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There is only Plan A: get ready for SEPA by 1 February 2014

In December 2011, the European Commission (the Commission) commented on the agreement by the European Union (EU) legislator on the 1 February 2014 deadline for migration to the Single Euro Payments Area (SEPA): "Today's agreement by the European Parliament and the Council represents a significant step towards a truly integrated market for electronic retail payments in euro. (...)

Bob Stark
Bob Stark
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 SEPA." (See link to the Commission's press release of 20 December 2011 below). More than one year later, some commentators contributing to the SEPA debate continue to entertain the following - erroneous - ideas: (1) Meeting the February 2014 deadline established by the EU legislator is a matter of choice or convenience for payment service users such as corporates, small and medium-sized enterprises (SMEs) and public administrations making payments in the euro area. (2) It is beneficial to request postponement of this deadline from parties, including the European Payments Council (EPC), not vested with any powers to adopt or amend EU law.

The fact of the matter is: the only party empowered to change the 1 February 2014 deadline is the EU legislator; i.e. the European Parliament and the Council of the EU representing the 27 EU Member States. The EU legislator has never indicated that it would consider such a motion. Consequently, there is only Plan A: get ready for SEPA in the euro area by 1 February 2014.

A brief recap on the principles governing the EU legislative process

The vast majority of European laws are adopted jointly by the European Parliament and the Council of the EU under the so-called ordinary legislative procedure. This legislative procedure gives the same weight to the European Parliament and the Council of the EU in a wide range of areas (see the link to the European Parliament Website below). A 'regulation' adopted by the EU legislator is a binding legislative act. It must be applied in its entirety across the EU (see link to the EU Website below).

The European Parliament adopted the 'Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro' (the SEPA Regulation) on 14 February 2012. The Council of the EU representing EU Member States adopted this legislative act on 28 February 2012. The SEPA Regulation was published in the Official Journal of the EU on 30 March 2012 and came into force on 31 March 2012. Article 6 (1) and (2) of the SEPA Regulation mandates that credit transfers and direct debits 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. Effectively, this means that as of this date, existing national euro credit transfer and direct debit schemes in the euro area will be replaced by SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD). As mentioned above, there are no indications whatsoever that the EU legislator would consider changing Article 6 - the provision which defines the compliance date applicable in the euro area - of the SEPA Regulation. Postponement of the 1 February 2014 deadline would counteract the expectations articulated by the lawmakers that meeting that date will generate significant benefits for consumers and businesses and contribute to further strengthening the common currency (see the link to the EPC Blog of 23 August 2012 below for details).

Requests to change the 1 February 2014 deadline mandated by EU law are occasionally, albeit erroneously, directed at the EPC. To give just one example: in the article, entitled: 'SEPA 2014 unrealistic - opinion', published in Asiamoney Plus on 22 March 2013, Chien Mi Wong states that the EPC "should give corporates, banks and public administrations more time to comply with the upcoming SEPA Regulation as underlying complexities continue to hinder its adoption."

It has to be noted that the EPC is an international non-profit association that serves as the coordination and decision-making body of the European banking industry. The EPC develops, among other things, the SCT and SDD Schemes which help to realise the integrated euro payments market (see the link to 'About EPC' below.) The EPC is not an EU legislative body. More generally, the EPC is not part of the EU institutional framework. The EPC is therefore not in a position to change the 1 February 2014 deadline mandated with EU law. It is the view of the EPC that the legally binding migration deadline provides planning security to all market participants and should not be postponed.

SEPA awareness on the demand side: where are we at?

Educating on the legal obligation to achieve compliance with the SEPA Regulation by 1 February 2014 in the euro area is - obviously, or so it would seem - crucial to incentivise action on the demand side of the payments market. In April 2013, there is a mixed picture as regards the level of SEPA awareness among PSUs.

