SEPA clearing and settlement mechanism

The SEPA clearing and settlement mechanism is the information exchange and calculation mechanism of the settlement position, which is designed to process SEPA payments – the SEPA credit transfer and SEPA direct debit.

The main features of the SEPA clearing and settlement mechanism are:

• processing of payments in accordance with the requirements of the European Payments Council;
• interoperability with other clearing and settlement mechanisms;
• ability to send and receive payments;
• fair and open access criteria.

What does clearing and settlement mean?

Clearing is the process of transmitting, reconciling and confirming payment orders, and establishing a final position for settlement (either based on individual transactions or bundles of transactions).

Settlement is the transfer of funds between the payer and the payee (and between the payer's bank and the payee's bank).*

On 28 January 2008, along with the implementation of the SEPA credit transfer scheme, a number of clearing and settlement mechanisms launched their operation in Europe and claimed themselves to be the European Payments Councils' SEPA-scheme compliant clearing and settlement mechanisms (CSM) and submitted the disclosure of intent to be a SEPA credit transfer (SCT) scheme compliant CSM. SEPA infrastructures have published their self-assessments according to the terms of reference for the SEPA compliance of infrastructures by the European Central Bank.

In Latvia, none of the clearing and settlement mechanisms was recognised as SEPA CSM compliant until mid-2009. The Bank of Latvia committed to offer SEPA compliant handling of credit transfers in euro and JSC "Itella Information" – SEPA compliant processing of direct debits at the end of 2010.

* Information brochure "The Single Euro Payments Area (SEPA): an integrated retail payments market", European Central Bank, 2009.