SEPA Regulation: European Legislator Mandates Migration to SEPA by 1 F...

SEPA Regulation: European Legislator Mandates Migration to SEPA by 1 February 2014 in the Euro Area and Transfers the Responsibility for SEPA Scheme Management to the European Commission

EPC Chair comments on the new regulatory reality governing the integration of the euro payments market

16 February 12

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Migration deadlines introduced with the Regulation

All references in this article relate to the version of the forthcoming 'Regulation Establishing Technical Requirements for Credit Transfers and Direct Debits in Euros and amending Regulation (EC) No 924/2009', as published by the Council representing European Union (EU) Member States on 16 December 2011 (see 'related links' below). This legislative act is commonly referenced as the 'Single Euro Payments Area Regulation' (' Regulation' for short). It is expected that the Regulation will be formally adopted by the Plenary of the European Parliament and endorsed by the Council representing EU Member States in February 2012.

Articles 5 and 17.1: deadlines for compliance with the Regulation

Article 5 of the Regulation defines 1 February 2014 as the deadline in the euro area for compliance with this Regulation (see related press releases of the European Commission and the European Parliament under 'related links' below). For non-euro countries, the date will be 31 October 2016 (see Article 17). Effectively, this means that by this date existing national euro credit transfer and direct debit schemes will be replaced by Credit Transfer () and Direct Debit (SDD).

Article 17.2: transitional period for niche products

The Regulation stipulates in Article 17.2 that Member States may waive until 1 February 2016 some or all of the requirements applicable to euro credit transfer and direct debit schemes, for those credit transfer or for direct debit transactions with a cumulative market share of less than ten percent of the total number of credit transfer or direct debit transactions in that Member State. In other words, the deadline for migration of so-called 'niche products' can be extended - also in the euro area - to February 2016.

The view of the

The majority of market participants recognise the value of setting a deadline for migration to harmonised payment schemes through Regulation. The shares the view that an end date for phasing out legacy euro payment schemes for credit transfers and direct debits ensures planning security for all market participants. The also welcomes that the Regulation establishes one end date for compliance of euro credit transfer and direct debit schemes with this Regulation, as opposed to two separate end dates originally envisaged by the European Commission. This will spare bank customers such as businesses and public administrations the duplication of implementation efforts and required resources.

The very much appreciates that the legislator deleted the requirement to create 'interoperability' between payment schemes originally proposed by the European Commission. The proposal for the Regulation tabled by the European Commission in December 2010 implied a theoretical scenario of multiple Union-wide payment schemes for euro credit transfers and direct debits. This concept of 'interoperability' of multiple Union-wide schemes, if it would have been included in the Regulation, would have put at risk the fundamental requirement of full reachability of all payment service providers () across ; countered the objective of overcoming the fragmentation of the euro payments market; and disregarded the principles governing an optimally efficient payment environment.

Provisions with regard to direct debit introduced with the Regulation

The Regulation specifies the technical requirements applicable to euro direct debit transactions. The Regulation also introduces provisions regarding direct debit mandates and multilateral interchange fees (MIFs).

Recitals 10a, 25a, and Articles 4a.3d, 4a.6: mandate checking obligations applicable to direct debit payments

The Regulation makes it mandatory for to offer specific mandate management features. A mandate is signed by the payer to authorise the biller to collect a payment and to instruct the payer's bank to pay those collections. The Regulation states that: "the payers shall have the right to instruct their :

  • To limit a direct debit collection to a certain amount or periodicity or both.
  • Where a mandate under a payment scheme does not provide for the right to a refund, to verify each direct debit transaction, and to check whether the amount and periodicity of the submitted direct debit transaction is equal to the amount and periodicity agreed in the mandate, before debiting their account, based on the mandate-related information.
  • To block any direct debits to the payer's account or to block any direct debits coming from one or more specified payees or to authorise direct debits only initiated by one or more specified payees."

Recital 9a and Article 4a.3d (da) clarify that these mandate checking obligations do not apply to the Direct Debit (SDD) Business to Business Scheme developed by the .

