The SEPA Regulation Guidance

The SEPA Regulation Guidance

May 2013*
The SEPA Regulation Guidance

*This guidance was previously developed and published by Payments Council, which was
replaced by a new trade association Payments UK - at the end of June 2015. To this end the
documentation has been rebranded but the content has not been updated, therefore the original
date of the guidance on the front of the document should be referenced as at the time of original
publication.

Contents

1. Introduction

1.1 About Payments UK

1.2 Background
1.3 Purpose of this document
1.4 Legal Disclaimer

2. Overview of the structure of the SEPA Regulation

3. Key changes introduced by the SEPA Regulation

4. Guidance on interpretation, implementation and compliance

5. Key dates from a UK perspective

6. What derogations will the UK utilise under the transitional provisions?

7. Useful sources of information

7.1 Regulation texts

7.2 Other SEPA Regulation guidance documents
7.3 Information regarding migration
7.4 Websites of the key European bodies involved in SEPA related developments

8. Annex: Frequently Asked Questions

The SEPA Regulation Guidance

Payments UK is the trade association launched in June 2015 to support the rapidly evolving payments
industry. Payments UK brings its members and wider stakeholders together to make the UKs payment
services better for customers and to ensure UK payment services remain world-class.

Payments UKs main roles:

To be the payments industrys representative body: providing an authoritative voice in the UK, Europe
and globally, and working with stakeholders to share payments knowledge and expertise.

To be a centre for excellence: supporting the UK payments industry to provide world-class payments,
building on the experience, thought-leadership and project delivery expertise behind award-winning
initiatives such as Paym, the Current Account Switch Service and Faster Payments.

To deliver collaborative change and innovation: working on behalf of our members to benefit
customers and UK plc, ensuring their needs are understood and met, both now and in the future.

The Single Euro Payments Area (SEPA) forms a key part of the European Unions Vision of a Single
Market. It refers to the creation of an integrated payments market intended to provide consumers and
businesses with secure, competitively-priced, user-friendly and reliable retail euro payment services.

As defined by the European Payments Council, the geographical scope of SEPA extends to all 27
European Union Member States, the 3 additional countries of the European Economic Area (EEA),
namely Norway, Iceland and Liechtenstein and also Switzerland, Monaco, Mayotte and Saint Pierre-et-
Michelon.

SEPA requires a process of harmonisation such that there is no distinction between national and cross-
border payments, which can be carried out under the same basic conditions and in accordance with the
same rights and obligations, regardless of their location within the European Union.

While significant progress towards SEPA has been made, there has also been widespread agreement on
the need for regulatory intervention at European Union level to ensure the migration of existing national
euro payments to SEPA payments within a reasonable time frame, in order to attain the full benefits.
The SEPA Regulation Guidance

As a result, the European Commission published a proposal on 16 December 2010 for a Regulation of
the European Parliament and of the Council establishing technical requirements for credit transfers and
direct debits in euro and amending Regulation (EC) No 924/2009, henceforth referred to as the SEPA
Regulation. The SEPA Regulation was formally adopted by the European Parliament (on 14 February
2012) and the Council of the European Union (on 28 February 2012). It was published in the Official
Journal of the European Union on 30 March 2012 and entered into force the following day.

Payments UK is issuing this document to aid UK payment service providers (PSP) interpretation of,
and compliance with, the SEPA Regulation. To this end the document seeks to:

Provide an overview of the SEPA Regulation

Flag key changes introduced by the SEPA Regulation

Highlight key dates from a UK perspective

Address the UK approach to the Transitional Provisions, which allow Member States to apply
derogations

Point towards useful sources of information providing implementation guidance

Provide a list of Frequently Asked Questions

Promote a consistent approach to interpretation across Europe.

It will be of relevance to all UK PSPs offering euro credit transfer and/or direct debit services in at least one
EEA country.