The corporate sector

In March 2013 the Eurosystem, which comprises the European Central Bank (ECB) and the national central banks of countries that have adopted the euro, published the first qualitative SEPA indicators (see 'related links' below). These indicators measure the level of SEPA preparedness of stakeholder goups at country level. The data shows that in general good progress has been achieved also by 'big billers' in the vast majority of euro area countries already at the end of 2012. (For more information, refer to the article 'Progress is Promising: First Qualitative SEPA Indicators Measure Level of Preparedness by Stakeholder Groups at Country Level. More facts and figures on the state of SEPA migration in April 2013' included with the 'related articles in this issue' below). Recent comment in international trade media targeting corporate treasurers is also very encouraging. In the article 'No time to lose on SEPA compliance' (Euromoney) (see 'related links' below), Laurence Neville remarked in February 2013: "If the number of words expended on a subject were any indication of the level of awareness, (...) SEPA would surely be as popular as Korean rapper Psy's worldwide hit, Gangnam Style." This is certainly music to the ears of this author. Albeit with a slightly different intonation, FX-MM magazine editor Eleanor Hill comes to a similar conclusion. In her 8 April 2013 blog, entitled: 'Sick of SEPA?' (see 'related links' below), she observes: "It's everywhere. There are special conferences dedicated to it. Industry magazines have significant page real estate put aside for it. Banks have set up entire websites for it. So, it's no surprise that SEPA has become somewhat of a 'four letter word' in corporate treasury circles recently. But however fed up we may be of hearing about SEPA, it's not simply going to go away. And for those of you hoping the 1st February 2014 deadline will be pushed back, it's time to think again. During a recent press conference, the [European Central Bank] ECB stated categorically that there is 'no plan b' for the migration date - it will not be moved. So, achieving compliance is the order of the day." Both Laurence Neville and Eleanor Hill clarify that a significant number of companies still have some serious catching up to do. Their comment, in line with the massive SEPA coverage rolled out by international trade media during recent months, demonstrates however that the message has hit home in the corporate sector.

SMEs and local public administrations

On 21 March 2013 the ECB published its first SEPA Migration Report (see 'related links' and 'related articles in this issue' below). The report shows that "SMEs' and local public administrations' awareness of SEPA is still fragmented and the level of preparedness is rather poor." This assessment is particularly worrying in light of the fact that SMEs represent 99 percent of all European businesses1 and the public sector accounts for a significant number of electronic payments made in society. The focus must therefore now be on educating SMEs and local public administrations in the euro area on the legal obligation to achieve SEPA compliance by 1 February 2014. Considering the fact that the business activities of many SMEs and public administrations are carried out within national borders or local communities, it seems unlikely that English language sources offering SEPA information specifically for PSUs, such as international trade media targeting treasurers of multi-national corporates, will reach organisations active primarily, if not exclusively, locally. It therefore appears to be more effective to implement awareness-building campaigns at national level, which in turn support SMEs and local public administrations to get ready for SEPA.
How to successfully coordinate SEPA migration at country level: the Belgian approach

Since October 2009, the EPC Newsletter has featured three articles on the approach adopted in Belgium to successfully drive forward migration to SEPA (see 'related articles in previous issues' below for the latest article in the series which links to previous reports). The Belgian SEPA migration model is based on the following principles:

- Engagement of and leadership by public authorities: the Belgian Federal Government has acted as a principal driver of SEPA implementation. The Belgian Steering Committee on the Future Means of Payment (the Steering Committee), the forum which coordinates the migration approach across all stakeholder groups, is chaired by the National Bank of Belgium (NBB).
- Timely action based on a step-by-step national implementation plan initially rolled out in 2008.
- Multi-targeted communication creating SEPA awareness and educating the general public on the new SEPA payment schemes and technical standards to ensure a positive reception.

In September 2012, the Steering Committee published the fourth report on progress towards SEPA in Belgium (the progress report) (see 'related links' below). This latest progress report showcases - again - impressive results. In July 2012, the share of SCTs in Belgium reached more than 58 percent of total credit transfers; the share of SDDs exceeded 15 percent. Following the timely initiation of migration projects by most public authorities and 'big billers' in Belgium, supporting SMEs has been the priority of the coordinated efforts to achieve SEPA compliance in Belgium since the end of 2011. According to the progress report, the communication policy in Belgium targeting SMEs relies on the established "top-down approach: those steering the SEPA project inform the main users and user groups, who in turn pass on the information among SMEs. (...) Since Belgium has opted for a gradual approach for its migration towards SEPA, the communication activities have also evolved on a step-by-step basis, according to specific target groups. The communication strategy always revolves around a diversified approach per target group, each time with a different emphasis in terms of content." The expectation is that smaller Belgian businesses will complete the transition to SCT and SDD in due time. Specific measures implemented in Belgium to foster SEPA readiness among SMEs are also described in the EPC Blog published on 19 November 2012, entitled: 'Is Your Local Corner Shop Ready for SEPA? Belgian Best Practice Shows How to Engage SMEs in the Migration Process' (see 'related links' below).

