Seek the efficiencies – addressing SEPA compliance

10 June 2014

With SEPA, organisations should look to go beyond compliance, says Etienne Goosse, secretary-general of the European Payments Council (EPC).

In February 2012, the European Parliament (EP) and the Council of the European Union (CEU) adopted the 'Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro', also known as the Single Euro Payments Area (SEPA) regulation.

Article 6(1) and (2) of the SEPA regulation mandates 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, subject to certain limited exemptions mentioned in the regulation. According to Article 16(8) of the act as currently in effect, the deadline for compliance in non-euro countries will be 31 October 2016.

SEPA compliance

On 9 January 2014, the European Commission introduced a legislative proposal for a new EU regulation amending the SEPA regulation to "give an extra transition period of six months, during which payments that differ from the SEPA format can still be accepted" in the euro area after 1 February 2014.

In February 2014, the European Parliament (EP) and the CEU adopted 'Regulation (EU) No 248/2014 amending Regulation (EU) No 260/2012 as regards the migration to union-wide credit transfers and direct debits'.

This states, among other things: "In Article 16 of Regulation (EU) No 260/2012, paragraph 1 is replaced by the following: (...) By way of derogation from Article 6(1) and (2), PSPs [payment service providers] may continue, until 1 August 2014, to process payment transactions in euros in formats that are different from those required for credit transfers and direct debits pursuant to this regulation. [EU] member states shall apply the rules on the penalties applicable to infringements of Article 6(1) and (2) [...] from 2 August 2014."

In the view of the European Commission, this procedure "does not change the formal deadline for migration of 1 February 2014". Consequently, Article 6(1) and (2) of Regulation (EU) No 260/2012, which stipulates the compliance date, remains unchanged.

Regulation (EU) No 248/2014 came into force on 21 March 2014. It applies, with retroactive effect, from 31 January 2014.

Different euro area countries have decided on different timelines during which they will make use of the option to continue processing non-SEPA formats (i.e. some countries do so during the full six-month transition period agreed by the European Commission, the EP and the CEU, while others have opted for a shorter timeline).

The European Central Bank (ECB) has country-specific SEPA information in its Fact Sheets on Regulation 260/2012. These now also feature information obtained from Eurosystem national central banks concerning migration timelines envisaged at national level in each euro-area country during the additional transition period (the Eurosystem comprises the ECB and the national central banks of EU member states whose currency is the euro).

The vast majority of stakeholders - corporates, small and medium-sized enterprises (SMEs), public administrations and payment service providers in the euro area - were expected to have achieved SEPA compliance by 1 February 2014 under the original 'plan A'.

According to the quantitative SEPA indicators published by the ECB, the share of Credit Transfer (SCT) Scheme transactions amounts to 95.7% as of March 2014, and the share of Direct Debit (SDD) Core Scheme transactions has reached 82.6%. The quantitative SEPA indicators measure the share of SCT and SDD transactions as a percentage of the total volume of credit transfers and direct debits generated by bank customers in the euro area.

Plan A

Early adopters that fully reaped the advantages offered with the SEPA Schemes and technical standards emphasise that compliance is just the first step; organisations can then focus on generating the efficiencies. The EPC newsletter has frequently highlighted the testimony of representatives of corporates, SMEs, public administrations and government agencies reporting on their successfully completed SEPA migration projects. They confirm migration to SEPA results in greater efficiency and integration of an organisation's payment business.

A common theme among payment service users after SEPA migration has been the benefits that streamlined internal processes have had on the day-to-day running of their organisations. Stefan Scheidgen, head of cash management and accounting at Deutsche Post Pension Service Business Division, says: "In the process of migrating, we consolidated the previous four payment systems into one. We plan to further automate our banking processes, based on the implementation of SEPA Schemes and standards, which will result in even more efficiency."

Dr Manfred Hochhold, SEPA project manager at the Austrian Federal Ministry of Finance, confirms: "Migration to SEPA allows IT systems to be streamlined, and ultimately consolidated, which results in cost reductions."

In addition, corporates should see SEPA compliance as an opportunity to review all of their cash management processes. A centralised payment processing system will be easier to run, require less time and resources, and, as a result, will improve the overall efficiency of an organisation. Andreas Kriz, head of treasury, MIAG, reported in Treasury Management International (TMI) that "liquidity management is easier and more transparent in that we no longer need to fund multiple accounts each day. This allows for greater concentration of cash and more efficient deployment of cash."

The realisation of an integrated euro payments market requires the use of a common set of data to exchange information between the parties executing a payment. SCT and SDD are based on the global ISO 20022 message standards developed by the International Organization for Standardization (ISO). Early movers on the demand side of the payments market confirm that implementation of the ISO 20022 message standards drives forward standardisation, automation and dematerialisation, and therefore meets a key requirement of corporate treasurers.

Dr Markus Warncke, group financial controller at Villeroy & Boch, says: "The implementation of the ISO 20022 message standards reduces the complexities and application development time required to manage our payment architecture. Adapting to this also allowed us to increase security and improve internal processes."

"SEPA is an opportunity and a catalyst for change – not simply a compliance issue."

Finally, the simplified process for the collection of direct debits across Europe, which results from migration to SDD, is important to acknowledge. Having one process to handle SDDs company-wide is particularly beneficial when companies are expanding into new markets. Rather than needing to understand the payment demands of each individual market, and consequently spending time reworking existing processes to accommodate, all collections will be consistent and therefore easily repeatable. Jordan Castellarnau, treasury manager in the Finance Service Centre within TUI Travel accommodation and destinations, reports: "With SDD Business to Business [Scheme] in place, there are now plenty of opportunities to further enhance treasury management."

Luc Waterlot, financial systems and interfaces manager at Electrabel GDF Suez market and sales, stresses that the company has had an excellent customer response since implementing SDD.

Federico Focardi, group finance director at Salvatore Ferragamo, sums it up in a case study featured in TMI: "SEPA is an opportunity and a catalyst for change - not simply a compliance issue."

The EPC recommends that organisations in the euro area still work towards achieving compliance with the SEPA regulation aim to finalise the migration process as soon as possible. The ECB's second SEPA migration report, published in October 2013, emphasised that the experiences of those stakeholders that have already completed migration to SDD and SCT show that there is a real need for a fine-tuning period after the changeover.

Banks and other service providers are standing ready to support payment service users to complete the transition. However, the European Commission said in January that "after 1 August 2014, there will be no further transitional period".

Have your say

The SCT and SDD schemes, as set out in the respective rulebooks, evolve based on a transparent change-management process adhered to by the EPC. This evolution reflects changes in market needs and updates of technical standards developed by international standards bodies such as ISO. The next-generation rulebooks and associated implementation guidelines will be published in November 2014. These rulebook versions will then take effect in November 2015. The scheme change-management process provides all stakeholders with the opportunity to participate - for example, by introducing suggestions for changes to the schemes.

All gathered suggestions for changes to the rulebooks will be released for a three-month public consultation between May and August 2014. Proposed changes to the schemes that find broad acceptance in the entire stakeholder community are taken forward; proposed changes that lack such broad support are not, regardless of whether such a change is proposed by a payment service provider or by a user representative. This ensures that the SCT and SDD schemes evolve in line with the requirements of the majority of all market participants. The EPC invites all stakeholders to engage in the scheme change-management process.