The SEPA Commitment for banks Björn Flismark Warsaw 16 April, 2007 A single market for Euro payments in Europe The SEPA Commitment for banks The SEPA project will create a Single market for Euro payments in Europe. SEPA is an important part of the Lisbon Agenda which seeks to make Europe the most competitive financial market in the world by 2010.

EU13 EU27 EEA+CH SEPA will cover Europe! Geographical aspect of SEPA EU 13 – The Euro countries now including Slovenia who adopted the EURO on 1 January 2007 EU 27 – The EU which now consists of 27 countries. Romania and Bulgaria joined the EU on 1 January 2007 EEA + CH – EEA consists of Norway, Iceland, Liechtenstein and Switzerland. All of Europe will be affected. 2

SEPA – a single market for payments = Euro Payments Convergence A politically driven and encouraged process Pay and receive to a single account with a single set of instruments in a single format throughout the EU Payments in Euro – easy, safe and efficient as the best of national systems – no differentiation between cross-border and national An enabler and catalyst for EU market integration and increased competition Creating a Single market for payments is a key goal for the EU. This is a logical step to reach the full benefits of the single currency. There will be no distinction between cross-border and national payments in SEPA. It should be enough to have one account. A new format will be introduced for SEPA payments in Europe in Euro based on ISO 20022 XML standard. There is a strong focus on increased efficiency. SEPA should be as good or better than existing national systems. The high efficiency in the Nordic markets is seen as a benchmark. SEPA is necessary in order to realise the Lisbon Agenda to make Europe the most competitive economic area in the world. SEPA is introduced by the EPC through process of self-regulation

SEPA introduced through self-regulation European Payments Council, EPC Created to implement SEPA Members are banks and national banking associations Decision-making body representing the European Banking industry Payments Services Directive New legislation supporting SEPA The European banking industry has created the European Payments Council, EPC to deliver SEPA. The EPC has some 60 members. SEB is a member of EPC. The EPC is working closely together with The European Commission and the European Central Bank. New legislation will be implemented by end of April 2007. The new Payment Services Directive will become effective by the 1 November 2009 at the latest.

SEPA foundations – a combination of legislation and self-regulation Payment Services Directive (PSD) EC 2560/2001 XBD Legal framework EPC (Euro only) SEPA Direct Debit Rulebook 2.2 (SDD) SEPA Credit Transfer Rulebook 2.2 (SCT) SEPA Cards Framework (SCF) SEPA Adherence Agreements PEACH/CSM Governance Framework SEPA Data Formats (ISO 20022 XML) Self regulation Market acceptance Communication Competitive offerings Stable infrastructure in place SEPA will be built on a combination of legislation and self- regulation. New EU wide legislation, the Payment Services Directive, PSD, will be introduced. This will support the self-regulation introduced by the EPC. The EPC has delivered Rulebooks for Credit Transfers and Direct Debits and a Framework for Cards and Cash. In addition there is a Framework for Clearing and Settlement which gives details on the rules Clearing organisations have to follow. Communication on SEPA will be made to all customers. This will describe what is new with SEPA and how the product offerings look and the benefits of them. 5

The SEPA Schedule 2007 2008 2009 2010 2011 NOW DEADLINE 1 DEADLINE 2 Implementation and deployment 2007 SEPA instruments available Migration: Co-existence and gradual adoption Credit Transfers Cards 2008 2009 Direct Debit 2010 SEPA Instruments in general use Harmonisation completed: Decommissioning of national instruments 2011 The EPC has agreed a Schedule for introducing SEPA. On 1 January 2008 SEPA will be introduced. Banks will start offering SEPA products. From 2008 (Deadline 1) SEPA Credit Transfers and SEPA Cards will be introduced. The new Direct Debit scheme will be introduced in 2009 but this is subject to the introduction of the Payment Services Directive, now scheduled to become law on 1 November 2009. During the migration phase new and old products will coexist. By the end of 2010 (Deadline 2) a significant part of payments will have moved to SEPA making the process irreversible. By the end of the migration period it will be possible to start closing down (decommission) old systems. Customers need to consider how they need to prepare for SEPA and when they will adopt SEPA products. These preparations can include upgrading ERP systems and adopting XML. 6