The view of the

The recommended refraining from introducing such complex mandate management obligations into the Regulation. The Scheme allows for all of these, and more, checking options. The scheme does not, however, oblige a to offer these checks, given that more than 75 percent of consumers making direct debit payments in the today do not request them. The low acceptance of direct debits in countries which today rely on complex mandate checking features implies that introducing them into the Scheme will not affect demand for direct debit in these countries. The only likely effect will be to make this payment instrument more costly and complex for the majority of direct debit users in countries such as Austria, Germany, the Netherlands and Spain, for example, who today demonstrate strong demand for the direct debit model (for details, see the article 'Direct Debit. Killing it Softly' under 'related articles in previous issues' below).

Recital 17a and Article 5a: direct debit mandates issued under a legacy direct debit scheme continue to be valid under the SDD Scheme

Article 5a of the Regulation states that any "valid payee authorisation to collect recurring direct debits in a legacy scheme prior to 1 February 2014 shall continue to remain valid after that date and shall be considered as representing the consent to the payer's to execute the recurring direct debits collected by that payee in compliance with this Regulation in the absence of national law or customer agreements continuing the validity of direct debit mandates". In other words, this Article ensures the continued legal validity of existing mandates under the SDD Schemes.

The view of the

The very much welcomes this provision. To facilitate migration by bank customers to the SDD Scheme it is imperative to ensure the continued legal validity of existing mandates.

Recitals 14, 15, 15a and Articles 6 and 18.2: MIF for direct debit transactions

The Regulation stipulates that the prohibition of MIF for regular cross-border direct debit payments applies as of November 2012. For national direct debit payments, a clause allows the existing practices to be continued until February 2017. Regulation (EC) 924/ 2009 will be amended accordingly (for details on Regulation (EC) 924/2009 refer to the link ' Legal and Regulatory Framework' under 'related links' below). Interchange fees for so-called 'R transactions' are admitted under certain strict conditions. Article 2 (26) of the Regulation defines 'R' transactions as follows: "'R-transaction' means a transaction which cannot be properly executed by a or which results in exception processing, inter alia because of a lack of funds, revocation, a wrong amount or a wrong date, a lack of mandate or wrong or closed account."

The view of the

The advocated that Articles and Recitals related to interchange fees for direct debits should be removed from the  Regulation (for details on the position see the document 'Executive Summary - Comments on Regulation' under 'related links' below).

Provisions with regard to the International Bank Account Number and the Business Identifier Code introduced with the Regulation

The Annex to the Regulation details the use of the International Bank Account Number (IBAN) and the Business Identifier Code (BIC). The Regulation also details timelines leading to the application of the so-called 'IBAN only' rule.

Recitals 7a, 10a and Articles 4a.4, 4a.7, 17.2c: use of the IBAN and the BIC

For cross-border payments the 'IBAN only rule' will apply as of February 2016; i.e. payment service users () will not be required to provide the BIC with a payment instruction. For national payments, the 'IBAN only rule' will apply as of February 2014, however individual Member States have the option to delay this to February 2016 if required.

Recital 12a and Article 17.1: option for continued use of national account identifiers by consumers until 1 February 2016

Article 2 (14) of the Regulation defines Basic Bank Account Number (BBAN) as follows: "'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 transactions while the same account is identified by IBAN for cross-border transactions." The Regulation includes a provision (Article 17), which states that Member States are 'permitted to allow, until 1 February 2016, to provide with conversion services for national payment transactions, enabling that are consumers to continue using BBAN' instead of the IBAN.

The view of the

The and SDD Schemes are based on the use of both the IBAN and BIC. The is not aware of any valid data which would indicate that providing both the IBAN and the BIC would constitute an obstacle to migration. The notes that early movers on the customer side in several euro countries have successfully accomplished conversion of millions of account data to IBAN and BIC already. The banking industry and other service providers have developed a host of tools supporting the conversion of account data to IBAN and BIC. In many EU countries, consumers today already use IBAN and BIC without any difficulties. The is therefore surprised that the EU legislator identified the need to abolish the BIC at the 25th hour of the legislative process leading to the adoption of the Regulation.

Provisions on the use of the ISO 20022 XML standards introduced with the Regulation

Article 2(17): definition of the ISO 20022 XML standard

Article 2 (17) of the Regulation defines the meaning of the ISO 20022 XML message standard as follows: "'ISO 20022 XML standard' means a standard for the development of electronic financial messages as defined by the International Organization for Standardization (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 in scope of this Regulation."

The 'implementation guidelines of Union-wide schemes' referred to in this definition are, for example, the implementation guidelines published by the with regard to the and SDD Schemes. These guidelines are available for download on the Website (see links to ' Credit Transfer' and ' Direct Debit' under 'related links' below). For more information on the ISO 20022 message standards see www.iso20022.org .

