sepa

A letter was recently published by the Irish Retail Electronic Payments Clearing Company (IRECC) and sent to Irish businesses. The letter contained information detailing the closure of the Irish electronic clearing house and the cessation of services in preparation for the national adoption of SEPA. The most noteworthy element of this letter was a sentence that appeared halfway through the copy, underlined for emphasis: ‘Your sponsoring bank will not be able to process your Direct Debit file in its current format after 31st January 2014.’

What should we take from this assertion? Firstly it is worth noting that the statement singles out Direct Debits as particularly vulnerable elements of the SEPA scheme. This might be because the majority of Irish domestic Credit Transfers have been routed through the STEP2 Pan-European Automated Clearing House (PE-ACH) since 2011 and thus far there have been no complications. It may also be due to SEPA Credit Transfers being a far simpler payment instruction to execute in comparison to SEPA Direct Debits. The migration of Credit Transfers will not be as complicated an operation as the migration of existing Direct Debits.

What is striking about this statement is the finality of its tone. ‘Your sponsoring bank will not be able to process your Direct Debit file’. It does not claim that your bank may not be able to process your instructions, or even that they may be willing to do so at a premium. The letter states in simple and sparse English that unless your instructions are submitted in the correct format, they simply will not be processed. After 31st January 2014, files submitted in the old format will become simply empty code on a screen, or useless facts on a piece of paper.

For the benefit of clarification, it is worth defining what exactly the IRECC considers the correct SEPA format to consist of, and it does not solely require the inclusion of IBANs and BICs. Direct Debit instructions will have to be communicated using the XML ISO20022 financial messaging standards, and SEPA mandate management rules will have to be strictly adhered to.

While some domestic clearing systems like the IRECC are closing down, a number of much larger European clearing houses are upgrading their infrastructures with a view to becoming SEPA-compliant payments processors. Examples of this include the STET-CORE system in France and Equens in the Netherlands. These institutions will effectively become Pan-European Automated Clearing Houses in their own right.

The implications of the closure of domestic clearing facilities mean that companies will have to do a lot of work to upgrade their payment generation and management systems in advance of the migration deadline. The failure to do so will result in non-compliant companies being locked-out of the electronic payments infrastructure, which will in turn result in the incompletion of payments and the disruption to critical business cash flow.

There may still be a handful of business owners and executives out there who believe that the timescale is too short for the on-boarding of all Irish companies before the 1st February 2014, and that the deadline will inevitably have to be extended in order to accommodate those that have fallen behind. This recent publication from the IRECC should dispel all notions of any such misconceptions. Be advised: any company that falls behind gets left behind.