This document is not intended to constitute legal or other advice nor designed to be used as a substitute for
legal advice on the SEPA Regulation as it applies to each PSP. The guidelines have no legal status;
ultimately, the implementation and interpretation of the SEPA Regulation is a matter for the English courts
and the relevant competent authorities. While these guidelines have been prepared in good faith, Payments
UK does not accept any responsibility for any loss or damage caused or suffered by any person who relies
upon this document and the guidance contained in it.

These guidelines meet the requirements placed on industry bodies to comply with the Competition Act 1998.
The SEPA Regulation Guidance

The SEPA Regulation comprises a set of Recitals and Articles as well as an Annex.
A table providing an overview is set out below.

Section/Article Overview

Recitals (1-38) Recitals

The background to the SEPA Regulation, its purpose and objectives

Art. 1 Subject Matter and Scope

Details the scope of the SEPA Regulation and also sets out which types of payment
transactions fall out of scope

Art. 2 Definitions

Defines the terminology used within the SEPA Regulation

Art. 3 Reachability

Sets out the reachability requirements for PSPs with regard to credit transfers and
direct debits

Art. 4 Interoperability

Outlines the conditions for credit transfer and direct debit schemes and states the
The SEPA Regulation Guidance

Section/Article Overview

Art. 5 Requirements for credit transfers and direct debit transactions

Addresses the following:

Requirements for PSPs and/or Payment Service Users (PSUs) with regard to
the use and/or provision of:

- payment account identifiers and message formats

- data elements
- mandate-related information, consent and refund rights

Elimination of the BIC in the PSU-to-PSU and the PSU-to-PSP space

Consumer protection obligations for PSPs with regard to direct debits

Art. 6 End-dates
Sets the end-dates by when:

Credit transfers and direct debits must comply with the technical requirements
stipulated by the SEPA Regulation

Interchange fees for direct debits can no longer apply

Art. 7 Validity of mandates and right to a refund

Provides that legacy direct debit mandates or authorisations and related refund
conditions in place before 1 February 2014 will remain valid after that date

Art. 8 Interchange fees for direct debit transactions

Establishes a ban on per transaction multilateral interchange fees for direct debits
and lays down conditions for an exception for R-transaction multilateral interchange
fees, with similar effects for unilateral and bilateral arrangements between PSPs
The SEPA Regulation Guidance

Section/Article Overview

Art. 9 Payment accessibility

Prohibits PSUs making or receiving a credit transfers or direct debits from specifying
in which Member State the payment account of their counterparty should be located,
as long as the account is reachable in accordance with Article 3

Art. 10 Competent authorities

Places a requirement on Member States to designate competent authorities

responsible for ensuring compliance with the SEPA Regulation

Art. 11 Penalties

Member States are required to define and implement penalties that will apply to any
breaches of the SEPA Regulation by 1 February 2013, although such penalties will
not apply to consumers

Art. 12 Out-of-court complaint and redress procedures

Member States must establish rules for alternative dispute resolution procedures for
disputes between PSUs and their PSP and appoint the responsible authorities

Art. 13 Delegation of power

The European Commission is empowered to adopt delegated acts to enable it to alter

the technical requirements defined in the Annex to the SEPA Regulation

Art. 14 Exercise of the delegation

The European Commission can use its powers to adopt delegated acts subject to
certain conditions

Art. 15 Review

The European Commission is required to present a report to the European Parlia-

ment , Council etc on the application of the SEPA Regulation by 1 February 2017
The SEPA Regulation Guidance

Section/Article Overview

Art. 16 Transitional provisions

Individual Member States can opt for certain derogations and allow certain
requirements specified within the SEPA Regulation to come into force at a later date.
In addition, later end-dates with respect to some of the provisions apply to euro trans-
actions in non-euro Member States

Art. 17 Amendments to Regulation (EC) No 924/2009

The SEPA Regulation introduces amendments to Regulation (EC) No 924/2009, the

Cross-Border Payments Regulation

Art. 18 Entry into force

States that the SEPA Regulation enters into force one day after its publication in the
Official Journal of the European Union, namely 31 March 2012

