I promised myself that I would never write about the single euro payments area (SEPA). There seems to be so much written about it already I thought, who needs my input? However I am worried that some corporate treasuries are either ignoring the consequences of SEPA or simply don’t know what they are. Believe it or not it the SEPA concept will become a teenager next month (yes, it is 13 years since its inception) and on 1 February 2014 SEPA will become a reality as countries within the eurozone must be using SEPA-compliant payment formats by then. Even the non-euro countries such as the UK, which technically have until 2016 to comply, will likely comply with the earlier date to ensure smooth cross-border payment transactions.
Despite all the hype, and the threat of fines for corporations, governments, charities and indeed any organisation processing European payments, I am still not convinced treasurers are prepared for SEPA. My conversations with corporates lead me to think that not everyone is yet ready for it, but it is important to define exactly what ‘ready’ means?
What Achieving SEPA Compliance Means: Case Studies
First of all let’s address the significance of 1 February 2014? In a nutshell this means that as of this date, existing national euro credit transfer and direct debit schemes will be replaced by SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) formats, with mandatory ISO20022 XML messaging also a necessity. As indicated, non-euro countries face a different deadline of 31 October 2016, but many may go for the earlier date, especially corporations with European-wide cross-border operations and longer supply chains.
There are some real consequences for corporates who migrate to SEPA and there are real advantages in doing so. There are some good case studies, which have been written up in ‘gtnews’ recently – for example, Electrabel GDF Suez and Villeroy and Boch in the same article – not to mention the UTA SEPA case study from the transport services provider.
Common technical standards are needed for processing SEPA payments, principally the mandatory ISO20022 XML messaging standard. The technical standards and formats, also involving the use of common Bank Identifier Codes (BICs) and International Bank Account Numbers (IBANs), are necessary to allow interaction and interoperability between IT systems and corporate-bank interfaces to ensure automated processing of euro-denominated transactions between financial institutions and others in the financial supply chain. This is need for commonality will enhance straight-through processing (STP), which means that no manual intervention is needed. The point here is that at some stage if your bank has to repair payments that do not involve STP then there will be an exception handling charge to you as a treasurer for doing this. The size of these charges will vary from bank to bank but they could be significant. There may also be regulatory fines for non-compliance with SEPA, which if levied on a bank may be passed on to the corporate customers. You may want to consider at least using a white-labelled SEPA processing service on offer from banks and vendors to avoid these charges and achieve minimal compliance, if not any centralisation efficiency benefits.
You Need to Prepare
The point of this gtnews blog is to make you aware that as corporate treasurers you will need to prepare for SEPA by becoming SEPA compliant. Achieving compliance should ensure a high degree of STP and efficiency benefits by introducing a more centralised and streamlined payments procedure that can cross European borders. The issue is one of timing. There is not a lot of time left – indeed less than a year – so you really need to start planning now.
The main things you need to think about in achieving SEPA compliance are:
- Conversion of your euro customer account data to the International Bank Account Number (IBAN) and the Bank Identifier Code (BIC). SEPA mandates that you will need to provide the IBAN of the account to be credited or debited and where necessary the beneficiary bank BIC. Bear in mind that organisations in the SEPA are legally required to include BIC and IBANs on invoices. You need to ensure that all your suppliers and payment beneficiaries provide you with this data and it is transferred to your master data file.
- SEPA has adopted the ISO XML20022 messaging format standards. Corporates therefore will have to ensure that for ‘bundled’ or bulk euro payments the XML format is used.
- If your company is interested in SEPA Direct Debits (SDDs) then the above challenges are also relevant. In some countries there will be a change to the rules compared to what you might be used to and you need to ensure you understand these changes.
- At a minimum the gap will require a review and migration from existing country direct debit mandates to SDD mandates – this is commonly referred to as the mandate management challenge. Again this will affect your treasury systems.
The good news is that there is a lot of help at hand. The European Payments Council (EPC) has a great helpful website and there is a lot of SEPA advice and good information available. The point is that you need to plan now to avoid problems in the future.
Fact. Your CFO is losing sleep at night because he or she is worried about your organization’s financial reporting processes.
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