Proposal for a EUROPEAN PARLIAMENT AND COUNCIL DIRECTIVE on cross-border transfers
Date: 1994-11-18
Institutions: European Commission
Subjects: consumer information, consumer protection, credit transfer, financial institution, financial transaction, frontier region

COMMISSION OF THE EUROPEAN COMMUNITIES 

COM(94) 436  final 
Brussels,  18.11.1994 
94/0242  (COD) 

EU FUNDS  TRANSFERS: 
TRANSPARENCY,  PERFORMANCE AND  STABILITY 

COMMUNICATION  TO THE EUROPEAN PARLIAMENT, 
THE COUNCIL OF THE EUROPEAN UNION, 
THE EUROPEAN MONETARY INSTITUTE  AND 
THE ECONOMIC AND  SOCIAL COMMITTEE 

Proposal  for a 
EUROPEAN PARLIAMENT  AND  COUNCIL DIRECTIVE 

on cross-border transfers 

Draft 
NOTICE ON THE APPLICATION OF THE EC COMPETITION RULES 
TO CROSS-BORDER  TRANSFER  SYSTEMS 

(presented by the  Commission) 

TABLE  OF  CONTENTS 

Introduction 

I. 

TRANSPARENCY AND PERFORMANCE OF REMOTE CROSS-BORDER PAYMENTS 

II.  COMPETITION POLICY AND  CROSS-BORDER  CREDIT TRANSFERS 

3 

4 

6 

*  i n.  PROGRESS ON ACCOMPANYING MEASURES AIMED AT IMPROVING CROSS- 

6 

BORDER  P A Y M E N TS 

III. 1. The role  of  payment  systems in preparing for the transition  to 

7 

the ECU 

111.2.  Simplification  of  reporting  requirements  for  balance  of 

payments statistics 

111.3.  "Legal Framework" for cross-border payments 

111.4. Linkages between automated clearing houses (ACHs) 

111.5. Transparency  of payments made by means of  a payment card 

111.6. Pre-paid cards (electronic purses) 

ANNEX  l 

-  Explanatory  Memorandum 

-  Proposal  for  a European Parliament and Council  Directive-

on cross-border credit transfers 

-  Business Impact Assessment 

ANNEX  2 

<  Draft Notice  on the application of the EC Competition Rules to 

Cross-border Credit Transfer  Systems 

8 

8 

9 

9 

10 

15 

27 

39 

49 

Introduction 

In its March  1992 working document(1), the Commission conservatively estimated the number of 
cross-border payments at 400 million each year and at half this figure, i.e. 200 million, those not 
exceeding ECU 2 500 in value. Based on more recent figures(2), the Commission has calculated 
that, alone, the volume of cross-border credit transfers by the end of this century will account for 
well over 350 million transactions per annum. However, cross-border credit transfers accounted 
in  1991  for  29.5% (i.e.  117.6 million)  of  the total  volume  of  cross-border  payments.  These 
figures do not include payments by cheque and the growing number of card transactions. It may 
therefore  be far  from  unrealistic to  assume that, by the year 2000, the total  volume  of cross-
border payments, excluding cash payments, will exceed the figure of  1.2 billion  per annum. It 
is important to note that, whilst cross-border payments may represent a small percentage of the 
total volume of payments, the average value of a cross-border payment is significantly  higher 
than the average value of a comparable domestic payment. 

Increasing cross-border activity in the Internal Market highlights the importance of early action 
to ensure that, in the medium term, the transparency, performance  and stability of cross-border 
payment systems equals that of the best domestic payment systems. This fundamental  objective 
is also  consistent with the path set out for transition to a single currency. Article  109j(4) of the 
Treaty establishing the European Community  sets out  1 January  1999 as the latest date for  the 
beginning of stage III of Economic and Monetary Union. 

The Commission,  and indeed all interested parties, will therefore  need to focus on how best to 
ensure that cross-border payment systems are fit to meet the challenges of the internal market and 
economic and monetary union. 

The present communication is intended as a follow-up to the Commission working document of 
27 March  1992, which laid down a detailed programme of work in the area of payment systems, 
as  well  as  to  the  Communication  of  14  December  1993(3)  from  Mr  Vanni  d'Archirafi  and 
Mrs Scrivener. It consists of three separate sections, presenting the Commission's policy in the 
area of cross-border payments: 

I. 

II. 

III. 

The first section refers to the Communication  of  14 December  1993 and addresses the 
plan of action set out therein; 
The second section develops principles on competition applicable to cross-border credit 
transfer  systems; 
The third  section deals with progress made on accompanying policies with  a view to 
improving cross-border payment systems. 

SEC(92)621  final  of 27 March  1992: "Easier cross-border payments: breaking down the barriers". 
Figures for  1991 (Annual  Report of the EC Banking Federation,  1992) indicate the volume  of EC cross-border credit transfers at 
117.6 million. A prudent estimate of the medium/long term volume of such transfers has been made on the basis of the average yearly 
increment  over the  period  1989-1991  (in excess  of  15% per annum),  as well  as taking  into  account  the  increase  in  EC SWIFT 
messages over the period  1991-1993 (cat  1, customer transactions). On the assumption that the reference rate of increment would 
hold unchanged, it can conservatively be estimated that in the medium/long term, i.e. over the next five years leading up to the year 
2000, the volume of cross-border credit transfers will increase by approximately  100%, thus reaching a minimum 356 million credit 
transfers. 
SEC(93)1968: "Transparency and performance  of remote cross-border payments". 

I. 

Transparency  and performance of remote cross-border payments 
(Follow-up to the Communication of 14 December 1993) 

1990, 

the  Commission 

90/109/EEC(4) 
In 
("the  1990 Recommendation"), which set out principles, to be applied by institutions, on 
the transparency  of banking conditions relating to cross-border financial transactions. 

adopted  Recommendation 

The implementation  of the  1990 Recommendation was discussed  in the Commission's 
two  advisory  groups, Payment  Systems Technical  Development  Group (PSTDG) and 
Payment  Systems Users Liaison Group (PSULG), whose members are drawn from banks, 
central banks, consumers, retailers and small businesses. 

In the PSULG, the European Credit Sector Associations, consumers, retailers and SMEs 
discussed  and  agreed  on  "European  Banking  Industry  Guidelines  for  Customer 
Information  on  Cross-border Remote Payments" ("Industry  Guidelines") which were 
annexed to the Commission working document of March 1992. The industry Guidelines 
were to  be  implemented  by  31 December  1992. In  the  1992 Working Document  the 
Commission  clearly  stated  that  it  would  monitor  the  implementation  of  the  Industry 
Guidelines and, should the self-regulatory  efforts by the banking industry not have lead 
to  a  satisfactory  implementation,  it  would  bring  about  the  necessary  legislation  to 
provide  a  statutory  framework  for  customers'  rights  (para.  64).  The  Commission 
additionally indicated that it would look to the banking sector to ensure that the practice 
of  "double  charging"  (i.e.  unauthorized  deductions  from  the  principal  amount 
transferred) was ended by the 31 December  1992. If problems persisted, the Commission 
would  examine  whether  other  measures  were  needed  to  end  such  double  charging 
(para. 26). As to timing of cross-border transactions, the Commission  announced that 
it would be "looking to those operating systems to set demanding targets for themselves 
and to include these in the information  they  provide to customers".  The Commission 
would review progress in early  1993 (para.  28). 

To  this  end,  the  Commission  carried  out  a  study  early  in  1993,  which  revealed 
shortcomings in the information provided to customers as well as in the performance of 
cross-border credit transfers (high incidence of double charging, uneven quality in timing 
of execution). 

On  the  basis  of  these  results,  and  after  wide  consultation  of  all  interested  parties 
(commercial banks, central banks, consumers, SMEs and retail trade), the Commission 
adopted on  14 December  1993 a plan of action(5), on the following lines: 

a  second  and  definitive  study  would  be  carried  out  in  early  1994,  to  measure 
whether  sufficient  progress had been made; 

OJ NO  L67,  15.3.1990, p. 39. 
See footnote 3. 

sufficient  progress would be measured against a set of predetermined  criteria: 

full  information  was to be provided in at least two thirds of bank branches 
surveyed; 
for  the purpose of the study, a maximum  incidence  of double charging of 
10% would be tolerated; 
progress on the times of execution would be assessed notably  by  reference 
to the results of the previous study. 

in  the  absence  of  sufficient  progress,  the Commission  would  introduce  binding 
measures. To this end, a first draft  of a proposal  for  a Directive was attached to 
the  communication,  to  be  discussed  with  government  experts  as  well  as  all 
interested  parties,  in  order  for  it  to  be  amended  in  readiness  for  its  adoption, 
should this prove to be necessary. 

To implement the Commission's action plan, a new study was launched in the first half 
of 1994. The study indicated that, despite some measurable improvements, the banks did 
not meet the criteria set by the Commission. The results were the following: 

no written  information  was available in  50% of bank branches surveyed; in the 
majority  of  the  remaining  cases,  the  written  information  available  was  not  in 
accordance with the Industry Guidelines; 

36% of the transfers  were subject to unauthorized  deductions from  the principal 
amount transferred  ("double charging"); 

the average time taken to carry out transfers did not improve in comparison to the 
1993 study; 

the  average  total  cost  of  making  a  cross-border  credit  transfer  of  an  amount 
equivalent to ECU  100  was ECU 25.4 . 

A. 

B. 

C. 

Given this situation, the Commission considers that insufficient  progress has been 
made and that a legally binding instrument is now timely and appropriate. 
Therefore,  the  Commission  has  proposed  a  directive(6>  and  authorized  its 
transmission to the European Parliament and the Council. 

In awaiting the entry into force of the proposed directive the Commission will call 
on the banking sector and the representatives of the consumers to enter into solemn 
voluntary commitments which anticipate the implementation of the provisions laid 
down in its proposed directive. 

Finally, the Commission, in full  co-operation with  the Member States, will make 
every effort to ensure that efficient redress procedures are made available to users 
of payment systems. 

<«) 

Proposal for a European Parliament and Council Directive on cross-border credit transfers. 

5 

IL 

Competition policy and cross-border credit transfers 

In Annex  C to  the  March  1992 working  document*7*, the  Commission  spelt  out  the 
general conditions for the acceptability of specific kinds of interbank agreements in the 
area  of  cross-border  credit  transfer  systems.  Those  principles  on  competition  were 
intended to provide general guidance for banks and other financial institutions intending 
to set up systems allowing for clearing, netting and/or settlement of cross-border transfer 
payments between them or linking existing networks with each other. Those principles 
covered  the  criteria  applicable  to  agreements  on  membership  in  such  systems;  the 
technical,  legal  and  operational  aspects  of  the  services  rendered  to  the  institutions' 
customers; and the sharing of the cost of a system between its participants. 

In  order  to  meet  the  request  for  further  clarification  as  to  the  extent  to  which  the 
EC Treaty rules on competition apply to the setting up and functioning  of cross-border 
credit transfer  systems, and taking stock of intervening developments which have lead 
to the creation of a number of new transfer payment mechanisms, the Commission has 
decided to review these principles and to update them. 

The  Commission  has  adopted  a  draft  "Notice  on  the  application  of  the  EC 
Competition rules to cross-border credit transfer  systems". This  draft  notice sets 
out the approach the Commission intends to take when assessing the compatibility 
of cross-border credit transfer systems with the competition rules of the EC Treaty. 
This  draft  notice will  be  published  in  the  Official  Journal.  This  will  enable the 
Commission to take account of the reactions of interested parties when it adopts the 
notice,  which  will  replace  the  "Principles  on  competition  for  credit  transfer 
systems" contained in Annex C of the Commission working document of 27 March 
1992. 

HI. 

