HUNGARY National S PA Plan April 2013 Version 3.0

Transcription

1 HUNGARY National S PA Plan April 2013 Version 3.0

2 Table of Contents Foreword to the new version... 3 Hungary National SEPA Plan... 4 I. Background the SEPA initiative Objectives of the Single Euro Payments Area SEPA implementation institutions SEPA migration Expectations from national SEPA organisations... 9 II. SEPA in Hungary SEPA implementation in Hungary National Changeover Plan for the Euro III. Medium-term strategy of the Hungarian SEPA Association IV. Adoption of SEPA payment instruments in the Hungarian domestic payments system Setting the development targets The Payments System Council Principles The Payments System Council Intraday clearing system - HCT Collections HDD E(lectronic)-Payments, M(obile)-Payments V. The Hungarian SEPA Association Foundation Objectives Organisation Communications tools to promote the use of SEPA payment instruments in Hungary Reporting tasks related to the SEPA payment schemes Annex 1 EPC Declaration Annex 2 - SEPA payment schemes and other products in Hungary - infrastructure specifics SEPA payment schemes and other products in Hungary - infrastructure specifics SEPA Credit Transfer (SCT) SEPA Direct Debit (SDD) SEPA Cards Framework (SCF) National Cash Plan Other payment products Factors affecting the development of the SEPA infrastructure Annex 3 Hungary Roadmap for SEPA Annex 4 Actions set out in the National Cash Plan Annex 5 Documents list

3 Foreword to the new version 1 The former version of the Hungary National SEPA Plan was published in March Important changes that have taken place since then have made it timely to update the plan. The most important changes are as follows: The European Parliament and the Council have published Regulation (EU) No. 260/2012 of March 14, 2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009, which sets an end-date also for the non-euro-area member states for migration to SEPA (October 31, 2016) A fundamental restructuring of the governance of the SEPA project has started. The redesigning of the Hungarian domestic payments framework in compliance with the SEPA standards and rules has begun: payments in forints are now transacted according to the SEPA standards and credit transfers are executed by using SCTcompliant HCT message standards. We have started examining the possibilities for redesigning domestic HUF credit transfers to meet the SEPA standards and rules. A new version of the National Cash Plan has been completed. Significant progress has been made in the implementation of the SEPA Cards Framework. We have started assessing the possibilities and developing a strategy for e-sepa, based on the relevant EU developments. As a none-euro-area EU member state, Hungary has compiled and manages its National SEPA Plan according to the following aspects: Effective October 31, 2016, all payments in euro shall be executed according to the SEPA standards and rules. According to the current state of affairs, the euro is not expected to be introduced in Hungary before Accordingly, the Hungary National SEPA Plan is determined by the fact that Hungary will not become a member of the euro-zone within the time horizon of the Plan. In preparation for the October 31, 2016 migration end-date, the Plan contains elements to be developed in the next version to identify the stakeholders to be involved in SEPA migration and a future changeover to the euro. The new version contains the development projects that have been or are being implemented according to the SEPA standards and rules. The Hungary National SEPA Plan is regularly reviewed and updated. A key task for the National SEPA Association is to familiarise stakeholders with the SEPA objectives and to secure their commitment to the strategic and practical implementation of SEPA. 1 This new version of the Hungary National SEPA Plan has been adopted by the Hungarian SEPA Association's Council after consultations with the professional organisations involved. 2 The chapter "SEPA schemes and other products" has been relocated into Annex 2 of this version. 3

4 Hungary s National SEPA Plan The first version of the Hungary National SEPA Plan was compiled by an ad hoc working group made up of specialists from commercial banks, the central bank and the Hungarian Banking Association. The plan was adopted by the Hungarian National SEPA Committee. Following completion of the registration process, the Hungarian SEPA Association adopted its Statutes and commenced operations in the first quarter of With the foundation of the Association, tasks related to the Single Euro Payments Area, previously performed by various organisations of the banking community, have been integrated into a single organisation. Accordingly, the Hungarian SEPA Association is now the organisation responsible for the management of the Hungarian National SEPA Plan. The Hungary National SEPA Plan is aimed to support the execution of euro payments according to the SEPA standards and rules. Accordingly, the actual SEPA migration plan should be developed once the target date for Hungary's changeover to the euro has been announced. Even without a euro target, the Hungarian banking system is actively working on SEPA implementation. To this end, - EU Regulation No. 260/2012 defines statutory requirements for credit transfers and direct debits in euro. - The recent development projects and those proposed have been and will be implemented according to the SEPA standards and rules, in line with the relevant decisions of the national organisations responsible for the development of the payments system. The Hungarian SEPA Association is involved at request in the preparation of these decisions by assessing the feasibility of the projects according to the SEPA standards. The development of the domestic HUF payments system based on the SEPA standards is considered as an integral part of SEPA migration and should be included in the Hungary SEPA National Plan. EU Regulation No. 260/2012 requires non-euro-area member states to comply with the SEPA standards in relation to euro credit transfers and direct debits by October 31, The Hungarian SEPA Association's tasks for 2012 included the development of a rethought strategy based on the EU regulation, determining the focuses for SEPA roll-out by the end of 2016 (without the adoption of the euro). 4

