(Re)Insurance companies recently received a letter from the Central Bank of Ireland (the “CBI”) asking about preparedness for the Single European Payments Area (“SEPA”) initiative, which will commence 1 February 2014. Given that SEPA is an initiative that impacts all payment service users, as well as payment service providers (mainly banks), what is the insurance industry expected to do?
What is the SEPA Initiative?
The SEPA initiative aims to create a borderless payments area for euro-denominated payments in SEPA. SEPA is an area that includes the 28 member states in the EU, as well as Monaco and the four EFTA countries (i.e. Iceland, Liechtenstein, Norway and Switzerland).
The SEPA initiative will also strengthen the rights of those who pay by direct debit. The right that is causing the most difficulty for businesses (and, indeed, for payment-service providers) is the obligation to refund consumers on a “no-questions-asked” basis. This right to a refund exists for eight weeks, starting on the day the direct-debit payment leaves the payer’s account.
What Does SEPA Require?
EU Regulation 260/2012 sets out technical requirements that will apply to euro-denominated credit transfers and direct debits in SEPA. For example, account numbers and national sort-codes will no longer be used; instead, you will need to obtain a customer’s IBAN. Payment instructions that do not conform to these requirements will not be processed. Businesses that receive payments by direct debit will also need to provide certain information to their customers (e.g. consumers will need to be informed of their rights).
What Should Companies Do?
If you have not already done so, the first steps will be to contact your bank and the provider(s) of the software you use to process bulk payment-instructions.
Your bank will be able to guide you on the changes that you will need to make. Your software provider will be able to tell you what upgrades you may need to make to your software in order to achieve those changes.
You will also need to revise your customer-facing processes to reflect the new rights that the SEPA initiative will create for payers and to request customers to give you the right information e.g. IBAN rather than account numbers and sort codes).
How Can William Fry Help?
While many of the changes are operational, the additional customer rights under the SEPA initiative will need to be reflected in your business. This will involve looking at your customer-facing contracts, and will also require other documentation to be updated (e.g. direct-debit mandates).
In order to understand the new level of credit risk that you face, you will need to understand the rights of your consumers.