Progress on accompanying measures aimed at improving cross-border payments 

In the concluding section of its March 1992 working document, the Commission set out 
the  follow-up  which  it  considered  necessary.  The  preceding  sections  of  the  present 
communication provide examples of that follow-up in the areas to which they relate. On 
other aspects, work is also under way or  shortly to be undertaken.  What follows  is a 
brief description  of work under way in some of the more important areas. 

(7) 

Annex C to SEC(92)621. 

IU.1 

The role  of  payment  systems  in  preparing  for  the  transition  to  the  ECU 

The  process  of  planning  for  the  transition  to  a  single  currency  should  in  the 
Commission's view be increasingly integrated with the process of making improvements 
to  cross-border  payment  systems within  the internal  market. 

If investments in updated  systems can be made over the coming years in the light of the 
plans for  the ECU,  not  only will the transition  be  made easier,  but  it will  also be more 
rapid  and  less  costly. 

While respecting  the competence of the EMI in  this area, the Commission  will  play its 
part in helping to increase the awareness of the ECU dimension in its work on  payment 
systems.  As  a  first  step,  the  Commission's  proposal  for  a  European  Parliament  and 
Council  Directive  on  cross-border  credit  transfers  places  the  status  of  the ECU  on  an 
equal  footing  with  any  currency  of a Member  State  of the European  Union. 

The  Commission  is  convinced  that  the  rapid  introduction  of  the  ECU,  according  to 
Article  109 1, par.  4  of  the  Treaty,  would  be facilitated  by  making  appropriate  use  of 
electronic  media  such  as  electronic  credit  transfers,  cards  and  purses.  These  payment 
instruments  could  make  a  major  contribution  to  a  smooth  and  publicly  acceptable 
changeover to the ECU, provided that their role is properly taken into account at an early 
stage in the planning process. 

Without  prejudice  to  the  initiative  launched  by  the  Commission  with  the 
communication  on  "Practical  problems  involved  in  introducing  the  ECU  as  the 
European  Union's single currency(8)", the Commission intends to seek advice from  its 
two  consultative  groups  on  payment  systems,  the  Payment  Systems  Technical 
Development  Group  and  the  Payment  Systems  Users  Liaison  Group,  on  the  ways  in 
which the payment  systems  can best be prepared  for  the introduction  of the ECU.  The 
Commission  will  inform  the Consumer  Consultative  Council  thereof. 

(8) 

O J N oC  153,4.6.1994,  p. 3. 

III.2 

Simplification  of reporting requirements for Balance of Payments statistics 

In most Member States there are special reporting requirements primarily for establishing 
balance  of  payments  statistics in respect  of trarisactions which  exceed  a certain value 
threshold  and  which  involve  payments  to,  or  from,  non-resident  accounts.  These 
requirements raise the cost and can increase the delay in making such transactions by 
comparison with domestic payments. Moreover, the nature of the requirements enforced 
in the Member States often  differs. 

In its March 1992 working document, the Commission stated that it would work towards 
a  high  minimum  reporting  value  threshold,  which  in  its  view  should  be  at  least 
ECU  10 000. The possibility of standardising the format for reporting transactions above 
the threshold would also help to simplify  these procedures. 

The Commission stresses the need for rapid progress in the work currently under 
way in a Task Force of government experts under the aegis of the Commission on 
simplifying  and  harmonising  the  reporting  procedures  used  throughout  the 
Community. 

BŒ.3  "Legal Framework" for cross-border payments 

In its March  1992 working document, the Commission noted that certain features of the 
law  in  a  number  of  Member  States,  together  with  the  differences  between  Member 
States' laws relating to payment systems, were a source of uncertainties and risks. This 
view was endorsed by the Committee of Governors of the central banks of the EC(9). 

Work began  on these issues in  a group  of government legal  experts  and central bank 
representatives, chaired by the Commission, early in  1993. The first phase of the work 
has consisted of establishing an inventory of the legal situation in the areas of payment 
netting, settlement finality  and credit transfers,  in all Member States, which has led to 
a more precise identification  of these problems. 

The next phase of the work is to explore the potential solutions and their consequences. 
The Commission is conscious  of the fact  that,  to both  central  banks  and commercial 
banks,  the  reduction  of  systemic risks in  payment  systems  could  make  a  significant 
contribution to the efforts  being made to improve Europe's payment systems. 

The Commission, with the assistance of its working group on the legal framework 
for cross-border payments and in association with the EMI, will make every effort 
to  reach  operational  conclusions,  including  the  possibility  of  a  proposal  for  a 
directive, on the question of settlement finality during 1995. 

(9) 

"Issues of common concern to EC Central Banks in the field  of payment systems", by 
the Ad Hoc Working Group on EC payment systems, September 1992. 

8 

III.4  Linkages  between  automated  clearing  houses  (ACHs) 

In  most  Member  States,  Automated  clearing  houses,  or  systems,  process  millions  of 
payments  every  day  in  a rapid,  efficient  and  economical  way.  The  economies  of  scale 
are such that the marginal  cost of each payment is a tiny fraction  of the present  cost  for 
a  typical  cross-border  payment.  The  Commission  noted  in  its  1992 working  document 
the  potential  benefits  which  could  result  from  linkages  between  ACHs  and  stated  its 
support  for  the  efforts  being  undertaken  by  a  number  of  banks  and  ACHs  in  this 
direction. 

Since  1992,  a  number  of  feasibility  studies  on  ACH-linkages  have  been  carried  out, 
which have demonstrated  the technical  feasibility  of such projects.  Full  implementation 
of many of these projects has however been impeded by what is often  claimed to be the 
absence  of  sufficient  volume  of  cross-border  payments  and,  therefore,  the  lack  of  a 
business  case. An  encouraging  development  has been  the commencement  in  1994  of  a 
pilot linkage  between  the Belgian  and  German  ACHs,  which  others  are following  with 
interest. 

The  Commission  welcomes  the developments  aimed  at the  establishment  of ACH-
linkages, which it considers as a longer term response to the payment  requirements 
of  an  internal  market  and  -  to  an  even  greater  extent  -  of  an  Economic  and 
Monetary Union. The Commission  will maintain  contact with  all interested  parties 
to  assess  how  best  to contribute  to progress  in  this area. 

IH.5 

Transparency  of  payments  made  by means  of  a  payment  card 

The Commission, in its March  1992 working document, recognised that the  infrastructure 
for card payment systems was already quite satisfactory. However, users pointed out, and 
the European  Credit  Sector Associations  (ECSAs)  recognised,  that  there was room  for 
improvement  in the transparency  of  customer information  with  regard  to  card  payment 
instruments.  The  Commission  therefore  invited  the  ECSAs  to  review  the  information 
given  to  customers  about  direct  or  so-called  face-to-face  payments,  in  the  light  of  the 
Guidelines  elaborated  for  remote  cross-border  payments. 

Following  an  inconclusive  review  of  the  situation  by  the  ECSAs  and  in  the  light  of 
continuing demands for improvements on the part of users, the Commission has decided 
to launch an independent study. This should be finalised by June 1995 and its purpose is: 

to examine which information  a customer should receive in order to make the best 
use  of a payment  card,  to evaluate the  cost  of  card  payments  and to be  informed 
about  mutual  responsibilities; 

to collect and examine a representative sample of standard contracts between card-
issuers and card-holders and statements which a customer receives subsequent to 
his transactions; 

to compare the results of the first two phases to determine whether the information 
necessary to customers is given in actual practice and, if so, whether it is given in 
appropriate ways; 

to indicate which improvements seem objectively  justified. 

The Commission will discuss the study results with its two consultative groups on 
payment systems. In the light of this consultation, the Commission will  consider 
whether  any  improvements  are  necessary  and, if  so, how  best  to  put  them  into 
effect  The Commission will look to the European Credit Sector Associations and 
issuers  of  payment  card instruments  to  ensure  that  any  such  improvements  are 
voluntarily addressed by 1st January 1996. In the light of progress achieved in this 
area,  the  Commission  will  consider  whether  a  legislative  instrument  might  be 
appropriate. 

ÏÏL6  Pre-paid cards (electronic purses) 

One development which has come a considerable way towards realisation since 1992 is 
the pre-paid payment card, which instead of being merely an access device into a bank 
(or other) account, contains in itself a pre-paid store of value, for spending. 

The Commission has an interest in these developments under three main headings. In the 
first place,  it  is  likely  that  these  new  instruments  will  in  due  course  give  rise  to  a 
number of questions of a regulatory nature. Some of these questions have already been 
considered by the European Monetary Institute00*. The EMI concluded that only banks 
should issue such cards. 

Secondly, the Commission has an interest in the promotion of a competitive European 
technology in this, as in other areas. Under the ESPRIT programme, a project known as 
CAFE(11) (Conditional Access For Europe) was launched in  1993 and has developed a 
prototype  electronic  purse  system.  This  will  be  tested  during  1995  in  Commission 
premises. The Commission has recently invited(12) interested  parties to take part in or 
observe the trial of the instrument. 

(10) 

(11) 
(12) 

Report  to  the  Council  of  the  European  Monetary  Institute  on  Prepaid  Cards,  by  the 
Working Group on EU Payment Systems, May  19^4. 
CAFE is the ESPRIT technological project No EP 7023. 
OJ No C 230,  19.8.1994, p. 35 (94/C 230/08). 

10 

Finally, the scope for  using pre-paid instruments for  low value cross-border payments 
is  of  potential  importance.  This function  can  be  seen under two  aspects.  On the one 
hand,  a  pre-paid  card  can  be  loaded  with  any  currency  including  the  ECU,  if  so 
designed, and would therefore provide a convenient instrument during the present multi 
currency stage of the Community; on the other hand, the pre-paid card may provide an 
extremely convenient and  "user friendly"  means of adapting to the use of the ECU. 

The Commission has decided to launch a study on the regulatory implications in its  field 
of  competence,  in  particular  concerning  the  stability  of  the  banking  system, 
the 
protection  of  consumers  and  the  promotion  of  interoperable  cross-border  banking 
services. 

The Commission will disseminate the conclusions drawn from its study on pre-paid 
cards after  discussing them with its two consultative groups on payment systems 
and the EML 

11 

12 

ANNEX  1 

Proposal  for  a 
EUROPEAN  PARLIAMENT AND  COUNCIL  DIRECTIVE 

on  cross-border  credit  transfers 

13 

14 

EXPLANATORY  MEMORANDUM 

I. 

Background 

The  present  proposal  for  a  directive  is  the result  of  a  process,  consisting  of  a  number  of 
steps, which  can be  summarised  as  follows: 

A. 

1990, 

the  Commission 

adopted  Recommendation 

90/109/EEC(1) 
In 
(1990 Recommendation)  on the transparency of banking conditions relating to cross-
border  financial  transactions.  The  Commission  recommended  that  "Member  States 
ensure that institutions which undertake cross-border financial  transactions 
apply 
the principles  set  out  in the Annex".  The  said  Annex  laid  down  the basic  principles 
relating to: 

ex-ante  customer  information  concerning  cross-border  financial  transactions 
(1st principle); 

ex-post  customer  information  about  the  commission  fees  and  charges  and  the 
exchange rate applied  (2ndprinciple); 

the  alternative  ways  of  apportioning  commission  fees  and  charges  between 
customers  (originator  and  beneficiary),  including the method  to be applied  by 
the customer's institution to ensure that the beneficiary  is credited with the exact 
amount  shown  on the transfer  order  (3rd  principle); 

in  the  absence  of  an  agreement  to  the  contrary,  an  obligation  for  each 
intermediary  institution  to deal  with a payment  order within  two working  days 
of receipt of the funds,  including a partial refund  of the costs of the transaction 
in  the  event  of  any  delays in the execution  (4th  principle); 

unless  otherwise  stipulated  in  the  payment  order,  an  obligation  for  the 
beneficiary's  institution to deal with a payment order not later than the working 
day  following  receipt  of the funds  (5th  principle); 

an  obligation  for  institutions  participating  in  a  cross-border  payment  to  be 
capable  of  dealing rapidly  with  customer  complaints,  including  the  possibility 
for  customers  to  refer  the  matter  to  one  of  the  Mefhber  States'  bodies,  to  be 
created  to this effect,  competent  to deal  with  such  complaints  (6th  principle). 