Annex Technical requirements (Article 5)

Provides a detailed list of technical requirements for credit transfers and direct debits
in euro
The SEPA Regulation Guidance

The SEPA Regulation introduces a number of changes, key amongst which are the following:

End-dates: the SEPA Regulation sets a migration end date of 1 February 2014 in euro Member
States and 31 October 2016 in non-euro Member States (or one year after joining the euro, if earlier) by
when existing national euro credit transfer and direct debits must be replaced by SEPA Credit Transfers
and Direct Debits.

Message Formats: the ISO 20022 XML standard is to be used for message formats in the interbank
space and by PSUs (that are not consumers or micro-enterprises) that send or receive payments in batch
files; in addition, there is a requirement on PSPs to ensure that PSUs submitting batch payment files do so
in the ISO 20022 XML format.

Business Identifier Code (BIC): the removal of the mandatory requirement for the payer or payee to
provide the BIC for the initiation of a payment transaction.

Reachability: establishes a requirement for European-wide reachability for PSPs who are reachable
for euro credit transfer and direct debit services at national level.

Interoperability: technical interoperability between payment systems within the European Union
through the use of standards developed by international or European standardisation bodies.

Multilateral Interchange Fees: per transaction multilateral interchange fees (MIFs) for direct debits
to be phased out while MIFs on R-transactions will be allowed subject to certain strict conditions.

Consumer Protection Measures: introduces additional protection measures for consumers with
regard to direct debits.

Payment Accessibility: PSUs are prohibited from specifying the Member State in which the
payment account of their counterparty is to be located when making or receiving credit transfers or direct
debits.

Amendments to Regulation (EC) No 924/2009: in particular (i) the removal of the ceiling of EUR
50,000 on the 'principle of same charges' so that it applies to euro denominated payments of any value,
and (ii) the removal of settlement-based national reporting obligations on PSPs for balance of payments of
any value (not just below EUR 50,000) from 1 February 2016.
The SEPA Regulation Guidance

The whole concept of SEPA revolves around the principles of integration and harmonisation. Accordingly,
it is important for there to be a consistent interpretation of the SEPA Regulation by PSPs across Europe
as part of the implementation process. To this end it should be noted that practical implementation
guidance has been produced at European level by the Payments Regulatory Expert Group (PREG) of the
European Banking Federation (EBF).

A copy of the guidance can be accessed from the European Payments Councils website:

http://www.europeanpaymentscouncil.eu/knowledge_bank_detail.cfm?documents_id=580

The PREG has closely reviewed the SEPA Regulation with input from across its membership and in
conjunction with the European Payments Council, the European Association of Co-operative Banks,
MasterCard and Visa. It provides clarity on a range of practical questions related to the SEPA Regulation
and includes a step-by-step analysis of each article included within this legislative act.