Recital 11, Articles 4a.1d, 4a.1e, 17.2b, Point 1 (b) of the Annex: mandatory use of ISO 20022 XML standards in the remittance of payment instructions by payment service users

Article 4 a. 1d of the Regulation states that the "shall 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 specifies that the message formats referred to in Article 4a. 1d are the ISO 20022 XML message standards.

The view of the

The data formats; i.e. the ISO 20022 message standards as specified in the implementation guidelines published by the with regard to the and SDD Schemes, are binding for the exchange of payments between that are or SDD scheme participants. The use of the data formats in the customer-to-bank communication is recommended by the , yet not mandated. The Regulation however mandates the use of the ISO 20022 XML message formats by as cited above. With regard to the fact that the Regulation confers the power upon the European Commission to amend the technical requirements set out in the Annex to the Regulation (see next section in this article), the wonders whether the European Commission considers it within its remit to redefine standards developed by ISO such as the ISO 20022 messages and the IBAN?

Provisions empowering the European Commission to amend the technical requirements set out in the Annex to the Regulation through 'delegated acts'

The concept of 'delegated acts' was introduced by the Lisbon Treaty, which entered into force in December 2009 and more specifically, by Article 290 of the Treaty on the Functioning of the European Union (TFEU). Whereas European legislation is adopted by the EU legislators; i.e. the European Parliament and the Council representing EU Member States, Article 290 TFEU allows the EU legislative bodies to delegate the power to adopt non-legislative acts to the European Commission (the executive body). For further details on the procedure to be followed by the European Commission for determining and amending the technical requirements applicable to euro payment schemes, refer to the article 'The New European Decision-Making Landscape: How the European Commission Rules Through 'Delegated Acts' (see 'related articles in this issue' below).

Recitals 10, 22, 23 and Articles 4a.1, 4a.2, 4a.3, 12, 13 and Annex: the European Commission is empowered to amend the technical requirements set out in the Annex to the Regulation through 'delegated acts'

The technical requirements detailed in the Annex to the Regulation are applicable to euro credit transfer and direct debit schemes, such as the and the SDD Schemes. The Regulation confers the power upon the European Commission to amend these technical requirements through 'delegated acts'.

The view of the

The had recommended to not confer these broad executive powers to the European Commission to amend the technical requirements set out in the Annex to the Regulation through delegated acts (for details on the position see the document 'Executive Summary - Comments on Regulation' under 'related links' below).

At the start of the process a decade ago, the European authorities tasked the banking industry to design harmonised instruments for electronic euro payments. The banking industry, represented by the , delivered as requested: the developed the and SDD Schemes in close dialogue with the customer representatives and the European authorities. The notes that the EU lawmaker has now de facto transferred the responsibility of scheme management to the European Commission.

It remains the 's objective to ensure that the and SDD Schemes and adjacent implementation guidelines evolve in response to proven market needs, and to publish updated versions of the scheme rulebooks based on a predictable release schedule (see ' / SDD Rulebook Release Management and Scheme Development' under 'related links' below). The must, however, clarify that it can no longer be held accountable in this regard.

Moving forward, the will be under the legal obligation to align the and SDD Rulebooks with the technical requirements as amended by the European Commission and according to the timelines mandated by this authority. All market participants obliged to adapt systems and operations with the technical requirements applicable to the and SDD Schemes decreed by the European Commission, would greatly appreciate the regulators making specific information on the principles and timelines governing the further evolution of the schemes available. To-date, both the legislator and the European Commission remain silent on the matter.

Recital on governance introduced with the Regulation

Recital 5: the European Commission should review the governance arrangements of the whole project, including the composition of the , before the end of 2012

Recital 5 of the Regulation states: "Self-regulatory efforts of the European banking sector through the initiative have not proven sufficient to drive forward concerted migration to Union-wide schemes for credit transfers and direct debits on both the supply and demand sides. In particular, consumer and other user interests have not been taken into account in a sufficient and transparent way. The voice of all relevant stakeholders should be heard. Moreover, this self-regulatory process has not been subject to appropriate governance mechanisms, which may partly explain the slow uptake on the demand side. While the recent establishment of the Council represents a significant improvement to the governance of the project, fundamentally and formally governance still remains very much in the hands of the European Payments Council (). The Commission should therefore review the governance arrangements of the whole project before the end of 2012 and where necessary make a proposal. This review should examine, inter alia, the composition of the European Payments Council (), the interaction between the and an overarching governance structure, such as the Council, and the role of this overarching structure."