( i) 

O J N o L 6 7,  15.3.1990,  p. 39. 

15 

B. 

C. 

, 

D. 

The  results, of  a  study(2) of the market  ("Cost transparency  in  cross-border  financial 
transfers")  carried  out  in  the  first  quarter  of  1992  and  presented  in  August  1992 
revealed  a  number  of  shortcomings  relating  to  the  aspects  covered  by  the 
1990 Recommendation. 

The implementation of the 1990 Recommendation was discussed in the Commission's 
two advisory  groups, Payment  Systems Technical Development  Group (PSTDG) and 
Payment  Systems  Users  Liaison  Group  (PSULG)  whose  members  are  drawn  from 
banks,  central  banks,  consumers,  retailers and  small  businesses. 

In  the  PSULG,  the  European  Credit  Sector  Associations,  consumers,  retailers  and 
SMEs discussed and agreed on "European Banking Industry  Guidelines for  Customer 
Information  on Cross-border Remote Payments" ("Industry  Guidelines") which were 
annexed  to  the  Commission  Working  Document  "Easier  cross-border  payments: 
Breaking  down  the  barriers"(3).  The  industry  Guidelines,  covering  the  1st  and 
implemented  by 
2nd principles  of 
31 December  1992. 

the  1990  Recommendation,  were 

to  be 

In the  1992 Working Document the Commission  clearly  stated that it would  monitor 
the implementation of the Industry Guidelines and, should the self-regulatory  efforts 
by the banking industry not have led to a satisfactory  implementation, it would bring 
about the necessary legislation to provide a statutory framework  for  customers' rights 
(para.  64). The Commission  additionally  indicated that it would  look to the banking 
sector to ensure that the practice of  "double charging" (i.e. unauthorized  deductions 
from  the  principal  amount  transferred)  was  ended  by  the  31 December  1992. 
If  problems persisted, the Commission would  examine whether  other measures were 
needed  to  end  such  double  charging  (para.  26).  As  to  timing  of  cross-border 
transactions, the£ommission announced that it would be  "looking to those operating 
systems  to  set  demanding  targets  for  themselves  and  to  include  these  in  the 
information  they  provide to  customers".  The  Commission  would  review  progress in 
early  1993  (para.  28). 

Further  to  the  Commission  working  document,  the  European  Parliament  adopted  a 
resolution*4* on 12 February  1993 in which it expressed the opinion that "the principle 
of  transparency ought to  be  defined by  a  Council directive  entailing  the following 
rules: 

an obligation for  the bank to inform  the potential  user of the various means of 
effecting payments which it is able  to  offer and their respective  costs; 
the  user's right  to  bear  all  charges  concerned with  a  cross-border  payment, 
which should automatically exclude 'double charging'; 

(2) 

0) 
(4) 

A report prepared  for  the  Commission  of  the  European  Communities  (Consumer Policy  Service) by  the 
Bureau Européen des Unions de Consommateurs (BEUC). 
SEC(92) 621 final of 27 March 1991 
Resolution A3 -0029/93 concerning the systems of payments in the context of Economic and Monetary Union. 

16 

a four-working  day period for  the settlement of the cross-border payment; 
the user should have access to a redress procedure;  the Commission will need 
to  provide  a  suitable  appeal  mechanism  for  small  and  medium-sized 
businesses. " 

E.  With  a view  to  meeting  the  commitments  laid  down  in  its working  document  and 
having regard to the European Parliament's resolution, the Commission carried out a 
study(5) in  the first half  of  1993,  the  results  of  which  were  announced  on 29  July 
1993.  These results confirmed  the shortcomings  revealed by the  1992 study. 

F.  On  the  basis  of  these  results,  and  after  wide  consultation  of  all  interested  parties 
(commercial banks, central banks, consumers, SMEs and retail trade), the Commission 
adopted  on  14  December  1993(6)  the  following  plan  of  action,  contained  in  a 
Communication  from Mr Vanni  d'Archirafi  and Mrs Scrivener: 

"The banking industry is given a grace period  to achieve the desired results in terms 
of  transparency  and performance  through self-regulation,  but  under  the  threat  of 
possible  legislation.  The  Commission will  examine  the progress  of  the  banking 
industry  on performance  and  transparency by  conducting a  second  and  definitive 
study at the beginning of 1994, i.e. one year  after the first study has been carried out 
and the implementation deadline for  the Industry Guidelines has elapsed. 

If  the  second  study  shows  that  the  banking industry has failed  to  make sufficient 
progress,  the  Commission will propose  legislative  action  in  the form  of  a  binding 
instrument (a directive).  To establish whether sufficient progress  has been made, the 
following  criteria will  be applied: 

full  written information,  in accordance with the different items listed  under the 
Industry  Guidelines,  should  be provided  in  at  least  two  thirds  of  branches 
surveyed  (in February  1993 4%); 

the problem  of  "double charging" should be eliminated; a maximum incidence 
of double charging of 10% (in February 1993 43%) would  be  tolerated; 

in  accordance  with principle  4  of Recommendation 90/109/EEC,  each bank 
involved in a cross-border transfer should execute the payment no later than the 
business  day following  receipt  of  the payment  order.  The  Commission  will 
assess progress,  notably by reference to  the results of the previous  study. 

(5) 

(6) 

"Remote cross-border payment services: transparency in conditions offered and performance 
of transfers executed": Report for the Commission of the European Communities (DG XV) 
by Retail  Banking Research Ltd. 
SEC (93)  1968:  "Transparency  and performance  of  cross-border payments". 

17 

To reinforce the Commission's readiness to introduce binding measures, a first draft 
proposal  for  a  directive  has  been prepared  and  [was]  annexed  to  the [December 
1993 Communication],  As soon as possible,  the Commission will  convene a working 
party  of  government experts  to  examine this  draft,  and  on  the  basis  of comments 
received from this group and elsewhere the text may be amended, in readiness for  its 
adoption, should this prove  to be necessary in the light of the proposed  second study. " 

In  its  Communication  to  the  Council  of  22  December  1993(7),  the  Commission 
repeated its  commitment  to take appropriate  action,  including  lesgislative  action, in 
the  event  that  financial  institutions  did  not  take  adequate  steps  to  introduce  more 
transparent and more efficient  cross-border payment services. 

G.  To  implement  the  Commission's  action  plan,  a  second  and  definitive  study  was 

launched in the first half of  1994, the results of which are the  following: 

no written information was available in 50% of bank branches surveyed; in the 
majority  of  the  remaining  cases,  the written information  available was not in 
accordance with the Industry Guidelines; 

36% of the transfers were subject to unauthorized deductions from the principal 
amount transferred  ("double charging"); 

the average time taken to carry out transfers did not improve in comparison to 
the  1993  study; 

the  average  total  cost  of  making  a cross-border  credit  transfer  of  an amount 
equivalent to ECU  100 was ECU 25.4. 

H. 

In  its  Opinion(8)  of  6  July  1994,  the  Economic  and  Social  Committee  stated  a 
preference for a code of good conduct. However, the Economic and Social Committee 
advised that, if  a directive were to be proposed, it should be limited to setting out a 
general  framework.  The  present  directive  follows  this  model,  by  allowing  a large 
measure of freedom  of contract. 

In its resolution(9) of  29 September 1994, the Council of the European Union invited 
the Commission to ensure that the obstacles to cross-border payments are removed. 

(7)  COM<93) 632 final: "Making the most of the Internal Market:  Strategic Programme". 
(8)  ESC 854/94. 
(9) 

SI(94)901, Annex 4, section V: "Council Resolution on giving full  scope to the dynamism 
and innovatory  potential  of  small  and medium sized enterprises, including the craft sector 
and micro-enterprises,  in a competitive  economy". 

18 

Overall  assessment 

The Commission  Strategic Programme  clearly  identified  the  establishment  of  effective  cross-
border payment systems as one of the few requirements that still need to be met to ensure the 
functioning of the Internal Market, as the latter enters into its maturity stage. The need for action 
in this domain, which is designed to secure an improvement  of cross-border payment  services 
for the benefit of consumers, individual and unincorporated businesses and SMEs, is all the more 
urgent as progress is made towards full Economic and Monetary Union. This need is confirmed 
by the increasing number of complaints addressed to the Commission  and by the results of the 
repeated  surveys carried out by the Commission. 

The steps summarised  in  sections  l.A to  1.H  above, of which the  1994 study is one element, 
point  to  an  overall  trend  which  has  not  demonstrated  the  expected  improvements.  The 
Commission therefore considers that little progress appears to have been made and that a legally 
binding  instrument  is now timely and appropriate.  Therefore,  the Commission  has proposed a 
directive, a detailed description of which is made in section III below, setting out what may be 
considered as a number of essential  conditions related to the transparency and the  performance 
of cross-border credit transfers. 

Whilst covering all cross-border credit transfers irrespective of the amounts involved, the scope 
of the present proposal is primarily intended to address the needs of consumers, individual and 
unincorporated  businesses as well  as  SMEs which traditionally,  but not  exclusively,  carry out 
lower-value cross-border transactions. 

The present proposal  is also intended  as a supportive measure  which  will  encourage hanks to 
review  their  systems  to  ensure  that  the  quality  of  the  services  they  publicise  is  effectively 
matched by the actual  quality of service, while ensuring that appropriate protection is  afforded 
to users of credit transfer  services. In doing so, the banks will  be in a position to identify  and 
eliminate internal inefficiencies, thus significantly contributing to the progressive lowering of the 
cost of  service production  and, consequently,  the break-even point by reference  to which they 
decide  their  charging  policy  vis-à-vis  users.  Finally,  institutions  will  need  to  invest  in  staff 
training and in  the development  of a true  "cross-border payment  service" culture on which to 
build a competitive advantage, as is the case for domestic transfers. 

19 

IL  Subsidiarity  assessment 

1.  Which  are  the  objectives  of  the  directive,  having  regard  to  Community 

obligations? 

The principal  objective  is to ensure that in  an Internal  Market,  cross-border  credit 
transfers may be made free  of any impediment. The present directive is intended as 
a  supportive  measure  in  respect  of  the  exercise  of  the  four  freedoms  stated  in 
Article 7a of the Treaty, in particular the free movement of goods, persons, services 
and capital, while ensuring a high level of consumer protection. 

The present directive is also intended, following up from  the liberalisation of capital 
movements as reached during stage I of Economic and Monetary Union  (EMU), as 
a further  step towards the progressive implementation of full  EMU. 

2.  Does the action envisaged stem from an, exclusive competence of the Community? 

Exclusive competence:  Article 100a, in conjunction  with Article 7a. 

3.  What are the possibilities of action.available to the Community 

One possibility is a voluntary approach. This has however already been pursued since 
1990 (Commission Recommendation  90/109/EEC) and throughout  the consultation 
process which  has  led  to  the  Communication  of  14 December  1993, but  has not 
yielded the expected results. 

Therefore,  as  explained  in  detail  in  section  I  above,  a binding  instrument  is now 
deemed both timely and necessary. 

4. 

Is uniform legislation necessary or is a directive setting put the general objective 
and leaving implementation thereof to the Member States  sufficient? 

For the reasons set out in section I above (Background), the present Directive deals 
with  aspects pertaining to the transparency  and performance  of  cross-border  credit 
transfers. 

The  provisions  in  section  II  of  the  directive  lay  down  general  transparency 
requirements,  which  institutions  offering  remote  cross-border  payments  will  be 
required to respect, MÎember States and institutions are free to determine the precise 
contents of these general transparency requirements. 

