EBF publishes European Interbank Guidelines

07 November 2013

The EBF published its European Interbank Compensation Guidelines and its European Interbank Liquidity Management Guidelines.

European Interbank Compensation Guidelines

These were developed as a recommended basis for the settlement of claims for compensation arising from same day high-value payments in euro made between banks and directed through any euro payment system or CSM located in the European Union. 

This common approach to interbank claims has been developed as a support for the banking community and agreed in December 1998, prior to the introduction of the euro, for the categorisation and calculation of interest claims in compensation, be it for misdirected euro-denominated payments or euro-denominated payments sent on the wrong value date.

Since their introduction, the Guidelines have been increasingly used and accepted in the market, showing the need for common compensation rules in the euro area to resolve problems relating to errors made by banks handling payments. They have greatly facilitated the settlement of claims arising between banks when processing euro-denominated payments.

The European Interbank Compensation Guidelines have become de facto market practice in the euro area. Although the terms “bank” and interbank have been retained, these Guidelines are intended to apply, where applicable to all payment service providers as defined by the Payment Services Directive.

The European Interbank Compensation Guidelines apply without prejudice to existing EU and national law. Compliance with applicable law remains the responsibility of individual institutions. These Guidelines are not intended to supersede rules or compensation schemes applicable to specific payment systems or included in any bilateral or multilateral agreement.

The objective is to establish a market standard in the euro area, equally applicable to all parties, with fair compensation for all same day high-value euro-denominated payments between banks acting in a commercial banking capacity.

This market standard should, within the limits mentioned in the Guidelines, help to resolve the majority of compensation issues arising in a timely and cost-efficient way. The basic principle behind these claims for compensation is that no bank should be unjustly enriched or injured by the action/error of another bank.

Core principles

• Where a claim for compensation is identified, the banks involved should settle the claim on the basis that no bank should be unjustly enriched or injured by the actions of another bank.
• Compensation under these Guidelines is payable only between the banks directly involved in the payment (the remitting bank and the receiving bank). If there is a payment chain, each link in the chain should be considered separately.
• Payment or attempted payment of compensation under these Guidelines does not constitute and should not be construed as an admission of negligence or fault on the part of any of the banks involved, nor should it imply any legal obligation on either party.
• In relation to any single adjustment, a fixed flat administration fee of €100 is automatically payable by the bank which originally made the error or deductible from the interest amount payable to the bank which originally made the error.
• Compensation under these Guidelines is to be paid in euro. However, interest claims below €100 are regarded as ‘de minimis’ and should not be made. Exceptionally, where multiple payment adjustments are made between the same two entities at the same time, subject to prior agreement between the parties such interest claims may be aggregated, even if individually below €100, and the administration fees may vary from the administration fee as set in point 4 above.
• Where the product of the amount and period exceeds €200 million (e.g. €20 million for 10 calendar days or €50 million for four calendar days), the applicable compensation rate is subject to bilateral agreement between the parties. It is expected that the banks involved will settle such claims according to the principle that no bank should be unduly enriched or injured by the actions of another bank.
• These Guidelines should be applicable only for claims introduced by the clearing bank initiating the adjustment within three months after the value date of the initial payment. Claims introduced after this three-month period should be lodged on the basis of a bilateral agreement.
• The following interest calculation formula (“value of funds”) is to be used: (Principal amount in euro) × (Compensation Rate) × (actual number of calendar days for which funds held) /360
• The “Compensation Rate” to be used when calculating the use of funds claim is: The average of each day’s EONIA rate (as published on a daily basis) less 0.25 per cent for the days included in the above formula. However, if the EONIA rate less 0.25 per cent is less than the ECB deposit facility rate, then the flat ECB deposit facility rate is to be used.
• For compensation claims that relate to a request to back value as a result of non-payment, then the “Compensation Rate” to be used will be: The average of each day’s EONIA rate (as published on a daily basis) plus 0.25 per cent for the days included in the above formula. However, if the EONIA rate plus 0.25 per cent is more than the ECB marginal lending facility rate, then the flat ECB marginal lending rate is to be used.

