The European Commission has extended the Single Euro Payments Area (SEPA) compliance deadline by six months to help prevent disruption caused by businesses slowness in adopting the payment standard.
The extension means that credit payments which do not match the SEPA XML format will still be accepted up until August this year, though the formal deadline of February will remain in place.
The Commission’s internal market and services commissioner Michel Barnier said that decision was made as migration was occurring “too slowly” and called on EU Member States to “accelerate and intensify efforts” to spur uptake. He added that the extension was a "measure of prudence" to "counter the possible risk of disruption to payments and potential consequences for individual consumers and SMEs in particular”.
According to a survey conducted by the Commission and Eurosystem, adoption rates for the SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) formats have been low so far. With migration levels at 64.1 percent for SCT and 26 percent for SDD in November 2013, it was considered unlikely that 100 percent target would be met by the February deadline.
The SEPA initiative is part of wider European Commission plans for a single market for the euro currency, first unveiled back in 2002. It is aimed at improving the speed and reducing the costs of cross-border credit and debit payments by businesses, as well as increasing competition between banks.
Although changes are mainly aimed at countries using the euro, any UK business making regular payments with the currency will be impacted.
Businesses seeking to fully comply with SEPA regulations will be required to update their databases and financial systems to incorporate new payment details for customers and suppliers, as well as ensuring they have up-to-date versions of enterprise resource planning (ERP) systems.
In order to avoid payments being blocked, many SMEs have decided to use XML conversion services supplied by many banks to meet payment requirements. However the European Central Bank (ECB) has stated that relying on these conversion services for too long “may prevent stakeholders from reaping the full benefits of SEPA”, and will still require some preparation.
The ECB in October also warned against last minute “big bang” migrations by smaller firms, which will create "capacity issues and bottlenecks" for payments providers as the deadline approaches.
Tony Virdi, who has been involved in SEPA preparations in the UK as head of banking and financial services at outsourcer Cognizant, commented that ensuring compliance is not a “quick fix” for companies.
“The recent news that the European Commission is extending the SEPA migration deadline by six months will no doubt come as a welcome relief to many UK organisations,” he said.
“While major banks have already started advising and guiding their corporate clients in readiness for migration, there are too many financial institutions who were unsure whether the immediate migration date of 1st February 2014 applied to them, so have not started planning for SEPA migration yet.
“Ultimately, if they have subsidiaries, branches or even bank accounts within Eurozone countries, they will need to be SEPA compliant within the year. This extension shows that the EC recognises many are not ready and gives them a grace period, but they still need to react swiftly to be ready on time.”