The provisions in  section  III  of the directive  contain  performance  rules  of a more 
detailed nature which are designed to give weight to the preceding transparency rules. 
Considering  the  cross-border  nature  of  the  payments  in  question,  legislation  at 
national level would not suffice unless it were adopted in a substantively similar way 
in each Member State. The present directive describes what may be considered as a 
number of essential conditions. These conditions, although of a detailed nature, allow 
those institutions wishing to provide cross-border credit transfer  services an almost 
complete freedom  of contract 

20 

Institutions decide themselves on the detailed specifications of the services they offer. 
The directive underpins these specifications  and  sets out fall-back  rules in case any 
essential details were not specified by the institution. Only one rule in this section is 
mandatory, although having a limited number of opt-outs, i.e. the clause setting out 
the obligation to safeguard  funds  of customers (where funds  are mislaid or lost). 

III.  Detailed commentary on the Articles 

Article 1 

1. 

The  service  of  effecting  and  receiving  cross-border  credit  transfers  on  behalf  of 
customers is, for the most part, carried out by credit institutions (banks). However, 
the provision of certain types of payment services may be carried on, at least in some 
Member States, by other institutions (e.g. postal banks). It is considered right that the 
same minimum  standards of performance  set out in the directive should apply also 
to these other institutions. 

The directive does not apply to institutions to the extent that they do not normally 
offer  their  services to the public, e.g.  central  banks offering  their services to credit 
institutions (see also definitions  at Article 2 below). 

Article 2 

(e)  The definition of "payment" is based on that drawn up by the Committee on Payment 
and Settlement Systems of the central banks of the Group of Ten countries, with an 
addition to make it clear that a movement of funds by one person, from  one  account 
of his  to another account of his, is included in the definition  of payment. 

(f) 

In  order  for  payments  to  come within  the  scope  of  the directive,  there must be a 
cross-border  dimension.  The  cross-border  dimension  clearly  exists  where  the 
institutions of the originating and the receiving parties are in different Member States. 

(i)  The Directive is intended to benefit  "customers", whether these be the originator or 
the beneficiary,  or both, as the context may require. Its general thrust in so doing is 
to provide that each institution in the payment chain is responsible to the party which 
instructed it. 

(j)  The scope of the directive is limited to payments which are not made by means of 
personal face to face contact between the payer and the payee, present together at the 
place where the instrument of payment is used. 

(k) 

"Credit transfers" are a means of remote cross-border payment, consisting of a series 
of operations, the initiative for which comes from the originating party and his bank. 
They are, in banking terms, distinguished from  debit transfers (cheques, direct debits 
etc.) where the sum is  "collected" by the receiving party's bank. Debit transfers are 
not within the scope of the directive, due to the important differences  in the roles of 
the parties to debit transfers  and in the parties' rights and responsibilities. 

21 

(1) 

"Force majeure" is based  on the  definition  used  in the  Council  directive  relating to 
package holidays(lô). Additionally, for the purpose of this directive, it does not include 
the insolvency  of an intermediary  bank due to the particular  need  for  protection  of 
customers.  Such a risk cannot be assessed  or controlled by the customer,  who  does 
not choose the intermediary bank. 

(m)  Some  accounts  are  "interest"  bearing  for  customers  and  in  this  case  there  will 
necessarily  be a rule applied by each customer's institution for  determining the date 
from  which  interest will  run on  sums posted to the  account.  Where this  is  not the 
case, the test to be applied is that of availability  of funds,  i.e.  the date on which the 
customer may freely  withdraw the funds from  his account.  The definition  takes into 
account the different  rates of interest applicable for different  periods, e.g.  overnight 
rates or rates for longer periods. 

(o)  An  institution  is  not  obliged under the  directive  to  give  effect  to  a  payment  order 
unless  and until  it  has  "accepted" the  order.  One  important  pre-condition  for  such 
acceptance  will  generally be that its customer must have a sufficient  credit balance 
on his account to pay for the remote cross-border payment which he has ordered, or 
alternatively that an agreed credit facility  is  in  place.  The term  "financial  cover" is 
intended to cover these alternatives. 

(p) 

In the  domestic  payment  systems  of  several  Member  States  a credit transfer  is  not 
legally completed until the funds have been credited to the account of the beneficiary ; 
the definition  of completion stops slightly  short of the rule just cited.  Responsibility 
for any further delays in crediting the amount of the credit transfer to the beneficiary 
or for a failure within the beneficiary's  bank occurring  after  acceptance,  as defined, 
is a matter between the beneficiary  and his bank.  Similarly, the responsibility  of the 
beneficiary's  bank  in  respect  of  the  obligation  to  execute  in  accordance  with  the 
payment order is a niatter between the beneficiary  and his bank. 

Article  3 

The  information  requirements  set  out  in  this  Article  follow  very  closely  the  Industry 
Guidelines01*  issued  on  a  voluntary  basis  in  1992  by  the  European  Credit  Sector 
Associations  (ECSA's).  Those  were,  in  turn,  based  on  the  requirements  expressed  by 
consumer and other user group representatives in consultation with the Commission in its 
Payment  Systems Users Liaison Group. 

(10)  The EC Council  Directive provides for the following  definition:  "Force majeure: unusual 
and unforeseeable circumstances beyond the control of the party by whom it is pleaded, the-
consequences  of  which  could  not  have  been  avoided.even  if  all  due  care  had  been 
exercised" (90/314/EEC - OJ No L  158,  13.6.1990). 

(ii)  «European Banking Industry Guidelines on Customer Information on Cross-border Remote 
Payments"  of  2  March  1992  drawn  up  by  the  Banking  Federation  of  the  EC,  the 
European Savings Banks Group and the Association  of  Cooperative Banks of the EC. 

22 

Article 4 

The information  requirement  set out in this Article covers the ex post  information  which 
customers require, e.g. by way of a statement, a separate information  slip, etc., subsequent 
to their making or receiving, as appropriate, a cross-border credit  transfer. 

Article 5 

Very few credit transfers are handled entirely by one institution. Moreover, unlike payments 
in the domestic systems of most Member  States, which run to strict rules including time 
scales, many  credit  transfers  are made between banks which  have no such  arrangements 
between them.  This Article is designed  to both re-inforce  and underpin  the published  or 
agreed time scale agreed by the institution, by promoting the following  principle. Unless 
the institution has clearly informed  its customer of a different  period (e.g. in its literature, 
on the payment order form  etc.), the contractual  time scale will in  effect  become 5 days, 
maximum, for completion of the payment. The institution of the beneficiary  shall place the 
funds  at  the  disposal  of  the  beneficiary  at  the  latest  by  the  end  of  the  business  day 
following  acceptance of the payment order. 

The  Article  fills  the  lacunae  between  the  comparable  payment  systems  within  the 
Member States, which run to strict rules on time scales, and the small - although growing -
number of contractual credit transfer schemes between groups of banks which already have 
contractual  rules  on  timing.  Existing  and  future  contractual  arrangements  will  not  be 
affected  by the Article, provided that the transparency obligations towards the customer are 
respected. 

The originator's compensation for late payment is limited to interest from the latest date by 
which the payment should have been completed. Consequential  losses are not recoverable 
under the directive, but this is without prejudice to the claims which might be upheld under 
domestic laws. 

23 

Article  6 

This Article is aimed at instances where instructions by the originator, in respect of charges, 
are not correctly carried out. This gives rise to a phenomenon,  common known as "double 
charging".  These  problems  arise  when  a  credit  transfer,  having  been  ordered  by  the 
originator on the basis that he would pay all associated fees - so that the beneficiary  would 
receive  100%  of  the  payment  amount  -  is  further  charged  with  fees  en  route  to  the 
beneficiary's account. Bankers are agreed that this is wrong, but are faced with the difficulty 
that  in many  instances  a bank has little knowledge  of  or control  over the practices of all 
the banks with which it must deal  in order to effect  a credit transfer. 

The rule is intended to underpin the attempts currently being made by the banking industry 
to  eliminate  the  practice,  which  causes  serious  disturbance  to  the  trading  relations  of  its 
business customers and understandable inconvenience and expense to consumer customers. 

The customer's instructions about charges are, under existing international banking practice, 
normally  recorded on the face  of  a credit transfer by the  expression  "BEN" for a transfer 
where all fees  in respect of the credit transfer are to be deducted from the amount due to 
the beneficiary,  or "SHA" for one where the paying customer shares the burden of fees, by 
paying  those  of  his  own  bank  leaving  the  fees  of  other  banks to  be  deducted  from  the 
amount  due to the beneficiary.  A  credit transfer where  all  fees  are for the account  of the 
originator generally bears the description "OUR". This will, under the directive, become the 
rule on which  an institution must fall  back if  its customer has not given an instruction to 
the contrary. The onus will be on the institutions to ascertain the customer's instruction and 
to correctly  incorporate it in the payment order. 

Charges which have been deducted without authority  are to be refunded.  The originator's 
bank is responsible for-the correct execution of the payment order up to acceptance by the 
beneficiary's bank of the related funds, which is defined  as completion. Where deductions 
occur beyond this point, i.e. within the beneficiary's bank, the beneficiary's  bank becomes 
responsible.  The  directive  provides  for  a mechanism  whereby  the  originator  may,  at his 
choice,  direct  the  refunded  amount to  the beneficiary.  Whether the  originator  decides  to 
avail  himself  of  this  option  will  depend  on  a number  of  factors,  such  as  the  particular 
nature of the underlying  contractual  relations between the originator and the beneficiary. 

24 

Article  7 

This Article provides each party to a credit transfer with an important right, in cases where 
transfers are badly delayed or "lost" in the System. The customer claims from his institution, 
which in turn claims on the institution which it had instructed (as its agent) to forward the 
transfer.  There is a strict liability  for payments under  10.000 ECU in value.  A  bank may 
however derogate from this in respect of events of  "force majeure".  This liability  appears 
justified  for three main reasons: 

the  customer  himself  has  no  rights,  or  no  effective  rights,  against  any  of  the 
intermediary institutions used to make the transfer; he will generally not even be aware 
of their identities; 

the  originator's  institution  has  generally  selected  the  institutions  through  whom  the 
transfer  will  pass,  or  at  least  the  first  such  institution;  the  originator's  institution  is 
therefore  in  a  position  to  exercise  competitive  pressure  in  the  market  by  selecting 
reliable intermediary institutions; 

the  originator  will  have  paid  his  institution  a  fee  for  the  transfer  of  his  funds.  If, 
contrary to his legitimate expectations, the funds do not arrive, he should as a minimum 
be entitled to their return, under the principle  of  safe  custody. 

In a commercial  setting, an originator whose payment becomes lost will  often find himself 
facing  a  claim  for  interest  from  his  beneficiary,  whose  due  date  for  payment  may  have 
passed.  As  a  reasonable  flat  rate  compensation  the  Article  provides  for  the  payment  of 
interest.  The burden  of this interest  payment will  however,  under the  "chain" principle  of 
credit transfers, ultimately fall on the institution responsible for the delay or loss, unless that 
institution has become insolvent (in which case the burden rests with the originator's bank). 
It  should  be  added  that  the  institution  responsible  for  the  delay  may  also  have  had  the 
opportunity  to  benefit  from  the  "float"  attached  to  the  delayed  funds,  so  that  there  is  an 
element of restitution applicable to the interest penalty. 

The principle of the right to refund,  substantially  as set out in this Article (but without the 
possibility  of  derogation),  has recently  been recommended  to its  member governments by 
the United Nations Commission on International Trade Law and has been enacted in the laws 
governing  the major payment systems of the United  States,  for  domestic  and international 
credit transfers. 

