The Single Euro Payments Area (SEPA) seeks to integrate payment services in the EU. It simplifies bank transfers in Europe. SEPA consist of the 28 EU states and the 4 EFTA members, Iceland, Liechtenstein, Norway and Switzerland. It also comprises Monaco and San Marino.
SEPA seeks to improve the efficiency of payments cross-border and create a single payments area. It enables cashless euro payments to be made to anyone within the area, using a single bank account and a single set of payment instruments. It seeks to develop common financial instruments, standards and procedures. The objective is to reduce cost within the EU in moving funds and capital.
The key legislation is the EU Payment Services Directive. The commercial frameworks were developed by the European Payments Council which comprises European banks. It is committed to agreeing three pan-European payment instruments:
- Credit transfers: SCT/SEPA Credit Transfers
- Direct debits: SDD – SEPA Direct Debit.
- SEPA Cards Framework
In order to deliver straight through processing for SEPA, European Payment Council is made up of the European Banks committed to living certain technical standards.The single European Payment Area is underpinned by the SEPA Regulation 2012 and 2014 which are EU Regulations having direct effect.
Clearance under the system is based on the IBAN bank-account identification and the SWIFT-BIC bank identifier. Domestic transactions are routed by IBAN. National-designation schemes were abolished in February 2014. By February 2016, BIC sorting information is removed from SEPA transactions, as it is derived the IBAN for all banks in the SEPA area.
The Directive 2007/64 on payment in the internal payment services in the internal market provides a modern legal foundation for the creation of an internal market for payments of which SEPA is a fundamental element. Regulation 94/2009 on cross-border payments in the EU provides a number of facilitating measures to facilitate SEPA, including in particular extension of the principle of equal charges to cross-border direct debits and reachability for direct debits.
Regulation 94/2009 guarantees that national and cross-border payments made in the EU are subject to the same rules on bank charges. Payments are to be made in euro or national currency of the State that wishes to apply the Regulation. The Regulation does not apply to payments made by payment service providers for their own accounts or on behalf of other service provider. It does not apply to currency conversion charges.
Service providers must levy identical charges for cross-border payments and electronically processed payment transactions for the payers, payment service provider and the payees’ payments provider are located in different States and for national payments and electronically processed payment transactions, where the two service providers are located in the same State.
Payment service providers will give each client an international bank account number. This is IBAN. They must communicate only if necessary their bank identifier code. The codes shall be indicated by clients making cross-border transactions. If they do not do so, they may be subject to additional charges.Service providers must inform their client of the amount of additional charges before the transaction takes place.
On 1 February 2014, transfers must be made in accordance with the single euro payments area standards whether they are national or cross-border payments. From 1 February 2016, payment providers no longer require users to enter their BIC (bank identifier code) for cross-border payments.
Member states shall designate competent authorities responsible for insurance compliance with the regulations. If there is an infringement by service providers, service users or interested parties may submit claims to the national authority. States must establish either court complaint and redress procedures. They must designate competent bodies. They must lay down penalties for infringement.
The competent authorities and bodies responsible for out of court complaint and redress procedures shall expeditiously cooperate in solving cross-border disputes.
Regulation of Payment Service Directive
Charges levied by a payment service provider on a payment service user for cross-border payments up to €50,000 shall be the same as that levied by the payment service provider on payment service users for correspondent national payments of the same value and in the same currency. In assessing the level of charges for cross-border payment, a payment service provider shall identify the corresponding national payment.
A payment service provider shall where applicable communicate to the payment service user, the user’s IBAN and payment service providers BIC. It shall indicate the IBAN, BIC and statements of account or in an annex to it. The information required shall be provided to the payment service user free of charge.
Where appropriate with regard to the nature of the payment transaction concerned, the transactions initiated by the payer, the payer shall on request communicate to the payment service provider the payee’s IBAN and BIC. Correspondingly for transactions initiated by the payee, the payee shall communicate the payer’s IBAN and BIC to the payment service provider.
The payment service provider may levy additional charges (under the 2009 regulation), where the user instructs the payment service provider to execute the payment transaction without communicating IBAN and BIC. The charges must be appropriate and in line with costs. It must be agreed between the same payment service provider and payment service user.
Without prejudice to the above, where a multilateral interchange fee or other agreed remuneration for a national direct debit transaction existed before 1 November 2009 or agreed remuneration agreed up to 1 November 2012. They apply to national direct debit transactions executed before that date.
The regulation require that a payment service provider of a payee are reachable for national direct debit transaction in euro on account of the payer shall be reachable in accordance with the direct debits scheme, where direct debit transactions denominated in euro initiated by a payee through his payment service provider located in any Member Sate. This only apply to direct debit transactions which were available to the consumers under the direct debit scheme. Payment service providers were obliged to comply with the about obligation by 1 November 2010.
Member states which do not have euro as a currency were obliged to comply with the requirements above for a direct debit transactions denominated in euro by 1 November 2014.