1. 1STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group STEP2 M-PEDD EBA CLEARING

2. 2STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Project Risks Any Other Business Bank preparations Project Update Service Review Status of Deliverables

3. 3STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Industry Developments Project Update Update on Working Group meetings Summary of Project Plan

4. 4STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Project Aim Creation of a STEP2 Multi Purpose Pan European Direct Debit Service (M-PEDD) That supports but is not limited to the SEPA Direct Debit scheme And in the future: Can be extended for other SEPA Debit services Can support Domestic Debit schemes

5. 5STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Project Precedents The M-PEDD service will process interbank messages: Compliant with the EPC SEPA Direct Debit Scheme Rulebook Based on the SWIFT/ISO20022 Debit messages standards Based on the existing STEP2 architecture. Based on the STEP2 M-PEDD Debit Service proposal

6. 6STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Main Project Phases Project Initiation Analysis Development Acceptance Testing Live

7. 7STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Timeline Project Tasks (Completed) Project Kick off on 8 th March 2006 Draft of Core Business Requirements by 16 th June Draft of Interface Specification by 16 th June Draft of Core Central System Specification (EBA/SIA) Project Tasks (Started) Finalise Business Requirements for 28 th July Finalise Interface Specification for 28 th July Finalise Core Central System Specification Technical Design (SIA): 16 th June – 31 st July

8. 8STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Project Tasks (next phase) Draft Business requirements for peripheral software (reports and browsers) 27 th October Finalise Business requirement for peripheral software (reports and browsers) 24 th November Draft service rules and products 27 th October Finalise service rules and products 24 th November Strategy for ramp up and roll out of service

9. 9STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group

10. 10STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Industry Developments Project Update Update on Working Group meetings Summary of Project Plan

11. 11STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Business Working Group (BWG) Business Requirements To define the specific business requirements in order that specifications can be written. Service Rules, Debit products, validation options, timings, participation options. Business Requirements Business Practices User Documentation Ramp up strategy 27 Volunteer Banks EBA Project Team

12. 12STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Project Participation by Banks Business Working Group

13. 13STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Three Business Working group meetings held since the project kick off. One meeting per month BWG has covered all the functionalities of the MPEDD project. The work is documented in minutes and the Business Requirements document. This document describes how the service will function. Business Working Group

14. 14STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Very high levels of Participation Attendance Comments Detailed mastery of subject matter at different levels SEPA STEP2 Banks’ current situation with Direct Debits Very large group, but willingness to listen and share opinions. Document reflects willingness to agree. Business Working Group

15. 15STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Technical Working Group (TWG) Technical Details Transform requirements defined by the BWG into data requirements and interface specifications Interface Documentation (file formats, XML usage, technical validation rules) DPWS Documentation: monitoring, commands, data management. Vendor program: Requirements. Limited to 17 Volunteer Banks EBA Project Team

16. 16STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Project Participation by Banks Technical Working Group

17. 17STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Three Technical Working group meetings held since the project kick off. One meeting per month TWG has covered in detail the data requirements of the MPEDD. The work is documented in minutes and the MPEDD Interface specification. This document describes: How banks connect to the MPEDD What data formats will be exchanged between the bank and the MPEDD. It is a specification of how to build the Central System interface, and how to build the Participant System interface. Technical Working Group

18. 18STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Very high levels of Participation Good attendance Detailed comments Work group sessions follow the Business Working Group, allowing deeper analysis and comment. Patient following many changes of schema and EPC Implementation guidelines. Technical Working Group

19. 19STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Industry Developments Project Update Update on Working Group meetings Summary of Project Plan

20. 20STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Work began using the draft version of the XML schemas from February 2006. April 24 th to 27 th four day Harmonization meeting to validate the XML messages, and ensure that credits and debits are aligned. EBA CLEARING participation. 2 nd May Draft – Draft versions distributed 15 th May Draft version distributed 12 July 2006 – Final versions to be distributed The TWG has not had a firm base on which to work, but changes limited to names, order of fields, formats. ISO 20022