25 

26 

Proposal  for  a 
EUROPEAN  PARLIAMENT  AND  COUNCIL  DIRECTIVE 

on  cross-border  credit  transfers 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, and in particular Article 100a 
thereof, 

Having  regard  to the proposal  from  the  Commission, 

Having  regard  to the  opinion  of the Economic  and  Social  Committee, 

Having  regard  to  the  opinion  of the European Monetary  Institute, 

In  accordance  with  the  procedure  laid  down  in  Article  189b  of the  Treaty, 

Whereas  the volume  of  remote  cross-border payments  is growing  steadily  as the completion  of 
the internal  market  and the progressive move towards full  economic and monetary union lead to 
greater  trade  flows  and  movement  of people throughout  the  Community;  whereas  cross-border 
credit transfers  account for a substantial  part of the volume and the value of remote  cross-border 
payments; 

Whereas it is of paramount  importance for  individuals  and  businesses to be  able to make credit 
transfers  rapidly,  reliably,  and  cheaply  from  one part  of  the  Community  to  another;  whereas  a 
market  in  which  there  is  competition  for  cross-border  credit  transfers  should  lead  to  improved 
services  and  reduced  prices; 

Whereas  this  Directive  intends  to  follow  up  the  progress  towards  the  liberalization  of  capital 
movements  reached  during  stage  1 of  economic  and  monetary  union;  whereas  it  takes  account 
of  the  purpose  of facilitating  the use of the ECU  set  out in  the  Treaty; whereas it is  conceived 
as a  step towards the progressive implementation  of  economic  and monetary  union; whereas its 
provisions  should  apply  to credit  transfers  in  any  currency,  including  the ECU; 

27 

Whereas this Directive is intended to implement one aspect of the programme of work drawn up 
by  the Commission  following  its Green Paper "Making payments in the internal market"; 

Whereas  the  Commission  has  recommended  to  Member  State  that  the  threshold  below  which 
cross-border  payments  should  not  have  to  be  reported  should  be  fixed  at  not  less  than 
ECU  10 000; 

Whereas the Committee of Governors of the central  banks of the Member  States recommended 
that  payment  systems  in  all  Member  States  should  have  a  sound  legal  basis;  whereas  the 
Commission  has  set  up  a working  group  on  the  legal  framework  for  cross-border  payments, 
which consists of legal experts of governments and of the EMI; whereas this group has advised 
the Commission that the issues covered by this Directive may be dealt with separately  from the 
systemic issues which remain under consideration; whereas it may be necessary to make a further 
proposal  to cover these  systemic  issues, principally  settlement finality; 

Whereas the purpose of this Directive is to improve cross-border credit transfer services and thus 
assist the EMI in its task of promoting the efficiency  of  cross-border payments with  a view  to 
the preparation of the third stage of Economic  and Monetary Union; 

f 

28 

Whereas,  having  regard  to  the  third  paragraph  of  Article  3b  of  the  Treaty,  this  Directive  lays 
down  the  minimum  requirements  needed  to  ensure  an  adequate  level  of  customer  information; 
whereas  greater  transparency  is  ultimately  dependent  on  institutions'  adherence  to  minimum 
performance  requirements;  whereas  this  Directive  lays  down  the  minimum  performance 
requirements  which  institutions  offering  cross-border  credit  transfer  services  should  adhere  to; 
whereas  this  Directive  fulfils  the  first,  second,  third,  fourth  and  fifth  principles  set  out  in 
Commission  Recommendation  90/109/EEC(1);  whereas  it  is  without  prejudice  to  Council 
Directive  91/308/EEC  of  10 June  1991 on prevention  of the use of the  financial  system  for  the 
purpose  of  money  laundering(2); 

Whereas  the  nature  of  cross-border  credit  transfers,  being  a  series  of  operations  involving 
institutions in different  Member  States, is such that a coordinated  approach  at Community  level 
is  appropriate  and  necessary;  whereas  a  self-regulatory  approach  has  been  attempted  by  the 
Commission  by  its  Recommendation  90/109/EEC;  whereas  this  voluntary  approach  has  not 
achieved  the desired  results; whereas a binding measure is therefore  appropriate; 

Whereas  this  Directive  should  apply  to  credit  transfers  for  any  amount;  whereas  institutions 
should  be  under  an  obligation  to  refund  in  the  case  of  a  non-completed  transfer;  whereas  the 
obligation  to refund  imposes  a contingent liability  on institutions which  might,  if the  possibility 
were  not  given  to  exclude  high-value  transfers,  have  a  prudential  effect  on  the  solvency 
requirement;  whereas  the  possibility  of  derogation  (by  Member  States  and,  if  so  exercised,  by 
institutions) from  this obligation  should be provided only in the case of high-value payments of 
more  than  ECU  10 000;  whereas  this  threshold  does  not  apply  to  any  other  Article  of  this 
Directive: 

(1)  OJ No L  67,  15.3.1990,  p. 39. 
(2)  OJ No L  166, 28.6.1991, p. 77. 

29 

Whereas  the  European  Parliament,  in  its  Resolution  of  12  February  1993,  called  for  a 
Council  Directive to lay down rules in the area of transparency and performance of cross-border 
payments; 

Whereas the Economic and Social  Committee, in its Opinion of 6 July  1994, stated a preference 
for  a  code  of  good  conduct;  whereas  the  Commission  has  previously  pursued  this  approach; 
whereas the Economic and Social  Committee advised that, if a directive were to be proposed, it 
should be limited to setting out a general framework; whereas this Directive follows this model, 
by  allowing  a large measure of freedom  of contract; 

•HAVE ADOPTED THIS DIRECTIVE. 

30 

SECTION I 

Scope and  definitions 

Article  1 

Scope 

1.  Member  States  shall  apply  the  requirements  of  this Directive  to  credit  institutions  and to 
other institutions which supply credit transfer services to the public as part of their business. 

2.  This Directive shall apply to credit transfers in any currency, including the ECU, and for any 

amount save where the derogation  in Article 7(3) has been exercised. 

Article  2 

Definitions 

For the purpose of  this Directive: 

(a)  "credit  institution"  shall  mean  an institution  as  defined  in  Article  1 of  Council  Directive 
77/780/EEC(3); for the purposes of this Directive, branches of credit institutions in  different 
Member  States are deemed  to be separate institutions; 

(b)  "other institution" shall  mean any legal person, other than a credit institution, that  supplies 

to the public,  by way  of business,  credit transfer  services ; 

(c)  "institution" shall  mean a credit institution or other institution; 

(d)  "person" shall  mean either a legal  or a natural person, as the context may require; 

(e)  "payment" shall mean the transfer by an originator of a monetary claim on a party acceptable 
to  the beneficiary,  including  cases  where the  originator  and the  beneficiary  are the  same 
person; 

(3)  OJ No  L 322,  17.12.1977,  p. 30. 

31 

(f)  "cross-border payment" shall mean a payment by  an originator whose  account, from which 
the payment is made, is held by an institution or its branch in one Member State, to be made 
available to a beneficiary  at an institution  or its branch in another Member State; 

(g)  "originator"  shall  mean  a  person  that  authorizes  the  making  of  a  credit  transfer  to  a 

beneficiary; 

(h)  "beneficiary"  shall  mean the final recipient of a credit transfer; 

(i)  "customer" shall mean the originator or the beneficiary,  as the context may require, and may 

be one and the  same person; 

(j)  "payment order" shall mean an instruction in any form, given direct to an institution, to place 

at the disposal  of  a beneficiary  a fixed or determinable  amount of  money. 

(k)  "credit  transfer"  shall  mean  a  cross-border  payment,  consisting  of  a  series  of  operations 
beginning with the originator's payment order. The term includes any payment order issued 
by  the  originator's  institution  or  any  intermediary  institution  intended  to  carry  out  the 
originator's payment order; 

(1)  "force  majeureM  shall  not  include  the  insolvency  of  an  intermediary  institution  but  shall 
otherwise  have  the  meaning  ascribed  to  it  in  indent  (ii)  of  the  second  subparagraph  of 
Article 4(6)  of Council  Directive 90/314/EEC(4); 

(m)  "interest" shall mean the inter-bank offered  rate, increased by two percentage points, in the 
relevant market for deposits in the currency of any given payment, calculated for the period 
of the delay; 

(n)  "value date" shall mean the date on which the customer's account is debited (for originators) 
or credited (for beneficiaries)  such date being that applied by the institution of the customer 
for the purpose of calculating interest (if any) on the account or assessing the availability  of 
funds,  where interest is not an appropriate criterion; 

(4)  OJ No L  158, 23.6.1990,  p. 59. 

32 

(o)  "acceptance" 

shall  mean  the  acceptance  by  an  institution  of  a  payment  order,  upon 
fulfilment  of  the  institution's  conditions  as to the  availability  of financial cover  and  the 
identification  of the parties named in the payment order and any other pre-conditions agreed 
by the parties; 

(p)  "completion" of a credit transfer  shall ^ean  acceptance by the beneficiary's  institution; 

(q)  "intermediary institution" shall mean an institution which is neither that of the originator nor 

that of the beneficiary; 

(r)  "business day" in relation to any particular institution shall mean a day, or part of a day, on 

which that institution is open for  the processing of credit transfers. 

SECTION II 

Transparency  of conditions for  credit  transfers 

Article 3 

Information  prior to a credit transfer  (made or received) 

The institution  shall  supply  its  customers  with  clear written  information  about  the  services it 
provides to effect  or receive credit transfers.  This information  shall include: 

an  indication  of  the  time  needed  for  the  funds  to  be  credited  to  the  account  of  the 
beneficiary's  institution or to the beneficiary,  as appropriate; 

the basis of the calculation of any commissions and charges payable by the customer to the 
institution; 

the value date, if any, applicable by the institution; 

a reference  to the redress procedures available to the customer and the method  of gaining 
access to them. 

33 

Article 4 

Information  subsequent to a credit transfer (made or received) 

The  institution  shall  supply  its  customers  with  clear  written  information  subsequent  to  their 
making or receiving  a credit transfer.  This information  shall  at least include: 

a reference  enabling  its customer to identify  the payment; 

the amount  of  any charges payable by  its customer.  Where the originator  has authorized a 
deduction from the amount of a credit transfer, this fact and the original amount of the credit 
transfer  should be  stated by the beneficiary's  bank  to the beneficiary; 

the value date, if  any, applied by the institution. 

SECTION III 

Minimum  obligations  of institutions  in respect of credit transfers 

Article 5 

Obligation to execute in good time 

1.  Each  institution  having  accepted  a payment  order  shall  execute  the  related  credit  transfer 
within  the time  scale  agreed with the customer  (or institution)  making the payment order. 
In the  absence  of  a  specific  agreement  as to  the time  scale,  the  institution  shall  act  soon 
enough  to  enable  its  published  clear  time  scale  to be  achieved.  Where  there  is  neither a 
specific  agreement  nor an applicable published time scale, the following obligations shall 
apply: 

-  the institution of the originator shall be responsible to the originator for ensuring that the 
credit  transfer  is  completed  no  later  than  the  end  of  the  fifth  business  day  following 
acceptance by it of the payment order from the originator; and 

34 

2. 

3. 

1. 

-  the institution of the beneficiary shall be obliged to place the amount of the credit transfer 
at the disposal  of the beneficiary,  at the latest by the end of the business day  following 
completion  of the credit  transfer. 

The originator's institution  shall  compensate the originator by the payment of interest on 
the  amount  of  the credit  transfer  where it  is  completed  late,  but  shall  not  be  liable  for 
consequential  losses under this Directive.  No compensation  shall  be  payable  where  the 
originator's bank can establish that the delay was attributable to the originator. 

In addition to the obligation of execution in paragraph  1, the beneficiary's institution shall 
compensate the beneficiary  by the payment of interest on the amount of the credit transfer 
where it is late in being placed at the beneficiary's  disposal. 

Article 6 

Obligation to execute in accordance with the instructions 
contained in  the payment order 

The originator's institution,  any intermediary  institution  and the beneficiary's  institution, 
once they have accepted the payment order,  shall  each be obliged to  execute the related 
credit transfer for the full amount thereof unless authorized to make a deduction  therefrom. 
Without  prejudice  to  the  duty  not  to  deduct,  the  beneficiary's  institution  may,  where 
appropriate, levy an additional  charge on the beneficiary  relating to the administration  of 
his account. However, any such additional administrative charge shall not exceed the charge 
that would be made for a domestic credit  transfer. 