Payments UK guidance on the SEPA Regulation should be read in conjunction with the EBF PREG
guidance.
The SEPA Regulation Guidance
Date Action
31 Mar 2012 Payment accessibility (Art. 9)
Amendments to Regulation 924 (Art.
17)
Obligation for eurozone-based PSPs
to be reachable for SEPA payments
(Art. 3)
1 Nov 2012 Prohibition of per-transaction
multilateral interchange fee (MIF) for
cross-border direct debits (Art. 6.3)
1 Feb 2013 Notification of the competent authori-
ties responsible for compliance with
the Regulation (Art. 10.2)
Member States shall lay down rules
on the penalties applicable to infringe-
ments on the Regulation (Art. 11.1)
Notification of bodies responsible for
out-of-court complaint and redress
procedures (Art. 12.2)
Member States to notify the EC if they
plan to make use of any derogations
listed in Articles 16.1, 3, 4, 5 and 6
(Art.16.7)
Application
UK-located PSPs: Must comply with Art. 9 on
payment accessibility and the amendments to
Regulation 924 by 31 March 2012. As per Art 16
(2), the requirement to be reachable for SEPA
payments is deferred until 31 October 2016
Branch of a UK PSP located in a eurozone MS:
Must comply with Art. 9 on payment
accessibility, the amendments to Regulation 924,
and the reachability obligations under
Article 3 by 31 March 2012
UK-located PSPs: Not applicable
Branch of a UK PSP located in a eurozone MS:
Must comply with the prohibition on MIF for cross
-border SEPA direct debits from 1 November
In the UK, legislation1 took effect on 15 January
2013 to implement these aspects of the SEPA
Regulation
1
The Payments in Euro (Credit Transfers and
Direct Debits) Regulations 2012 were laid before
Parliament on 18 December 2012 and come into
force on 15 January 2013. A copy is available
here: http://www.legislation.gov.uk/
uksi/2012/3122/body/made
See page 16 for more detail.
The SEPA Regulation Guidance

Date Action Application

1 Feb 2014 End-Date for legacy national credit The UK has no legacy national euro credit trans-
transfers and direct debits. Require- fer or direct debit systems.
ment to apply the technical require-
UK-located PSPs: As per Art 16(8), the deadline
ments of the pan-European schemes
to apply the technical requirements is 31 October
(Art. 6.1 and 6.2)
2016
N.B. By way of transitional provisions,
Branch of a UK PSP located in a eurozone MS:
there are derogations from the dead-
Must apply the technical requirements by 1 Feb-
lines in Art 6 in Art 16(1), (3), (4), (5),
ruary 2014 unless the MS the branch is located
or (6)
in has applied the derogations listed in Art 16(1),
(3), (4), (5), or (6)

1 Feb 2014 Provision of the BIC no longer UK-located PSPs: As per Art 16(8), the deadline
mandatorily required for national pay- is 31 October 2016.
ment transactions (Art. 5.7)

Branch of a UK PSP located in a eurozone MS:

N.B. As per 16(6) eurozone MS can Must comply with the provision by 1 February
utilise an extended transition option 2014 unless the MS the branch is located in has
[so that the requirement for BIC re- applied the transitional option, in which case the
mains in place] until 1 February 2016 1 February 2016 deadline applies

1 Feb 2014 Interoperability requirements in UK-located PSPs: As per Art 16(8), the deadline
eurozone MS (Art. 4) is 31 October 2016

Branch of a UK PSP located in a eurozone MS:

Must comply with the provision by 1 February
2014

1 Feb 2014 End-Date for the issuance of new UK-located PSPs: Not applicable in the UK as
direct debit mandates based on the UK national direct debit scheme does not fa-
national formats (Art. 7.1) cilitate payments in euros

Branch of a UK PSP located in a eurozone MS:

