preparing for canadian cheque image exchange · 15/10/2015 · bill of exchange – canadian...

ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015

Copyright© 2015 by the Electronic Check Clearing House Organization 1

Preparing For Canadian Cheque Image Exchange

Oct

ob

er 1

5, 2

015

William L. SafficiSaffici Payment Consulting LLC

Phyllis Meyerson, AAP, CCM

ECCHO

Copyright© 2015 by the Electronic Check Clearing House Organization

NOTICESThis presentation may provide an introduction to or summary of variousaspects of check payments and the legal and rules framework for checkimage exchange in the U.S. and Canada. Responsibility for compliance withimage exchange rules, and/or the legal, operational and regulatoryrequirements applicable to check image exchange, remains at all times withthe financial institution participating in check image exchange and/or theindividual or company using a check image exchange service.

This presentation and the information contained herein is not intended aslegal or compliance advice or recommendation to any person or company.This document could include technical inaccuracies or typographical errorsand individual users are responsible for verifying any information found in thispresentation.

Financial institutions should consult with their legal counsel regarding legaland operational requirements applicable to any check image exchangeprogram they may offer or in which they participate.

In the event of a conflict between this presentation and information obtained from the Canadian Payments Association (CPA), the CPA rules will govern.

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Session Overview

• Overview of Canadian Banking• Cheque Image Transformation• Status of Canadian FI Progress• Characteristics of Processing• Approved ECCHO Rules for Clearing in

U.S.

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Overview of Canadian Banking




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 Exchange Act: Defines ‘cheque’ and

other payment instruments• Extended in 2007 to add image of a cheque as a

Bill of Exchange– Canadian Payments Act - Establishes the

Canadian Payments Association

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Banking in Canada• Canadian 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 Image 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

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Banking in Canada• Canadian 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 :

– There are approximately 120 Indirect Clearers

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001: Bank of Montreal002: Scotiabank003: Royal Bank004: TD Canada Trust006: National Bank010: CIBC016: HSBC

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)869: Central One (CU central, outside Quebec)


Banking in Canada

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FI of First DepositIDC #2

DC - RBCCUSTOMER

IDC #1

Canadian Check

DC - TD Canadian Paying FI

IDC #1

Canadian Law and Canadian Payment Rules

Canadian $ Image

Exchange

U.S. $ Image Exchange *

Canadian $ Image

Exchange



Relationship Between IDC and DC is for Deposited,

Inclearing and Return Items

Relationship Between IDC and DC is for Deposited,

Inclearing and Return Items

Canadian $ Image

Exchange



* Separate US ABA/Dollar from CDN Dollar




Image Exchange Evolves

• Truncation and Electronic ChequePresentment (TECP) Project 2002 – 2008– Mandated exchange - ALL FINANCIAL INSTITUTIONS– Complex integration among/between direct clearers

and indirect clearers• Canadian Payments Association Image 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, 2011

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Image Exchange Evolves

• Canadian Payments Association Image 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 Image Captured Payments (ICP) with partner that has agreed to participate in ICP Exchange, effective August 12, 2013

• ICP Standard 015 – Companion Document to X9.100-187

• Bilateral Agreements

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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 Image Exchange• 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

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Migration Status

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Channel Status

Commercial RDC

Several FIs in full production (with CRD print), others preparing for full deployment in early 2016

Mobile RDC 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, 2015. One FI - back counter completed in November, 2015. Others have projects in place, including both teller and back counter solutions for completion in 2016 and 2017.

Image ATM Two FIs in deployment with completion in 2016. Others preparing for roll out in early 2016. A few FIs will keep current paper processing in place for now

Image Exchange

Two FIs will begin in October 2015 with a third to beginprior to year-end. Most plan to begin exchanging some volume in 2016

Northbound ICL Several FIs are accepting X9 and printing CRDs

Southbound ICL Some FIs will continue clearing southbound cheques using commercial RDC products through US FIs or print IRDs




Cross Border Exchange• Depositary Agreements – Cross Border• Exchange Rules/Depositary Agreements – within US