35 

2.  Where a breach of the duty to execute in accordance with the payment order as described 
in paragraph  1 has been  caused by any institution  other than the beneficiary's  institution, 
and  without  prejudice  to  any  other  claim  which  might  be  made,  the  institution  of  the 
originator  shall  be  liable  to  credit  to  the originator  any  sum  wrongly  deducted  by  any 
institution,  at  its  own  cost.  Alternatively,  if  required  to  do  so  by  the  originator  it  shall 
transfer such amount to the credit of the beneficiary, free of all deductions, at its own cost. 
Any intermediary institution making a deduction in breach of the duty in paragraph 1 shall 
be liable to credit the sum  so deducted  to the institution of the originator.  Alternatively, 
if  required  by  the  institution  of  the  originator,  it  shall  transfer  such  amount,  free  of  all 
deductions, to the credit of the beneficiary,  at its own cost. 

3.  Where  a breach  of  the  duty  to  execute  in  accordance  with the  payment  order  has been 
caused by the beneficiary's institution, and without prejudice to any other claim which may 
be made, the beneficiary's  institution shall be liable to credit to the beneficiary,  at its own 
cost,  any sum wrongly  deducted. 

Article 7 

Obligation  of institutions to refund in case of  non-completed  credit transfers 

1. 

If,  after a payment order has been accepted by the originator's institution, the related credit 
transfer is not for any reason  completed,  and without prejudice to any other claim which 
may be made, the originator is  entitled to have his  account credited  on demand with the 
full  amount of the credit transfer plus interest and the amount of the charges for the non-
completed credit transfer,  such demand to be made not earlier than 20 business days after 
the  date  on  which  the  credit  transfer  should  have  been  completed.  Each  intermediary 
institution which has accepted the payment order likewise owes an obligation to refund at 
its own cost the amount of the credit transfer to the institution which instructed it. 

36 

2. 

If the non-completion  of the credit transfer was caused by defective  instructions given by 
the originator to his institution, the originator's institution and the other institutions involved 
shall  use their best endeavours to make the refund  referred  to in  paragraph  1. 

3.  Member  States  may  allow  institutions  to  derogate  by  contract 
refund,  as described in paragraph  1, in the following  cases: 

from  the  obligation  to 

where the non-completion  of the credit transfer is due to force  majeure: or 

for payments above ECU  10 000. 

SECTION IV 

Final  Provisions 

Article  8 

Implementation 

1.  Member  States  shall  bring into force  the laws,  regulations  and administrative  provisions 
necessary to comply with this Directive before 31 December  1996 at the latest. They shall 
forthwith  inform the Commission thereof. 

When  Member  States  adopt  these  provisions,  these  shall  contain  a  reference  to  this 
Directive or shall be accompanied by such reference at the time of their official  publication. 
The procedure for such reference shall  be adopted by Member States. 

37 

2.  Member States  shall  communicate to the Commission the text  of  the main provisions  of 
national  law  which  they  adopt  in  the  field  governed  by  this  Directive.  In  this 
Communication  Member  States  shall  provide  a  table  of  correspondence  showing  the 
national provisions which exist or are introduced in respect of each article of this Directive. 

Article  9 

Report to the European Parliament and the Council 

No 
later  than  31 December  1999,  the  Commission  shall  present  a  report  to  the 
European Parliament  and the Council  on the application  of  this Directive,  accompanied where 
appropriate by proposals for its revision. 

Article  10 

Entry into force 

This Directive shall enter into force on the twentieth day following that of its publication in the 
Official  Journal  of the European Communities. 

Article  11 

Addressees 

This Directive is addressed to the Member States 

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

38 

BUSINESS  IMPACT  ASSESSMENT 

Proposai  for  a 
EUROPEAN  PARLIAMENT AND  COUNCIL  DIRECTIVE 
on  cross-border  credit  transfers 

l.a. 

Taking  account  of  the  principle  of  subsidiarity,  why  is  Community  legislation 
necessary  and  what  are its  main  aims? 

In order to reap the full  benefits of the single market and Economic and Monetary Union, 
it is of paramount importance for individuals and businesses to be able to make payments 
as rapidly, reliably  and cheaply from  one part of the Union to another as is now the case 
for payments within the Member States with the most efficient  national payment systems. 
The purpose of the present proposal is first of all to lay down the minimum  requirements 
needed  to  ensure  an  adequate  level  of  customer  information.  Firstly,  this  covers  the  ex-
ante  information  about  the  various  possibilities  open  to  users  for  sending  funds  across 
frontiers,  which  will  enable  them  to  make  a  better  informed  choice  and  ultimately 
contribute  to  the  overall  efficiency  of  cross-border  payments  by "exerting  a  downward 
pressure on prices. Information  also needs to be given in respect of cross-border payments 
after  they  have  been  made.  In  order  to  ensure  that  institutions  are  able  to  perform  in 
accordance  with  the  transparency  conditions,  minimum  standards  of  performance  are 
required,  given  the large  number  of  such  institutions  within  the  Union. 

Therefore,  the present proposal  also sets out such minimum  standards of performance,  as 
are  deemed  necessary  in view  of the abovementioned  fundamental  objective. 

Considering  the  cross-border  nature  of the payments  in  question,  legislation  at  national 
level  would  not  suffice  unless  it  were  adopted  in  a  substantively  similar  way  in  each 
Member  State. The most  efficient  way  of achieving the aims set out  above is by way  of 
directive  laying  down  the necessary  minimum  standards. 

l.b.  Are  there likely  to  be any wider  benefits  and  disadvantages  from  the  proposal? 

The  process  of  implementing  these  transparency  and  performance  requirements  is 
expected to require institutions to review their systems for making cross-border  payments 
and therefore  to bring about greater  efficiencies.  At the same time,  customers will  be in 
a  position  to  make  a well-founded  choice  between  different  services  offered  as well  as 
between different  institutions.  These factors  are likely  to contribute  to  a progressive  and 
significant  reduction  in  the  cost  of  making  cross-border  payments,  equalling  in  the 
medium/long  term  an estimated  minimum  of ECU  10 billion  per year(1),  presently  borne 

The  1994 Study carried out by the Commission indicates that the average total cost of a 100 ECU cross-border credit transfer is 25. ECU. However,  100 ECU may be considered 
as a relatively low value for a credit transfer, and thus likely to have attracted aie minimum charge applicable to such transactions. The European Credit Sector Associations have 
remarked that more typical transactions are those for an average amount of at least 1 500  ECU. It is believed mat cross-border credit transfers in this latter value range would attract 
a higher charge, which may prudently be estimated at approximately 30 ECU. This compares with an average charge for comparable domestic transfers rarely exceeding 2 ECU 
(if charged at all). Figures for 1991 indicate the volume  of cross-border credit transfers at 117.6 million. A prudent estimate of the medium/long  term volume  of such transfers 
has been made on the basis of the yearly increment over the period 1989-1991 (in excess of  15% per annum), as well as taking into account the increase in EC SWIFT messages 
over the period  1991 -1993 (cat.  1, customer transfers). On the assumption  that the reference rate of increment would hold unchanged, it can prudently be estimated  that in the 
medium/long  term, i.e. over the next five years leading  up to the year 2000, the volume  of cross-border credit transfers will increase by  approximately  100%, thus  reaching a 
minimum  356 million credit transfers. Thus, the combined  increase in the volume of cross-border credit transfers as well as the reduction in the cost associated with them lead 
to an estimated  welfare gain of 9 968 billion ECU 

39 

by  businesses  and  final  consumers.  The  present  cost  (average  of  ECU  25.4  for  the 
smallest payments, i.e.  100 ECU credit transfers)  is a disincentive to trade, particularly 
with  respect  to  lower-value  and  lower-margin  intra-EU  economic  activity,  and 
consequently  represents  an  obstacle  to  higher  employment,  particularly  in  the  SMEs 
segment. 

The process of rationalisation  of cross-border payment systems might give rise to some 
redundancies in the payment  systems industry, in particular the banking sector.  This is 
however expected to be balanced by the creation of a number of new jobs related to the 
introduction of new technology, innovative and value-added services in the industry. The 
risk of redundancies within the payment systems industry will  be further  attenuated by 
the consequent increase in the volume of business that enhanced efficiency,  and therefore 
greater  transparency,  will  stimulate  (more  efficient  payment  services  -* widening  of 
intra-EU trade potential  -» contribution to growth and higher employment  -* greater and 
more specialized demand for efficient  payment services, etc.). 

I.e.  Were  alternative  proposals  considered,  and  with  what  outcome  (e.g.  codes  of 

conduct, voluntary  arrangements)? 

Yes. In 1990, the Commission adopted Recommendation 90/109/EEC(2), which contained 
principles  on  minimum  standards  relating  to  the  performance  of  cross-border  credit 
transfers. In 1991, the Commission worked with representatives of the European Banking 
Industry, the distributive trades, SMEs and consumers, with a view to finding appropriate 
voluntary  solutions  to  the  problems  dealt  with  in  the  present  directive.  Subsequent 
research ( 1992,1993 and 1994) has indicated that on relevant aspects (i.e. those contained 
in this proposal), insufficient  progress has been made. 

2.  Who will be affected  by the proposal? 

Which  sector  of  business?  What  are  the  size  classes  and  what  is  the  total 
employment? 

The proposal will be applicable to banks and any other institutions which supply credit 
transfer  services to the public by way of business. In practice, the large majority  of these 
will be banks and near-banks. Very few such institutions are in the lower size-classes. 

Are there any significant features of the business sector, e.g. dominance by a limited 
number of large firms? 

The main feature of the sector is the lack of integration of payment systems at European 
level, which is one of the principal causes of the high cost, the inefficiencies  and lack of 
transparency which the current proposal addresses. A contributory element to the lack of 
investment  directed  at  further  integration  may  be  the  relatively  low  volume  of 

(2) 

Recommendation  on  the  transparency  of  banking  conditions  relating  to  cross-border 
financial  transactions (OJ No L 67, 15.3.199t), p. 39). 

40 

cross-border  credit  transfers  by  comparison  with  the  total  volume  of  domestic  credit 
transfers(3).  However,  the  high  cost,  the  inefficiencies  and  the  lack  of  transparency  of 
credit transfer services may in turn be regarded as an obstacle and therefore  a contributory 
cause  of  these  relatively  low  volumes. 

Are there implications  for very small  businesses,  the  craft  sector  or the  self-employed? 

Very  small  businesses  are  very  unlikely  to  be  offering  credit  transfer  services  to  the  public. 
However, as beneficiaries of the proposal, i.e. as users of credit transfer services, they will  benefit 
from the  proposal  to  the  extent  that  they  engage  in  cross-border  trade.  These  remarks  apply 
equally  to  the craft  sector and the  self-employed,  who  will  not  be  in  a position  to  offer credit 
transfer services, but will  be beneficiaries  of the proposal  as users. 

Are there particular geographical  areas in the Community where these businesses are located? 

No. 

3. 

What  will  businesses  have to  do to comply with  the  proposal? 
What  will  be the  compliance  costs? 

Compliance costs will mainly relate to the production, or up-grading as appropriate, and printing 
of  information  material  describing  the  conditions  applicable  to  cross-border  credit  transfers 
(description of the different means available, indication of the cost elements, indication of the  time 
scale  for  execution  of  payments,  specific  warnings  with  regard to  certain  means  of  payment, 
reference to redress procedures available to users). Institution will also need to review the quality 
of the systems to ensure that the quality of the services they publicise  is  effectively  matched by 
the actual quality of service. This review will help institutions to identify  and eliminate internal 
inefficiencies,  thus significantly  contributing  to  the progressive  lowering  of the  cost  of service 
production and, consequently^the break-even point by reference to which to decide their charging 
policy vis-à-vis users. 