21. 21STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group EPC (with EBA CLEARING involvement) have been working on a set of ISO 20022 implementation guides. Purpose: To unambiguously map the fields in the rulebook, to the ISO 20022 messages. To place restrictions on the fields used (e.g. amount fields are all EURO currency, Account numbers are all IBANs. To define the mimimum data set that all banks participating in SEPA schemes must support. Monthly meetings Final version for OITS approval 18 th July EPC OITS Working Block 4, Task Force 1

22. 22STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group The main EPC Direct Debit Working Group has met on a monthly basis with additional conference calls. During this time the following topics have been discussed: Alternate Mandate Flow Business to Business Requirement Appendix 2, risk mitigation Reachability Stated aim to move away from Scheme design, and toward implementation, governance and communication. Rulebook v3.0 planned. Commitment on this unclear. Rulebook changes

23. 23STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Project Risks Any Other Business Bank preparations Project Update Service Review Status of Deliverables

24. 24STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Approach The service must go live by 2008 This implies bank testing starting mid 2007 This in turn requires Central System development beginning July 2006 Bank Participant system development ?Q3 2006 This timing constraint has led to a staged approach In a first stage we gather sufficient information to start Software development. In a second stage we define Service characteristics and peripheral (Browser) software requirements.

25. 25STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Questions on the Functional nature of the software Questions on the Business usage of the service Service verses Software Debit products and characteristics Validation (against mandate information, Creditor DB and Interbank Limits) Roll out strategy Business Practices Pricing / Governance / Legal Processing Flow Configuration Options Message Format Information storage Settlement Engine and algorithm ServiceSoftware

26. 26STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Project Work Streams Software Design Deliverables Interface Specification Business Requirements Split software design into two stages File interfaces and central processing Deadline for major changes 16 June, Final 28 July Peripheral Functionality Deadline for major changes 27/10, Final 28/10

27. 27STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Sept 07 Software Design Service Decisions Central System Development Ramp up Strategy Bank Development Testing Live Project Delivery April 07Dec 06Oct 06July 06 Legal documentation User Documentation

28. 28STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Business Requirements and Interface Spec: 28 th July Core documents stable and ready to be used for internal software design. By end summery publish MPEDD documentation as widely as possible. Work continues 27 th October next version sent to Steering Group 24 th November final documents published. Documentation Timetable

29. 29STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Project Risks Any Other Business Bank preparations Project Update Service Review Status of Deliverables

30. 30STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Data Usage Service Review Risk Mitigation Key concepts Processing flow

31. 31STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Direct Participants send data directly to STEP2 Indirect Participants send data via Direct participants ISO20022 standard XML formats EPC Rulebook compliant No Entry Points for ‘unknown’ banks as used for STEP2 Credits but Direct participant may include all banks in a community as Indirect Participants Standards and levels of participation

32. 32STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Creditor Bank (DP) STEP2Debtor Bank (DP) Debtor Bank (IP) Debtor Bank (DP) Debtor Bank (DP) Debtor Bank (IP) Creditor Bank (DP) Creditor Bank (IP) STEP2 debulks and rebulks messages

33. 33STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Debit products can exist where different business needs lead to different product characteristics with different processing requirements Rulebook deals with a basic Business to Consumer Debits. MPEDD will also service Business to Business Debits Government to Business Debits Government to Consumer Debits Other … Debit Products

34. 34STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Configurable Debit Time Parameters D-aD-b D-c D D+eD+f D+g D+h 12345678 1.Earliest date any debit can be sent 2.Last date for a 1 st / one-off debit to be sent 3.Last date for a recurring / final debit to be sent 4.Last date for pre-settlement R-messages to be sent 5.Last date for a Reversal to be sent 6.Last date for settlement of Returns 7.Last date for Refund of Authorized transaction 8.Last date for Refund of Unauthorized transaction ANDMaximum Amount

35. 35STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Debits fall into two categories: One-off Recurring. Recurring Debits can be First Debits: the first in a recurring series of debits Subsequent debits Final debits Debit Types

36. 36STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group R-messages annul a single original Debit instruction Can be sent by either party If sent before settlement, cancels original debit and no settlement occurs If sent after settlement, debtor is credited and separate settlement takes place R-Messages

