4 March 2003
SANCTIONS FOR BREACH OF THE
EC REGULATION ON CROSS-BORDER PAYMENTS IN EURO
A Response to Consultation
February 2003
COMPLIANCE WITH ARTICLE 7 OF THE EC REGULATION ON CROSS-BORDER PAYMENTS IN EURO
INTRODUCTION
1. The Treasury issued a consultation document in September 2002, which sought views on the proposed legislative measures for ensuring compliance, in the UK, with Article 7 of the EC Regulation on cross-border payments in euro.
2. The consultation period closed on 17 December and a total of three responses were received. The Treasury wishes to thank those who took part in the consultation. A summary of the responses received forms an annex to this document.
3. The responses to consultation confirmed part of the Treasury’s proposals, but were less favourable about other parts. A general response to consultation is given below. Full consideration was given to the consultation but the decision has been taken not to amend the sanctions that were originally proposed.
4. The Statutory Instrument laying down the sanctions for breaches of the provisions of the EC Regulation was today laid before Parliament and a copy can be found on the Treasury website at www.hm-treasury.gov.uk
THE TREASURY PROPOSAL
5. The following sanctions for breach of the EC Regulation were proposed in the consultation document that was issued in September, which can be found at: www.hm-treasury.gov.uk/Consultations
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that a person overcharged in breach of Article 3 of the EC Regulation may sue in the civil courts as if there had been a breach of a statutory duty imposed by an Act of Parliament, and
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that breaches of the provisions of Articles 4 and 5 of the EC Regulation should constitute criminal offences.
CONSULTATION
6. The proposed sanctions outlined above were reconsidered in light of the consultation that took place. However, the decision was taken that the proposed sanctions should remain unaltered. The reasons for leaving the proposed sanctions unchanged are explained below and are in addition to the reasons for the original proposals as set out in the September consultation document.
Article 3
7. None of the respondents to the consultation took issue with the proposal that Article 3 should be enforced by the use of civil remedies.
Articles 4 & 5
8. Respondents raised a number of concerns with the creation of criminal offences for breaches of the provisions of Articles 4 and 5 of the EC Regulation, expressing a preference for seeing regulatory powers, such as “stop now” powers, used instead. However, the Treasury remains convinced that regulatory powers would not be appropriate for ensuring adequate enforcement of the Regulation and, therefore, that criminal penalties remain the only viable sanction for breach of these provisions of the EC Regulation. The reasons for this view are explained below:
“Stop Now” Powers
9. The use of “stop now” powers is not suited to ensuring compliance with the Regulation for a number of reasons:
- Firstly, “stop now” powers cannot be used where the recipient of the services in question receives them in the course of the business, but there is no such limitation in the EC Regulation.
- Secondly, ”stop now” powers are concerned with preventing the continuation in future of a consistent practice, rather than individual breaches of a specific provision. Thus, “stop now” powers on their own would not be an effective, proportionate and deterrent sanction as required by Article 7 of the EC Regulation.
- Finally, “stop now” powers only apply in cases where the action of a service-supplier harms the collective interests of consumers. This, however, will rarely be the case where there is an individual breach of Article 4 or 5 of the Regulation. Thus, stop now powers will not be useful for the vast majority of cases.
Appointing a Regulator
10. Two of the respondents queried whether making the breach of the provisions of Articles 4 and 5 a criminal offence would involve appointing a regulator to oversee compliance and initiate prosecutions. Our view is, however, that a specific regulator would not be required as individual customers could initiate private prosecutions, or complain to the police – as with any normal criminal offence.
Cost & Reputation
11. The issues of the potentially high cost of criminal prosecution as well as the reputational damage for the offending institution were raised by the respondents. However it is our view that these are not compelling arguments against the use of criminal sanctions, rather they should provide more of an incentive for institutions to ensure that they comply with the provisions of the EC Regulation. On the issue of the threat of criminal prosecution for what could be the result of a systems error, this is a factor that in our view would likely be taken into account by the prosecutor and, therefore, may have a bearing on the decision to initiate a prosecution.
Article 5(3)
12. The respondents were especially concerned about Article 5(3) and in particular the potential lack of clarity over its interpretation. The Treasury is of the view that Article 5(3) should be regarded as applying to all accounts from, or to, which euro payments can be made. This is because anyone who has an account capable of receiving a euro transfer from within the Community will need to know their BIC and IBAN, even if they themselves cannot make a euro transfer from that account. Moreover the EC Regulation does not restrict when the BIC and the IBAN can be in an annex.
13. The Regulation places an obligation on Member States to provide for sanctions for any individual breach of it and, as outlined above, stop now powers are inappropriate for ensuring compliance with the provisions of Article 5. Further, a civil law right to sue for compensation for any loss suffered as a result of the failure to comply with Article 5(3) would likely be of no real use to customers and likewise would provide no real incentive for institutions to comply. Thus, criminal penalties are the only viable option for guaranteeing compliance with Article 5(3) of the Regulation.
Compliance with Article 7 of the Regulation
14. For these reasons the Treasury has today laid before Parliament a Statutory Instrument providing for sanctions for breach of the EC Regulation in line with the proposals included in the September consultation document.
ANNEX: RESPONSES TO CONSULTATION
Introduction
A1. The Treasury’s consultation document “Proposed sanctions for breach of the Regulation on cross-border payments in euro”, issued in September 2002, sought views on proposed legislative measures for ensuring compliance with Articles 3, 4 and 5 of the Regulation on cross-border payments in euro. This annex summarises the three responses to consultation received by the Treasury. A list of these respondents is contained in the appendix.
Article 3
A2. The respondents were supportive of the Treasury’s approach of adopting civil remedies for the enforcement of Article 3.
Articles 4 & 5
A3. The respondents queried the need for criminal sanctions for breaches of these two articles, suggesting instead the use of regulatory ‘stop now’ powers. They also raised a number of questions and made a number of points in this context, such as; who would oversee compliance and initiate prosecutions if criminal penalties were adopted; criminal prosecution would be costly and time consuming for all parties; and that even the threat of criminal sanctions for what could be an error of processing could cause significant damage to an institution’s reputation, which would be disproportionate to any breach.
A4. The point was also made that the exact interpretation of Article 5.3 is far from clear, for example, whether or not it applies to sterling accounts and the frequency of BIC and IBAN dissemination. Thus, criminal sanctions were seen to be inappropriate for offences that are insufficiently clearly defined.
APPENDIX: LIST OF RESPONDENTS
Abbey National Plc
Association for Payment Clearing Services
Barclays Plc