SEPA: Compliance Checklist

16 October 2013

Getting ready for the Single Euro Payments Area (SEPA) is the first and foremost priority for many corporate treasurers as the 1 February 2014 migration deadline nears, says Günther Peer, Reval’s regional vice president for solution consulting in Europe, Middle-East and Africa (EMEA), as he outlines a compliance checklist that treasurers should be able to tick off.

Although the Single Euro Payments Area (SEPA) countdown has already started, 50% of corporate treasurers have still not even started their implementation projects, according to a recent Reval poll among more than 130 European finance professionals. It’s not too late to comply with the European payments harmonisation regulation, however, if you act quickly and follow the checklist below.

Whether a company would really be literally unable to pay its suppliers due to non-compliance with SEPA, as has been asserted, is a hot debating point but do you want to be the first treasurer to find out? On the assumption that the answer to that question is no, I’d recommend treasurers review the following task list to get their SEPA project up and running quickly and ensure they can tick as many of these points off as soon as possible:

  1. Work on static data: Make sure international bank account numbers (IBANs) and bank identifier codes (BICs) are in place for every creditor and debtor (when applying direct debits). Conversion services are widely available help to automate this process, but a certain amount of manual effort will be required in any case.
  2. Check on the formats: SEPA requires standardised ISO 20022 XML messages. Thus, a company´s treasury technology, as well as its enterprise resource planning (ERP) system, needs to be ready to create and process these XML message formats. When talking to solution providers about these capabilities, take the chance to ask about best-practices. As 50% of treasurers have started or already completed their SEPA projects, these partners should have gained quite some experience by now, and lessons can be learnt.
  3. Test with banks: Although SEPA is meant to be a standardised format, different countries and even different banking groups might have slightly different interpretations and have bent the rules as needed nationally to achieve compliance. Thus, payment transfers should be tested, at least with key banks, in order to avoid any last minute surprises to check if there has been full harmonisation.
  4. Update mandates for direct debits: In case direct debits are used, the SEPA project manager has to make sure all mandates for executing direct debits are updated. This could become a fairly big exercise, as it is not always possible to convert existing mandates automatically. Furthermore, changes with regards to advice and rejection have to be understood and taken into consideration in accounts receivable (A/R) processes, as well as cash forecasts. The SEPA Direct Debit (SDD) mandate challenge is often one of the biggest obstacles facing corporations.
  5. Secure internal IT support: The ‘real’ SEPA deadline might even be closer than the ‘official’ 1 Feb 2014 deadline as internal IT resources might be limited, or there might even be an IT freeze, meaning that IT departments might refuse to implement new solutions or capabilities towards year end as their resource is tapped out. Therefore, the internal IT team should be involved in the SEPA project right from the beginning and resource allocated ahead of schedule to ensure its availability.
  6. Be smart, when making things work: When planning and executing on a tight schedule, workarounds might seem to be an attractive option. However, treasurers should consider future requirements and potential consequences when using, for example, conversion services to produce XML messages and enrich with the necessary data. Workarounds can only be a temporary solution and need to be replaced eventually. They can also impede any expected efficiency benefits.
  7. Outsource parts of the project & do it before others do: A lot of treasury departments will struggle for internal resources to comply with the SEPA project. Due to the looming deadline it might become easier to secure additional budget for external resources in order to assure compliance in time. However, there is a race for resources going on at the moment and external experts might be increasingly difficult to get on board as others race to book their services, so do it soon.
  8. Learn from peers and industry experts: Industry events such as EuroFinance´s 2013 conference for international cash ad treasury management in Barcelona, Spain, and the AFP’s 2013 Conference in Las Vegas, USA, dedicate a number of its sessions to SEPA and payments. These should offer expert advice and peer-to-peer tips on how to reach compliance in the very short timeframe now remaining.

Don´t Worry, Be Happy and Enjoy the SEPA Benefits
Heads down in the SEPA project: many treasurers most likely think of SEPA as another regulation to comply with and forget about the huge benefits that arise from this regulation standardising payments throughout the Europe.

  • SEPA enables growth through easier access to new markets and reduces float and payment fees through harmonisation of file formats and payment instruments.
  • SEPA enables companies to rationalise their bank accounts - in theory down to one single account for all euro payments. Relationship and counterparty risk considerations will keep companies from putting all their eggs in one basket. However, there is considerable potential to close a number of accounts, immediately reducing cost.
  • SEPA helps to improve bank statement reconciliation through standardised and more comprehensive information facilitating straight-through processing (STP) and reducing repetitive, manual work to a minimum.
  • SEPA XML messages are part of an international standard: the ISO 20022 messaging standard. The current Common Global Implementation (CGI) initiative works towards creating messages that could be used in international, including euro and non-euro transactions, which would make the implementation of payment factories significantly easier in future. By implementing SEPA XML messaging the foundation stone to adapting innovative payment concepts is already built.

As the CGI initiative shows, SEPA often is just a starting point, a preparation exercise for further optimisation and treasury efficiency sophistication. Therefore, whether a company is currently rushing towards the deadline or has already implemented SEPA, all treasurers should take a step back and think about how SEPA could help their organisations to establish excellence in payments management. As corporate and banking experts are reviewing payment processes and techniques closely, now is the right moment to set the course, because in the end, the question is not only how quickly and fundamentally payments concepts will change, but also how well prepared is an organisation to leverage the benefits from day one.

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development