37. 37STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group R-Messages Post-settlement Pre-settlement Creditor Bank Debtor Bank Request for Cancellation Refusal / Reject Reversal Return / Request for Refund

38. 38STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Data Usage Project Update Risk Mitigation Key concepts Processing flow

39. 39STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Debit Message Timetable CD-14D-5 D-2 D D+2D+5 D+6 weeks D+1 year 12345678 1.Earliest date debit can be sent 2.Last date for a 1 st / one-off debit to be sent 3.Last date for a recurring / final debit to be sent 4.Last date for pre-settlement R-messages to be sent 5.Last date for a Reversal to be sent 6.Last date for Return to be sent 7.Last date for Refund of Authorized transaction 8.Last date for Refund of Unauthorized transaction

40. 40STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Debit Message Process Sending: Creditor Bank SendsD-14 to D-5/2 Distribution: Debtor bank has choice of when to receive debits: In next available cycle (D-14 to D-5/2) At one time: D-5/2

41. 41STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group STEP2 Validation Window

42. 42STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Validation begins at 08.00 on D-x Window closes at 11.00 on D-x (A) STEP2 commences sending at 14.00 (B) and completes delivery of debits to Debtor banks by 15.00 on D-5 / 2 (C) STEP2 Central System Process Receive Deliver A 11.00 B 14.00 Intra-Day Timetable D-5/2 D-5 / 2 08.00 Validate C 15.00

43. 43STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Reversal / Return Process Post Settlement R messages are payments that carry value. Sending: Bank Sends with Settlement Date D+1 (n.b original date may be D to D-6 weeks) Settlement Distribution: Debtor bank has choice of when to receive debits:

44. 44STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Receive Reversal or Refund request (D) Settle Reversal / Refund request (D) Deliver Settlement information –Same processing as STEP2 XCT –No need to pre-notify and post-notify STEP2 Settlement Receive Deliver A B Exception Handling: Intra-Day Timetable D Validate

45. 45STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group STEP2 M-PEDD Settlement Process Banks have requested separate settlement for Debits Returns Reversals STEP2 use Bilateral Gross Settlement Algorithm The number of Settlement instructions will quickly grow very large Alternative settlement methods need to be examined (foreseen for Phase 2).

46. 46STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group STEP2 M-PEDD Settlement Process Calculate the settlement balances for every Direct Participant bank Create Pre-Settlement Report Settle in EURO1 / STEP1 Receive Settled Instructions from EURO1 / STEP1 Create Output Files Between 11am and 2pm Transmit Output Files to Direct Participants

47. 47STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Pre-Settlement Report Transmitted to Direct Participants minutes after cut- off but before settlement Allows for update of positions with EURO1/STEP1 Lists separate totals for each bank pair for: –Debits sent / received (netted with pre-settlement R-messages) –Reversals sent / received –Refunds & Returns sent / received

48. 48STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Data Usage Project Update Risk Mitigation Key concepts Processing flow

49. 49STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Files are ‘technical envelopes’ containing one or more Bulks. Bulks – groups of ISO 20022 messages containing one or more transactions Transactions Individual Debit instructions or R messages Explanation of Interface

50. 50STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group FI to FI Customer Direct Debit pacs.003.001.01 Payment Status Report: pacs.005.001.01 Payment Cancellation Requestpacs.006.001.01 Payment Returnpacs.004.001.01 Payment Reversalpacs.007.001.01 pacs = Payment Clearing and Settlement (i.e. interbank) 003= message type 001= variant number EBA CLEARING will publish variant 01= version number ISO message types terminology

51. 51STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group ISO 20022 is Global standard built to transport all payments Simple: EU Regulation Credit Complex: correspondent banking payment to for an American Bank, via a Kazakhstan clearing system in Yen with settlement via another counter payment... Most banks will not build systems that contain every option of every field. Consider the full standard as an Alphabet, with it you can write a simple payment instruction or the complete works of Shakespeare. ISO 20022 ABCDEFGHIJKLMNOPQRSTUVWXYZ0123456789 ISO message types terminology

52. 52STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group EPC have taken Mandatory Rulebook fields Mandatory ISO20022 fields Creating implementation guidelines based on the minimum data possible. ABCDE1 MPEDD Groups have performed the same exercise but added field they feel are necessary to do business ABCDE1S2 SEPA Dataset