5 I. Background the SEPA initiative 1. Objectives of the Single Euro Payments Area The removal of barriers to the free movement of people, goods, services and capital across borders is key to creating a single European market. Economic and monetary union has laid the foundation for the integration of goods and services markets in Europe. The introduction of the euro was another milestone of this integration. While consumers in the euro area have dealt in euro since January 1, 2002, the payments services markets in the various EU member states are still partly organised on a national basis. The European Commission and the European Central Bank (ECB) have decided to further develop the integration of the payments services markets, assigning the financial industry and banking communities a key role in this process. EC Regulation 2560/2001 in December 2001 (replaced from November 2, 2009 by EC Regulation 924/2009) was the first step in aligning the charges for cross-border and domestic payments in euro, by providing that the charges levied by an institution for cross-border payments in euro should be the same as those for payments in euro within a member state (initially up to a limit of EUR 12,500, subsequently raised to EUR 50,000). The banking industry has fully committed itself to this political initiative. As a follow-up of this regulation, European banks in 2002 established the European Payments Council (EPC) to manage and coordinate industry activities aimed at creating a Single Euro Payments Area (SEPA). Financial institutions outside the euro area were also invited to join and participate in the EPC's work. Accordingly, the Hungarian banking community was also given the opportunity to take part in this creative effort. The main idea of SEPA is to promote European integration through an innovative and competitive system for payments in Euro, ensuring high-quality payments services for EU citizens and businesses, with more efficient products, provided at lower costs. The purpose of SEPA is to replace national systems with a single pan-european payments system. This will require a common currency, standard payment instruments, common technical standards and business practices, efficient clearing and settlement mechanisms, and harmonised legal frameworks. 5

6 SEPA rules and instruments will not only increase the level of standardisation and efficiency of cross border payments, but will also redesign the domestic payment services framework. The full-scale implementation of the SEPA payment schemes will result in the full harmonisation of cross-border and domestic payments, irrespective of the location where the transaction is initiated or where the account is maintained and irrespective of the payment infrastructure or the processing service provider. The criteria of efficiency and standardisation will foster competition between service providers and clearing houses, thereby improving service quality and impacting fees in the SEPA member states. SEPA will benefit customers through ensuring fast and standard administration of their payments in euro within the SEPA zone. The European banking industry has fully committed itself to the objectives of SEPA and the EPC has reaffirmed this commitment by a Declaration (See Annex 1.) Although the objectives of SEPA primarily apply to the euro area, the EU expects all 27 member states to make the SEPA payment schemes accessible to all. To share in the benefits of standardisation, non-eu member states of the EEA: Iceland, Norway and Liechtenstein, furthermore, Switzerland and Monaco have also joined the project. In summary: the implementation of SEPA standards, schemes, frameworks and payment instruments in the euro area will result in higher efficiency ensuing from standardisation, increased competition and lower fees. Market growth promotes innovation, and users will benefit from being able to manage payments with 32 countries through a single infrastructure. The ultimate goal is to enable account holders to make credit transfers in euro from the same account and in the same form across SEPA as easily as they do within their local market. The SEPA roadmap is aimed at replacing current payment instruments in the euro area (transfers, collections and card payments) with SEPA payment schemes and creating a common framework for card payments. SEPA migration in Hungary began with the implementation of the SCT in 2008, followed by the SDD in Figures collected since then have shown that the initial goal envisaged (reducing the social costs of payments) cannot be achieved on a voluntary adherence basis, without a mandatory implementation deadline, therefore, political measures are needed. These should include two elements: 1. On March 14, 2012, the EU issued Regulation No. 260/2012, providing for mandatory deadlines for the implementation of SEPA credit transfers and direct debits in both the euro and non-euro-area member states and defining the necessary and sufficient conditions for a credit transfer and direct debit to be considered as SEPA compliant. 2. A comprehensive review of the governance of the SEPA project is in progress, including the institutionalisation of the decision-making mechanism and the related tasks, with a view to ensuring that all players affected are involved in the SEPA migration process. This review will probably entail the rethinking of the objectives and operations of the national SEPA organisations. 6

