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Moving Ahead with SEPA While 1 August 2014 was an important milestone in the SEPA journey, in many respects we are only at the beginning of a new era for euro payments and cash management.

Moving Ahead with SEPA

by Markus Straussfeld, Head of Cash Management International Sales, UniCredit Bank AG

Just over a year ago (TMI edition 218) we published an interview with Markus Straussfeld, Head of Cash Management International Sales, UniCredit Bank AG, who discussed the challenges and opportunities of SEPA with only eight months to go before the February 2014 end date. At that time, adoption rates still varied considerably between financial participants and European markets. Since then, a great deal has happened. While the February 2014 end date has been enforced in some countries, other countries, such as Germany, have allowed an additional transition period of varying lengths, the latest of which is 1 August 2014. With SEPA finally a reality, we talk to Markus once again about treasurers’ priorities in a post-migration European payments landscape.

With the additional transition periods now passed, how would you characterise the current status of SEPA adoption?

Despite the additional transition periods that were allowed in some countries, most of our customers met the original February 2014 deadline. In some cases, however, such as in Italy, the transition period was a welcome addition to ensure compliance. The focus now is to achieve the same degree of process efficiency and automation as organisations were achieving before SEPA, such as improving straight-through processing (STP). This is work in progress for many companies, particularly as variations on the CGI XML standard impede genuine harmonisation. Even so, treasurers and finance managers are keen to leverage the benefits of standardisation wherever possible rather than treating migration simply as an IT project. For example, the opportunity for centralisation of cash management, payments and potentially collections by using common instruments is an important benefit of SEPA. Treasurers and finance managers are increasingly aiming to take advantage of this opportunity, either through physical centralisation of activities into a single location, but also through consistent channels, processes and reporting.

How are companies starting to leverage the opportunities that SEPA offers?

We are starting to see customers analysing their bank account structures and closing euro accounts outside their home markets to centralise cash, payments and collections. By simplifying account structures, however, and implementing techniques such as ‘payments and/or collections on behalf of’ group companies (POBO or COBO respectively), treasurers and finance managers need to find a way to achieve the same (or greater) level of automated reconciliation (STR – straight-through reconciliation), account posting and detailed reporting. Virtual account solutions are an effective and easy-to-implement means of achieving this. As healthcare provider B. Braun illustrated in their article in TMI’s Guide to Corporate Treasury in Germany supplement published in May 2014, virtual accounts offer the ability to identify and reconcile cash flows by the relevant entity or project, whilst still leveraging the benefits of simplified account structures and POBO or COBO models.

For example, looking at a COBO initiative, by implementing UniCredit’s virtual account solution, customers can rationalise accounts to one per currency. Each entity has a virtual account number for each of the required currency(-ies). The virtual account number is contained in the IBAN number that is given to suppliers and other counterparties. Collections are channelled to a single external account, but then allocated automatically to the relevant entity’s intercompany account for reconciliation and credit control. This offers a variety of benefits both for efficient collections and FX hedging.

Bearing in mind the differences in formats that have emerged between countries, to what extent has SEPA’s harmonisation objective been achieved?

Realistically, the number of exceptions across countries means that there is no true format standardisation at a European level, except that XML is used as a basis for both CGI formats and the formats that have been adopted in-country in certain cases (e.g., Germany, Austria, Spain, Portugal). Although it is tempting to think that these variations will be temporary, it is likely to take a long time and a great deal of collective will to achieve true harmonisation. This is difficult to envisage given that most work towards SEPA implementation takes place at an individual country level. Furthermore, there is still considerable uncertainty about the transition of niche products that still exist in some countries (such as recibos in Spain) and the products that will replace them, which further complicates harmonisation objectives.

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