Documents considered by the Committee on 26 January 2011 - European Scrutiny Committee Contents

11   Single Euro Payment Area



+ ADDs 1-3

COM(10) 775

Draft Regulation establishing technical requirements for credit transfers and direct debits in euros and amending Regulation (EC) No 924/2009

Legal baseArticle 114 TFEU; co-decision; QMV
Document originated16 December 2010
Deposited in Parliament22 December 2010
DepartmentHM Treasury
Basis of considerationEM of 17 January 2011
Previous Committee ReportNone
To be discussed in CouncilNot known
Committee's assessmentPolitically important
Committee's decisionCleared


11.1  The Single Euro Payment Area (SEPA) is a banking industry initiative, building on the European Payment Services Directive of 2007 and a 2001 Regulation on cross-border payments, which requires the price of euro cross-border payments to be the same as for an identical national payment. SEPA aims to deliver pan-European schemes and infrastructure that enable electronic payments in euros across 31 countries, that is the Member States and Iceland, Liechtenstein, Norway and Switzerland, to be made as cheaply, easily and efficiently as payments inside individual Member States. The three core SEPA mechanisms are a SEPA credit transfer (SCT) scheme, a SEPA cards framework and a SEPA direct debit (SDD) scheme.

The document

11.2  This draft Regulation is intended to promote the SEPA by establishing common technical requirements for credit transfers and direct debits in euros. It does not apply to payments made in sterling and other non-euro currencies and does not affect payments made by cheque, plastic card or cash.

11.3  Standardising the way in which payments in euros are made by direct debit and credit transfer calls for these types of payment instructions to follow a common form and use a common electronic language. The draft Regulation will require use of a common form based on norms developed by the International Standards Organisation in ISO 20022 and a common electronic language, XML. New forms of direct debit and credit transfer will therefore replace the existing forms of national direct debits and credit transfers. The draft Regulation will also set binding dates for switching to the new harmonised regime.

11.4  Standardising the form in which payments are made in euros is expected to generate substantial economic benefits, the main ones of which are that the form will:

  • enable a payment instruction to be processed electronically from the point where a payment originates to the point where it is paid to a recipient anywhere within the European Economic Area; and
  • promote competition between payment service providers and more innovation in the market.

11.5  The principal change that UK consumers and small businesses may notice, when making a direct debit or credit transfer payment in euros, is that they will be required to use an international bank account number (IBAN) and bank identifier code (BIC) when making domestic as well as cross border payments in euros. Their own IBAN account numbers and BIC codes are already printed on their bank statements alongside their UK account numbers and sort codes.

11.6  The principal changes for banks and other institutions, that provide euro payment accounts to customers (such as euro current accounts), is that these accounts will need to be accessible by other payment service providers for the purpose of paying or receiving funds via a direct debit or credit transfer and for clearing and settlement of accounts between payment service providers. The supporting infrastructure of electronic systems will therefore need to be capable of working together seamlessly, based on the ISO 20022 common standards to be laid down by the Regulation. The necessary infrastructure is already in place in the UK, although further investment may be necessary in some other Member States.

The Government's view

11.7  The Financial Secretary to the Treasury (Mr Mark Hoban) says that:

  • the Government agrees with other Member States, the Commission and the European Central Bank that a mandatory completion date for switching direct debits and credit transfers to a common standard has become necessary;
  • a public consultation by the Commission has also found widespread support for legislation; and
  • without legislation there is a high risk that the new standards will continue to operate alongside the old national standards without generating the expected efficiency gains and competition benefits.

11.8  The Minister comments further that:

  • the draft Regulation will benefit UK consumers and businesses that make cross border payments in euros, as it is expected that such payments will become easier to make electronically, and as increasing competition brings down the cost of these payments;
  • it will also benefit the banks that handle such payments, as the manual processing of payments will be significantly reduced — for example, a business that makes regular payments (such as paying salaries) in more than one country will be able to do so by submitting a single set of payment instructions to its bank in the UK;
  • an individual with a holiday home in another country will be able to pay direct debits and standing orders in the same way;
  • banks that have invested in the payments infrastructure will be able to compete to carry out payments across the whole EEA;
  • the impact of the proposal in the UK is likely to be minimal, because it does not apply to non-euro accounts;
  • the new standards will not therefore apply to accounts in sterling — in the UK payments in euros represent less than 0.1% of total retail payments;
  • UK banks that handle euro payments have already invested in adopting the new international standards and are ready to apply them — the UK is therefore already compliant with the main requirements of the draft Regulation as it relates to banks;
  • the proposal will ban multilateral interchange fees for direct debit transactions (interbank fees which may be passed onto customers), except in certain circumstances where a payment does not go through as expected — these types of fees are not a feature of the UK direct debit system so the ban is not expected to have an impact in the UK;
  • there are longer transitional periods for entry into force of the proposal by non-euro Member States — the deadline for ensuring reachability will be extended from 24 months after entry into force until 31 October 2014 and that for ensuring that direct debits and credit transfers are carried out under the new standards will be extended from 24 months to 48 months after entry into force;
  • this will ensure that businesses and public bodies that make payments in euros have adequate time to adapt to the new standards; and
  • given the UK's non-euro status and the small proportion of direct debits and credit transfer payments that are made in euros, the financial implications of the initiative are negligible.

11.9  The Minister concludes that the Government will review the technical drafting of the proposal and looks forward to engaging in the Council's examination of the proposal to ensure that its benefits are realised in the most proportionate way that preserves private sector freedoms.


11.10  This draft Regulation will be an important, albeit largely technical, step in facilitating operation of the Single European Payment Area. As such, whilst we have no questions on it and clear the document, we draw it to the attention of the House.

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