European Treasurers ‘Must Make Use of SEPA Grace Period’

The single euro payments area (SEPA) must remain uppermost in treasurers’ minds despite the European Commission’s (EC) recent proposal to allow
non-SEPA payments for an extra six months
, says Royal Bank of Scotland (RBS).

The bank adds that offering this grace period beyond the 1 February 2014 deadline will buy valuable time for companies to make more progress and reduce any negative impact on their business.

“While migration to SEPA is increasing, there still remains a large volume of legacy transactions to migrate in the coming months, particularly for SEPA direct debits [SDDs],” says Steve Everett, global head of cash management at RBS. “Companies need to identify where they may not be completely compliant, or where their suppliers and customers may not be compliant, and assess the impact this has on their cash-flows.”

However, SEPA should remain a live issue well after the grace period, Everett adds. Many corporates that are already compliant have barely scratched the surface in terms of leveraging all the benefits. For example, they should be looking to apply SEPA standards across their wider global payments operations to improve efficiency, standardise processes and reduce the number of bank accounts across Europe.

Alongside SEPA, companies must face the regulatory challenge of Basel III which is also coming down the track.

“Its principal impact on cash-rich corporates will be to make it even more difficult to earn a decent return in today’s low-yield environment,” Everett predicts. “That’s because liquidity charges within Basel III place additional costs on banks, and therefore may further squeeze yields as banks factor these costs into their deposit pricing.

“In Europe the impact could be compounded further if deflationary trends in the eurozone worsen and the European Central Bank [ECB] opts for negative interest rates.”

Banks will start to work with their clients to mitigate the impact of Basel III – in particular focusing on the type of deposits, currencies and tenor that can minimise negative effects. Maturities of less than 30 days, for example, will carry a heavier regulatory charge once the rules take effect in January 2015.

Everett also suggests that Europe’s low-rate environment could also drive greater merger and acquisition (M&A) activity. A large number of European corporates are sitting on large surplus liquidity and investing in other businesses may increasingly become one of the smarter ways to deploy cash in search of yield.

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