Banks, EU – Baltic States, Financial Services, Latvia, Legislation

We can assert that the Latvian interbank payment system is ready for the introduction of the euro. Moreover, the realization of the Single Euro Payments Area, SEPA project will grant the opportunity for general public and business to make more convenient, cheaper and faster payments with the common European currency.

Currently only a small part of the population, making low-value cross-border payments in euro is using SEPA advantages. This is why participants of the SEPA project in Latvia have agreed on an earlier introduction of SEPA credit transfers and already as of 1 January 2014, credit transfers in lats will be replaced by SEPA credit transfers, allowing all the public to use the following advantages of SEPA payments:

- cross-border SEPA payments reach the recipients within one working day;

- using SEPA, Latvian businesses will be able to pay their suppliers in various European countries as quickly and easily as local suppliers;

- those who are studying or working in Europe will no longer need accounts in several countries: all payments in Europe will be possible to make from a single account in Latvia;

- with the introduction of the euro, cross-border payments will become as cheap as local payments.

Regulation No. 260/2012 adopted in March 2012 by the European Parliament and EU Council establishes technical requirements for SEPA credit transfers and SEPA direct debits (so-called automatic payments). The Regulation requires national payments in euro to be replaced by SEPA payments in the SEPA area. Euro area countries must ensure the introduction of SEPA credit transfers and SEPA direct payments as of 1 February 2014, whereas Latvia, which introduces the euro on 1 January 2014, must ensure migration to the SEPA payments within one year after the introduction of the euro as the currency, i.e. no later than 1 January 2015.

The earlier introduction of SEPA credit transfers is possible, due to the Bank of Latvia's Electronic clearing system (EKS), which is the only clearing system in Latvia for a great number of credit transfers in lats and euro. As of 9 November 2010, EKS is a SEPA compliant system for transactions in euro, which processes the SEPA credit transfers and is linked with other SEPA payment systems in Europe, ensuring the sending and receiving payments from any credit institution in the SEPA area. That promoted the development of SEPA credit transfers in Latvia and provided an opportunity for EKS participants to make and receive euro payments in the SEPA area – the European Union (EU) member states, Iceland, Liechtenstein, Norway, Switzerland and Monaco.

The introduction of the euro will have a substantial impact on the payments between the population and institutions in Latvia. All the payments previously made in lats will be processed in euro. EKS ensures that settlement of payments among participants in the EKS system take place seven times a day (in seven clearing cycles between 8.00 and 18.30). That will substantially prolong the time for entering and receiving a payment for settlement within one business day.

As of 1 January 2014, not only credit institutions which are participants of the EKS system, but also the State Treasury and Latvijas Pasts will be able to provide settlement of such payments to its customers.

Since participation in the EKS system is not mandatory, each credit institution can choose its own strategy, offering SEPA credit transfers for customers – i.e. to participate in the EKS system operated by the Bank of Latvia or use other SEPA payment system in Europe directly or indirectly.

Several Latvian credit institutions (Swedbank, SEB banka, Nordea Bank Finland Plc Latvian branch, Svenska Handelsbanken AB Latvian branch, Pohjola Bank Plc Latvian branch, Danske Bank Latvian branch) have decided to stop participating in the EKS system after euro introduction and have chosen other SEPA payment systems for settlements between their clients and with other Latvian credit institutions.

When making payments, the clients of Latvian credit institutions should therefore pay a special attention to the time by which payments are accepted for settlement within the same day, because the time for accepting payments could differ depending on whether or not the respective credit institution is a participant in the EKS.

SEPA is the common payment area for the EU, Iceland, Liechtenstein, Norway, Switzerland and Monaco. The SEPA project is a step towards a common European market where every customer in Europe will be able to make non-cash payments as quickly, safely and simply as domestic payments now.