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21 January 2014Gareth Lodge
The news on January 15th that the SEPA deadline would be extended came as both a shock, but at the same time, not a surprise. The regulator, based on the levels of migration (available here ), has proposed a 6 month grace period. At the heart of the problem are the low levels of SEPA take-up ahead of the "immoveable" deadline of Feb 1st 2014. Corporates have complained that the deadline was too soon. The original announcement of the deadline came in December 2011, after many corporates had already finalised their budgets for the following financial year, leaving effectively 13 months for compliance. Furthermore, survey after survey have shown a distinct lack of knowledge of SEPA, let alone preparation for it, particularly amongst SME's. This move seems to show desperation from the regulator and perhaps a lack of understanding. The migration numbers show volumes from those companies that have migrated; it doesn’t show those who *could* migrate, but who have chosen not to do so yet. At least one large biller has claimed that their SEPA transaction pricing would be higher than their current pricing. As a result, they have stated that they aim to migrate at the last possible moment. Equally, those corporates who have embraced the vision of SEPA may have consolidated their volumes to a payments factory, with the net result that some countries volumes will increase (theoretically at least, and possibly pushing low cost countries to over 100% migration!), whilst others will decrease. Regardless of the actual impact, the numbers are only an indicator, and not a measure, which is how the regulator has used them. Indeed, for a change of this size, there seems to be a distinct lack of real measures that we in the real world have to apply to any project we do!. This seems to have been borne out by the latest figures. As corporates thought the deadline was Feb 1st, Decembers figures for direct debit saw a 60% increase. Did the regulator blink too soon? They can't know as they weren't actually using the right measures. The regulator also seems to have not understood the implications of their statement. In conversations so far, the market is not grateful but angry. It has created confusion and complication, rather than helped the situation. Firstly, it's sent the wrong message to the corporates. As one corporate has said: we were in a standoff, but the regulator blinked first; therefore we believe that a minimum that they might blink again, so perhaps we should just sit tight and not migrate at all? Secondly, when is a deadline, not a deadline? Or rather, when is an extension, not an extension? When it's no longer yours to extend. The competent authorities in each country are the enforcers of compliance. One thing many have missed is that this is a proposal, not a legal change to the regulation. The release calls on the competent authorities to adopt the proposal and contains phrases such as:
"....should the proposal still be in process of adoption on 1 February 2014...."Fine. But how should a bank compliance officer react in that instance? A small poll, but so far, the belief amongst those I have spoken to is they have to work on the assumption that Feb 1st is the deadline, not August 1st. For example, does it require every authority to agree to the proposal or is it on a country by country basis? How long will that process take? By the time there is absolute clarity, the 2nd deadline is likely to have passed! Furthermore initial indications suggest that some countries, because of the progress to date, may decide to press ahead with the original deadline. Whilst admirable on one level, equally it does potentially cause complications by creating a multi-deadline deadline! It's early days as to the actual impact. For most, this announcement came out of the blue. But, just as the boy who cried wolf was eventually ignored, the regulator who cried "No plan B!" may find that they have now created a series of problems for themselves.