7 2. SEPA implementation institutions In view of the recently launched review of SEPA governance, this section of the plan will be updated once the specific measures are available. Developments in 2012, in particular, the adoption of Regulation No. 260/2012, the political demand to improve the governance arrangements of SEPA, and the debates around certain concepts of the EPC, especially, the competition law concerns regarding the proposed SEPA e-payment Framework have entailed changes in the EPC's tasks. The EPC has ceased activities related to the e-payments Framework and stopped or suspended the operations of the working groups charged with drafting the relevant technical proposals. The EPC has also suspended activities regarding the Pan-European Automated Clearing House concept (PE- ACH/CSM Framework), although in this case with the intention of reassessing the concept and consider whether or not to restart the project. The new SEPA governance arrangements should provide appropriate answers to the current situation, including striking a balance between political interests, professional possibilities and expectations and technical possibilities. What can be known about the proposed governance arrangements at this point is that alongside the European Commission and the European Central Bank, payment service providers and, with equal importance, user organisations would also be involved in the governance of the SEPA project. The European Commission's proposal is not available at the time of writing these lines. 7

8 3. SEPA migration Regulation (EU) No. 260/2012 of the European Parliament and the Council of March 14, 2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009 sets an end-date for migration to the SEPA Credit Transfer and Direct Debit Schemes and provides for special transitional deadlines and rules as follows: 1. February 1, 2014 SEPA migration deadline for credit transfers and direct debits within the euro area 2. February 1, 2014 No BIC to be required for domestic euro payments 3. February 1, 2016 No BIC to be required for cross-border euro payments 4. February 1, 2017 National transaction MIFs (multilateral interchange fees) to be eliminated for direct debits. 5. November 1, 2012 Cross-border transaction MIFs eliminated for direct debits; 6. February 1, 2016 UNIFI message standard to be applied on a mandatory basis; Niche products migration complete; Migration of payment card collections to SDD complete 7. October 31, 2016 SEPA migration deadline for euro credit transfers and direct debits in the non-euro-zone EU member states The Regulation mandates the use of the International Bank Account Number (IBAN), for businesses only: the use of ISO for SEPA credit transfers and direct debits between payment service providers and for the bundled transmission of credit transfers and direct debits in euro by business users that are not microenterprises. Compliance with the technical requirements provided by the Regulation is ensured by the SCT and SDD standards, developed and managed by the European Payments Council. No additional SEPA standards are expected to be issued. Although non-euro-zone member states are full-fledged members of SEPA, SEPA implementation in these countries should be carried out by ensuring the long-term reachability (until their adoption of the euro) of their existing domestic payment infrastructures in accordance with current needs, while enabling them to flexibly meet EU market needs. The deadline for the adoption of the SEPA payment schemes in these countries means full compliance in relation to credit transfers and direct debits in euro. At the same time, it should be examined how the different migration deadlines for euro-zone and non-euro-zone member states will affect the execution of payments between a euro-zone and a non-euro-zone member state. This is particularly important in the case of the SCT. 8

9 4. Expectations from national SEPA organisations The restructuring of the governance arrangements of the SEPA project began in Given that the European Commission's proposal was not available at the time of preparing this version of the Hungary National SEPA Plan, this section of the plan will be updated once the specific measures are available. The national SEPA organisations are responsible for defining the rules, timeline and technical support required for the partial or full integration of current payment instruments with the SEPA payment schemes. This body is also responsible for identifying the products that will be replaced with SEPA payment instruments and those to be retained as special instruments in domestic payments. The timeline for SEPA implementation will be largely influenced by the infrastructure available and market players' disposition and attitude to accepting and using the new payment instruments in the country in question. The objective, of course, is to make the transition period - the period of coexistence of the old and new products - as short as possible. However, the deadline for switching to the new payment schemes will largely depend on the acceptance of the new payment instruments by the market. Easy access, customer-friendliness, fees and other benefits in execution compared to the old products will be key factors. Given that implementation will largely depend on the market, the national implementation organisation will have an important role in maintaining regular and meaningful communication with users (market players, government) and monitoring user needs and requirements. However, experience has also shown that the timetable for SEPA migration cannot depend solely on market acceptance. To ensure that the economic and social benefits of SEPA can be best realised, migration to the SEPA payment instruments should be implemented within a relatively short time. Accordingly, while mindful of market realities and customer attitudes, early migration to the SEPA payment schemes should also be promoted through appropriate legislative measures. Furthermore, national SEPA implementation organisations will have to work towards ensuring that these needs are communicated to the EPC's competent working groups during the development of new products or the national review of new schemes. 9

