Bills of Exchange Act to Be Amended to Allow for Cheque Truncation System

July 2002 Banking & Financial Services

Bills Of Exchange Act To Be Amended To Allow For Cheque Truncation System

The Bills of Exchange Act is to be amended to allow for the establishment of a Cheque Truncation System. The proposed amendments are contained in the Bills of Exchange (Amendment) Bill which was read in Parliament for the first time on 8 July 2002. The amendments will affect mainly the inter-bank clearing process in that banks will be allowed to present cheques by electronic means. Physical cheques will continue to be used by the public and accepted by Introduction banks for payment. The amendments are expected to come into force later ...... 1 this year.

Presentation By Electronic Means Introduction presenting bank is required to ...... 2 physically present the cheque to the The Bills of Exchange drawer's bank. The addition of a Image Return Document (Amendment) Bill ('Bill') was read in proposed new section 87A will ...... 2 Parliament for the first time on 8 allow this inter-bank presentment to July 2002. The amendments are to be done electronically. In this Application To Instruments provide for the establishment of a regard, the physical cheque will be Other Than Cheques Cheque Truncation System ('CTS'). scanned when deposited and its ...... 2 This new system will affect mainly electronic image will be transmitted the inter-bank clearing process in throughout the entire clearing cycle. Conclusion that banks will be allowed to The electronic image that will be ...... 2 present cheques by electronic circulated will comprise both the means. front and back view of the cheque. Physical cheques will continue to By eliminating the need to move be used by the public and accepted cheques physically between banks, by banks for payment. A key the new system is expected to difference, however, is that banks result in greater efficiency in the will be able to issue to the customer local banking industry. an Image Return Document ('IRD'), instead of returning the original If for any reason the drawer bank cheque when a cheque deposited wishes to see the physical cheque, by the customer is dishonoured. it can still do so under the proposed The amendments are expected to section 87A(2), provided that the come into force later this year. request is made before payment. This Update looks at what is The presentment by electronic involved in the CTS and how it will means will not affect the duties of affect bank customers. the collecting and presenting bank. They will be subject to the same duties in relation to the collection Presentment By and payment of the cheque as if the Electronic Means cheque itself had been presented for payment. When a holder of a cheque deposits the cheque at his / her In drafting the Bill, MAS had bank ('presenting bank'), the consulted with various public presenting bank will present the bodies, including the Association of cheque to the drawer's bank for Banks ('ABS') in Singapore. Banks payment. Under the existing Bills of in Singapore, anticipating the above Exchange Act, ('Act'), the changes, have already started issuing to customers, cheque books

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that are compatible with the CTS. The IRD will serve as a notice of Once the Bill is passed, Singapore Further, in a statement issued on dishonour to the drawer of the will be the world's first financial 28 June 2002, ABS stated that from cheque under amendments to centre to offer high-tech paperless 1 July 2002, only CTS cheques section 49 of the Act. The A4-sized electronic cheque clearing on a would be accepted in Singapore. IRD will contain the front and back nation-wide basis. July 2002, only images of the original cheque and CTS cheques would be accepted in Image Return will be printed on paper bearing the Singapore. CTS watermark. Document The Bill also gives a person who The Bill also provides for a new has lost an IRD the same rights of section 87B which will allow the recourse that are currently available presenting bank to issue to the to a person who has lost a cheque holder, an IRD instead of returning in its physical form. Basically, the the original cheque where the person can request the drawer to cheque is dishonoured by non- give him another cheque of the payment, unless the presenting same tenor, subject to him giving bank on its own accord returns the the drawer security to indemnify the cheque itself to the holder. Further, drawer (if required) against all the holder can also request for the claims arising in case the document return of the cheque itself. is found again. The IRD can be re-presented for payment at the same presenting Application To Soon Choo Hock bank when the reasons for the Executive Partner Instruments Other Than return are: Cheques Contact Details · the cheque is post-dated; or Direct: (65) 62320656 Proposed amendments to the Facsimilie: (65) 64380248 · there are insufficient funds in current section 86 of the Act clarify E-mail: choo.hock.soon the account. that the proposed cheque @rajahtann.com

truncation provisions will also apply There are no limits as to the to other instruments such as cash number of times the IRD may be re- presented. Note that where the cheques and banker's drafts. IRD is returned to the holder for other reasons, such as the absence Conclusion of the correct signature, or a discrepancy in the words and The banking community has numerical figures written, the IRD invested heavily in the CTS cannot be re-presented to the bank technology. The CTS will enhance because an IRD cannot be altered. banks' efficiency, reduce Thus, customers would have to transportation and microfilming request for another cheque from the costs, and allow banks to offer new drawer. services, such as online enquiry on status of cheque clearance.

Rajah & Tann is one of the largest law firms in Singapore. It is a full service firm and given its alliances, including US premier firm Weil, Gotshal & Manges, is able to tap into resources in a number of countries. Rajah & Tann is firmly committed to the provision of high quality legal services. It places strong emphasis on promptness, accessibility and reliability in dealings with clients. At the same time, the firm strives towards a practical yet creative approach in dealing with business and commercial problems.

The information contained in this Update is correct to the best of our knowledge and belief at the time of writing. The contents of the above are intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as the information above may not necessarily suit your specific business and operational requirements. It is to your advantage to seek specific legal advice for your specific situation. In this regard, you may call the above lawyers above or e- mail Rajah & Tann's Knowledge & Risk Management Group at [email protected].

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