6-Month Transition Period for SEPA

European Commission avoids officially delaying SEPA compliance deadline, but proposes allowing alternative payment methods for euro-denominated transactions until August 1.

For months, media fretted that companies would not be prepared to comply with the Single Euro Payments Area (SEPA) by the February 1, 2014, deadline—and many analysts predicted that the European Commission (EC) would delay the deadline. Today, less than a month before SEPA formally takes effect, unprepared companies have been granted a reprieve. Although the EC has not officially changed its compliance deadline, it is proposing a transition period of six additional months during which credit transfers and direct debits that are not SEPA compliant will still be acceptable for payments within the Eurozone.

Said Michel Barnier, internal market and services commissioner for the EC: "As of today, migration rates for credit transfers and direct debits are not high enough to ensure a smooth transition to SEPA despite the important work already carried out by all involved. Therefore, I am proposing an additional transition period of six months for those payment services users who are yet to migrate. In practice this means the deadline for migration remains 1 February 2014, but payments that differ from a SEPA format could continue to be accepted until 1 August 2014. I regret having to do this, but it is a measure of prudence to counter the possible risk of disruption to payments and potential consequences for individual consumers and SMEs [small to midsize enterprises] in particular."

The EC has been monitoring the implementation progress of SEPA stakeholders, from banks and government entities to companies of all sizes, as well as consumers. In November 2013, it found that 64.1 percent of stakeholders were prepared for SEPA credit transfers (SCT) and only 26 percent were ready for SEPA direct debits (SDD). If the EC had not taken action, banks and other payment institutions would have been required on Feburary 1 to stop processing any non-compliant euro-denominated payments. The change would have caused significant disruptions for those businesses that had not finished their SEPA implementation projects, potentially preventing them from making or receiving any payments.

"There has been evidence in the past few months that migration was happening too slowly," Barnier explains. "I call once more on member states to fully assume their responsibilities and accelerate and intensify efforts to migrate to SEPA so that all can enjoy its benefits—that is, faster and cheaper payments across Europe. The transition period will not be extended after 1 August."

The EC is now urging its co-legislators to accept the proposal in short order, to bring legal clarity to the situation. In the event that the proposal has not become law by February 1, the commission is also calling on member states to avoid penalizing organizations that continue to process non-SEPA payments for six months following that date.

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