The Sepa initiative is a Commission-driven scheme to dismantle cross-border barriers to the free movements of money across borders and drive down costs for non-cash euro payments to the level of domestic transfers.

While the Commission has promised the removal of legal barriers to Sepa, it is counting on the banking industry to deliver the technical framework for creation of the new euro payments market by 2010.

But in a soon-to-be-published progress report that has been leaked to the Financial Times, the Commission criticises the lack of progress made by the European Payments Council, the banking industry body set up to drive through the scheme.

According to the FT, the policy paper warns that there is a "severe risk" that Sepa will not get underway by 2010. The paper threatens "regulatory intervention as a last resort" to prevent the derailment of the project and the delivery of "mini-Sepa and failure".

The Commission is reportedly highly critical of the proposed schemes for credit transfers and direct debits as lowest common denominator solutions, and describes the plans for mass-migration of users from existing domestic systems to Sepa products as "vague".

Gerard Hartsink, the EPC chairman, has rejected the Commission criticism. "We are making progress on all the goals we agreed in to road map of December 2004 (that sets out the steps industry has to take)," he told the FT.