SEPA

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Planning for SEPA Migration SEPA migration is an urgent, challenging and substantial undertaking - every project will entail different challenges, impact a large number of shareholders, and time is flying by rapidly.

Planning for SEPA Migration

by Dieter Stynen, Head of Cash Management Corporates (CMC), Western Europe, Deutsche Bank

In an ideal world, I would love to be writing an article reassuring treasurers and finance managers that migration to SEPA payment and collection instruments is straightforward, that the project is the same for every company and can also be safely implemented within a short time period. I’d like to tell people that, as the end date for domestic credit transfers and direct debits is still nearly a full year away, they still have plenty of time. Sadly, I cannot do so. SEPA migration is an urgent, challenging and substantial undertaking – every project will entail different challenges, impact a large number of stakeholders and time is flying by rapidly. This article outlines why companies should be prioritising SEPA migration as a matter of urgency, and some of the factors that contribute to a successful project.

A shift in corporate motivation

For banks such as Deutsche Bank, SEPA preparations began as soon as a vision of harmonised payment and collection instruments across the Eurozone was first outlined in 2001. This meant that we were among the first banks to process SEPA Credit Transfers (SCTs) when they were launched in 2008, and SEPA Direct Debits (SDDs) in 2010. From the very beginning, we have been – and indeed remain – proactive in providing information, education and practical advice to customers throughout Europe and beyond, in order to help them plan their migration project. An example is our well-received Ultimate Guide to SEPA Migration, which provides very detailed advice and support, and we are building on this with the upcoming release of an XML Checker, which will enable customers to validate their file formats.

The relatively low proportion of SCT and certainly SDD transactions (30.6% and 2.1%, respectively according to ECB statistics, November 2012) would suggest that, despite efforts to emphasise the importance and immediacy of migration, corporates have shown relatively little motivation for migration. However, with the end date for domestic credit transfers and direct debit schemes now less than a year away, we are seeing a shift. Customers are now proactively seeking information on SEPA and practical advice on adoption.

However, there are still some misconceptions about SEPA, which continue to impede adoption. One such misunderstanding is that the end date for domestic schemes will be delayed. Another is that there is no need to convert files to XML format as banks will provide a conversion service. Firstly, there has been no indication that the February 2014 deadline will change. Secondly, while banks such as Deutsche Bank are actively supporting file conversion to assist customers in becoming SEPA compliant, the regulation’s rules state that companies should be issuing XML payment files directly by the 2014 end date. This is a bit of a grey area, however, as some countries have interpreted this rule in different ways. Italy and Spain, for example, have already confirmed they will continue to accept domestic formats until 2016.

One option is the use of a third party conversion service provider. Customers send files to the provider, which converts them to XML and sends them on to the relevant bank(s). Such services are likely to prove invaluable to companies for whom the migration timescales are challenging. Consequently, with some ambiguity remaining over the type of support that will be available to those that have not migrated by the end date, it is essential that companies prioritise migration to avoid the risk of non-compliance.

A business imperative: compliance risk

In the past, treasurers and finance managers have found it difficult to convince senior management of the need to migrate, and therefore to secure the necessary budget and resource allocation. With the deadline now looming, this should no longer be the case. There are two elements that comprise the business case for SEPA migration: firstly, the need for compliance; and secondly, the advantages of standardisation, centralisation and rationalisation that can ensue from a harmonised European landscape. We will discuss the benefits that can be achieved from implementing SEPA instruments in a subsequent article in TMI, but the issue of compliance should be compelling in itself. Managing compliance risk is a major responsibility for treasurers and finance managers. The risk to the business in the event of failure of payments to employees or key suppliers could be considerable. The same applies to collections: if direct debits were to fail, customer collections would be delayed, resulting in both internal and external business challenges – such as adverse effects on working capital and reputational damage. There are clear benefits to collecting cash through direct debits, but if direct debits fail, customers may choose to use alternative methods in the future, affecting flow certainty and predictability.

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