Preparing For Canadian Cheque Image Exchange NOTICES

Transcription

1 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 October 15, 2015 Preparing For Cheque William L. Saffici Saffici Payment Consulting LLC Phyllis Meyerson, AAP, CCM ECCHO NOTICES This presentation may provide an introduction to or summary of various aspects of check payments and the legal and rules framework for check image exchange in the U.S. and Canada. Responsibility for compliance with image exchange rules, and/or the legal, operational and regulatory requirements applicable to check image exchange, remains at all times with the financial institution participating in check image exchange and/or the individual or company using a check image exchange service. This presentation and the information contained herein is not intended as legal or compliance advice or recommendation to any person or company. This document could include technical inaccuracies or typographical errors and individual users are responsible for verifying any information found in this presentation. Financial institutions should consult with their legal counsel regarding legal and operational requirements applicable to any check image exchange program they may offer or in which they participate. In the event of a conflict between this presentation and information obtained from the Payments Association (CPA), the CPA rules will govern

2 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 Session Overview Overview of Banking Cheque Transformation Status of FI Progress Characteristics of Processing Approved ECCHO Rules for Clearing in U.S. 3 Overview of Banking 2

3 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 Banking in Canada Banking in Canada is under Federal Jurisdiction A variety of legislation and statutes manage national banking Bank Act: Defines bank Bills of Act: Defines cheque and other payment instruments Extended in 2007 to add image of a cheque as a Bill of Payments Act - Establishes the Payments Association 5 Banking in Canada Payments Association IS - The operating body that governs payments clearing and settlement in Canada at a national level Manages the central settlement system (ACSS) for cheque and EFT Manages the network for exchange of EFT and will be available for exchange of Captured Payment (ICP) files IS NOT - A standards development organization Provides standards specific to its mandate, supporting its members in participating in the national payments process and owns the standards 6 3

4 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 Banking in Canada Financial Institutions (FIs) are divided into Direct Clearers (DC) and Indirect Clearers (IC) Direct Clearers (DC) Participate directly in interbank exchange and settlement Indirect Clearer (IC) - Contracts services of DC to represent it for exchange of other FI items that IC has taken for deposit There are 12 Direct Clearers : 001: Bank of Montreal 002: Scotiabank 003: Royal Bank 004: TD Canada Trust 006: National Bank 010: CIBC 039: Laurentian Bank (regional) 117: Bank of Canada (check issuer, no deposit taking, bonds) 219: Alberta Treasury Branches (regional) 815: Caisse centrale Desjardins du Quebec (CU central, Quebec) There 016: HSBC are approximately 120 Indirect Clearers 869: Central One (CU central, outside Quebec) 7 Banking in Canada Law and Payment Rules Law and Law and Payment Rules Payment Rules * * * CUSTOMER IDC #1 Check FI of First Deposit IDC #2 DC - TD DC - RBC Paying FI IDC #1 8 Relationship Between IDC Relationship Between IDC and DC is for Deposited, and DC is for Deposited, Inclearing and Return Inclearing and Return Items Items * Separate US ABA/Dollar from CDN Dollar 4

5 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 Evolves Truncation and Electronic Cheque Presentment (TECP) Project Mandated exchange - ALL FINANCIAL INSTITUTIONS Complex integration among/between direct clearers and indirect clearers Payments Association Rule Project Phase I December 2009 approved Rule A10 images of cheques and rule A12 image security standard - both effective June 1, 2010 Phase II December 2010 approved amendments to rule A10 related to creation and use of Return Replacement Documents (RRD) effective June 1, Evolves Payments Association Rule Project Phase III March 2012 approved amendments to rule A10 related to creation and use of Clearing Replacement Documents (CRD) effective Oct 1, 2012 Phase IV June 2013 approved final rule amendments to allow Direct Clearers to exchange electronic payment files containing Captured Payments (ICP) with partner that has agreed to participate in ICP, effective August 12, 2013 ICP Standard 015 Companion Document to X Bilateral Agreements 10 5