10 II. SEPA in Hungary 1. SEPA implementation in Hungary The Hungarian payments market is a non-euro-zone market, and the implementation of SEPA payment instruments in Hungary should be planned accordingly. The volume of euro payment transactions is substantially lower than that of forint transactions, and all transactions in euro, whether domestic or cross-border, are settled outside Hungary, through international intermediaries and clearing and settlement systems. There is no difference between domestic and cross-border payments in terms of technology, infrastructure, administration or costs and this will not essentially change after the implementation of the SEPA payment schemes in Hungary. After the introduction of the euro, all these transactions will be automatically treated as domestic transactions. Banks in Hungary are connected to the European clearing systems (EBA STEP2, Equens, STET, etc.) either directly through their parent banks or through bilateral agreements with other European banks. Accordingly, they can implement the SEPA payment schemes, either through developing the relevant products according to the Rulebooks and choosing the SEPA compliant connection point, or through their parent banks, using their technology infrastructure. SCT and SDD implementation in Hungary began on January 28, 2008 and November 2, 2009, respectively, in line with the relevant European timetables. Given the non-euro environment, no decision has been made on a sector-level (national-level) implementation. Implementation and confirmation of compliance is the individual responsibility of each bank. Hungarian banks are now working towards ensuring (subject to their readiness) that all client payment orders in euro, if meeting the SEPA standards, are treated and executed as SEPA payments. This, however, does not apply to transactions that due to their data contents or other attributes cannot be processed as SEPA payments. These will continue to be treated similarly to payments in other currencies or payments made outside the EU. An important milestone from the point of view of the future introduction of the euro in Hungary is Regulation (EU) No. 260/2012 of the European Parliament and the Council of March 14, 2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009. Pursuant to this, it should be ensured that effective October 31, 2016, all credit transfers and direct debits in euro are initiated and received in accordance with the SEPA standards and rules. The Regulation also provides for a number of transitional actions, some of which affect SEPA migration in Hungary, some don't. Although the regulation does not apply to forint transactions, for the sake of good order it should be noted that there are no multilateral interchange fees are applied to direct debits in Hungary and payment card collection is non-existent as a payment method in Hungary. 10

11 At the same time, the elimination of BIC is an issue to be addressed. Alos, it should be assessed whether there are any niche products in our euro payments, and if positive, an action plan should be drawn up for phasing them out or for redesigning them. This latter issue will affect the product portfolios of the individual banks. 11

12 2. National Changeover Plan for the Euro 3 As yet, Hungary has no set target date for the introduction of the euro. However, given the diversity, depth and time requirement of the tasks involved, the Government commenced practical preparations and set up a National Euro Co-Ordination Committee (NEC) on September 12, The NEC is chaired by the Minister of Finance and co-chaired by the Governor of the MNB. In addition to government bodies, professional associations and NGOs are also actively involved in the NEC's operations. Following broad consultations, the NEC completed the first version of the National Changeover Plan for the Euro. The plan sets out tasks for the various economic players and professional areas, proposed regulatory changes related to the introduction of the euro and recommendations to promote changeover in the private and public sectors. The first revision of the National Changeover Plan has recently been completed. The National Changeover Plan for the Euro sets out the main principles and milestones for the introduction of the euro in Hungary. According to the Plan, the euro will be introduced in Hungary in a single step. The main principles and milestones for the introduction of the euro in Hungary are shown in the figure below. The National Euro Co-Ordination Committee has set up various sub-committees. The Hungarian banking community is represented by the Hungarian Banking Association on the Financial Sector Sub-Committee. The Hungarian SEPA Association is also involved through the Hungarian Banking Association in the Committee's work. The National Changeover Plan also makes reference to SEPA migration, highlighting that the progress of SEPA migration and updates from the Hungarian SEPA Association will be considered as key information from the point of view of the introduction of the euro in Hungary. At the time when the National Changeover Plan for the Euro was adopted, the envisaged changeover date was Currently, optimistic forecasts estimate the changeover date to be Based on this, it is expected that the final National Changeover Plan will be a rethought and significantly revised version of the current plan. 3 The latest version of the National Changeover Plan is available on the MNB' website at and on the website of the Ministry for National Economy at 12

13 National Changeover Plan for the Euro - Timeline 13

14 III. Medium-term strategy of the Hungarian SEPA Association At its meeting of October 25, 2012, the Hungarian SEPA Association reviewed and adopted its new medium-term strategy for the period between 2012 and The new strategy was developed through a broad consultation process. The need for this new strategy was prompted by developments affecting the banking sector and SEPA in Hungary and internationally, including: - the restructuring of SEPA governance, the emergence of political, competition law and consumer protection concerns; - the SEPA end-date regulation; - innovations in electronic and mobile payments require the development of a highlevel integration strategy, the banking sector is "just" one player in the process; the implementation of e-sepa as proposed by the EPC has become an open question, namely, whether its should be implemented through cooperation or through competition; - the income position of the Hungarian banking sector prompts banks to delay projects that are not pressing from a demand point of view. In line with these developments, the Hungarian SEPA Association's new strategy and action plan are primarily focused on SCT and SDD implementation in Hungary. In addition, the Association may, at request, cooperate in other projects (the further development of domestic HUF payments schemes, electronic and mobile payments), if such projects are connected with SEPA. The Hungarian SEPA Association's Council's Resolution of October 25, 2012 states as follows: RESOLUTION: The Council unanimously adopted the Hungarian SEPA Association's vision, in accordance with the responses received from members to the questionnaire and the positions, comments and proposals presented at the Council's meeting. The Secretariat is invited to draft the Association's work plan for the period ending 2016 and present it to the Council's meeting of December The Council Meeting adopted the following decisions: In determining the future role and operations of the Hungarian SEPA Association, we should await the new SEPA and EPC governance arrangements. The Association shall duly pay its EPC membership fee for The Association should focus on its current tasks. Any other tasks outside of SCT and SDD implementation should be confined to monitoring. The Association should develop an action plan for the period ending December 31, 2016, which may later be complemented with tasks ensuing from new SEPA developments and SEPA-related decisions of the Payments System Council. The organisation responsible for SCT and SDD migration is appointed by government decree. The Association's responsibility is to relay information, not to teach it. The HDD study shall be delivered to the Payments System Council, while any further action shall be subject to mandate by the Council. 14

15 The Association will not initiate the implementation of new payment methods. However, it will provide professional support for such initiatives, if relevant to SEPA. The information material on e-payments will be forwarded to the Payments System Council, but the Association will not deal with e-payments and m-payments in the future. However, the Association will provide professional support for such initiatives, if relevant to SEPA. A document will be prepared for the uniform implementation of the HCT-C2B and B2C standards.... In line with the Association's new medium-term strategy, the Council Meeting of December 14, 2012 adopted the Hungarian SEPA Association's Action Plan for the period between 2013 and 2016 as follows: Tasks for 2013 Complete and publish the XML Account Statement (B2C); Prepare communications material for the HCT-C2B and B2C implementation; Define actions linked to the deadlines set in the End-Date Regulation (SEPA Regulation 260/2012). Prepare document to support payments system participants' SEPA compliance; Further examine the possibilities for SDD implementation for domestic payments. Determine the main principles for HDD; Monitor SEPA cards chip migration (EMV); Review the Association's structure and operations after the new SEPA governance structure is approved; Prepare information document to address the discrepancy caused by the different end-dates for euro and non-euro area member states, encourage SCT migration by the euro area end-date; Recommend to payment service providers the early implementation of the SCT és SDD schemes and explain the consequences of non-implementation of the schemes. Tasks for Monitor SCT and SDD implementation by Hungarian banks. Reiterate the importance of implementation; Monitor SEPA cards chip migration (EMV); Align National Cash Plan with EPC/ECB requirements. Ongoing actions to be carried out by the end of 2016 (not linked to specific deadlines) Operate working groups to carry out the tasks approved by the Council Meeting and those set by EU institutions in relation to SEPA processes; Regularly review and update the C2B and B2C standards; Monitor and coordinate compliance in Hungary with the requirements set by the EPC, the ECB and the European Commission concerning the various SEPA processes; Coordinate and support the implementation of tasks related to SEPA-relevant payment methods and processes; Recruit stakeholders (companies, consumer organisations, public institutions) to increase membership of the Association. Communicate SEPA information and knowledge through available channels; Hungarian NASO to provide support for those seeking to adhere to the SCT/SDD schemes; 15

16 Carry out additional impact and feasibility studies on the proposed HDD scheme (when so requested by the Payments System Council); In view of the latest SEPA developments, examine the possibilities for the development of SEPA-compliant Hungarian standards for e-payments. Monitor European standards for mobile payments and assess the possibilities for their application in the Hungarian market; Cooperate with SEPA organisations in Central and Eastern Europe; Update the strategy once a euro target date is set. The Association's strategy and action plan are subject to review on a regular basis and at least on an annual basis. If developments in Hungary and/or internationally so require, the strategy may be modified and the scope of the tasks broadened. 16

17 IV. Adoption of SEPA payment instruments in the Hungarian domestic payments system 1. Setting the development targets The Payments System Council 1.1. Principles In terms of purpose and function, the SEPA payment schemes correspond to the current domestic payment instruments. The UNIFI messages used in the SEPA payment schemes can accommodate more information. The domestic payment message contains all the key message fields that are present in a SEPA message. At the same time, even with certain Additional Optional Services (AOS), the application of the SEPA standards to certain domestic payments (transfer of funds by court order, cheque and bill of exchange collections) is difficult under the current rules. Hence, these rules should be reviewed and modified for full SEPA compliance. The SEPA standards and, partially, the SEPA payment schemes can be adapted to the current domestic payment instruments, since, by definition, the SEPA payment schemes are designed to be the common payment instruments of the single European payment services market. The real question is what the timeline for the adoption of SEPA standards and, partially, the SEPA payment schemes should be. Hungarian banks are of the view that this should be done before the introduction of the euro in Hungary, since the adoption of the SEPA standards will improve the international competitiveness of the Hungarian corporate sector: SEPA standards ensure the end-to-end straight-through processing (STP) of payments; Smooth changeover to the euro can be best ensured through early adoption of the SEPA standards. By the time the euro is introduced in Hungary, all of Hungary's major trading partners will have adopted the SEPA payment schemes. Introducing the SEPA payment schemes then would burden Hungarian banks at a time when all their competitors are focused on new developments; Banking and corporate software suppliers now consider the SEPA standards as the starting point. Any adaptation to other requirements would entail extra costs; Any non-sepa-compliant enhancement would result in unrecoverable extra costs for service providers; The use of SEPA-compliant electronic payment services would boost payments transacted from current accounts and related fee revenues. With the introduction of intraday clearing, the adoption of the SEPA standards for credit transfers has been completed. The intraday clearing platform exclusively processes SEPAcompliant messages. After a temporary period of parallel use, the current clearing platform may be replaced with the new SEPA-compliant platform. 17

