SEPA Deadline Postponed – Just in Time?

Does the EC’s decision make sense? In the author’s opinion the answer is ‘yes’ as there was a realistic chance of the real economy being affected by failing payments and direct debits resulting from non-compliance. It is, however, important to realize that postponing the SEPA end date will not necessarily guarantee full compliance by the new date of 1 August

What Will August 1st 2014 Bring?

The proposal
, as adopted by the EC states the following: “The introduction of this transitional period for the phasing-out of the old systems shall be considered as an exceptional measure which will not be extended any further.” But how much value does a statement like this have? Have we not all seen the warnings from different stakeholders, such as the European Central Bank (ECB) and the European Union Council that under no circumstances would there be a plan B for introducing SEPA?

This raises the question just how much the new deadline of 1 August 2014 is worth. It could be argued that the same risks that existed for the 1 February 2014 might still exist on 1 August. The EC proposal states: “Several large users of direct debit instruments have already indicated that they plan to migrate close to the end-date.” As suggested in
a previous blog
, for a number of large billers the reason of migrating close to the end-date is not because of technical or compliance issues, but can instead be explained by the fact that the current direct debit instrument has considerable advantages over a SEPA direct debit (SDD).

As such, it can be expected that a number of large billers will simply postpone their SDD migration to just before 1 August, implying that six months from now the SEPA adoption rate for direct debits might still be lower than one might hope for.

The Legislative Process

Another interesting part of the EC proposal is the fact that it will not actually come into effect as it will first have to be approved by the European Parliament (EP) and the European Council.

As this legislative process will very likely not be complete before 1 February 2014 this means that the new deadline is not officially confirmed and therefore only an assumption. The EC proposal states: “The proposal provides that the amendment applies as of 31 January 2014. This provision also allows for a retro-active application in case the proposal is not adopted by the European Parliament and the Council before 1 February but just after this date. This will avoid a legislative gap as of 1 February 2014 which would create legal uncertainty.”

So it seems the EC itself assumes that their proposal will pass the EP and EU council without issues and it seems very unlikely that this will not be the case. Still, it is very interesting to see that a last minute proposal by the EC is communicated in various media as something that is already set in stone.

Credibility of EC Regulation Deadlines

Another regulation impacting corporate treasury in Europe is the
European Market Infrastructure Regulation (EMIR)
. Like SEPA, EMIR is also driven by the EC. For EMIR several deadlines that were set for 2013 have already been postponed. The next deadline of EMIR, which states that details of derivative contracts have to be reported to a recognised trade repository, is set for 15 February 2014. However, just as it has been the case for SEPA, adoption seems lagging behind with some already
suggesting that this deadline will also be postponed
. The last-minute postponement of the SEPA end date and the already postponed deadlines for EMIR seriously undermine the credibility and perceived ability of the EC as a body that can effectively drive regulatory change.

Was There Even a Choice?

The interesting question is whether it is a good decision of the EC to postpone the SEPA deadline for a period of six months. Given the potential impact on the already-battered economies of most EU member states the author would suggest that it was probably the only choice.

What is remarkable is that it was decided only three weeks before the actual end date. When looking at the SEPA adoption rates there was no indication whatsoever that they would improve in such a way they would come close to acceptable numbers by 1 February. So this decision could – and should – have been made before Christmas. At the very least it would have saved a lot of corporates and banks a lot of last-minute SEPA stress, while maintaining some of the EC’s credibility.

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