Demystifying the SEPA End Date Experian, London, 9 th of June 2011 Ruth Wandhöfer Director GTS Head of Regulatory & Market Strategy, EMEA Global Transaction Services
Agenda 1. SEPA: The Journey so Far 2. SEPA End Date Regulation: what it will mean 3. Making SEPA a reality for your organization
SEPA: The Journey So Far
What is SEPA? SEPA stands for Single Euro Payments Area: cross-border AND domestic “SEPA will be the area where citizens, companies and other economic actors will be able “SEPA will be the area where citizens, companies and other economic actors will be able to make and receive payments in euro within Europe, whether between or within national to make and receive payments in euro within Europe, whether between or within national boundaries under the same basic conditions, rights and obligations, regardless of their boundaries under the same basic conditions, rights and obligations, regardless of their location.” location.” (Source: European Payments Council Roadmap, December 2004) (Source: European Payments Council Roadmap, December 2004)
SEPA: The original scope and objective Move from fragmented national Euro ACH transactions to harmonised pan-European schemes for CT and DD The Single Euro Payments Area currently spans 32 countries: – 27 EU Member States – 3 additional EEA Member States – Switzerland and Monaco European Union (17 Euro) European Union (10 non-Euro) SEPA governs Euro payments only European Economic Area (3) Switzerland – Payments in other currencies are not impacted SEPA is for payments within this geographical area – Payments to/from Europe are not impacted SEPA will impact domestic + cross-border Euro credit transfers and direct debits – No distinction between ‘national’ and ‘cross-border’ Euro payments within the 32 countries Standardised Schemes for CT and DD – Mandatory use of BIC and IBAN – Single legal framework: Payment Services Directive SEPA addresses non-urgent / retail / ACH payments – Urgent / same-day Euro Wire Transfers are already integrated across the Single Market SEPA is trying to complete the Single Market for Euro Payments in Europe
SEPA – Facts & Figures SEPA adoption is accelerating….slowly SEPA Credit Transfer Scheme – Since January 2008 � Approx 4489 financial institutions (ie 99% of payment active banks in the SEPA zone) signed up to CT scheme (Source: ECB) � 70% OF SEPA CT are cross border; this will change as more “legacy” domestic EUR clearings migrate to SEPA CT � IBAN + BIC credit transfers with a max. execution cycle of D+2, moving to max. D+1 in January 2012 � Continued interest from non-Euro countries, taking advantage of cheaper Euro payments for the first time – no ACH access previously SEPA Direct Debit Scheme(s) – Since November 2009 � Common Schemes enable collections in Euro from Debtor Accounts across 32 countries, using IBAN + BIC � Core Scheme: Aimed primarily at C2B Flows – 3884 financial institutions signed up Core Scheme � Business to Business Scheme: Dedicated to B2B Flows – 3364 financial institutions have signed up B2B Scheme � Direct Debit adoption rate lower than CT – DD scheme finalised later than CT
Addressing the Market Challenges � Concern is much reduced. The European Central Bank estimates that 99% of ‘payment banks’ in the SEPA area Reachability are now able to support SEPA payment schemes � Domestic SEPA Credit Transfers (regardless of value) and cross-border SEPA Credit Transfers (with value less than or equal to EUR 50,000, should now carry similar fees as their domestic low value payment equivalent � Cross-border SEPA Credit Transfers with value above €50,000 can still carry a beneficiary fee as long as this is Fees (Post –PSD) disclosed to the beneficiary � SEPA Regulation proposes to eliminate Interchange fees for both domestic and SEPA direct debit Execution Cycle � Lack of a fixed cycle time was initially a limiting factor for SEPA adoption in certain circumstances, such as for Time Payroll. Since November 2009 the maximum execution time for SEPA Credit Transfers has been limited to D+2. This will reduce to a maximum cycle of D+1 from 1 January 2012 (Payment Services Directive) � Discussions on agreeing a general “Sunset Clause” for CBR have commenced – potentially all removed by end 2014 Central Bank Reporting � Italy abolished CBR as of 1 July 2010 (except for a small number of selected companies) � Legal validity of existing EURO direct debit mandates of consumers accepted across the Euro zone (German issue currently subject to court decision), Finland and Malta require a new mandate for SEPA DD Core & B2B � Belgium, Cyprus, France, Ireland, Luxembourg, Portugal, Slovakia, Slovenia, Spain (and potentially Netherlands and Mandate Migration Austria) will require a new B2B mandate � Obligation to issue new mandates in non-Eurozone countries � SEPA continues to be combined with account rationalization strategies Account � With POBO/ROBO capabilities, this should be simpler over time. Some residency issues remain in certain countries, Rationalization which have the potential to cause clients (or their counterparties) issues.
