Out-Law News | 10 Jan 2014 | 10:46 am | 3 min. read
A deadline of 1 February 2014 had been set as a date after which EU businesses within the 'single euro payment area' (SEPA) would no longer be able to process payments in euros using systems that do not conform to new standardised rules and formats.
However, the European Commission has now announced that the various national payment processing systems that work in accordance with differing standards can be relied upon for a further six months after the deadline. The Commission still needs to go through some formalities to make this extension official by changing the laws that set the 1 February deadline. These formalities may not be completed before the deadline passes, but the Commission has sought to allay concerns about this in its announcement.
It expressed disappointment at the slow "migration" from those national systems to the new SEPA regime in some areas of the EU and said that a delay to a strict imposition of the 1 February deadline was necessary to avoid disruption to payments.
"The stark risk of a business not complying with the SEPA standards is that its euro payments or collections will not go through," technology and payments law expert Angus McFadyen of Pinsent Masons, the law firm behind Out-Law.com, said. "This is because they will not be sending the right messages in the right formats to their banks in order to allow their banks to effect those transactions."
McFadyen said that there are third party providers in the market that help reformat transactions to meet the SEPA standards, but he said the extension of the period during which payments can be processed in accordance with national standards and formats could help businesses update their systems and reduce, if not avoid, the cost of outsourcing such services.
"It is clear that the Commission has taken this action through gritted teeth, but it has recognised that switching off the old messaging formats at this stage could have a major impact," McFadyen added.
The SEPA regime refers to the process major banks including Barclays, BNP Paribas, Deutsche Bank and HSBC, and other members of the European Payments Council (EPC), have backed to help establish standardised payment schemes and frameworks in a bid to make it easier for cross-border electronic payments to go through across the SEPA zone. In geographical terms SEPA refers to all 28 EU member states, Iceland, Liechtenstein, Norway, Switzerland and Monaco.
EU member states are subject to set EU rules that underpin the SEPA system, which were first introduced through common rules for the authorisation and the revocation of direct debits set out in the wide ranging Payment Services Directive. Further technical specifications for the payment systems, and compliance deadlines, are set out in the SEPA Regulation and the rulebooks that have been developed alongside it.
Under the SEPA Regulation, payment service providers must establish "payment schemes" that have the same "rules" for the purpose of carrying out cross border and national credit transfers (CTs) and direct debits (DDs). The measures are designed to ensure that different payment systems are "technically interoperable" with one another.
The Regulation sets out certain requirements that payment service providers must conform to when conducting those transactions, which include using a particular "payment account identifier" and "message formats", among other things.
Currently a number of national payment schemes are in operation and conform to different rules and technical standards for payment processing. The 1 February 2014 deadline had been imposed on EU member states to ensure their systems conformed to SEPA standards for euro currency transactions. Non-euro currency nations will have to make the migration by 31 October 2016.
In a statement, EU Commissioner for the Internal Market Michel Barnier said: "An efficient Single Market needs an efficient SEPA. The entire payments chain - consumers, banks, and businesses - will benefit from SEPA and its cheaper and faster payments. Cross-border payments are no longer exceptional events which is why an efficient cross-border regime is needed."
"As of today, migration rates for credit transfers and direct debits are not high enough to ensure a smooth transition to SEPA despite the important work already carried out by all involved. Therefore, I am proposing an additional transition period of six months for those payment services users who are yet to migrate. In practice this means the deadline for migration remains 1 February 2014 but payments that differ from a SEPA format could continue to be accepted until 1 August 2014," he said.
Barnier said he regretted having to introduce an extension but said doing so "is a measure of prudence to counter the possible risk of disruption to payments and potential consequences for individual consumers and SMEs in particular". He said that no further extension would be applied beyond 1 August and called on member states to speed up their efforts to alter their payment systems to comply with the SEPA requirements.
Technology and outsourcing service provider Capgemini previously predicted that some businesses across Europe would not be SEPA-compliant before the 1 February deadline.