Solicitors Fact Sheet Cheque Imaging

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1 Solicitors Fact Sheet Cheque Imaging Introduction The Cheque and Credit Clearing Company (C&CCC) is introducing a new, easier and quicker way of clearing cheques across the UK. Called the Image Clearing System (ICS), it enables images of cheques to be electronically exchanged between the banks and building societies concerned instead of moving the actual physical paper cheques themselves around the country allowing cheques to clear more quickly than they have done previously. Frequently asked questions: Why is cheque imaging being introduced? According to the latest published figures, 405 million cheques were used for payments and to acquire cash across the UK in 2017, showing that cheques are still an important part of the payments landscape. To improve the efficiency and speed of the clearing process, the Cheque and Credit Clearing Company has chosen a method of clearing cheques that uses 21st century technology. This will help protect the future of cheques so that customers can use them for as long as they want. How will cheque imaging work? You will still write paper cheques as you do now but if you receive cheques you may be offered new ways of paying them into your bank or building society account. You will still be able to pay cheques in at a branch counter just as you do now. An image of the cheque will be created by the bank or building society when the cheque is paid in and it will be this image that will be exchanged electronically through the new system between the relevant banks and building societies. In addition, if your bank or building society offers this service, as a business customer you will be able to image cheques you receive using a secure imaging tool on your mobile banking app and then upload the images for paying in and processing by your bank or building society. If you are a corporate customer you may be offered a scanning facility by your bank so that you can scan large numbers of cheques yourself to create images, which you will then be able to upload to your online bank for processing. What legislation covers the changes to cheque processing? Before the changes to the cheque clearing process could commence, a legislative change was required. Following on from a consultation into speeding up cheque payments that ran from March to April 2014, the Government published its conclusions on 25th June 2014, along with the draft enabling legislation within the Small Business, Enterprise and Employment Bill. May 2018

2 The approved Bill received Royal Assent in March 2015, and the enabling legislation came into force on 31st July A link to this legislation can be found here: enacted Is the Government introducing secondary legislation which will support cheque imaging and will look to address issues such as potential compensation liability and also the use of the cheque as evidence of payment? Yes. HM Treasury published a consultation exercise on 3rd November 2017 inviting views on the proposals to make provision for two measures in secondary legislation. The aim of this proposed legislation is to ensure that the new system has no detrimental impact on the existing position of cheque users. The proposed legislation will provide: that a copy of a paid cheque, in image form, will be provided to the payer upon their request, and that the copy can be used as evidence of payment. that if a customer incurs a loss in connection with the presentment of a cheque under the ICS, and has not received compensation, the payee s bank must compensate the customer for the loss. The consultation closed on 1st December The Government published its response on 30th April 2018 and has laid the legislation before parliament, and is aiming for the legislation to become law later in Full details of the consultation can be found here: What are the clearing timescales with the new cheque imaging system? Cheques processed through the new system clear more quickly. It means that if you pay in a cheque on a weekday (before your bank s advertised cut-off time) you will be able to withdraw the funds by 23:59 on the next weekday (bank holidays excluded and provided that the cheque has not bounced). However, 23:59 will be the latest timescale that banks and building societies will be working to and many are likely to allow their customers to access their funds earlier than this. How long does it take to clear a cheque via the current paper clearing system? Under the paper clearing system it takes six weekdays (bank holidays excluded) before you can be absolutely certain that your cheque won t bounce. What s the roll-out timetable for image clearing? Roll-out of the new image clearing system began on 30th October Only a small number of cheques are going through the new system to begin with so, initially, the vast majority of customers will not notice any change to how quickly their cheques clear. However, over time, increasing numbers of cheques will be cleared using the new system and more and more customers will benefit from the faster timescale. Then, at some stage in the second half of 2018, all of the UK s banks and building societies will clear all cheques via the image-based system to the faster timescale. The precise date as to when this will happen will be announced by the industry in due course. Until then, two clearing systems will operate in parallel, which means that some cheques that customers write or pay in will clear more quickly via the image system, and some will clear to the existing, six weekday timescale through the current, paper-based system. Banks and building societies will be advising their customers of their individual roll-out plans as appropriate. 2 May 2018

3 How will the new system impact us? The main difference will be that when you pay in a cheque the funds will appear in your account much more quickly than they do at the moment. It s important to remember that the same timescales will apply to any cheques that you write, so the funds from these cheques may leave your account much more quickly too. You will still write paper cheques and give them to the recipients as you do now, but if you receive a cheque you may be offered new ways of paying them into your bank or building society account. During the phased roll-out, how will I know if my cheque will be cleared by the end of the next weekday or after six weekdays? Your bank or building society will be able to provide you with more information regarding how quickly your cheques will be cleared. Can I choose if my cheque clears via the new system or the old system? No. During the phased roll-out you will not be able to choose which system is used to clear your cheques. However, at some stage in the second half of 2018, all cheques will be cleared through the image-based system. Which banks and building societies are already clearing their cheques via image? The introduction of the new cheque imaging system involves a phased roll-out, with all banks and building societies deciding on an individual basis when they are going live. However, at this stage, even if a bank is already live, only a small number of cheques it receives are likely to be processed through the new system. Your bank or building society will be able to give you more information on whether a cheque that you pay in will clear through the new image-based system or the existing paper-based system. As solicitors, we regularly use cheques in the settlement of property transactions. During the period when there are two cheque clearing processes running in parallel, how can we guarantee that the cheques we present, drawn on different banks, will all be honoured at the same time? Banks are aware of this issue and will try and help their customers as much as they can during the period when the two clearing processes are running in parallel. We would advise you to speak to your bank to alert them to any potential issues you may have. Can we still use our existing chequebooks? Yes, you will be able to use your existing chequebook. Why wasn t the new system fully introduced on a particular day rather than a phased roll-out over a number of months? The introduction of faster cheque clearing has involved the creation of a completely new payments system it is not a simple overhaul of the existing clearing process. The complexity of the project, coupled with there being many financial organisations that need to come together to deliver May