18 1.2. The Payments System Council In 2003, at the initiative of the MNB and with the support of the Hungarian Banking Association, banks with the largest volumes of payments in Hungary and the Hungarian State Treasury established the Payments System Forum to promote the continuous development of the domestic payments systems, in line with marked needs, and their integration into the European payments system. The supreme management and decisionmaking body of the Payments System Forum is the Payments System Council. The Payments System Council launched several SEPA-relevant development projects and was the midwife of the Hungarian SEPA Association. In relation to the SEPA payment schemes, the Payments System Council - in the absence of a euro target date - primarily focuses on opportunities that will make the changeover to euro easier, by encouraging, within the relevant technical, legal and financial constraints, the development of the domestic payments system according to the SEPA standards. Based on the Payments' System Council's decisions, 1. A national project was launched to implement the intraday clearing system in Hungary in tandem with the introduction of the Hungarian Credit Transfer scheme (HCT) for domestic payments in accordance with the SEPA standards. 2. The Hungarian SEPA Association was requested to assess the possibilities for the redesign of the domestic collection facilities in accordance with the SEPA standards, with the concurrent introduction of e-mandates. 3. The Hungarian SEPA Association was mandated to examine the possibilities for the implementation of SEPA compliant e-payments, based on the relevant European trends. 4 4 Due to changes at the European level, the Hungarian SEPA Association cannot accomplish this task. 18

19 2. Intraday clearing system - HCT In 2009, the Payments System Council adopted a decision on the further development of the domestic HUF payments system, with a view to increasing the frequency of clearing by creating and operating an intraday clearing system. The main characteristics of the new giro clearing platform are as follows: - The platform exclusively performs the clearing of domestic HUF credit transfers, through the Inter-Bank Clearing System; - It processes electronically initiated payment instructions (at the discretion of the individual banks, it may be extended to hard-copy instructions, as well); - The amount is credited to the beneficiary bank's account with the MNB within 4 hours from receipt of the credit transfer instruction; - The new clearing platform (IG2) is technically separated from the previous system (IG1) (direct debits, hard-copy credit transfer instructions and certain special payment transactions continue to be managed in the previous system). - There are five clearing cycles a day. Another important decision from the point of view of SEPA migration in Hungary was that the new clearing platform should be developed according to the SEPA standards. This was done by making some adjustments to the SCT scheme rules to make them applicable to HUF credit transfers. This is how the Hungarian Credit Transfer (HCT) scheme was born. With some slight modifications, the HCT is essentially based on the EPC's SCT Rulebook. After nearly three years of design, development and testing, the new clearing platform was launched with the participation of all Hungarian banks on July 2, As is the case with the SCT, the message standard of the new clearing platform, the HCT, provides rules for the initiation, receipt and exception handling of credit transfers in the interbank space. Already in the implementation phase, the need was raised to assist customers in the creation and sending of HCT transactions in the Customer-to-Bank (C2B) space and to develop a standard bank account statement that can be consistently interpreted in the Bankto-Customer (B2C) space. HCT C2B (Hungarian Credit Transfer Customer-to-Bank) In parallel with the intraday clearing system project, Implementation Guidelines for the HCT C2B initiation message have been developed and published under the auspices of the Hungarian SEPA Association, based on international examples. The HCT C2B Implementation Guidelines are for the time being narrower in scope than the SCT Implementation Guidelines. Related information and training are key tasks for Currently, the application of the HCT Implementation Guidelines by banks and customers is voluntary. The further development of the Guidelines will be aimed to allow the processing of SCT and other credit transfer instructions. B2C XML Bank Account Statement Also under the auspices of the Hungarian SEPA Association, the development of an ISO compliant standard bank account statement is now in process. This project goes beyond the intraday clearing system, since a bank account statement, by definition, has to contain information regarding all transactions on the account, not just credit transfers. 19