Full guidelines

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European Interbank Liquidity Management Guidelines

The objective of these Guidelines is to enhance market discipline. The Guidelines are in no way intended to impinge upon Guidelines and/or rules already agreed in either cross-border or domestic systems, nor on any bilateral agreement concerning the processing of payments.

It has to be noted, moreover, that these Guidelines are not binding in nature: there exists no authorised body monitoring compliance. Instead, the evaluation of compliance with the Guidelines and any measures to be taken in cases of divergent practices are left to market forces. Accordingly, these Guidelines do not give rise to any legally enforceable rights or obligations.

The following Guidelines are intended to cover individual euro payments made through TARGET2 and other same day high value euro payment systems. They are not intended to supersede regulations applicable to those payment systems, nor Guidelines or rules agreed by payment/clearing systems, nor any bilateral agreement. Monitoring observance of these Guidelines is left to market forces. Accordingly, these Guidelines do not give rise to any legally enforceable rights or obligations.

Although the terms “bank” and “interbank” have been retained, these Guidelines are intended to apply, where applicable, to all payment service providers as defined by the Payment Services Directive. The European Interbank Guidelines on Liquidity Management apply without prejudice to existing EU and National law. Compliance with applicable law remains the responsibility of individual institutions.

1st Guideline

• Euro payments related to interbank transactions including, but not restricted to, the payment leg of money market, foreign exchange and derivative transactions which are traded before the value date (i.e. on date X-1 or prior) should be sent on value date (i.e. Day X) with sufficient liquidity coverage as early as possible in the day and no later than 12.00 CET-time.
• Commercial payments received from the ordering party before the value date (i.e. on date X-1 or prior) should be sent on value date (i.e. Day X) with sufficient liquidity coverage as early as possible in the day and no later than 12.00 CET-time.

2nd Guideline

• Euro payments related to interbank transactions including but not restricted to the payment leg of money market, foreign exchange and derivative transactions which are traded on the value date on or before 10.00 CET-time, should be sent on the value date, with sufficient liquidity coverage as soon as possible and, at the latest, before 12.00 CET-time. Euro payments related to interbank transactions traded on the value date after 10.00 CET-time, should be sent on the value date, with sufficient liquidity coverage as soon as possible and, at the latest, two hours after the transaction has been agreed, or before 17.00 CET-time, whichever is earlier.
• Commercial payments received from the ordering party on the value date should be sent on the value date with sufficient liquidity coverage as soon as possible and, at the latest, two hours after the payment is received, or before 17.00 CET-time, whichever is earlier.
• Euro payments related to interbank liquidity position squaring transactions (for accounts with Eurosystem NCBs) which are traded on the value date at 15.00 CET-time or later should be sent on the value date with sufficient liquidity coverage as soon as possible and, at the latest, two hours after the transaction has been agreed, or before the cut-off time of 18.00 CET-time, whichever is earlier.

3rd Guideline

In accordance with the 2nd Guideline, Sending Clearing Banks are expected to ensure that all payments other than liquidity-squaring transactions are sent at the latest by 17.00 CET.

• If the Sending Clearing Bank has pre-agreed a late payment with the Receiving Clearing Bank and this arrives on the agreed day, no compensation is due. However, if a pre-agreed Late Payment does not arrive on the agreed day, the Sending Clearing Bank will pay special compensation, based on a minimum of EONIA plus a fixed flat administration fee of €100.
• If the Receiving Clearing Bank gives same day value for a non pre-agreed Late Payment (or is obliged to do so by law or guidelines), the Sending Clearing Bank will pay special compensation to the Receiving Clearing Bank on request based on EONIA less the ECB Deposit Rate, plus a €100 administration fee.

Full guidelines

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