Must comply with the provision by 1 February
2014
The SEPA Regulation Guidance
Date Action
1 Feb 2016 Provision of the BIC no longer
mandatorily required for cross-border
payment transactions (Art 5.7)
1 Feb 2016 End of transition period allowing PSPs UK-located PSPs: As per Art 16(8), these PSPs
to offer BBAN/IBAN conversion
services to PSUs that are consumers
to convert national payments into
IBAN (MS option) (Art 16.1)
1 Feb 2016 End of transition period for legacy
niche products with a cumulative
market share of less than 10% of the
total national credit transfers and
direct debits (MS option) (Art 16.3)
1 Feb 2016 End of transition period for payment
transactions generated using a
payment card at the POS (e.g. the
German Elektronisches
Lastschriftverfahren (ELV)) (MS
option) (Art 16.4)
Application
UK-located PSPs: As per Art 16(8), the deadline
is 31 October 2016
Branch of a UK PSP located in a eurozone MS:
Must comply with the provision by 1 February
2016
do not need to ensure that the payment account
identifier is the IBAN until 31 October 2016
Branch of a UK PSP located in a eurozone MS: If
the branch has been offering conversion services
to consumers this should end by 1 February
2016
UK-located PSPs: Not applicable in the UK
Branch of a UK PSP located in a eurozone MS:
Some eurozone MS are making use of the
waiver that applies until 1 February 2016 for
niche schemes and therefore branches should
investigate whether this is applicable to them
UK-located PSPs: Not applicable in the UK
Branch of a UK PSP located in a eurozone MS:
Branches located in Austria or Germany that of-
fer this type of payment to their customers will
need to migrate these payments by 1
February 2016
The SEPA Regulation Guidance
Date Action
1 Feb 2016 End of transition period for the
exception to the mandatory use of ISO do not need to ensure that the message format is
20022 XML standard for bundled
together payments (MS option) (Art
16.5)
1 Feb 2016 End of transition period under which
MS can defer the requirement for
IBAN only for national payment
transactions (MS option) (Art 16.6)
1 Feb 2016 Removal of (national) settlement-
based reporting obligations for PSPs
by 1st February 2016 at the latest
(Article 5.1 of Regulation 924/2009)
(Art 17.4)
Application
UK-located PSPs: As per Art 16(8), these PSPs
used by PSUs submitting/receiving bundled pay-
ments until 31 October 2016
However, as per Art 16(5), PSPs shall fulfil the
requirements set out in Art 5(1)(d) where a PSU
requests such a service
Branch of a UK PSP located in a eurozone MS:
Must use this message format by 1 Feb 2014 un-
less the MS the branch is located in has applied
the transition option, in which case the 1 Febru-
ary 2016 deadline applies.
However, as per Art 16(5), PSPs shall fulfil the
requirements set out in Art 5(1)(d) where a PSU
requests such a service
UK-located PSPs: As per Art 16(8), these PSPs
can continue to require the BIC until 31 October
2016
Branch of a UK PSP located in a eurozone MS:
The deadline is 1 February 2014 unless the MS
the branch is located in has applied the transi-
tional option, in which case the deadline by when
a PSP can no longer require the BIC for national
payments is 1 February 2016
The SEPA Regulation Guidance

Date Action Application

31 Oct 2016 Reachability obligations for PSPs in
non-eurozone MS offering payment
services denominated in euro. If euro
becomes a national currency before
31 October 2015, PSPs to be reacha-
ble within one year (Art 16.2)
UK-located PSPs: UK PSPs that offered euro
credit transfers or direct debits when the SEPA
Regulation came into force need to be reachable
for the SEPA Schemes by 31 October 2016
Branch of a UK PSP located in a eurozone MS:
These PSPs were required to be reachable as of
31 March 2012

31 Oct 2016 End-date for migration to pan- UK-located PSPs: UK PSPs that offered euro
European payments schemes for euro credit transfers or direct debits when the SEPA
payments for non-eurozone MS. If eu- Regulation came into force need to have migrat-
ro becomes a national currency before ed to the SEPA Schemes by 31 October 2016
31 October 2015, compliance one
Branch of a UK PSP located in a eurozone MS:
year after joining the euro (Art 16.8)
These PSPs are required to migrate to the SEPA
Schemes by 1 February 2014

31 Oct 2016 Interoperability requirements for PSPs UK-located PSPs: UK PSPs that offered euro
in non-eurozone MS. If euro becomes credit transfers or direct debits when the SEPA
a national currency before 31 October Regulation came into force need to have migrat-
2015, compliance one year after join- ed to the SEPA Schemes by 31 October 2016 to
ing the euro (Art 16.8) be interoperable

Branch of a UK PSP located in a eurozone MS:

These PSPs are required to migrate to the SEPA
Schemes by 1 February 2014 to be interoperable

1 Feb 2017 No multilateral interchange fees per Not applicable in the UK as the UK national direct
national direct debit transaction (Art debit scheme does not facilitate
6.3) payments in euros

By 1 Feb Review: Report to be issued by the

2017 European Commission to the Europe-
an
Parliament and Council on the appli-
cation of the SEPA Regulation, if ap-
propriate with proposal (Art 15)
The SEPA Regulation Guidance

The Payments in Euro (Credit Transfers and Direct Debits) Regulations 2012 were laid before Parliament
on 18 December 2012 and came into force on 15 January 2013. Article 19 of these Regulations states
what derogations are being applied.