SEPA impact for banks – what do banks need to do? Adopting EPC Rulebooks and SEPA Cards Framework and other EPC Documents SEPA Credit Transfers from 1 January, 2008 SEPA Direct Debit from 2009 (PSD dependence) Signing Adherence Agreements Establish reachability A bank must be reachable, i.e. all other banks must be able to send Payments and Direct Debit collections As a minimum be reachable through a PE-ACH* Offer SEPA products to their customers Sending and receiving SEPA Credit Transfers on behalf of their customers Handling Direct Debit collections for their customers All banks will need to consider SEPA and what to do. Most of them need to sign the Adherence Agreement. All will have to live up to the Rulebooks and other EPC documents. Reachability must be ensured by every bank. Each must be reachable through PE-ACH. Banks must also offer SEPA products actively to their customers. Over time *PE-ACH = Pan-European Automated Clearing House;

Implementation – roles and responsibilities Banks must be ready operationally by 1 January 2008 Readiness means adapting and testing internal systems and interfaces external interfaces product design legal aspects EPC will monitor implementation through coordination with national communities EPC will provide testing strategies and test scenarios Swift and EBA will conduct testing Banks must continue the process to become operationally ready for 1 January 2008. All system preparations must be continued and finalised. All communities will have to coordinate these activities to ensure that also the country is SEPA ready. Testing activities will be 8 8 8

How to REACH them all? Can you be REACHED? Number of Banking Institutions in EU (2003) around 9.000 Austria 899 Belgium 114 Cyprus 378 Czech Republic 41 Denmark 183 Estonia 19 Finland 344 France 1491 Germany 2311 Greece 55 Hungary 233 Ireland 83 Italy 745 Latvia 23 Lithuania 69 Luxembourg 171 Malta 18 Netherlands 97 Poland 650 Portugal 198 Slovakia 22 Slovenia 32 Spain 291 Sweden 21 United Kingdom 427 How to REACH them all? Can you be REACHED? Source: ECB

Clearing and Settlement for SEPA PEACH/CSM framework governs clearing and settlement of SEPA payments All Scheme participants must be reachable through PEACH as a minimum Other options such Clearing and Settlement Mechanisms can be chosen in addition EPC has adopted a framework for Clearing and Settlement. It is necessary for the PEACH/CSM to fully follow the new SEPA Standard ISO 20022 in order to be SEPA compliant. Transactions that are not compliant will be rejected. Reachability is a key component of SEPA. All banks must be Reachable and all banks must be able to reach all banks. All banks must chose a Clearing and Settlement Mechanism that allows for end – to – end SEPA Compliance. Banks can also chose to do bilateral exchange of files. 10

Impact for non-Euro countries The SEPA Schemes will likely impact non-euro countries Direct Debit in Euro might be collected against a non-euro account SEPA XML ISO 20022 standard may be adopted also for non- euro transactions Rulebooks for Credit Transfers and Direct Debit may influence or supersede current non-euro domestic rulebooks Most of the focus of SEPA is on the Euro, but the whole of EU will be affected irrespective of currency Many customers will see the benefits of cross-border Direct Debits Creditors will be able to sell to customers from other countries using the new Direct Debit Scheme. Over time the new SEPA standard may be adopted also in non-Euro countries One single set of rules for Credit Transfers and Direct Debits may be beneficial. 11

Geographical reach of SEPA and impact of PSD Existing structures New structures Non EUR EEA + CH Domestic payment instruments and infrastructure (Non-EUR) SEPA payment instruments and infrastructures (EUR) EU27 EUR EU13 Domestic payments instruments and infrastructure (EUR) Through SEPA new payment instruments and Infrastructures for the EURO is introduced. The PSD supports SEPA by offering a Single legal framework in EU 27. EEA and Switzerland will adopt similar legislation. The existing domestic payment instruments, both in EUR and other national currencies will also be affected by PSD. This will have an impact on Execution time, Transparency regarding pricing and Availability of funds. The PSD will have far greater effect on current domestic payment instruments, since all will be affected. PSD SEPA Source: Euro Banking Association

Thank you for your attention! More international than the local banks and more local than the international banks Bjorn.Flismark@seb.se