4 this technological leap-forward for the cheque, means that there is a phased introduction rather than an industry-wide switchover from old to new on one particular day. Will the new image-based system be UK-wide? Yes, the new system will be UK-wide. The C&CCC has worked with the Belfast Bankers Clearing Company to ensure that banks and building societies in Northern Ireland can clear their cheques through the new system along with all the banks and building societies in the rest of the UK. When will all cheques be cleared via the new image-based system? All cheques will be cleared via the image-based system at some stage in the second half of The precise date as to when this will happen will be announced by the industry in due course. Does fraud liability change with the new system? The introduction of an image-based system makes no change to fraud liability but the secondary legislation is welcome news for customers as it aims to ensure that cheque imaging has no detrimental impact on the existing position of cheque users. It is important to note that this legislation does not override scheme rules regarding compensation. However, the introduction of cheque imaging represents a significant change to the way cheques are processed and the legislation ensures that a customer is not left out of pocket when they are an innocent victim of fraud and have followed their bank s terms and conditions. We are concerned about fraud. Will this new system protect our business and clients? In-built security techniques and checks will be used to help prevent fraud, so provided you have kept to the terms and conditions of your own account, you will be protected if you are an innocent victim of fraud just as you are now. Will the new system impact the way items such as postal orders, sterling travellers cheques, bankers drafts, dividend cheques, government payable orders and warrants are cleared and paid? Yes. The system will process all of these as well as cheques. Will the new system process cheques in foreign currencies as well? No. The new system will process sterling cheques, postal orders, travellers cheques, bankers drafts and dividend cheques drawn on UK banks and paid into a UK bank account in the UK, but not foreign currency cheques. When the two clearing systems are running in parallel, how can fraud be prevented? During the phased roll-out, when the image-based and paper-based systems are running in parallel, it is the responsibility of the banks involved in processing cheques to prevent fraud. They will have a number of processes and systems in place to detect and prevent fraud when the cheque is paid in. Just as now, any innocent victim of cheque fraud who has followed their bank s terms and conditions and has not been negligent will not be liable. 4 May 2018

5 As solicitors, we need our paid paper cheques back for audit purposes and for those instances where we need to provide evidence of payment by cheque in a court of law. How will we manage to do this in future? The changes to the Bills of Exchange Act 1882, made through the Small Business, Enterprise and Employment Act, 2015 (part1, section 13), makes it clear that an image of the cheque will now be evidence of payment. The proposed secondary legislation being considered by HM Treasury will address this issue. Your bank will be able to supply you with images of cheques for audit trail purposes. Will there be an upper limit on the value of a cheque that I am allowed to image? Individual banks and building societies will advise customers in due course if there are any maximum value amounts regarding cheques that they image themselves. Irrespective of this, cheques can continue to be paid into the bank in exactly the same way as at present such as over the branch counter, by post, or via an ATM and there will be no limit on the value of any cheque. Once paid in, the banks themselves will image all cheques for processing and clearing. I understand that if we pay in multiple cheques at the same time, we may receive the value for the different cheques at different times on our account. How are we going to be able to reconcile these? All banks want to make it as easy as possible for their customers to keep track of, and ultimately reconcile, any cheques which they have paid in. However, there is no precise rule for how banks will deal with this under the new image-based system, so you should talk to your own bank to find out their individual plans regarding this. It is highly likely, but not guaranteed, that the banks will continue to supply you with the same information, in the same format, as they do at present. What happens if a cheque I have paid in bounces - how will I be notified? If a cheque cleared via the new system is returned not paid you will receive notification more quickly than at present. Your bank will agree with you how it will notify you and it will tell you the reason why the cheque has not been paid. Your bank will have the cheque image, which will be the legal instrument. This will provide the bank with all the information it will need if you ask it to re-present the cheque (if it offers this service). Will I still be able to stop a cheque if it is cleared via the image-based system? Yes. You have a legal right to stop a cheque before the cheque has been paid (Bills of Exchange Act, 1882). However, there will be significantly less time to do this with cheque imaging as the clearing timescales are much quicker. Also the recipient might pay in the cheque via a mobile banking app, which means that the clearing process will begin sooner than if the cheque recipient has to visit a bank branch to pay it in. There are limited circumstances in which stopping a cheque is permissible, as has always been the case. You should talk to your bank or building society first. May 2018 Contact Us General Enquiries: questions@chequeandcredit.co.uk media enquiries: press@chequeandcredit.co.uk Web: LinkedIn: