The Single Euro Payments Area (SEPA) scheme has a Bank Identifier Code (BIC) problem. Under the SEPA regulation a payment service provider (PSP) will not be allowed in future to require a customer to provide the BIC. But the Payment Services Directive (PSD) stipulates that liability for the risk of non-execution or wrong execution would reside with the corporate if the required information is not provided. Could SWIFTRef, a global database of bank account information, provide a solution?
Don’t be fooled by the International Bank Account Number (IBAN)-only rule in the Single Euro Payments Area (SEPA) regulation (Regulation (EU) No 260/2012). Unless you’re comfortable with being liable for defective or non-execution of a payment, you will still need to provide your bank or payment service provider (PSP) with a Bank Identifier Code (BIC) for the foreseeable future, payments experts warn, as the provision of BICs is currently a practical requirement to process SEPA transactions.
The SEPA regulation states that payments initiators will not be required to provide a BIC for domestic payments after 1st February 2014 and for cross-border after 2016. However, the Payment Services Directive (PSD) allows for previous contractual agreements between PSPs and business users, where unique identifiers are stipulated for the successful execution of a payment. Therefore if, for example, an agreement was previously made to provide both BIC and IBAN, then that agreement will still stand. This means that if the customer fails to provide the BIC, then the PSP will not be liable if a payment is not correctly processed.
“BICs still apply,” says Ruth Wandhöfer, Global Head of Regulatory and Market Strategy, Citi Treasury and Trade Solutions. “While in some cases it is possible to extrapolate a BIC from an IBAN, there are many instances where the IBAN does not contain sufficient information to enable the determination of the correct destination bank branch, in particular for cross-border transactions. In addition, the risk of non-execution or wrong execution would belong to the corporate if they do not provide the BIC.”
Consequently, access to extensive, accurate and up-to-date reference data will remain of paramount importance to corporates in the SEPA region, but collecting and maintaining BIC data on an individual basis is a highly demanding task. BICs are constantly changing, and with every merger, demerger or new entity formation, the information needs to be updated, validated and cross-referenced.
There are several ways this problem could be resolved. Firstly, the EU could initiate a massive standardisation effort. Every customer in Europe would be given a new IBAN containing the full BIC. However, an exercise on that scale would be prohibitively expensive, not to mention extremely complex for corporates if they, and everyone who they work with, are suddenly required to obtain new codes.
That makes the idea of a pan-European IBAN and BIC database an attractive solution. This would work by requiring every bank to load up all IBAN and BIC they have each day to central archive, which payments initiators can then access to find the relevant data. But it would not be practical to expect the banks to manage such a database single-handedly and, unfortunately, the potential for an EU institution to get involved was removed from the SEPA regulation during the negotiation stage.
Step up SWIFT
SWIFT, the financial messaging services provider, tells Treasury Today that it already has a solution on the market that might ease some of the pain for corporates. SWIFTRef is a data platform which was launched in the spring of 2012, in which originators across the globe can freely publish and maintain reference data, allowing users to find all the information they need for making SEPA compliant payments in one place.
With the February 2014 deadline fast approaching, there has been growing interest in the corporate market for SWIFT’s new data solution. And according to Patrik Neutjens, Head of Reference Data at SWIFT, interest is coming from all quarters, not just those who are members of the SWIFT network. “Connectivity to SWIFT is definitely not a pre-requisite to sign up,” he says. “In principle, the need is independent of whether you connect to SWIFT or not. Corporates need that bank data and the codes to be able to generate payments that can be automatically processed.”
But Citi’s Wandhöfer is unsure whether SWIFT’s new offering provides a satisfactory solution to the ‘BIC problem’. To begin with, she argues that SWIFTRef is a commercial offering, and the database “if required by regulation, should also be run by an EU institution”. She also voices concerns that SWIFTRef, in its present form, is not reliable enough to provide complete reassurance for corporates; she says that whether corporates will be able to gain access to all comprehensive country data remains unclear.
Neutjens concedes that there remains some margin of error for SEPA transactions – but this inaccuracy is “very small” and the banking co-operative is working hard to eliminate it altogether. “I think one of the strengths of our SWIFTRef offering is the quality, completeness and accuracy of the data we provide,” he insists. “If you consider this in a SEPA context, out of the huge number of transactions that are processed in SEPA countries on a daily basis, just 0.1% of those are wrong.”
In addition, Neutjens hopes that any discrepancies will ultimately be ironed out and the SWIFTRef database will soon be able to boast close to 100% accuracy on payments data.
“We collect all of this data on behalf of our customers. We test it, cross-reference it and complete it – if there is something missing, we will find the inconsistencies so that the burden falls away from the corporate.”