The cost of this will probably be partially or even wholly offset  by the marketing benefits  likely 
to result, as institutions learn to build a competitive advantage on the qualitative standards of the 
credit  transfer  services  they  provide,  as  a  way  of  attracting  new  or  specialized  customers,  in 
particular SMEs. 

Are there  other  administrative procedures  or forms  to  complete? 

No. 

Are licenses  or marketing  authorizations  required? 

No. 

Will  fees  be  charged? 

No. 

(3) 

EC Banking Federation, Annual Report, 1992; In 1991, the volume of cross-border payments represented  1,27% of the total volume 
of-all  non-cash  payments.  Cross-border  credit  transfers  accounted  for  29,5% (i.e.  117,6  million)  of  the  volume  of  cross-border 
payments.  However,  the value  of  a cross-border payment is  on average  significantly  higher than the  average  value  of  comparable 
domestic payments. 

41 

4. 

What  economic  effects,  costs  and  benefits  is the  proposal  likely  to  have? 
On  employment? 

Within  the  payment  systems  industry,  the  net  effect  is  considered  to  be  very  limited,  if  not 
positive. Within the segment of SMEs, employment benefits are expected to be significant (more 
efficient  payment services  -* widening  of intra-EU trade potential  -» contribution to growth and 
higher employment  •* greater and more specialized demand for efficient  payment services, etc.). 
See para.  l.b. 

On  investment  and the  creation  or start  up  of new  businesses? 

Ihe  investment  effect  will  no  doubt  be  positive,  as  institutions  may  be  expected  to  take  the 
opportunity to upgrade their services. The welfare gain referred to in para. 1 (in the medium/long-
term, at least  10 billion ECU per annum) will release considerable resources for investment and 
new business creation. 

On  the  competitive  position  of  businesses,  both  in  the  Community  and  third  countries' 
markets? 

The efficiency  gains and reductions in costs for business within the Community will be extremely 
positive  (See  paras.  1 and  4  above).  There  will  be  no  direct  effect  on third  country  business, 
although positive  spill-over effects  may be anticipated. 

On  public  authorities  for implementation? 

Beyond the purely legislative costs of passing the necessary domestic legislation, implementation 
costs may be negligible depending on the present state, of the law in the Member State concerned. 

Are there  other  indirect  effects? 

Not other than already stated in paras.  1 and 2. 

What  are the  costs and benefits  of the  proposal? 

• 

• 

costs: the cost of compliance for institutions is expected to have no exorbitant effect on the 
publicity  budget,  since  compliance  will  mainly  involve  the  production,  or up-grading  as 
appropriate, of informative material. As to the necessary review of systems, the scope for 
cost  elimination  is  expected  to  outweigh the  investment  costs  that  such  a review might 
determine to be necessary. 

benefits:  in its 1992 working document(4), the Commission indicated that about 50% of the 
estimated  400  million cross-border payments  fell  below  a 2 500  ECU threshold.  On this 
basis, it underlined the importance of early action to bring the performance of cross-border 
payment systems up to the standard of the best national systems. 

(4) 

"Easier  cross-border  payments,  breaking  down  the  barriers":  SEC(92)  621  of  27  March 
1992. 

42 

Taking  account  of  the  most important  present  and  prospective  elements (gradual 
completion  of  the  Internal  Market  programme,  move  towards  full  EMU),  gross 
benefits  in  terms  of  lower  costs  for  credit  transfers  have  been  conservatively 
estimated, in the medium/long term, at a minimum of  10 billion ECU per annum. 

• 

balance: overwhelmingly  positive on the benefit  side. 

5. 

Impact on SMEs. Does the proposal contain measures to take account of the specific 
effect  on  SMEs  -  if  not,  why  not?  Are  reduced  or  different  requirements 
appropriate? 

Yes.  The  proposal  lays  down  the  possibility  for  institutions  to  determine  their  own 
performance obligations. The one performance obligation which.cannot be contracted put 
of,  i.e.  the  obligation  to  refund  lost  or  failed  payments,  will  benefit  SMEs  to  a 
proportionately  larger  extent  than  large businesses,  as  the  value  ceiling  for  payments 
covered  by  it  is  relatively  small  (10.000  ECU).  As  might  be  expected,  SMEs  have 
expressed  a preference for the removal  of this value ceiling. However, the Commission 
believes  that,  at  the  level  set,  the  threshold  affords  SMEs  a  reasonably  appropriate 
coverage without having any significant  prudential  impact on the banking sector. 

Could there be higher thresholds which would exclude SMEs without threatening the 
effect  of the regulation? 

Not applicable, since the only threshold contained in the present proposal (10.000 ECU) 
defines  the  beneficiaries  of  the  directive.  Conversely,  there  is  no  qualifying  threshold 
defined  in  terms  of  size  of  business.  Such  would  not  be  appropriate  for  the  reasons 
already given to the previous question under item 5. 

Consultation 

6. 

Indicate at what stage the consultations were undertaken and the date of publication 
of the prior notification  of an intent to introduce legislation? 

The Commission has, over many years, promoted the fullest consultation of all interested 
parties and earliest disclosure  of its line of policy in this area. This has materialised in 
the following steps: 

Green Paper(5) (consultation paper) of September  1990, calling for comments from 
all  interested  parties;  annexed  to  the  Green  Paper  was  a  decision  to  set  up  two 
consultative groups; 

setting  up  of  two  permanent  consultative  groups  on  payment  systems  in  March 
1991, with intensive frequency of meetings throughout 1991 and early 1992, leading 
to reports to the Commission (in February  1992) published  in March 1992; 

(5) 

Discussion  paper on "Making payments in the Internal Market",. COM(90)447. 

43 

Commission working document of March  1992(dV based on the detailed reports of 
these consultative groups, announcing the Commission's proposed policy, including 
intent to introduce legislation  if voluntary  compliance was not forth-coming; 

communication^ from Mr Vanni d'Archirafi  and Mrs Scrivener tp the Commission 
of  December  1993,  noting  the  lack  of  progress,  recording  the  comments  of  all 
interested  parties  (consumers,  SMEs, distribution  trade, banks,  central banks) on 
necessary follow-up  measures; 

decision of the Commission laid down in this communication to undertake a second 
(and  definitive)  detailed  monitoring  exercise  in  the  second  half  of  1994  and  to 
introduce legislation if the results were not satisfactory; issuing of a first project for 
a proposal of a directive, attached to the said communication, to be discussed with 
all interested parties as well as with government experts, with a view to amending 
it in readiness for its adoption should this have proved to be necessary, in the light 
of the second study results. 

List of  organizations which have been consulted about the proposal  and set out in detail 
their main views, including their concerns and objections to the final  proposal. Why is it 
not possible or desirable to accede their concerns? 

European credit sector associations: views range from strongly opposed to reluctant to resigned 
(some of their detailed technical commentaries have however been acceded to and are taken into 
account in the current proposal). 

Government  experts: ad-hoc meetings on the first draft  directive. Mixed views, ranging from 
opposed  to  enthusiastic.  The  first  draft  of  a  proposal  for  a  directive  has  been  significantly 
amended to take account to the fullest  extent possible of their detailed views. 

SMEs: strongly in favour of the principles but preferred  self-regulation  provided that its effects 
could have been measured in the short term (which they have not been). 

Consumer organizations: widest support to Commission's legislative intervention. 

For further details of views, see section III of the Communication from Mr Vanni d'Archirafi  and 
Mrs Scrivener to the Commission  of December 1993. 

Were the SME Business Organizations formally  consulted? If not, why not? 

Yes, see immediately above. 

(6) 

(7) 

See footnote 4. 
"Transparency  and  performance  of  cross-border  payments";  SEC(93)  1968  of 
14 December 1993. 

44 

Monitoring  and  Review 

7. 

Explain  how the effects  and compliance  costs of the proposal  will  be monitored  and 
reviewed. How will complaints be dealt with? Can the proposal, once it is legislation, 
be amended  easily? 

The proposal  contains  in  its Article  9  an undertaking  on  the part  of  the  Commission  to 
report  on  these  matters  to  the  European  Parliament  and  Council.  The  necessary 
preparation  for  this  will  be  done  by  the  Commission  acting  with  its  existing  two 
consultative  groups  on payment  systems. 

There  is  no  comitology  procedure,  therefore  amendments  to  the  proposal,  once  this  is 
adopted,  will  require  normal  legislative  procedures. 

Contact  point 

Directorate  General  XV 
Dr.  Peter  TROBERG 
Àv.  de Cortenberg,  107 
B-1040 Brussels 

Tel:  295.41.09 
295.32.19 
295.94.62 
296.16.61 
Fax:  295.07.50 

45 

46 

ANNEX 2 

Draft 
NOTICE ON THE APPLICATION OF THE EC COMPETITION RULES 
TO CROSS-BORDER TRANSFER SYSTEMS 

47 

48 

Draft 
NOTICE  ON  THE APPLICATION  OF THE EC  COMPETITION  RULES 
TO CROSS-BORDER  CREDIT TRANSFER  SYSTEMS 

1. 

1. 

2. 

3. 

Scope 

This  notice  sets  out  the  approach  the  Commission  intends  to  take  when  assessing  the 
compatibility  of  cross-border  credit  transfers  systems  with  the  compétition  rules  of  the 
EC  Treaty. This document updates and replaces the "Principles  on competition for  credit 
transfer  systems"  contained  at  Annex  C  of  the  Commission  Working  Document  of 
27 March  1992(1). 

Several instruments can be used to make cross-border payments, including payment cards 
(charge  cards, credit  cards, debit cards and, in the near future,  pre-paid  cards),  cheques, 
and transfers (credit transfers and debit transfers, including direct debiting). Payments can 
either  be made  "face-to-face"  or remotely.  Competition  policy  is relevant  to all  types of 
cross-border payment systems. This notice is, however, limited to credit transfer  systems. 

Although  payment  systems,  including  credit  transfer  systems,  also  exist  within  single 
Member  States,  this  notice  is  limited  to  systems  in  so  far  as  they  carry  cross-border 
trade  between 
transfers.  Cross-border 
Member  States. 

systems  will  by  their  very  nature  affect 

2. 

Non-price  competition 

(1) Membership  in  a system 

4. 

(1) 
{2) 

The  question  of  membership  in  payment  systems  has  to  take  into  account  aspects  of 
Community  law other than the competition  rules. In particular,  where systems are set up 
by legislation  or guided by public authorities, the principles of freedom  of  establishment 
and freedom  to provide services-contained in the EC  Treaty  and  in  the  Second  Banking 
Directive(?) will be applicable. Those aspects of public regulation are not dealt with in this 
document. 

SEC(92)621  "Easier  cross-border  payments: Breaking  down the  barriers". 
Second  Council Directive of  15 December  1989 on the coordination  of laws,  regulations 
and  administrative  provisions  relating  to  the  taking  up  and  pursuit  of  the  business  of 
credit  institutions  (89/646/EEC),  1989 OJ L386/1. 

49 

5. 

6. 

7. 

8. 

Private arrangements between banks setting up hew or linking existing systems will have 
to comply  with Articles 85  and 86 of the EC Treaty. 

As  a general  rule, a system  which  constitutes an  "essential  facility"  should be  open  for 
further  membership  (provided  that  candidates  meet  appropriate  criteria)  and  must  not 
prevent individual  members from taking part in other systems.  Factors indicating that a 
system might be an essential facility include a high market share or a significant number 
of participants.  A system that does not have a significant  position  on the overall  market 
may  be  important  for  particular  types  of  banks  and  could  also  constitute  an  essential 
facility  for the types of bank in question. 

A payment system that constitutes an essential facility may apply membership criteria that 
are objectively justified.  Criteria should be written and accessible.  They can concern, for 
example,  the  financial  standing,  orderly  management  and  technical  capacities  of 
participants. 