20 Tasks for 2013 include the specification of the minimum data requirements and the drafting of Implementation Guidelines for the XML Bank Account Statement, their broad review and the making of a decision on their publication and on the rules for their application. Additional plans include the harmonisation of the ISO compliant bank account statement at the international level. The regional SEPA group of Austria, the Czech Republic, Hungary and Slovakia is discussing the development of a standard bank account statement to be applied in these countries. This may be a significant help for company groups operating in more than one of these countries. 3. Collections HDD The next logical step after the launch of the intraday clearing system with the HCT standard may be the redesign of the domestic collection facilities according to the SEPA standards. In 2009, the Payments System Council requested the Hungarian SEPA Association to develop a relevant implementation strategy. There have been several developments since then that have worked against a possible early implementation. The drawn-out economic crisis and the increasingly difficult operating environment for economic actors, especially for banks (the bank tax, the FX debtor rescue schemes, the financial transaction levy, and overall, a loss-making Hungarian banking sector) prompts banks to delay development projects that are not absolutely urgent. The uncertainty around the introduction of the euro also has a negative effect. From the aspect of payments, we can say that there is no urgency to replace the current collection products with SDD products. Improving the conditions of the current collection facilities may be a solution in the short-term. In the medium-term, however, from an efficiency point of view, a SEPA-compliant Hungarian Direct Debit (HDD) scheme would be a good solution for the redesign and improvement of domestic collection transactions in preparation for a future euro changeover. Additional arguments for the implementation of the proposed HDD scheme before the introduction of the euro include the following: - With the end-date regulation, the SDD will become a cross-border payment method. Accordingly, Hungarian banks will need to prepare, within a reasonable time, for managing SDD transactions in euro. This will require the implementation of the necessary development projects; - For efficiency reasons and also in view of the constant need to upgrade the payments system, the parallel maintenance of the current two platforms (IG1 and IG2) is inexpedient. At the same time, the redesign of the domestic collection facilities according to the SEPA standards would require special caution, inter alia, for the following reasons: - The HDD scheme follows a different philosophy (Creditor Mandate Flow, as opposed the current domestic multiple collections facility, which is based on the Debtor Mandate Flow); - The legal continuity of the current mandates will have to be ensured, including the development of the relevant technical solution; - Migration to the new system will require substantial efforts from banks and service providers; - There should be consensus that the Core HDD scheme is suitable for increasing direct debit payments to the detriment of cash payments and the Business-to- Business HDD scheme can be more attractive and popular than a mandate-based direct debit. 20

21 At the November 2012 meeting of the Payments System Council, members agreed that the proposed HDD should only be implemented after thorough preparations and according to a careful timetable. Implementation is not expected before E(lectronic)-Payments, M(obile)-Payments In recent years, the Hungarian SEPA Association, in line with the relevant EPC operations, has done significant work in assessing the possibilities for the introduction of SEPA e- payments and m-payments in Hungary. Recent developments in the EU, including the emergence of competition and consumer protection concerns and the EPC's withdrawal from legislative activities related to e-payments 5 resulted in a review of the national SEPA strategies in these areas. There is no demand pressure in Hungary, the current and proposed solutions are being developed at the initiatives of the supply side and independently of each other. At the same time, e-payments and m-payments are an integral part of innovations in payments and should be addressed even if there is no demand pressure at present. Here, the integration of the various individual initiatives and the design and implementation of solutions that result in transparent and comparable services will be key. In the case of these payment methods, SEPA can provide an appropriate settlement framework for both euro and HUF transactions. The Hungarian SEPA Association is willing to make available its expertise in SEPA-relevant issues throughout the process, from the development of the strategy to implementation. 5 Until recently, banks have considered e-sepa as a cooperative space, and this has also been encouraged by the ECB. However, with the concerns raised by DG Comp, this has become at least questionable. Therefore, understandably, banks are cautious in approaching the issue. 21

22 V. The Hungarian SEPA Association 6 1. Foundation The European Payments Council (EPC) requires all EU member states to set up a national implementation organisation to manage the transition to SEPA. The main task of this organisation is to determine the timetable and process for the new SEPA schemes, processes and infrastructure to replace the national payment schemes. At the same time, the EPC has not set any requirements for the legal form, operation or membership of the national organisations, thus giving national banking communities a high degree of discretion on these issues. The Hungarian SEPA Association was established by 11 leading banks in the Hungarian payments market as full members and the MNB and the Hungarian Banking Association as associate members in May An additional four financial institutions and GIRO Ltd. and, as an associate member, the Hungarian Financial Supervisory Authority and the Ministry for Administration and Justice (formerly the Prime Minister's Office) joined later in the same year. 2. Objectives The main objective of the Association is to support the development and implementation of SEPA payment schemes in Hungary. The main task of the Association is to determine the timetable and process for the new SEPA schemes, processes and infrastructure to replace the national payment schemes. Members of the Association contribute to the development of the SEPA Schemes, standards and principles, mindful of the special payment instruments used in domestic payments. The Association also acts as a coordination forum for SEPA migration and compliance. Any organisation seeking to participate and contribute to the implementation of SEPA payment schemes in Hungary may join the Association. A condition for membership is that the institution accept and actively participate in the implementation of the objectives set out in the Association's Statutes and in the Hungary National SEPA Plan and (in the case of full members) pay a membership fee. Tasks of the Association include organising communications on SEPA payment instruments, regularly informing market players and providing legal assistance to those seeking to adhere to the SEPA schemes as well as joining SEPA-compliant clearing and settlement systems. The Association liaises with the European Payments Council and its bodies and working groups and the SEPA organisations of other member states. EU Regulation No. 260/2012 defines the deadlines for migration to the SEPA payment schemes in the euro-zone and non-euro-zone member states. The Hungarian SEPA 6 For further information on the Hungarian SEPA Association, please visit the Association's website at 22