The view of the : Recital 5 of the Regulation misrepresents the role of the

The clarifies - again:

To-date, the develops the payment schemes and frameworks required to make a reality. The was not, is not - and certainly will not be - responsible for the overall management of the process

Recital 5 of the Regulation, which states that "fundamentally and formally, [] governance still remains very much in the hands of the ", misrepresents the role of the in the process. The was not, is not - and, as demonstrated above, certainly will not be - responsible for the overall management or governance of the process.

The , as mandated by the relevant European authorities, develops the payment schemes and frameworks based on global technical standards developed by international standardisation bodies. The schemes are key elements required to making a reality. The however, is not responsible for the overall management of the process. This is the task of the relevant public authorities including the European Commission, the European Parliament, the Council representing EU Member States, the European Central Bank and EU governments. The representatives of bank customers are a very important partner in the process. As highlighted above, the European Commission will assume the responsibility of scheme management in the future. The banking industry will only have a marginal voice in the preparatory process leading to the adoption of delegated acts by the European Commission to amend technical requirements applicable to payment schemes set out in the Annex to the Regulation.

The ensures that the and SDD Schemes evolve based on an open and inclusive change management process

Recital 5, which states that the principles governing the scheme management would not take into account consumer and other user interests "in a sufficient and transparent way" misrepresents the . The and SDD Schemes are developed by the in close dialogue with the entire European payment community (demand and supply sides), and have evolved based on an open and inclusive scheme change management process. This process provides all stakeholders with the opportunity to actively introduce suggestions for modifications to the schemes and to take part in the annual three-month public consultation on updates to be incorporated into the schemes (see ' / SDD Rulebook Release Management and Scheme Development' under 'related links' below). The has a proven track record of consulting stakeholders with regard to deliverables.

It should be noted that some suggestions for changes to the schemes repeatedly brought forth by specific interest groups fail to find broad support on both the demand and supply sides of the entire payment market. The however, is bound to respect majority views as identified during the annual public consultation on scheme development. As a result, the cannot incorporate such requests into the and or SDD Schemes which lack broad support. In the view of the it is inappropriate to disqualify a process designed to identify majority views as 'ignoring user requests'.

is a policy-maker drive integration initiative shaped in accordance with law and policies. Any interest group is free to engage with the institutions subject to applicable procedures

is an integration initiative shaped in accordance with law and policies. Subject to applicable procedures, any interest group is free to engage in dialogue with the institutions. Available data indicates that there are up to 30,000 lobbyists active in Brussels. The legislative process leading to the adoption of the Regulation confirms that lobbying organisations representing specific interest groups on the demand side have successfully channelled their views into this Regulation. As such, the process was never driven exclusively by the banking industry. Anyone who feels that the decision-making process is at fault is certainly free to challenge the institutions on the matter, however, should refrain from fabricating a ' governance issue' (for details, see the Blog ' Governance: Setting the Record Straight' under 'related links' below).

The is not responsible to impose migration by bank customers to the and SDD Schemes

Recital 5 of the Regulation states: "Self-regulatory efforts of the European banking sector through the initiative have not proven sufficient to drive forward concerted migration to Union-wide schemes for credit transfers and direct debits on both the supply and demand sides." This statement blatantly disregards the fact that it is not the responsibility of the banking industry to drive forward integration initiatives. As discussed in greater detail in the article 'Reflections on Recent Contributions from the European Commission Directorate General Competition to the Innovation in Payments Debate' (see 'related articles in this issue' below), the integration of the euro payments market requires the political will and mandate to achieve it. The substantial efforts of the banking industry to develop and implement harmonised payment schemes at the request of the authorities did not - and, in light of antitrust law, could not - entail a responsibility of the industry to impose the replacement of existing national schemes by the new instruments. The fact that the mere existence of harmonised payment schemes did not trigger mass migration on the customer side should not have come as a surprise to the legislator: is a political vision, bank customers never asked for it. This is why there is a need for regulatory action to mandate the phasing out of national euro payment schemes.

