UK: Changing The Payments Landscape - SEPA And The Payment Services Directive: The Opportunities For Banks

Last Updated: 6 April 2009
Article by Deloitte Audit Group

Most Read Contributor in UK, August 2017

SEPA is the largest payments initiative ever undertaken within Europe... Every citizen, merchant and corporate in the Euro area will eventually be impacted by SEPA as will everyone in the payments supply chain.
European Payments Council

It is a time of dramatic regulatory change in the payments industry. A sector that has, until now, been relatively untouched by financial services regulation, is finding an increase in compliance requirements from the Payment Services Directive (PSD) and the Single Euro Payments Area (SEPA). The PSD comes into effect on 1st November 2009 and SEPA requires full migration by end of 2010.

It is critical to employ the right strategy to ensure all requirements of these complex regulations are considered and that a suitable approach is adopted for current and ongoing compliance.

Overview Of SEPA And The PSD

The PSD aims to generate more competition in payment markets by establishing a harmonised set of rules for processing payments across the European Union (EU). It will be implemented by governments and regulators through their local legal mechanisms.

SEPA seeks to unify the market for Euro-only Credit Transfers, Direct Debits and Card Payments, through common technical standards, its own set of regulations and guidelines, and a harmonised legal basis (provided by the PSD). It is an industry-led initiative which could become the de facto standard outside the Eurozone if payments processors adopt one set of standards for all transactions.

SEPA and the PSD are complementary to each other. Therefore, in implementing these regulations, banks should try to maximise synergies whilst recognising there are important differences in scope.

The Challenge To Banks

Existing regulation varies greatly between EU countries. The extent of change required will depend on which countries the banks operate in as well as the degree to which processes are currently centralised and harmonised.

Some of the key provisions include rules and regulations pertaining to:

  • Faster execution times (next day or better required by 2012).
  • Value dating and availability of funds.
  • Increased transparency of information to customers.
  • Changes to customer obligations and liabilities.
  • Changing requirements to claims and refunds.
  • Supporting corporates that want to operate a European wide direct debit scheme from a single account.

In addition, banks need to assess the impact and address changes through:

  • Review of operational risk management.
  • Construction of new policies and procedures.
  • Ensuring full consideration of different interpretations of the legislation in countries around the EU.

SEPA will facilitate consolidation of Automated Clearing Houses (ACHs) and processors across Europe and will therefore require banks to redefine their strategy for payment processing, in-sourcing and outsourcing. It will also require changes and investment in IT to comply with the necessary technical requirements such as the XML messaging format. This will result in common payment formats across Europe.

What Are The Opportunities?

The regulatory changes from SEPA and the PSD present banks with many new compliance requirements, but also present a series of opportunities, including the chance to:

  • Re-assess business models and consolidate payments infrastructure.
  • Rationalise legal entity structure if they operate on a pan-European basis.
  • Design and tailor new products to enable the capture of new markets.
  • Create efficiency savings by applying the standards in the PSD to operations outside of Europe.

Managing The Change

We can support your business needs by ensuring you are in a position to be compliant with the provisions of the PSD with effect from 1 November 2009 and reviewing your readiness for the various SEPA deadlines. We have wide-ranging experience in helping banks manage such change as well as improving their payments services and controls.

We can assist your business to ensure it is in a prime position for SEPA and PSD compliance through:

  • A health check of your SEPA/PSD readiness of business areas, operations, technology and systems, including:
    • A full gap analysis against compliance requirements.
    • Creation and delivery of a project plan to address identified shortfalls.
  • Assessing the financial impact of the regulations including:
    • Understanding likely reduced margins and reduced float.
    • Direct and indirect costs incurred for implementing the regulations.
  • Refining procedures and processes to ensure compliance with all aspects of SEPA and the PSD including execution times, value dating, claims/ refunds and others. In particular, we can help you to:
    • Understand the clearing and settlement mechanisms available for SEPA products enabling you to suitably tailor your approach.
    • Ensure upcoming and future processing timelines are adhered to, including requirements for next day payment processing from 2009 and 2012.
    • Amend customer terms and conditions to comply with the new requirements.
    • Streamline back office processes including structuring reconciliation, revocation and refunds as per SEPA/ PSD guidelines.
    • Assess current and ongoing staff training requirements.
  • Identification of business opportunities arising from PSD/SEPA such as potential for new product offerings, product rationalisation, assessing target customers and leveraging your payments infrastructure for in-source payments.
  • What are the AML and economic sanctions considerations?

    When SEPA is implemented, Euro payments within the EU will be considered domestic payments. What are your obligations for filtering and profiling these payments? We can help you assess the requirements for AML and sanctions obligations.

    The execution time for payments if part of SEPA is D+1. Any sanctions matches require quick and efficient decision making to meet this deadline. We can help you assess the optimisation options for sanctions filtering.

Why Deloitte?

We leverage the multi-disciplinary skills of the entire Deloitte organisation to provide an unparalleled breadth and depth of expertise.

We have worked with many of the country's leading payment service providers, banks and other financial institutions to help them assess and improve their payments processes and controls. Our experience is wide-ranging, thus ensuring you receive the best advice on all aspect of payments, including regulation, technology, risk assessment, sanctions, business analysis and project management.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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