Due to the fact that Articles 16(2) and 16(8) of the SEPA Regulation exempt PSPs located in, and PSUs
making use of a payment service in, a Member State which does not have the euro as its currency (i.e. the
UK) from complying with the requirements of Articles 3, 4 and 5 until 31 October 2016, it was not
necessary for the UK to take advantage of the transitional provisions provided for in Articles 16(1), 16(3),
16(4), 16(5) and 16(6).

The text of Regulation (EU) No 260/2012 establishing technical and business requirements for credit
transfers and direct debits and amending Regulation (EC) No 924/2009 (the SEPA Regulation) can be
found at:

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:094:0022:0037:EN:PDF

The text of Regulation (EC) 924/2009 on cross-border payments in the Community and repealing
Regulation (EC) No 2560/2001 can be found at:

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:266:0011:0018:EN:PDF
The SEPA Regulation Guidance

This guidance document should be read in conjunction with the European Banking Federations Payments
Regulatory Expert Group (EBF PREG) guidance document, which can be found here:

http://www.ebf-fbe.eu/uploads/SEPA%20guidance%20final.pdf

In addition, the European Banking Association (EBA) has produced guidance, which can be found here:

https://www.ebaportal.eu/_Download/EBA%20Insight/2012/EBA120514_Banks_Preparing_for_
SEPA_Migration.pdf

The European Commission (EC) has and will continue to compile information regarding SEPA migration.
The EC website contains an overview of what derogations and options (Art. 16) are being utilised by
Member States. It is available here:

http://ec.europa.eu/internal_market/payments/sepa/ec_en.htm#migration

European Commission:

http://ec.europa.eu/internal_market/payments/sepa/index_en.htm

European Central Bank:

http://www.ecb.europa.eu/paym/sepa/html/index.en.html

European Payments Council:

http://www.europeanpaymentscouncil.eu/
The SEPA Regulation Guidance

No; article 3 of the SEPA Regulation on reachability only applies to PSPs that are currently reachable for
euro credit transfers or direct debits. In other words, if a PSP was offering euro credit transfers or direct
debits at the time of the publication of the SEPA Regulation (30 March 2012), or decided to offer them
subsequently, then it will need to comply with the requirements of the SEPA Regulation. Otherwise if a
PSP has never offered euro credit transfers or direct debits (but rather operates solely in sterling or other
non-euro currencies) there is no obligation for it to comply with the requirements of the SEPA Regulation.

For PSPs located in the UK that do currently offer euro credit transfers and/or direct debits, then, as per
article 16(2), the reachability obligations in article 3 must be complied with by 31 October 2016. For
eurozone branches of UK PSPs offering euro credit transfers/direct debits, the deadline for compliance by
those eurozone branches with Article 3 was 31st March 2012.

For further information on reachability please see to Payments UK Guidelines on Regulation 924 on cross-
border payments: http://www.paymentsUK.org.uk/what_do_we_do/european_payments/
regulation_924_on_crossborder_payments_in_the_community/

Article 3 (Reachability) of the SEPA Regulation states that a PSP that is reachable for a euro credit or
debit payment must be reachable via a Union-wide payment scheme. At present the only pan-European
Euro credit transfer and direct debit schemes are the EPCs SEPA schemes. Therefore, PSPs that need to
be reachable in accordance with the SEPA Regulation (see the answer to Q1) will need to adhere to the
EPC schemes by signing an adherence agreement with the European Payments Council (EPC), who are
the scheme owners, and by meeting the necessary technical requirements.

