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The Regulation on cross-border payments in euro was adopted in December 2001 and came into force on 31st December 2001. As a regulation it is directly applicable in all Member States, including the UK, and does not need transposing into UK law.
The Regulation:
Article 3 of the Regulation requires that the charges levied by an institution for certain small value cross-border non-cash payments in euro within the EU (up to €50,000) are the same as the charges levied by that institution for corresponding domestic payments in euro. Article 3 of the Regulation takes effect from 1 July 2002 in relation to cross-border electronic payment transactions. This covers, for example, debit card payments, ATM cash withdrawals and payments using cards that store credit. Article 3 is also effective from 1 July 2003 in relation to cross-border credit transfers. This would cover, for example, a person wiring money from one member state to another.
The Regulation allows non-euro area Member States to opt to extend its application to cover payments denominated in their own currencies. The UK has chosen not to extend the applicability of the Regulation to cover payments in Sterling. This means that if, for example, a customer makes a cross-border transfer order in Euro from a UK Sterling bank account, the bank would normally charge for the currency conversion from Sterling to Euro. In addition, some banks will also levy charges for the cross-border transfer, on the basis that the domestic payment "equivalent" to the cross-border transfer being made is a CHAPS Euro payment. CHAPS Euro is a guaranteed real-time gross settlement same-day service for the transmission of Euro-denominated payments in the UK, and members - such as banks - pay a fee to cover the operating cost of this system.
Paper cheques are excluded from the Regulation’s requirement for non-discrimination between domestic and cross-border charges. However, the charges applied to cheque transactions must still be transparent. The Regulation also does not apply where the cross-border transaction involves the granting of credit by a financial institution. This means that it does not apply to cash advances on credit, or ordinary purchases on credit. Therefore, if a customer makes a Euro-denominated purchase on a credit card drawn on a UK Sterling account, the bank would normally charge for the currency conversion from Sterling to Euro. In addition, some banks will also levy fees on customers for the credit card issuing service they are providing. The setting of charges and their application is a commercial decision for each individual bank. However, the Banking Code sets, among other things, standards of transparency for banks so that consumers and businesses are aware of the charges they face. It requires, for example, that signatories to the Code inform their customers about any charges for the day-to-day of their account when they open it, that they inform their customers personally if they increase any of these charges or introduce a new charge, and that they set a notice period before changes are made to terms and conditions.
Articles 4 and 5 impose further requirements on institutions, customers and suppliers. These Articles apply even if the relevant institution only makes cross-border payments in euro. Two examples of the Regulation’s scope can be found at the end of this note.
What banks and other financial institutions are required to do:
Articles 4 and 5 require institutions to make their charges transparent and also to communicate identification numbers to their customers for facilitating cross-border transfers.
A: Transparency:
Institutions must make available to their customers, in written and understandable form, prior information on the charges levied for cross-border payments in euro as well as for domestic payments in euro. This can be done electronically, provided that it is appropriate and in accordance with national rules.
Institutions may also be required to provide a written warning to customers of the charges that are applied to the cross-border use of cheques in the cheque books themselves. This, is however, dependent on the Member States’ discretion.
Modifications to any charges have to be communicated, in writing, to customers in advance of the date of application;
Prior information has to be provided on exchange charges for changing currencies into and from euro as well as specific information on the charges that have actually been applied to transactions; and
Customers also have to be notified of the charges that will be levied by the institution if, when making a cross-border payment, they do not communicate the International Bank Account Number (IBAN) of the intended beneficiary and the Bank Identifier Code (BIC) of the beneficiary’s institution to their own institution.
B: Facilitation of transfers:
Institutions have to communicate to their customers, upon request, the customer’s IBAN and their BIC.
Additionally, from 1 July 2003 institutions have to indicate on customers’ account statements, or in an annex thereto, their IBAN and the institution’s BIC.
Customers’ Responsibilities:
A customer must communicate to the institution carrying out a cross-border euro transfer both the IBAN of the beneficiary and the BIC of the beneficiary’s institution, if they are to benefit from the Regulation; and
Suppliers’ Responsibilities:
In the context of cross-border invoicing for goods and services in the Community, suppliers who accept payment by transfer in euro have to communicate their IBAN and the BIC of their institution to their customers.
Two examples of the Regulation’s scope:
1:A UK customer ordering a credit transfer in EUR to a beneficiary in France:
The transaction takes place in euro, therefore, Article 3 will apply only if the customer's bank offers a corresponding UK domestic euro credit transfer facility.
2:A UK customer ordering a credit transfer in £ to a beneficiary in France:
The order is given in £, therefore, Article 3 will not apply.
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