You may have seen a recent survey conducted by Clear2Pay and Finextra (here) for which I drafted the final report. While for the headlines I focussed on the involvement of Corporates in SEPA, one of the many topics covered in the survey was SEPA Governance. Banks have long advocated that self-regulation was the key to success of any standards and schemes that they devised – and to some extent I agree with this. However, the SEPA Migration End Date regulation has given the power of punitive measures for non-compliance to individual Member States meaning that each state will be able to really decide the pace at which its banks and institutions migrate.
While it is true that the End Date itself will force banks and institutions operating in a cross-border way to migrate (you need to be able to send and receive to stay in the game), players operating on a purely national basis or with tiny cross-border volumes may not feel the market pressure to migrate. This will likely mean that Member State governments will look at their own market before deciding on punitive measures – and inevitably this will be a politically self-serving decision.
What does this mean in reality? It means that if a multi-national bank is not ready to migrate to SEPA instruments in time, it could theoretically run all of its non-SEPA payments through the entity in a low measure country. Put more practically, if the German entity is not ready on time and the German regulator posts multi-million euro fines, the bank could theoretically shift processing operations to an entity operating in a nearby market that might not have similar fines – of course, this would only be as a temporary measure and could perhaps buy the bank some extra time to complete SEPA migration, but could also be used to keep some legacy schemes running. Likewise, if an international bank is using OLO transactions, which are technically not allowed under SEPA, delaying full migration in a low-fine country to use as a ‘European gateway’ could create a considerable competitive advantage.
All in all, what any bank in the SEPA region needs to do is keep a very close eye on national regulators and ensure that their business as a whole is able to take advantage of the opportunities presented – the grey area around punitive measures is just one example of such.