The EPC updates its Scheme Rulebooks on an annual basis following public consultation. Usually,
updated Rulebooks are prepared in August or September and then go live in November. However,
following publication of the SEPA Regulation, the EPC decided that it would be more practical to delay the
'go live' date for the updated Rulebooks from November 2013 until February 2014 in order to bring the
timetable in line with that of the SEPA Regulation.
The SEPA Regulation Guidance

In relation to national payments, Article 16(1) of the SEPA Regulation takes precedence meaning any PSP
offering conversion services to PSUs until 1 February 2016 must do so free of charge. In relation to cross-
border payments, Article 17(3) of Regulation 924 takes precedence meaning any PSP executing cross-
border payments where the PSU has failed to provide the IBAN can agree and charge the PSU an
appropriate cost for such services.

No; the currency of the underlying account used to send or receive a SEPA payment is not relevant to
determining the scope of by the SEPA Regulation, which turns upon the location of the PSP and the
currency of the payment transaction (not the account from or to which it is made). Article 1 defines the
scope of the SEPA Regulation as follows: "credit transfer and direct debit transactions denominated in
euro within the Union where both the payers payment service provider and the payees payment service
provider are located in the Union, or where the sole payment service provider (PSP) involved in the
payment transaction is located in the Union".

The relevant implementation deadline is determined by the location of the PSP. In this example, if the
PSP is providing services through a branch, in, say, France, then the French deadlines will apply. If,
however, it is providing services in France on a cross-border basis (i.e. without establishing a branch in
France), then the deadline of its 'home' (non-eurozone) Member State will apply. Please see Q14 below
which addresses the same question the location of a PSP in the context of Regulation 924, and also
the Payment UK's Guidance on Regulation 924.
The SEPA Regulation Guidance

As per Article 16(8), PSPs located in non-eurozone countries (such as the UK) do not need to comply with
Articles 4 and 5 of the SEPA Regulation until 31 October 2016. Nonetheless, Article 16(5) of the SEPA
Regulation still grants PSUs the right to request their PSP to use this message format for initiating and
receiving bundled payment orders from 1st February 2014. Therefore, it is recommended that PSPs
are at least in a position to meet such requests by 1st February 2014. Furthermore, in order to
ensure that they are not at a disadvantage, some PSPs and corporates may wish to become
SEPA-ready earlier than the 31 October 2016 deadline.

The SEPA Regulation states that from 1 February 2014 for national SEPA payments and from 1 February
2016 for cross-border SEPA payments, PSUs can no longer be required by their PSP to provide a BIC
when initiating a payment. However, as the UK is not a eurozone country, Article 16(8) applies, which
defers the deadline for IBAN-only to 31 October 2016. However, it should be noted that this only applies to
SEPA payments payments sent abroad in other currencies (e.g. Dollars or Sterling) or sent in euro but to
a destination outside SEPA will still require the BIC.

The industry is currently exploring the options around how to process IBAN-only payments, for example by
using national databases. Such databases are necessary because although in the majority of cases it will
be possible to reliably identify the BIC from the IBAN, in a small number of cases it will not be (for
example, following mergers and acquisitions). It is possible that an additional solution will need to be
developed to deal with the smaller number of consumer transactions that are cross-border. Although the
UK has a later deadline for IBAN-only, it is actively participating in these discussions as it is important that
the solution arrived at for deriving the BIC for the 2014 eurozone deadline is equally workable/scalable for
the 1 February 2016 cross-border deadline.