53. 53STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group SEPA Data set Fields Remittance informationElectronic SignatureCreditor IBAN Original Mandate Reference Debtor Bank BICCreditor ID Charge bearerDate of SignatureCreditor Bank BIC Original Creditor IDDebtor IBANCreditor Address Mandate amendment reason Ultimate Creditor NameCreditor Name Due date of the CollectionDebtor AddressInstructed Agent Interbank Settlement Date Debtor NameInstructing Agent Interbank Settlement Amount Creditor Bank’s referenceTransaction type Mandate referenceEnd to End referenceScheme ID

54. 54STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Local Instrument ID – carries Debit Product Code Original Debtor – exist in mandate related information. Allows Creditor to change Debtor name, not included in rulebook only. Instructed Amount (possible non-Euro amounts) Exchange rate (for possible non-Euro instructed amounts) Ultimate Creditor Name Ultimate Creditor Address Ultimate Creditor ID Ultimate Debtor Address Ultimate Debtor ID Creditor Country of Residence Debtor Country of Residence Additional MPEDD fields

55. 55STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group EBA CLEARING will provide XML Schemas (variant) Follows ISO20022 format Changes some Optional fields to be Mandatory. Fields not present in MPEDD specification removed from ISO Schema (message rejected containing them) Interface Highlights changes to status or format in italics Banks can integrate MPEDD Schema’s into their software: close to zero format errors EBA XML Variant

56. 56STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Data Usage Project Update Risk Mitigation Key concepts Processing flow

57. 57STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group EBA STEP2 M-PEDD Steering Group Risk mitigation software The MPEDD proposal contained three risk mitigation tools Mandate Checking Creditor Checking Validation of Debits against Interbank limits In all cases the Business working group recommends changing the nature of these checks. Feeling that the system needs to be SIMPLE and not stop people doing normal business Feeling that the banks are the gatekeepers of the service, not the software.

58. 58STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group EBA STEP2 M-PEDD Steering Group Interbank Thresholds A tool for checking Liquidity exposure STEP2 will store a real time position of a Direct Participant against every other Direct Participant. STEP2 will allow every DP to enter an expected maximum position against every other DP. STEP2 will compare the entered positions with the real time positions.

59. 59STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group EBA STEP2 M-PEDD Steering Group Interbank Thresholds Original proposal Reject all debits from a counterparty that arrive after the maximum position has been reached Modified proposal When limits are breached raise a warning, but allow processing to continue. Steering Group are invited to share their views.

60. 60STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group A mandate is a ‘framework contract’ - statement of intent between a Creditor and Debtor for a series of recurring payments. Creditor holds the original Mandate Each Debit instruction contains all details of Dematerialised Mandate except two. Electronic Signature Date of signing Mandate data is stored by STEP2 to provide reference data when needed and can be used to validate debits if required. Mandates and Mandate Related Information

61. 61STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group For each Debit, STEP2 can check that the Mandate information in the message matches the information in the Debit and so: Centrally performs a task that Creditor Bank might otherwise choose to do Centrally performs a task that the Debtor Bank might otherwise choose to do. Reduces the risk that deliberately or accidentally the Creditor sends transaction (that are not the first) under the timeline of a second or subsequent. Mandates Database – arguments for

62. 62STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Overcomplicated checking may lead to false rejections. In an environment where the first Debit will not always pass through STEP2 (e.g. it may be an intrabank transfer) the second, third and all subsequent debits will always be rejected. User rights to such a database are very complex if all banks are able to be Creditor Banks then all banks can edit previously sent mandates, so all banks should have some right to view such details. The legal issues around holding such customer data have not been assessed. Mandates Database – arguments against

63. 63STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Creditor ID’s are assigned by banks STEP2 MPEDD may have a Creditor Database Creditors can be added or modified by banks Creditor ID VAT number (optional) Textual description (Name) STEP2 can validate that Debits sent to STEP2 contain a valid Creditor IDs STEP2 can validate that banks do not create duplicate Creditor IDs Creditor Database