SEPA End Date Regulation: what it will mean
Increased Momentum at EU regulator level � Building Blocks now in place – SCT, SDD Core & B2B, SEPA Cards Framework (SCF) + PSD + Regulation 924/2009 � Commission Communication on “Completing SEPA: a Roadmap for 2009-2012” � EU Commission 2 nd Annual Progress Report on SEPA Migration in 2009 (9/12/09) � ECOFIN Conclusions: 2 nd December 2009 � EP Resolution: 10 th March 2010 � EU Commission drafts a SEPA migration law � EU Commission public hearing on SEPA: 17 th of November 2010 � SEPA migration Regulation proposal issued on 16 th December 2010 � Negotiation ongoing in European Parliament and Council, with the objective of agreeing and ensuring entry into force of the Regulation before end 2011 � Citi is deeply involved in shaping the SEPA Regulation; Ruth Wandhöfer chairs the Payment Regulatory Expert Group of the European Banking Federation and is an active participant in the EPC Plenary, SEPA Schemes Working Group and maintains regular dialog with the European Commission.
What end dates are proposed? What is the meaning of the End Date? � The end date indicates the date by which Euro credit transfers and direct debits will have to be executed in accordance with a set of “technical requirements”. What the end date is not � 1) It is not an End Date for SEPA Migration. There is no mention of SEPA rulebooks! The lack of concretely mandating the already existent SEPA schemes could risk the emergence of SEPA scheme variants across Europe (acceleration of ‘Additional Optional Services’). � 2) Also, it is not an end-date for local ACH systems to close down or at least stop servicing legacy standard based processing and clearing. The indirect approach of mandating CT and DD compliance with technical requirements + longer transition phase for ‘niche products’ could result in continued existence of local legacy ACH systems, schemes and formats. � 3) The content of the end date could change: the proposal of delegated powers given to the EU Commission to administer change of ‘technical requirements’ is problematic as not future proof and not sufficiently taking into account industry (EPC is current scheme owner) and customers. The proposed date(s) � EU Commission proposal: euro credit transfers to be compliant 12 months following the entry into force of the Regulation (possibly end 2012); euro direct debits to be compliant 24 months following the entry into force date (possibly by end 2013) � European Parliament: one common end date proposed for February 2014 � European Council: proposal of February 2013 for credit transfer and February 2014 for direct debits
Challenges of the Regulatory Proposal � In addition to the concerns with the end date meaning there are a number of additional issues in the text. � Scope: could capture high value Euro traffic – not appropriate as already integrated; ECB now agrees to exclusion and European Parliament and Council are converging with this view � Mandate for ISO 20022 XML standards: covers not only banks/PSPs but also customers that initiate or receive individual transfers of funds, which are bundled together for transmission � Potential to result in corporate requirement to use ISO 20022 XML themselves, rather than benefiting from bank connectivity options (XML mapping) � Citi + EBF proposal to require banks/PSPs to accept client files in ISO 20022 XML as opposed to putting the burden on customers directly. � Interoperability: Commission suggests ‘scheme interoperability’, whilst in fact SEPA is all about ‘scheme harmonisation’ and system/infrastructure interoperability � Reachability: Text does not clearly defining reachability for the ‘same’ payment scheme. The obligation could thus be limited to cross-border reachability, which is not sufficient in the context of integration and competition. Some Member States are apparently insisting on this limitation during the current negotiation
Making SEPA a Reality for your Organization
It is time to get SEPA ready...
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