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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.
22
ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015
Copyright© 2015 by the Electronic Check Clearing House Organization 2
Copyright© 2015 by the Electronic Check Clearing House Organization
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.
3
Overview of Canadian Banking
ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015
Copyright© 2015 by the Electronic Check Clearing House Organization 3
Copyright© 2015 by the Electronic Check Clearing House Organization
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
5
Copyright© 2015 by the Electronic Check Clearing House Organization
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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ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015
Copyright© 2015 by the Electronic Check Clearing House Organization 4
Copyright© 2015 by the Electronic Check Clearing House Organization
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)
Copyright© 2015 by the Electronic Check Clearing House Organization
Banking in Canada
8
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
Canadian Law and Canadian Payment Rules
Canadian Law and Canadian Payment Rules
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
U.S. $ Image Exchange *
U.S. $ Image Exchange *
* Separate US ABA/Dollar from CDN Dollar
ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015
Copyright© 2015 by the Electronic Check Clearing House Organization 5
Copyright© 2015 by the Electronic Check Clearing House Organization
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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Copyright© 2015 by the Electronic Check Clearing House Organization
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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ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015
Copyright© 2015 by the Electronic Check Clearing House Organization 6
Copyright© 2015 by the Electronic Check Clearing House Organization
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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Copyright© 2015 by the Electronic Check Clearing House Organization
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
ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015
Copyright© 2015 by the Electronic Check Clearing House Organization 7
Copyright© 2015 by the Electronic Check Clearing House Organization
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 Law and Canadian Payment Rules
Canadian $ Image
Exchange *
U.S. $ Image Exchange *
U.S. $ Image Exchange *
Canadian $ Image
Exchange *
U.S. $ Image Exchange *
* Separate US ABA/Dollar from CDN Dollar
ECCHO MemberBank B
Receiving BankGateway Receiving Bank
Copyright© 2015 by the Electronic Check Clearing House Organization
• 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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U.S. $ Image or Paper
Exchange
Canadian $ Image or
Paper Exchange
U.S. $ Image or Paper
Exchange
Canadian $ Image or
Paper Exchange
ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015
Copyright© 2015 by the Electronic Check Clearing House Organization 8
Copyright© 2015 by the Electronic Check Clearing House Organization
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
U.S. $Return –Image or
Paper
US/Canadian Border
U.S. Canada
Canadian $ Return –Image or
Paper
U.S. $Return –Image or
Paper
Cross Border Exchange
• Northbound Return Exchange
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Copyright© 2015 by the Electronic Check Clearing House Organization
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.
Cross Border Exchange
• Southbound Forward Exchange
16
U.S. $ Image or
Paper Exchange
U.S. $ Image or
Paper Exchange
ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015
Copyright© 2015 by the Electronic Check Clearing House Organization 9
Copyright© 2015 by the Electronic Check Clearing House Organization
Canadian FIDC or IDC
U.S. Correspondent
Bank or FRB(POE)
CUSTOMER
Returned Item
Canadian Correspondent FI
U.S. Paying Bank
U.S. $Return –Image or
Paper
U.S. $Return –Image or
Paper
US/Canadian Border
U.S. Canada
U.S. $Return –Image or
Paper
Cross Border Exchange
• Southbound Return Exchange
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Copyright© 2015 by the Electronic Check Clearing House Organization
Cross Border Exchange
• 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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ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015
Copyright© 2015 by the Electronic Check Clearing House Organization 10
Copyright© 2015 by the Electronic Check Clearing House Organization
Cross Border Exchange
• 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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Copyright© 2015 by the Electronic Check Clearing House Organization
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
ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015
Copyright© 2015 by the Electronic Check Clearing House Organization 11
Copyright© 2015 by the Electronic Check Clearing House Organization
Cross Border Exchange
• 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
ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015
Copyright© 2015 by the Electronic Check Clearing House Organization 12
Copyright© 2015 by the Electronic Check Clearing House Organization
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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Copyright© 2015 by the Electronic Check Clearing House Organization
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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ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015
Copyright© 2015 by the Electronic Check Clearing House Organization 13
Copyright© 2015 by the Electronic Check Clearing House Organization
ECCHO Member Bank A
Sending Bank
ECCHO Rules
Canadian Correspondent FI“Point of Entry”
CorrespondentAgreement
CUSTOMER
Canadian Check
U.S. $ Image
Exchange
ECCHO MemberBank B
Receiving BankGateway Receiving Bank
Canadian Paying FI
Canadian Law and Canadian Payment Rules
Canadian $ Image
Exchange
Canadian $ Image
Exchange
U.S. $ Image
Exchange
U.S. $ Image
Exchange
Canadian $ Image
Exchange
Images of Canadian Item
• Forward Exchange
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Copyright© 2015 by the Electronic Check Clearing House Organization
ECCHO Member Bank A
Returnee Member
ECCHO Rules
Canadian Correspondent FI“Point of Entry”
CorrespondentAgreement
CUSTOMER
Returned Item
ECCHO MemberBank B
Gateway Receiving BankReturning Member
Canadian Paying FI
Canadian Law and Canadian Payment Rules
Canadian $Return –Image or
Paper
Canadian $ Return –Image or
Paper
U.S. $Return –Image or
Paper
U.S. $Return –Image or
Paper
Canadian $ Return –Image or
Paper
U.S. $Return –Image or
Paper
Images of Canadian Item
• Return Exchange
26
ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015
Copyright© 2015 by the Electronic Check Clearing House Organization 14
Copyright© 2015 by the Electronic Check Clearing House Organization
Images of Canadian Item
• 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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Copyright© 2015 by the Electronic Check Clearing House Organization
Images of Canadian Item
• 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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ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015
Copyright© 2015 by the Electronic Check Clearing House Organization 15
Copyright© 2015 by the Electronic Check Clearing House Organization
Images of Canadian 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
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Copyright© 2015 by the Electronic Check Clearing House Organization
Images of Canadian Item
• 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
ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015
Copyright© 2015 by the Electronic Check Clearing House Organization 16
Copyright© 2015 by the Electronic Check Clearing House Organization
Images of Canadian Item
• 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
Copyright© 2015 by the Electronic Check Clearing House Organization
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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ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015
Copyright© 2015 by the Electronic Check Clearing House Organization 17
Copyright© 2015 by the Electronic Check Clearing House Organization
Wrap-Up and Adjourn
33
Thank YouWilliam L. Saffici
610-494-3630
Phyllis Meyerson
214-273-3202Oct
ob
er 8
, 201
5
ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015
Copyright© 2015 by the Electronic Check Clearing House Organization 18
Copyright© 2015 by the Electronic Check Clearing House Organization
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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Copyright© 2015 by the Electronic Check Clearing House Organization
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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ECCHOInsights: Preparing For Canadian Cheque Image Exchange Oct. 15, 2015
Copyright© 2015 by the Electronic Check Clearing House Organization 19
Copyright© 2015 by the Electronic Check Clearing House Organization
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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