments initiated by a payment service user based on legacy formats will be processed entirely as it may happen that, if not the payment service provider of the initiator, the receiver payment service provider may reject those transactions (they are allowed but not forced to process these). In a nutshell, at national level, provisions need to be taken to decide whether payment service providers are mandated to remain connected to the legacy systems and are bound to process those operations. Guidance and clarity should be provided by the authorities on how to proceed until August 2014.
Public debate also reflects the fact that different euro area countries might decide on different timelines during which they would make use of the option to continue processing non- formats, i.e. some countries might do so during the full six months transition period envisaged by the European Commission while others might settle for a shorter timeline.
The European Central Bank legal opinion (see ‘related links’ below) on the European Commission’s proposal for a new EU Regulation amending Regulation (EU) No 260/2012 also states: “The proposed regulation has given rise to confusion in the markets on the deadline for migration and thus there is an urgent need for clear guidance. A further concern is the lack of legal certainty in the event that the proposed regulation is only adopted after the current deadline, i.e. 1 February 2014. This concern would partially be addressed by the proposed retroactive application of the proposed regulation, i.e. as of 31 January 2014. A situation where the current migration deadline applies until the proposed regulation is adopted, during which time the markets are uncertain as regards the adoption of the proposed regulation, should as far as possible be avoided.” The European Central Bank legal opinion further comments: “It is therefore of the utmost importance to reinstate legal certainty, reduce the confusion in the markets and provide them with clear guidance about the deadline. These objectives can best be ensured by a fast adoption of the proposed regulation by the Council [of the EU] and the [European] Parliament, without any further alterations to its core elements.”
calls on the European Parliament and EU governments represented in the Council of the EU to provide clarity on compliance requirements as soon as possible
Article 10 (“Competent authorities”) of Regulation () No 260/2012 details how this legislative act is to be enforced. It clarifies that Member States must designate the competent authorities at national level responsible for ensuring compliance with this Regulation. The list of designated national authorities responsible for ensuring compliance with the Regulation is available on the European Commission Website (see ‘related links’ below). Article 11 (“Penalties”) of the Regulation states: “Member States shall, by 1 February 2013, lay down rules on the penalties applicable to infringements of this Regulation and shall take all measures necessary to ensure that they are implemented.”
The European Commission proposal for a new EU Regulation amending Regulation (EU) No 260/2012 as regards the deadline for migration (see last link in the ‘related links’ below) proposes to modify Article 16 of this Regulation to state, inter alia: 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. Member States shall apply the rules on the penalties applicable to infringements of Article 6(1) and (2), laid down in accordance with Article 11, only as of 2 August 2014.”
On 30 January 2014, it is clear that the co-legislators, (i.e. the European Parliament and the Council of the representing Member States), are incapable of formalising the amendment of Regulation () 260/2012 as proposed by the European Commission on 9 January 2014 before 1 February 2014. Consequently, payment service users and providers in the euro area are forced to determine their course of action as of 1 February 2014 based on the assumption that the co-legislators will amend Regulation () No 260/2012 to effectively delay the migration deadline in the euro area to 1 August 2014 and application of penalties for processing payments that do not comply with this Regulation to 2 August 2014. Market participants will also have to rely on the assumption that a new Regulation amending Regulation () No 260/2012 will “have a retroactive effect as from 31 January 2014” as proposed by the European Commission.
The has stressed since 2008 that a legally binding end date for phasing out legacy euro payment schemes for credit transfers and direct debits ensures planning security for all market participants. The emphasises that once the EU co-legislators have effectively modified the deadline for compliance with Regulation (EU) No 260/2012 in the euro area, it will be crucial that relevant public authorities clarify the implications to payment service users and providers immediately. It is the responsibility of the public authorities determining the compliance requirements to avoid a situation where uncertainty around applicable legal deadlines would impact ongoing migration efforts and further delay the completion of migration.
The recommends that organisations in the euro area still working towards achieving compliance with the Regulation (EU) No 260/2012 aim to finalise the migration process as soon as possible. Banks and other service providers are standing ready to support payment service users to complete the transition. Relevant information is also made available with ‘The Migration Tool Kit’ (see ‘related links’ below).
Javier Santamaría is the Chair of the .
European Central Bank Qualitative SEPA Indicators per Country (‘Traffic Light Indicators’) [This link is no longer made available by the ECB as of June 2014.]
European Commission Press Release (9 January 2014): ‘Single Euro Payments Area (SEPA): Commission Introduces an Additional Transition Period of Six Months to Ensure Minimal Disruption for Consumers and Businesses’
Related articles in this issue:
SEPA Facts and Figures (January 2014): “If the Current Pace of Migration Continues, the Vast Majority of Stakeholders Will Complete Their Migration by 1 February 2014,” Says European Central Bank. EPC recommends that organisations in the euro area still working towards achieving SEPA readiness complete the migration process as soon as possible
University of Barcelona: “Early Migration to SEPA Has Led to More Agile and Effective Account Reconciliation and Faster Processing of Payments”. The University implemented SEPA Credit Transfer in 2008 and will complete migration to SEPA Direct Debit by the end of January 2014
Related articles in previous issues:
SEPA Fact Check: The SEPA Benefits Projected by EU Governments, the European Parliament, the European Commission and the European Central Bank (1999 - 2013). SEPA is an EU integration initiative driven by EU governments and the EU institutions. Note: the European Payments Council is not part of the EU institutional framework ( Newsletter, Issue 20, October 2013)
1 In 2010, the European Commission together with the European Central Bank (ECB) established the Council, which promoted the realisation of an integrated euro retail payments market by ensuring high level stakeholder involvement and by fostering consensus on the next steps towards the finalisation of . On 19 December 2013 the ECB announced the launch of the Euro Retail Payments Board (). This new entity, which replaces the Council, will help foster the development of an integrated, innovative and competitive market for retail payments in euro in the EU. http://www.ecb.europa.eu/paym/sepa/stakeholders/governance/html/index.en.html#erpb.
2 The Permanent Representatives Committee (Coreper) is responsible for preparing the work of the Council of the . It consists of representatives from the Member States with the rank of Member States’ ambassadors to the and is chaired by the Member State which holds the Council Presidency (the Council Presidency is held by Greece in the first half of 2014).
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