23 Associations aims to assist market players in SEPA migration by coordinating the process. Hence, it is the interest of all participants in the implementation process that as many as possible of the key players, payment service providers, are represented in the national organisation. A key to successful implementation is that user representatives (business and consumer associations, major service providers ) and the competent government agencies (the regulatory and supervisory authorities and the Hungarian State Treasury) are involved in the Association's work, either as members or as observers, to allow them to participate in strategic decision making affecting them. With the redesign of the EU SEPA governance structure at the EU level, it is possible that the SEPA governance structure will have to be redesigned in Hungary as well in Increasing political intervention, the growing demand for consultations and consensus efforts at both the economic and social levels raise the need to rethink the role of the banking sector in the SEPA initiative. 3. Organisation General Meeting The Plenary Meeting is the Association's supreme decision-making body. Each founding and joining member has two delegates in the General Meeting. Associate members may attend the General Meeting with the right of discussion and proposal. Council The Council is the representative and administrative body of the Association. Its full members, vested with full decision-making powers, are elected by the Plenary Meeting annually by an open vote. Associate members and the Hungarian delegate at the EPC Plenary Meeting participate in the Council's operations with the right of discussion and proposal. The Council's Chair and two Vice-Chairs are elected by members of the Council from among themselves. Secretariat Operations of the Hungarian SEPA Association are supported by a Secretariat. The Secretariat provides organisational and administrative support for the Association's activities, carries out the professional coordination of tasks received from the EPC, performs the functions of the NASO Committee, oversees operations of the Communications Committee and interactively coordinates the activities of members delegated to the Association's and the EPC's working groups. 23

24 Committees and working groups Aligned with the EPC's structure and operations, the Association's committees and working groups are charged with reviewing, commenting and developing proposals for decision making on issues related to the various SEPA payment schemes. The working groups are tasked to develop industry positions on issues related the implementation of SEPA schemes in Hungary and to represent these positions in international fora and during the drafting of Hungarian legislation. Plenary Council Secretariat Working Groups Standing Committees SEPA Schemes Working Group HCT C 2B Working Group SEPA Cards Working Group SECA Working Group Communications Committee NASO (National Adherence Support) Committee XML Working Group Legal Working Group E- Payments Working Group H ungary National SEPA Plan Woriking Group The organisation's operations are be governed by the Hungary National SEPA Plan, as developed, accepted and updated by its members. The implementation of this Plan is the organisation's primary objective. In addition to its basic function, the Hungarian SEPA Association has the following tasks: organising the nationwide communication on SEPA, liaising with international organisations, especially with the EPC and its bodies and working groups and the SEPA organisations of other member states, providing, together with the NASO, legal assistance to those seeking to adhere to the SEPA payment schemes. coordinating the information needs of those interested in the SEPA schemes and providing them with information. 24

25 4. Communications tools to promote the use of SEPA payment instruments in Hungary The creation of the Hungarian SEPA Association in April 2008 has facilitated the development and implementation of a communications strategy as a key success factor for the implementation of SEPA. As any action plan, the SEPA initiative can only be successful if its objectives are clearly formulated and properly communicated through appropriate communications channels to the appropriate target groups. Inputs from the Hungarian SEPA Association' Presidium and technical committees are a prerequisite for developing an efficient communications plan. The Association's Communications Committee has identified the appropriate communications channels and communications activities are actively supported by the Secretariat. Communications should be aligned with the medium-term strategy adopted by the Association's Council. The Association's communications operations should be aligned with the EPC's communications plans and timelines, promote the dissemination of working papers produced by the Association's working groups, promote SEPA awareness and acceptance, provide banks with regular information to assist them in preparing for the use of SEPA payment instruments, provide participants in the payments market with regular and up-to-date information by using the most appropriate communication channels. familiarise users with SEPA and raise their awareness of the benefits of SEPA, provide regular information to the wider public. The objective is to convey the appropriate messages to the appropriate target groups by following a set of communications principles as set out below. The Communications Committee has compiled an action plan and defined the target groups and the related communications channels and means. The below principles are not carved in stone. Communications should flexibly respond to new developments and the relevant objectives and means should be reformulated and adjusted accordingly Communications principles SEPA will ultimately affect all Hungarian economic players and citizens. Consequently, it is important that the communities affected are provided with timely, relevant and thorough information. Communications should be kept simple, intelligible and target-group specific. SEPA developments in Hungary and the relevant details should be highlighted in the communications. Communications objectives Publicise SEPA and the SEPA payment instruments. 25