6 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 Migration Path Retain aspects of Current Process CRD and RRD Print Capability Infrastructure Changes Single Electronic Processing Site Preparing for All Source Channel Capture Preparing for National Clearing (Optional) Cash letter per region included in one ICP (X9) Preparing for Day 2 Movement Away from Outsourcing 3 of largest moving to in-house 2 of largest moving to new outsource provider Technical and, more importantly, Operational Impact 11 Migration Status 12 Channel Commercial RDC Mobile RDC Status Several FIs in full production (with CRD print), others preparing for full deployment in early 2016 Three FIs are in production (with CRD print), most other major FIs have projects underway for 2016 implementation Branch One FI - teller capture implemented by October, One FI - back counter completed in November, Others have projects in place, including both teller and back counter solutions for completion in 2016 and ATM Two FIs in deployment with completion in Others preparing for roll out in early A few FIs will keep current paper processing in place for now Northbound ICL Southbound ICL Two FIs will begin in October 2015 with a third to begin prior to year-end. Most plan to begin exchanging some volume in 2016 Several FIs are accepting X9 and printing CRDs Some FIs will continue clearing southbound cheques using commercial RDC products through US FIs or print IRDs 6

7 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 Cross Border Depositary Agreements Cross Border Rules/Depositary Agreements within US ECCHO Rules for clearing of Cheques ECCHO Rules Correspondent Agreement Law and Payment Rules CUSTOMER Check ECCHO Member Bank A Sending Bank Returnee Member * * * * ECCHO Member Bank B Receiving Bank Gateway Receiving Bank Correspondent FI Point of Entry * * Paying Bank 13 * Separate US ABA/Dollar from CDN Dollar Cross Border Northbound Forward U.S. Canada US/ Border Check CUSTOMER U.S. BOFD U.S. Correspondent Bank Correspondent FI (POE) Paying FI DC or IDC 14 7

8 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 Cross Border Northbound Return U.S. Canada US/ Border Returned Item CUSTOMER U.S. BOFD U.S. Correspondent Bank Correspondent FI (POE) Paying FI DC or IDC 15 Cross Border Southbound Forward Canada U.S. US/ Border U.S. Check CUSTOMER FI DC or IDC Correspondent FI U.S. Correspondent Bank (POE) FRB or U.S. Paying Bank 16 8

9 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 Cross Border Southbound Return Canada U.S. US/ Border Returned Item CUSTOMER FI DC or IDC Correspondent FI U.S. Correspondent Bank or FRB (POE) U.S. Paying Bank 17 Cross Border Standards Northbound: Companion Document follow Standard 015 Southbound: Companion Document follow X BiTonal image: 200 dpi in tiff - standard to both countries R/T Format Retain dash in RT Fields ex In Record 25 US Dollar vs Dollar Funded Accounts Both have XXXXX-YYY RT format US Dollar Funded Accounts: 45 in tran code field See appendix A for list of other characteristics US Dollar Funded Accounts: Funded Accounts Hand-written US FUNDS Cheques without TC 45 will likely require operator review for proper designation 18 9

10 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 Cross Border Return Item Collection FI Return Item Reason Codes NOT map directly with US Return Item Codes US BOFD bank cannot represent returned cheque Several conditions when BOFD can reexchange (presented as first time item) Return Item FIs can return some categories of items up to 90 days and 6 years after presentment 19 Cross Border Return Item Collection See Appendix B for complete information United States 20 Description Code Code Description NSF - Not Sufficient Funds A A Insufficient Funds Stop Payment C B Payment Stopped Post Dated H C Post Dated Stale Dated G D Stale Dated Closed Account D J Account Closed Altered/Fictitious Item/Suspected Counterfeit/Counterfeit N E Counterfeit Item Refer to Maker S U Refer to Maker Not Authorized (Includes Drafts) Not Eligible for Clearing - Q K Unauthorized item such as a draft Telecheque K Not Eligible for Clearing - Other Duplicate Presentment (Supporting documentation shall be readily Y N Duplicate Payment available) Time Limit for Return up to and including the due date 90 calendar days 90 calendar days 10

11 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 Cross Border Adjustments An adjustment, as known in US, not used in Canada FIs enforce use of Return process ECCHO rules will permit debit or credit adjustments to respective depositary account ECCHO Adjustment code to be created for adjustments within US 21 Overview of ECCHO Rules 11

