3.4 Management of Working Capital 79associated with participation in payment and securities settlement systems, and in
particular the risk linked to the insolvency of a participant in such a system.
The Directive applies to payment and securities settlement systems as well as
any participant in such a system, and to collateral security provided in connection
with the participation in a system. According to the main rule, payment netting
shall be final: “No law, regulation, rule or practice on the setting aside of contracts
and transactions concluded before the moment of opening of insolvency proceed-
ings ... shall lead to the unwinding of a netting.”^215
Payment netting shall be legally enforceable even in the insolvency of a par-
ticipant, provided that “transfer orders were entered into a system before the mo-
ment of opening of such insolvency proceedings” or “the settlement agent, the
central counterparty or the clearing house can prove that they were not aware, nor
should have been aware, of the opening of such proceedings”.^216
Furthermore, “insolvency proceedings shall not have retroactive effects on the
rights and obligations of a participant arising from, or in connection with, its par-
ticipation in a system earlier than the moment of opening of such proceedings”.^217
However, the Directive does not require the inserting of a netting clause into
any contract. Typically, no netting will take place unless netting is based on a
prior contract term.
SEPA and the Payment Factory
In addition to cash pooling and netting, the firm may use what is known as a
“payment factory”. To what extent such a “factory” can be used depends on the
available payment systems.
Payment systems facilitate the purchase of goods and services. Cross-border
payments have traditionally been expensive, because payment systems have been
nationally based and fragmented. Firms have suffered from this fragmentation in
even other ways. They have been unable to integrate their invoicing with their
payments. In order to reduce costs, firms that regularly buy or sell cross-border
have often had to set up bank accounts in the different euro area countries where
they do business, but this has lead to new costs and contributed to payment delays
and general inefficiency.
SEPA and PSD. Community law has addressed this problem. The purpose of
the Single Euro Payments Area (SEPA) and the Payment Services Directive
(PSD) is to create an integrated payment system for the euro area.
The Single Euro Payments Area (SEPA) is an initiative of the European bank-
ing industry that will make electronic payments across the euro area as easy as
domestic payments within one country are. The legal framework for SEPA is pro-
vided by the Payment Services Directive (PSD), which was adopted in April
(^215) Article 3(2) of Directive 98/26/EC (Settlement Finality Directive).
(^216) Article 3(1) of Directive 98/26/EC (Settlement Finality Directive).
(^217) Article 7 of Directive 98/26/EC (Settlement Finality Directive).