64. 64STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group The Creditor ID must be a “unique and unambiguous reference of the Creditor”. A central directory of Creditor IDs would Guarantee uniqueness Link an ID to an unambiguous name and address of an entity Link a Creditor ID to a Creditor Bank, providing a clear line of responsibility for Scheme/service infringements (even if Debits came through other channels). Creditor Database – arguments for

65. 65STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group BWG are against us inventing a process that involves them pre-registering clients before they can send Debits The Creditor Database is not mandatory in SEPA, and is only useful if shared between other (interoperable) ACH’s. The physical difficulties of storing customer data for every single Creditor in Europe could be significant. This could take EBA CLEARING well out of its area of competence – a decision that could be made, but after more consultation. The legal difficulties of storing anything but the minimum of customer data have not been evaluated Creditor Database – arguments against

66. 66STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group The aim of these solutions is risk mitigation. It is not clear that the additional security they bring to system outweighs the additional complexity and risk they bring to the system. These items should be built for possible future use. We should initially aim to keep STEP2 simple and not overcomplicate the checking with the risk of stopping people doing business. Risk is still an issue – but other measures such as Business Practices will be considered. Exchange of views from the Steering group. Mandate Database and Creditor Database Recommendation

67. 67STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Alternate Mandate Flow

68. 68STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Standard (Creditor-driven) vs. Alternate (Debtor-driven) Mandate Flows Alternate flow (DMF) is optional for all parties Standard flow (CMF) is mandatory for Debtor Banks Primary driver is the Creditor, who can choose to use either or both flows Offers an alternative way of Mandate handling has the potential to increase trust in SDD for the debtor reduces risk for the banks helps communities in the SEPA migration process who may be used to CMF or DMF flows already. This offers the following advantages:

69. 69STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group The Alternate Mandate Flow is becoming increasingly popular and built into EPC thinking Optional on all sides Believe we should build this into our model now Have the opportunity to use it from the beginning Exchange of views from the Steering Group Alternate Mandate Flow Recommendation

70. 70STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Provisions in the rulebook (that are accepted by each member bank when they sign an adherence agreement) Contractual provision for Direct Participants when they join the MPEDD Service Business practices that further define behaviour among MPEDD banks Software or technology checks and verification. Other Risk mitigation tools

71. 71STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Project Risks Any Other Business Bank preparations Project Update Service Review Status of Deliverables

72. 72STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Volume Requirements Bank Preparations Roll out and Reachability Requirement for a Bank Interface

73. 73STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Now the service is close to being defined Draft documents distributed Core finalised end July Responsibility moves to the banks to prepare for connection What do the banks need? Bank Participation

74. 74STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group For XCT service an entry level participant system was provided to allow a quick migration. Move from a known format (MT103) to STEP2 MT103+ Working groups agreed specifications Delivered as an optional component to those banks that wanted to purchase it. Contract with EBA CLEARING. Participant System

75. 75STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Initial feedback from banks (TWG) says that no requirement for such a system No common standard to map from/to No common business flow TWG believes that EBA CLEARING’s job ends with the specification of the message formats Banks’ responsibility to provide Interface software Participant System

76. 76STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Interface is complex Mixed files of Debits and 4 types of Rejection Mixed Settlement dates New XML technology stream Is there a requirement for EBA CLEARING to sponsor a Participant System to help the banks move to SEPA Debits? Can the Steering group confirm that they will be ready to exchange SEPA DD’s with STEP2 in time for testing/ or go live? Participant System

77. 77STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Volume Requirements Bank Preparations Roll out and Reachability Requirement for a Bank Interface

78. 78STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Following the 59 banks’ confirmation of participation to the product each bank was asked three questions. Do you wish to participate in testing the service? (Q3 2007) Does your bank intend to put the service into production as part of the first window? (Q4 2007) If circumstances allow, and if you are part of a banking group, would you like other banks in your group to put the service into production as part of the first window? (Q42007) 41 of 59 Banks replied Testing:33 Live in Window 1: 37 Bring in other banks: 30 Bank Participation