It should be noted that there are reasons why some corporates may choose to continue to provide the
BIC. For example, corporates (especially those with higher volumes of payments) will be familiar with
providing both the BIC and IBAN and use of the BIC may be embedded in their systems. In addition, some
corporates may have agreed different liability arrangements with their PSP to those under Article 75 of the
PSD (which provides for liability in the event a PSP incorrectly derives the BIC from the IBAN and the
payment does not reach the payee) as there is an opt-out for corporates. PSPs should discuss all aspects
of SEPA migration with any business customers that make/receive euro payments.
The SEPA Regulation Guidance

The SEPA Regulation requires: in-scope payments to be processed via a SEPA Regulation-compliant
scheme; PSPs to make themselves reachable via such schemes; and PSPs to initiate in-scope payments
in ISO 20022 XML format, etc. However, it does not explicitly govern how a PSP should route a payment.
PSPs remain free to determine payment routing (subject to anything they may have agreed with their
customers).

This is indeed about legal validity. It will be important when migrating mandates for corporates to ensure
that a unique Mandate reference and Creditor ID are added to the information for the debtor. From a legal
perspective, they will be able to continue collecting payments based on the old mandate using the SEPA
scheme, however, they will have to ensure this additional data is provided to their PSP as well as to their
debtor.
In addition, it should be noted that the SEPA Regulation provides a specific limitation and protection under
Article 7(2) that makes it clear that there can be no reduction in the refund rights following migration of the
legacy mandates for use in the SEPA schemes.
As regards the submission of information to initiate a SEPA direct debit, the creditor must respect the
requirements of the SEPA Regulation regarding format, i.e. use of XML at the appropriate points in the
processing cycle.

Where the sending PSP is from a non-euro country and it uses the services of a eurozone PSP for
clearing and settling SEPA payments (sending legacy format messages which the latter converts on its
behalf into XML), the non-euro PSP is permitted to continue sending messages to the eurozone PSP in
the legacy format for it to convert until the 31 October 2016 deadline in line with article 16(8). The
eurozone PSP may, however, decide to stop accepting such legacy formatted messages before this date
(because it will need to migrate to the ISO 20022 XML format earlier for its own compliance).
The SEPA Regulation Guidance

It is our understanding that the technical formats specified by the SEPA Regulation do not have to be used
by PSPs on a mandatory basis for the internal processing within the PSP of on-us transactions (i.e.
where the Payers and Payees payment accounts are with the same PSP). However, the parts of on-us
transactions that are customer-related and/or are routed through an external payment system are clearly
in the scope of the Regulation and therefore the ISO 20022 XML format must be used.

The lead competent authority will be that of the Member State where the non-eurozone PSP has
established a branch (see also Q6 above regarding the location of a PSP). However, the competent
authority of the home Member State (in this case the UK) may also take an interest.

The transfer of files purely for the purpose of sanctions checking (and not making payment transactions)
falls outside the scope of the SEPA Regulation, leaving the PSPs concerned to determine between them
(or with any third party provider) the format to be used for such file transfers. It may be that where this
element of the process is inextricably linked with the execution of a payment transaction, that operationally
the format used for this element is driven by the format requirements under the SEPA Regulation for the
resulting payments. This includes where the underlying payer/payee information is required by applicable
law to accompany the payment transaction.

It is our understanding that the SEPA Regulation does not preclude customers located outside of the EU/
EEA from benefiting from SEPA by obtaining services from a PSP located within the SEPA area. This
would logically extend also to PSPs acting as clients of a SEPA compliant PSP located within the EU
but subject of course to AML and other regulatory compliance considerations, and the need to respect
the conventions of the SEPA data set.
The SEPA Regulation Guidance

Although the SEPA Regulation is silent on this matter, the EBFs SEPA Regulation Guidance addresses
this point. In addition, footnotes to (i) a paper prepared by the ECB and European Commission for the
(subsequently cancelled) 13 March 2013 EU SEPA Council meeting on SEPA migration and (ii) the ECBs
SEPA Migration Report March 2013 clearly state that In a post-migration environment (February 2014 or
February 2016, respectively), PSPs could still offer conversion services, provided that these services are,
operationally, fully independent from all subsequent payment services offered by that PSP. The
conversion would take place prior to the receipt of the payment instruction by the PSP.