12 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 ECCHO Rules Banks requested ECCHO Rules coverage for items Significant interest from members CPA and FIs participating Subcommittee agreed to develop rules Rules approved effective August 3 Commentary in process of being approved to include Pertinent cases Significant differences (i.e. returns) Some law Rules within U.S. for ECCHO exchanges prior to exchange with FI - Northbound Southbound exchanges of U.S. items covered by ECCHO rules 23 s of Item Definitions for of s of Items Item Correspondent FI Return Item Paying FI Law Gateway Receiving Bank 24 12

13 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 s of Item Forward ECCHO Rules Correspondent Agreement Law and Payment Rules CUSTOMER Check ECCHO Member Bank A Sending Bank ECCHO Member Bank B Receiving Bank Gateway Receiving Bank Correspondent FI Point of Entry Paying FI 25 s of Item Return ECCHO Rules Correspondent Agreement Law and Payment Rules Returned Item CUSTOMER ECCHO Member Bank A Returnee Member ECCHO Member Bank B Gateway Receiving Bank Returning Member Correspondent FI Point of Entry Paying FI 26 13

14 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 s of Item General provisions Application of Rules Governs exchange and return of s of Items Not cross-border Does not mandate acceptance of images Allowance for section to be varied by agreement Application of law to items law applicable Members responsible to understand applicable law Rules not change law or rights under it U.S. law applicable to obligations under Rules 27 s of Item Items eligible for exchange under Law Destruction of Item within 120 days image is item under UCC, not Check under Reg CC FIs handle and Return as collecting bank under Code Provisions of UCC - Transfer warranties apply 28 14

15 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 s of Item Depositing customer agreement required If RDC, destroy original check within 120 days Rules do not cover RDC Type of item customer will receive for return Prohibition of redeposit without permission Reg CC availability not apply to foreign checks Responsible for check deposit relationship with customer Review current terms of account agreement and consider needed changes 29 s of Item 30 Separate electronic files of different currency items Industry formats and standards required Gateway Receiving Bank may establish additional operational or formatting requirements Requirements from its agreement with Correspondent FI Responsible for exchange with Correspondent FI and Return of Item is legal equivalent of item 15

16 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 s of Item 31 Rejection, return and correction or adjustment of s of Items Return or reject prior to Canada or by FI Reg CC and Code return timeframes not apply May return Return to FI that previously sent and maintain return reason codes Return or reject sent to Member originally transmitted or to other Member that agrees to receive return or reject If Gateway Receiving Bank returns paper return, other Members maintain in paper form during return process Only subsequent exchange of returned items if instructed or eligible under Law Official Copy of s of Item ECCHO Adjustment Rules will apply Items not handled as adjustments within Canada, expected returns handled as adjustment in U.S. Cannot create Substitute Check from item ECCHO warranties apply to image and Return Item, as appropriate Sending Bank indemnify Receiving Bank except for its failure to exercise ordinary care or act in good faith If Gateway Receiving Bank receives return warranty from FI it makes same warranty Financial settlement for Items No unique rules Members may have separate settlement processes 32 16

17 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 Wrap-Up and Adjourn 33 Thank You October 8, 2015 William L. Saffici Phyllis Meyerson

18 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 App. A CDN Currency Review the following excerpts for more specific information on the identification of the various currency designations when dealing with cheques Standard 006 page 53 andard_006.pdf Standard 006 page 29 andard_006.pdf 35 App. B Return Items Understanding Return Reason Codes anadian%20return%20reasons%20codes%20fina L% pdf This document contains: Code Match list showing side-by-side US and Return Reason Reason Match list showing reason codes that have same/similar meaning and includes those with extended return times and manner in which the return can be presented Re- Matrix shows the return reasons eligible for presentment as a new item 36 18

19 ECCHOInsights: Preparing For Cheque Oct. 15, 2015 App. C Rules All Rules and Standards can be found at ement_system_acss_rules/eng/rul/automated_clearing_settlement_ System_ACSS_Rules.aspx The specific rules and standards applicable to this presentation are CPA Standard 015 (April 2014) - Companion Document to X (2008) for Electronic of Cheque s CPA Rule A4 - Returned and Redirected Items (January 2014) CPA Rule A10 - Rule (April 2014)