79. 79STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group The SEPA Debit Rulebook states “SEPA will be the area where citizens, companies and other economic actors will be able to make and receive payments in euro, within Europe (currently defined as consisting of the 25 European Union (‘EU’) member states plus Iceland, Norway, Liechtenstein and Switzerland)” … SEPA will be delivered as a priority within the Eurozone. Within SEPA, but outside the Eurozone, there will be opportunities to participate in euro payment systems, and communities will be able to adopt SEPA standards and practices to contribute to the single market for payment services. This text (and elsewhere) forms an idea of a two-speed Europe, with 12 countries that will be ready in 2008, and then others that join over the next two years. Roll out and Reachability

80. 80STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group EPC committed to providing a framework for Reachability Originally for July, now possibly December Possibility that EBA CLEARING should provide reachability EBA CLEARING suggests to send a formal letter to banks inviting them to register their intention. A program of work will be started illustrating what the roll out of the scheme will look like. Exchange of views from the Steering Group Roll out and Reachability

81. 81STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Volume Requirements Bank Preparations Roll out and Reachability Requirement for a Bank Interface

82. 82STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group No clear idea of numbers STEP2 (Credits + Debits) sized for 5,000,000 transactions per day A few say very high numbers very quickly. Others say take up will be progressive, and in the first two years understandably slow. Exchange of views from the steering group. Volume requirements

83. 83STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Project Risks Any Other Business Bank preparations Project Update Service Review Documentation and Process

84. 84STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group External Dependencies The service relies on delivery of elements from the EPC Reachability Risk mitigation B2B product A possible ‘Alternate Mandate flow’ Information on a Scheme Management Entity EBA CLEARING continues to follow and participate in this work, along with many working group members. These elements will not be available until September.

85. 85STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Risk 1: Failure to agree software specifications Original Statement SEPA DD, and MPEDD is well documented There are criticisms that can be raised against the SEPA DD rulebook Every bank has an idea how ‘their’ scheme is better in one aspect or another BUT The scheme is reasonable, well documented, and has emerged after long years of consultation and discussion. Banks cannot afford to reopen those discussions. Banks need to commit to make this scheme work.

86. 86STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Risk 1: Failure to agree software specifications Banks have been extremely disciplined in working groups, in keeping to the rulebook. The old arguments have not been reopened and a consensus has so far been reached. Disagreements still exist on how the service will be configured, particularly in relation to Debit Products and use of risk mitigation software, but these do not affect the design of the software itself, and so do not impact on the project timelines. Risk is decreasing

87. 87STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Risk 2: Changes to SEPA documents Original Statement STEP2 documents scheduled for July EPC Scheme documentation is not finalised Rulebook published but additional consideration may be given to: B2B Debit Product Additional Mandate presentation route Use of E Signatures Risk mitigation Alignment with Credit transfer message may cause changes to exception messages SWIFT Message standards are published but not ISO certified

88. 88STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Risk 2: Changes to SEPA documents Original Statement EBA Clearing believe that the changes will either be Minor – slight name changes during message alignment Already covered - catered for within the scope of the MPEDD service e.g. the B2B Debit flow, addressing risk However, major changes in September could impact the project in terms of cost and time to rework Safer to wait until September, but then the service would not be live in 2008 Recommendation: To aim for 2007 live date, and base work on documents as published

89. 89STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Risk 2: Changes to SEPA documents Rulebooks still not closed so risk still exists EBA CLEARING still believe that there will be little real change. Participation in ISO harmonisation and EPC work has kept us up to date with the work Risk is decreasing

90. 90STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Risk 3: Bank Participation Original Statement A live STEP2 service with no banks is not a success Banks have a major task ahead to connect and roll out the service internally and to their customers Developing an XML participant system in one year is an immediate challenge Recommendation: Banks urgently consider their technical requirements EBA Clearing offers assistance in bring vendors together and defining common requirements

91. 91STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Risk 3: Bank Participation This risk appears to be as valid now as three months ago. With first publication of the specifications banks may be in a better position to assess this risk for themselves.

92. 92STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group Project Risks Any Other Business Bank preparations Project Update Service Review Documentation and Process

93. 93STEP2 Steering Group meeting 30 th June 2005 STEP2 M-PEDD: Steering Group www.abe.orgwww.ebaportal.info EBA CLEARING