As  regards  criteria based  on  volume,  it  will  be  legitimate  to  require  that  the  expected 
traffic  generated  by  a candidate  should not be  negligible.  But  payment  systems  should 
wherever possible permit participation by banks of varying sizes. Thus, instead of basing 
a membership criterion simply  on expected volume,  it may  often  be preferable to make 
the candidate's own decision depend on economic considerations (for example, a high flat 
rate  contribution  representing  the  participation  in  previous  investments  by  other 
participants; however the share of the entrant must not exceed  a fair  share of the actual 
cost  of  past  investments).  Where  foreign  banks  apply  for  membership  in  a  domestic 
transfer  system,  their expected  volume may be ljow in the beginning;  in  such cases the 
type  of business, the experience  and the volume of payment transactions in the country 
of  origin of  such banks should be taken into account. 

9. 

Refusal  of  membership  or  exclusion  should  be  subject  to  an  independent  review 
procedure. 

10.  Members of  a system which is not an essential  facility  (see paragraph )  are not obliged 
to open their system to further members and may be capable of obtaining an exemption 
under  Article  85(3)  if  they  prevent,  in  order  to  ensure  adequate  volume,  individual 
members from taking part in other systems. 

50 

(2)  Operation of a system 

11. 

Banks within à  system  can. agree  standards relating  to  the  operation  of  the  system,  the 
kind  and  quality  of  transactions  to  be  processed  by  the  system,  and  security  and risk 
management rules. However,  such agreements: 

(1)  must  be  limited  to  inter-bank  relations  and  must  not  lead  to  concerted  practices 

vis-à-vis customers; and 

(2)  must not lead to any exclusivity arrangement: customers must remain free to change 
banking  connections  from  one  institution  to  another,  or  to  bank  with  several 
institutions simultaneously. 

12. 

Agreements  on standards could  include the  following: 

(1)  agreements on operational  standards, including: 

- 

standardized  message  formats  and  routing  identifiers  (but  agreements  on 
eligible hardware should be avoided); 

rules on transaction times, for example stipulating that value will be received 
by the beneficiary bank of a credit transfer by a certain deadline if a payment 
order is received by a certain time (but such arrangements must, in particular, 
not lead to concerted value dating practices vis-à-vis customers); 

settlement arrangements,  for example the modalities  of  how  settlement  is to 
be achieved, of agreeing settlement totals, and of agreeing the point at which 
settlement  can be  considered final. 

(2)  where justified,  agreements on transaction  standards, including: 

maximum  and minimum  amounts to be processed by  a system; 

the  minimum  information  necessary  for  a  transfer  to  be  sent  through  the 
system. 

(3)  agreements on security  and risk management  rules, including: 

criteria for the granting of settlement status and the management of settlement 
accounts; 

arrangements  relating  to  liquidity  standards  (for  example,  a requirement  to 
post sufficient  collateral  to cover exposures); 

prearranged  sharing of losses from  defaults  of participants. 

51 

3. 

Price competition 

(O Pricing vis-à-vis customers 

13.  Here, s in other areas of banking competition, no agreements between participating banks 
on prices of transactions with their customers can be accepted. Any agreements  affecting 
inter-bank  relations must leave banks free to determine the offers  which they  can make 
and conditions they will apply their customers. 

14. 

15. 

(2) Costs of systems and central bodies 

. 

The costs incurred by the setting up of a system and those arising out of the operation of 
a central body (for  example, an ACH^),  can be shared amongst participating banks by 
means of,  for  example, an ACH tariff  (which might vary according to volumes or other 
pre-established  conditions) charged to participating banks. If setting up costs have been 
necessarily incurred by beneficiaries' banks, it might be justifiable to pay for those costs 
by means of a collectively  agreed interchange fee (as to which,  see below). 

(3) Interchange fees in multilateral  systems 

(a) Indispensability 

The  remainder  of  this  notice  deals with  collectively  agreed  interbank  transaction  fees 
(multilateral  interchange  fees).  As  the  Commission  stated  in  its  decision  in  the 
Dutch Banks case, the position of the Commission is that only in exceptional cases, where 
agreements on multilateral  interchange fees  are shown to be actually  necessary  for  the 
successful  implementation  of  certain  forms  of  cooperation,  positive  in  themselves, 
between a number of banks, may agreements on interchange fees be capable of obtaining 
an exemption under Article 85(3)(4). It is not for the Commission to impose any particular 
arrangements on banks. Where, however, banks introduce interchange fee arrangements, 
the  Commission  (in  applying  the  criteria  set  out  in  Article  85(3)  for  obtaining  an 
exemption) will need to examine the economic benefit which these arrangements seek to 
achieve and consider whether consumers will receive a fair share of the resulting benefit 
and whether the particular interchange fee arrangements are actually necessary as a means 
to achieve that  benefit. 

(3) 

(4) 

Automated Clearing House: a national payments clearing body. 
Decision of  19 July  1989, Dutch Banks, OJ  1989 L253/1, at paragraph 26. 

52 

(b) Double  charging 

16. 

17. 

"Double charging" occurs when the sender of a cross-border transfer  requests to pay all 
the  charges  of  the  transfer  (a  so-called  "OUR"  transfer*5*),  but  nevertheless  either  an 
intermediary  bank  or  the  beneficiary's  bank  makes  a  deduction  from  the  amount 
transferred or the beneficiary's bank makes a charge to the beneficiary  over and above the 
charge that would be made for  a domestic transfer. 

The Commission  considers that the possibility  for  customers to  make  OUR transfers  is 
beneficial.  In certain circumstances,  agreements on multilateral  interchange fees may be 
necessary  in  order to  avoid  the  practice  of  double  charging  cross-border  transfers  thus 
enabling banks to offer OUR transfers. If interchange fee arrangements were accepted for 
OUR transfers,  that  does  not imply  that banks  should  impose  OUR  payments  on  their 
customers(6). 

(c) Costs for  cross-border transfers 

18. 

To  carry out a cross-border transfer may require  extra tasks as compared to a domestic 
transfer: 

((1)  In relation to the  system  as a whole,  a new  system  may  need  to be started up, or 

an existing  system  modified,  to process cross-border transfers. 

(2) 

In relation to the transfer itself: 

(i)  a cross-border transfer  may need  to be  reported to the balance  of  payments 

authorities as an incoming payment(7); 

(ii)  the payment may need to be converted into the currency  of the  beneficiary; 
(iii)  the beneficiary may require more information (for example, details relating to 

the payment  order) than is normally given for domestic payments; 

(iv)  the  details  of  the beneficiary,  their  account  number  and the  bank  sort  code 

need to be verified  since this information  is often  incomplete  or incorrect; 
(v)  the  payment  order  needs  to  be  reformatted  if  it  is  to  be  processed  by  the 

clearing circuit in the destination country. 

(5) 

(6) 

(7) 

Transfers can be described as "OUR", "SHARE" or "BEN" depending on how the charges 
are allocated: 

-  OUR: all  charges to sender four charges); 
-  SHARE: share costs between  sender and beneficiary; 
- BEN: all  charges to the beneficiary. 

This is without prejudice to the outcome of coordination proposals which the Commission 
is making which if adopted would make OUR transfers the default solution where nothing 
has been  specified  by the sender of the transfer. 
These  statistical  reporting  requirements  vary  as  between  the  Member  States.  The 
Commission  is  actively  pursuing  an  exemption  from  all  reporting  requirements  for  all 
intra-Union  payments below ECU  10 000. 

53 

19. 

20. 

21. 

In  an  ideal  situation  (where  making  cross-border  payments  would  be  assimilated  to 
making  domestic  payments)  these  extra  tasks  would  no  longer  be  needed.  In  such  a 
situation,  which will  not occur for  some time to come, the costs for receiving  transfers 
from abroad should not be higher than those for receiving domestic transfers, the problem 
of  double  charging  should not  arise,  and multilateral  interchange  fees  would  not  seem 
necessary. 

(d) Avoiding double charging where cross-border transfers give  rise  to specific  costs 

In the  absence  of  this  ideal  situation  there will  be  extra tasks  required  to  make cross-
border transfers (paragraph above). Whenever the sending bank or a correspondent bank 
or  ACH  are  able to  carry  out  those  extra tasks,  the  transfer  could  be  entered  into the 
domestic clearing circuit of the destination country as if it were a domestic transfer. This 
means that there would for the beneficiary's bank be no difference  between receiving a 
transfer that has originated in another country and receiving a purely domestic transfer00. 

In  such  a  situation,  the  problem  of  double  charging  should  not  arise,  and  multilateral 
interchange fees would not seem necessary.  This is one way in which extra tasks can be 
carried out without the need for multilateral  interchange fees. 

Nevertheless,  the  Commission  recognizes  that  there may  continue  to  be  circumstances 
where a beneficiary's bank will necessarily continue to face additional costs for the receipt 
of  a cross-border transfer as compared to a domestic transfer.  In particular,  that will  be 
the  case  in  those  Member  States  which  require  that  the  beneficiary's  bank  report  an 
incoming  payment  to  the  balance  of  payments  authorities,  or  which  require  that 
beneficiaries  receive  more  information  from  their  bank  than  is  normally  given  for 
domestic payments. That will  also be the case where beneficiaries'  banks have incurred 
the costs of setting up new systems (and here again the position will vary as betweenthe 
different  Member  States).  In  such circumstances  it  may  be justifiable  for  banks in the 
destination country to agree a multilateral interchange fee, to cover those additional costs, 
in  order  to  avoid  double-charging.  Such  an  interchange  fee  might  be  agreed  between 
participants in an ACH, or generally between all or most banks of a particular country. 

(8) 

Once a payment (of whatever origin) has been fed  into a domestic  clearing  system, and 
is thus necessarily  indistinguishable  from  a domestic payment,  it  should be treated  as a 
domestic payment, also as far as costs and prices are concerned. 

54 

22.  An arrangement between participants in an ACH would  cover the necessary  extra costs 
of beneficiary's  banks by means of an interchange fee agreed between the ACH and the 
participating  beneficiary's  banks.  This  multilaterally  agreed  interchange  fee  would  be 
based on the actual  extra costs of the beneficiary's  banks, and could be included  in the 
overall  (bilateral)  fee  charged  by  the  ACH to  sending  banks  (or  sending  ACHs). The 
ACH  would  remunerate  beneficiary's  banks  for  their  necessary  extra  costs  by 
redistributing to them the interchange fee. 

23.  An arrangement between all or most banks of a particular country would again cover the 
necessary  extra  costs  of  beneficiary's  banks  by  means  of  an  interchange  fee  agreed 
between  all  participating  beneficiary's  banks. For  any  particular  transfer,  one  of  those 
banks  would  be  acting  as  the  correspondent  (entry  point)  bank  for  the  sending  bank. 
Again, any multilaterally agreed interchange fee would be based on the actual extra costs 
of the beneficiary's banks, and could be included in the overall (bilateral) fee charged by 
correspondent banks to sending banks (or sending ACHs). The correspondent bank would 
remunerate beneficiary's  banks for  their necessary  extra costs by  redistributing to them 
the interchange fee. 

24.  Where multilateral  interchange fees  can be justified  as being necessary to avoid double 

charging, they should meet the following conditions: 

(1) 

(2) 

the levels of any such fees should be set by reference to the actual additional costs 
incurred by beneficiary's  banks, which presupposes perfect  transparency in respect 
of these fees; 

the  fees  should  be  defined  as  maxima.  Members  of  a  system  with  maximum 
interchange fees must be permitted, but are not obliged, to negotiate fees below the 
maximum, for  example through bilateral  rebates between participants. 

55 

56 

ISSN 0254-1475 

COM (94) 436 final 

DOCUMENTS 

EN 

09 

Catalogue number : CB-CO-94-468-EN-C 

ISBN 92-77-81210-9 

Office  for Official  Publications of the European Communities 

L-2985 Luxembourg 

57