– ECCHO Rules for clearing of Canadian Cheques

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ECCHO Member Bank A

Sending BankReturnee Member

Canadian $ Image

Exchange *

ECCHO Rules

Canadian Correspondent FI“Point of Entry”

CorrespondentAgreement

CUSTOMER

Canadian Check

Canadian Paying Bank


Canadian $ Image

Exchange *



Canadian $ Image

Exchange *


* Separate US ABA/Dollar from CDN Dollar

ECCHO MemberBank B

Receiving BankGateway Receiving Bank


• Northbound Forward Exchange

U.S. BOFDCanadian

Correspondent FI (POE)

CUSTOMER

Canadian Check

U.S. Correspondent Bank

Canadian Paying FI

DC or IDC

U.S. $ Image or Paper

Exchange

Canadian $ Image or

Paper Exchange

US/Canadian Border

U.S. Canada

Cross Border Exchange

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Exchange

Canadian $ Image or

Paper Exchange


Exchange

Canadian $ Image or

Paper Exchange




U.S. BOFD Canadian Correspondent FI

(POE)

CUSTOMER

Returned Item

U.S. Correspondent Bank

Canadian Paying FI

DC or IDC

Canadian $Return –Image or

Paper

U.S. $Return –Image or

Paper

Canadian $ Return –Image or

Paper


Paper

US/Canadian Border

U.S. Canada


Paper


Paper


• Northbound Return Exchange

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Canadian FIDC or IDC

U.S. Correspondent

Bank (POE)

CUSTOMER

U.S. Check

Canadian Correspondent FI

FRB or U.S. Paying Bank

U.S. $ Image or

Paper Exchange

US/Canadian Border

Canada U.S.


• Southbound Forward Exchange

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U.S. $ Image or

Paper Exchange

U.S. $ Image or

Paper Exchange




Canadian FIDC or IDC

U.S. Correspondent

Bank or FRB(POE)

CUSTOMER

Returned Item

Canadian Correspondent FI

U.S. Paying Bank


Paper


Paper

US/Canadian Border

U.S. Canada


Paper


• Southbound Return Exchange

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• Standards– Northbound: Companion Document follow Standard 015– Southbound: Companion Document follow X9.100-187– BiTonal image: 200 dpi in tiff - standard to both countries

• R/T Format– Retain “dash” in RT Fields ex. 12345-010 In Record 25

• US Dollar vs Canadian 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: Canadian Funded Accounts – “Hand-written” – US FUNDS

– Canadian Cheques without TC 45 will likely require operator review for proper designation

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• Return Item Collection– Canadian FI Return Item Reason Codes NOT

map directly with US Return Item Codes– US BOFD bank cannot represent returned

Canadian cheque– Several conditions when BOFD can “re-

exchange” (presented as first time item) Return Item

– Canadian FIs can return some categories of items up to 90 days and 6 years after presentment

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Cross Border Exchange• Return Item Collection

– See Appendix B for complete information

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United States Canadian

Description Code Code DescriptionTime Limit for Return

NSF - Not Sufficient Funds ‘A’ A Insufficient FundsStop Payment ‘C’ B Payment Stopped

Post Dated ‘H’ C Post Datedup to and

including the due date

Stale Dated ‘G’ D Stale DatedClosed Account ‘D’ J Account Closed

Altered/Fictitious Item/Suspected Counterfeit/Counterfeit

‘N’ E Counterfeit Item

Refer to Maker ‘S’ U Refer to MakerNot Authorized (Includes Drafts)–Unauthorized item such as a draft

‘Q’ KNot Eligible for Clearing -Telecheque

90 calendar days

KNot Eligible for Clearing -Other

Duplicate Presentment (Supporting documentation shall be readily available)

‘Y’ N Duplicate Payment

90 calendar days





• Adjustments– An adjustment, as known in US, not used in

Canada– Canadian 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

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Overview of ECCHO Rules




ECCHO Canadian Rules

• Banks requested ECCHO Rules coverage for Canadian items– Significant interest from members– CPA and Canadian 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 Canadian law

• Rules within U.S. for ECCHO exchanges prior to exchange with Canadian FI - Northbound– Southbound exchanges of U.S. items covered by