How to successfully coordinate SEPA migration at country level: the Finnish approach

The July 2011 edition of the EPC Newsletter reported on the successfully completed SCT migration project of the Finnish Government Shared Services Centre for Finance and Human Resources (see 'related articles in previous issues' below). This public entity essentially concluded its SEPA project by the end of 2010. Mikko Grönman, Project Manager at the centre, explains: "The Finnish State Treasury (...) determined the timelines to be observed at the level of individual administrative branches to become SEPA-compliant." The - very ambitious - timelines for migration to SEPA in Finland reflect the commitment of all relevant stakeholders, including businesses of all sizes and public administrations, to complete the exercise based on a coordinated approach. Finland concluded migration to SCT and the ISO 20022 message standards in October 20112. In his gtnews article, entitled 'Finland's Successful Migration to SEPA Credit Transfers' (see 'related links' below), Juha Keski-Nisula comments: "Several factors contributed to the successful migration: early start for the process, readiness to accept common standard solutions and open communication. (...) The breakthrough in migration was led by the large public administration entities in 2010." This article quotes Inkeri Tolvanen, project manager for the national SEPA migration project at the Federation of Finnish Financial Services, who stresses that a "short transition period to SEPA means also cost savings to all parties, as the need to maintain both old and new standards is limited." (For more information, see also the EPC Newsletter case study on the SEPA migration project of Kela, the Social Insurance Institution of Finland, included with the 'related articles in previous issues' below.)

Supporting SMEs and local public administrations to achieve SEPA compliance requires coordinated efforts by national public authorities, and trade associations representing businesses and banks. The measures implemented in Belgium and Finland, for example, perhaps offer some valuable lessons to other euro area countries on how to achieve progress.

National authorities responsible for enforcing the 1 February 2014 deadline must step up their communication efforts

In December 2009, the Economic and Financial Affairs Council (ECOFIN), which comprises the Economics and Finance Ministers of the EU Member States, emphasised that the full benefits of SEPA "can only be obtained through the full migration of existing national euro payments transactions." At that time, the ECOFIN also called on public authorities in all EU Member States (i.e., themselves) to "significantly step up their migration efforts and lead SEPA migration by example." Last but not least, the ECOFIN invited EU Member States "to encourage communication efforts" by industry and by public authorities to raise SEPA awareness. It would be helpful if public authorities in all euro area countries would follow suit. (For more information, refer to the 'Economic and Financial Affairs Council (EU Finance Ministers): SEPA Conclusions of December 2009' included with the 'related links' below.)

Article 10 of the SEPA Regulation details how this legislative act is to be enforced. It clarifies that EU Member States must designate the competent authorities responsible for ensuring compliance with this Regulation (see link to Commission Website below to see the list of designated authorities). The EPC calls on public authorities in the euro area responsible for enforcing the SEPA Regulation to significantly step up their communication efforts, with particular regard to SMEs and public administrations on the legal obligation to meet the 1 February 2014 deadline. These communication efforts should indeed be supported by the political drivers of the SEPA programme - such as EU governments - promoting EU integration. As demonstrated with the ECB SEPA Migration Report, this is a matter of urgency.

Learn to love SEPA. Act now!

The EPC fully supports the ECB's recommendation that PSUs should aim to complete migration at the earliest stage possible, also taking into consideration that availability of external resources offered by banks and other service providers - including testing facilities - will be stretched to the limit towards the end of the year. Organisations now working towards achieving compliance with the SEPA Regulation are invited to take advantage of the support offered by the banking industry and other service providers to assist market participants during the transition. Relevant information is also made available with 'The EPC Migration Tool Kit'. In addition, the EPC offers best practice identified by PSUs such as businesses, public administrations and government agencies that successfully completed migration to SCT and SDD (see 'related links' and 'related articles in this and previous issues' below). The experience of SEPA pioneers on the demand side confirms that SEPA compliance is manageable and feasible, but with less than ten months to go until the 1 February 2014 deadline, it is critical that any late movers put processes in place to begin their migration immediately.

We are almost there. Let's join forces to ensure that every market participant in the euro area required to achieve compliance with the SEPA Regulation will meet this deadline. With this objective in mind, the EPC invites all parties involved in migration on the demand side to reach out to their business partners, i.e. suppliers and customers, and share a sense of urgency as well as lessons learnt during their migration. This will help to create awareness and provide very valuable support to any organisation which has yet to make the transition.

Javier Santamaría is the Chair of the EPC.

Inscrivez-vous dès maintenant au SEPA DAY, la matinée SEPA, du 24 septembre prochain.

Mercredi 17 Juillet 2013

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