In December 2009, the Economic and Financial Affairs Council (ECOFIN), which comprises the Economics and Finance Ministers of the Member States, called on public authorities in all Member States (i.e., themselves) to "significantly step up their migration efforts and lead migration by example"1. The ECOFIN also invited "Member States to encourage communication efforts made by industry and by public authorities in order to ensure that appropriate information campaigns are launched." In June 2010, the Council2 - bringing together representatives of both the demand and supply sides including the - endorsed a formal declaration which stressed, among other things, the need for "targeted communication efforts by the national authorities, the banking industry and the national Coordination Committees to improve the general perception of the project and to facilitate user-friendly market migration" (see 'related links below'). In the view of the , educating the general public on the objectives is the prime responsibility of the political authorities - such as governments - driving integration.

The banking industry looks forward to exchanging views with all stakeholders and the European Commission on the future evolution of the payment schemes

The Regulation is the fourth (and most likely not the last) major regulatory intervention within a decade designed to achieve a harmonised euro payments market (for details, see the link ' Legal and Regulatory Framework' under 'related links' below). With this legislative act, the European lawmaker forcefully reiterates that is a policy-maker driven EU integration initiative. The also notes that the European Commission recently adjusted the composition of the Payment Systems Market Expert Group (PSMEG). The PSMEG is a consultative entity representing the demand and supply sides of the payments market. The PSMEG helps the European Commission, among other things, in the preparation of 'delegated acts'. Representatives of banks are now a minority in the PSMEG; the has only an observer status in this body (see 'related links' below for the list of PSMEG members).

In light of the regulatory reality, the has no choice but to recognise that the expertise of payment experts employed by the banking industry may come second to the requirements defined by the legislator and the European Commission as regards the debate on the evolution of the payment schemes. Going forward, the and SDD Schemes will need to be amended as mandated by the European Commission.

The banking industry calls again on the European authorities to refrain from stating that would be a "self-regulatory project run by the banking sector". As demonstrated above, this claim was erroneous in the past and is untenable today.

Gerard Hartsink is the Chair of the .

Related links:

Proposal for a Regulation of the European Parliament and of the Council establishing technical requirements for credit transfers and direct debits in euros and amending Regulation (EC) No 924/2009 - Approval of the final compromise text, 16 December 2011

European Commission Press Release of 20 December 2011: 'Commissioner Michel Barnier Welcomes Agreement by Council and Parliament Establishing SEPA Migration End-Dates'

European Parliament Press Release of 20 December 2011: 'Cheaper, Faster and Safer Cross-border Payment Services'

Website: SEPA Legal and Regulatory Framework

Executive Summary - EPC Comments on SEPA Regulation 

Website: SEPA Credit Transfer

Website: SEPA Direct Debit

Website: SCT / SDD Rulebook Release Management and Scheme Development

Blog: SEPA Governance: Setting the Record Straight

SEPA Council: Formal Declaration on End-Date(s) (June 2010)

European Commission Payment Systems Market Expert Group (PSMEG): List of Members

Related articles in this issue:

The New European Decision-Making Landscape: How the European Commission Rules Through 'Delegated Acts'. SEPA Regulation empowers the European Commission to mandate technical requirements applicable to SEPA payment schemes

Reflections on Recent Contributions from the European Commission Directorate General Competition to the Innovation in Payments Debate. Seeking common ground between political visionaries and technical experts

The 2012 Payment Services Directive Review: Too Much too Soon? The European Commission must present its report on the application of the Payment Services Directive by 1 November 2012

Ahead of the Curve: Deutsche Post Pension Service Completes SEPA Migration. This early mover currently disburses 22.5 million SEPA payments monthly

Related articles in previous issue(s):

Brave New World: the European Commission Becomes the SEPA Scheme Manager. The EPC offers the regulator some insight on scheme development and rulebook release management ( Newsletter, Issue 12, October 2011)

SEPA Governance: Setting the Record Straight. SEPA is European integration in action. This process allows any party to engage. There is no 'SEPA governance issue ( Newsletter, Issue 12, October 2011)

Direct Debit: Killing it Softly. Reflections on the likely demise of one of the most popular payment instruments in Europe ( Newsletter, Issue 11, July 2011)


1Economic and Financial Affairs Council (EU Finance Ministers): SEPA Conclusions of December 2009.

2The objective of the Council established by the European Commission and the European Central Bank is to promote the realisation of an integrated euro retail payments market by fostering consensus between all major stakeholders on the next steps towards the full realisation of .



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