ECCHO rules

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Images of Canadian Item

• Definitions for Exchange of Images of Canadian Items– Canadian Item– Canadian Correspondent FI– Canadian Paper Return Item– Canadian Paying FI– Canadian Law– Gateway Receiving Bank

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ECCHO Member Bank A

Sending Bank

ECCHO Rules



CUSTOMER

Canadian Check

U.S. $ Image

Exchange

ECCHO MemberBank B

Receiving BankGateway Receiving Bank

Canadian Paying FI


Canadian $ Image

Exchange

Canadian $ Image

Exchange

U.S. $ Image

Exchange

U.S. $ Image

Exchange

Canadian $ Image

Exchange


• Forward Exchange

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ECCHO Member Bank A

Returnee Member

ECCHO Rules



CUSTOMER

Returned Item

ECCHO MemberBank B

Gateway Receiving BankReturning Member

Canadian Paying FI


Canadian $Return –Image or

Paper


Paper


Paper


Paper


Paper


Paper


• Return Exchange

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• General provisions – Application of Rules– Governs exchange and return of Images of

Canadian Items– Not cross-border– Does not mandate acceptance of Canadian images

– Allowance for section to be varied by agreement

• Application of law to Canadian items – Canadian law applicable

• Members responsible to understand applicable Canadian law

• Rules not change Canadian law or rights under it– U.S. law applicable to obligations under Rules

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• Items eligible for exchange under Canadian Law

• Destruction of Canadian Item within 120 days

• Canadian image is “item” under UCC, not “Check” under Reg CC– FIs handle Canadian Image and Paper Return

as collecting bank under Code– Provisions of UCC - Transfer warranties apply

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• 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

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• 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

Canadian Correspondent FI– Responsible for exchange with Canadian

Correspondent FI• Image and Return of Canadian Item is

legal equivalent of Canadian item30





• Rejection, return and correction or adjustment of Images of Canadian Items– Return or reject prior to Canada or by Canadian FI– Reg CC and Code return timeframes not apply– May return Image or Canadian Paper 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 Canadian Law

– Official Copy of Image31


Images of Canadian 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 Canadian item• ECCHO warranties apply to Canadian image and

Canadian Paper 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

Canadian FI it makes same warranty• Financial settlement for Canadian Items

– No unique rules– Members may have separate settlement processes

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Wrap-Up and Adjourn

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Thank YouWilliam L. Saffici

[email protected]

610-494-3630

Phyllis Meyerson

[email protected]

214-273-3202Oct

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, 201

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App. A – CDN Currency

• Review the following excerpts for more specific information on the identification of the various currency designations when dealing with Canadian cheques– Standard 006 – page 53

http://www.cdnpay.ca/imis15/pdf/pdfs_rules/standard_006.pdf

– Standard 006 – page 29 http://www.cdnpay.ca/imis15/pdf/pdfs_rules/standard_006.pdf

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App. B – Return Items

• Understanding Canadian Return Reason Codes– http://checkimagecentral.org/pdf/Understanding%20C

anadian%20Return%20Reasons%20Codes%20FINAL%202015-08-03.pdf

• This document contains:– Code Match list showing “side-by-side” US and

Canadian 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-Exchange Matrix shows the return reasons eligible for presentment as a new item

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App. C – Canadian Rules• All Canadian Rules and Standards can be found at

http://www.cdnpay.ca/imis15/eng/Act_Rules/Automated_Clearing_Settlement_System_ACSS_Rules/eng/rul/Automated_Clearing_Settlement_System_ACSS_Rules.aspx

• The specific rules and standards applicable to this presentation are– Canadian CPA Standard 015 (April 2014) - Canadian Companion

Document to X9.100-187 (2008) for Electronic Exchange of Canadian Cheque Images https://www.cdnpay.ca/imis15/pdf/pdfs_rules/standard_015.pdf

– Canadian CPA Rule A4 - Returned and Redirected Items (January 2014) https://www.cdnpay.ca/imis15/pdf/pdfs_rules/rule_a4.pdf

– Canadian CPA Rule A10 - Image Rule (April 2014) https://www.cdnpay.ca/imis15/pdf/pdfs_rules/rule_a10.pdf

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