FAQs For Cheque Truncation and Conversion System (CTCS)

1. What is Cheque Truncation and Conversion?
   
   In cheque truncation, the clearing of cheques will be based on the image and Magnetic Ink Character Recognition (MICR) Codeline data of the cheque and not the physical cheque. In place of the physical cheque, the image and data of the cheque such as the MICR fields, date of presentation, presenting bank, etc. would be transmitted electronically throughout the clearing process. Thus, the need to move the physical cheque from the collecting bank to the Clearing House and the paying/drawee bank will not be necessary. This would effectively reduce the time required for payment of cheques, except in exceptional circumstances. To date, cheque truncation has been implemented in several countries including the US, Hong Kong, Singapore and Sri Lanka.
   
   Cheque conversion, on the other hand, is a data-based cheque clearing system, where the clearing will be based solely on the MICR Code line data of the cheque and not the image or physical cheque. The MICR Codeline data captured is then converted into a payment instruction to effect the transfer of funds from the drawer's account into the drawee's account.
   
   Benefits and Impact to Public

2. How would bank customers benefit from the implementation of CTCS?
   • Greater efficiency of cheque clearing process
   • Timely availability of funds to beneficiaries
   • Improved cash-flow management
   • Improved level of service due to extended cut-off time to deposit cheques
   • No additional cost to customers
   • Inland Exchange commision will not apply because all cheques will be treated as local cheques
   • Fate of cheque will be known on the following working day
3. Would the new system impact the current mode of issue and deposit of cheques by customers?
   
   No, except that the pay-in slip as no longer be necessary. However, the depositor has to complete the pay-in details on the reverse of the cheque. Customers are advised to write cheques with a dark coloured ink (blue or black ink is recommended). This would enhance the quality of the image of the cheque captured. Further, for representment of unpaid/returned cheques, an Image Return Document (IRD) will be used in place of the original cheques. In addition, beneficiaries of outstation cheques will be able to use the funds within a shorter period of time, compared to the current dayhold of 5 to 8 working days.
4. What should members of public do if he/she receives a non CTCS designed cheque?
   
   Such cheques will continue to be acceptable and chops are allowed until they are phased out or until such time as may be announced by Bank Negara Malaysia . After the cut-off date , he/she should request for a new CTCS-compliant cheque from the drawer. The banks have, since 1 July 2007, been issuing only the new designed cheques to accountholders.
5. What happens to old designed cheques after the cut-off date?
   
   The customers should request the issuer to replace them with new designed cheques. Issuers may exchange them for the new designed cheques with their banks.
6. Will the cut-off times for deposit of cheques be standardised under the CTCS environment?
   
   One of the key objectives of CTCS is to achieve same day clearing . Therefore, under the CTCS environment, it is envisaged that all cheques deposited within the normal banking hours, irrespective of the branch of deposit, will be cleared on the same business day. The clearing cycle would be shortened and it would be possible for customers to realize the proceeds of cheques earlier. However, the cutoff time would depend on the service levels of the individual banks.
7. Can a customer alter a cheque?
   
   To protect the interest of the accountholder and to mitigate against fraud, no alteration is allowed and such cheque will not be accepted.
8. Are there any changes to the current cheque clearing times?
   
   There are no changes to the current clearing times. Cheques deposited before the cut-off time that are specified by the individual banks will continue to be cleared within the same day.
9. Banks charge inland exchange commission for outstation cheques. Would this practice be continued under CTCS?
   
   All cheques, irrespective of the point of deposit or "drawee town", will be treated as local cheques. As such, inland exchange commission will no longer be applicable .
   
   Image Return Document (IRD)
10. What is an Image Return Documents (IRD)?
    
    In the CTCS environment, the physical cheques will be retained by the collecting banks and not returned to the depositor. IRD is a document produced by the collecting bank to substitute for the returned cheque. IRD is a legally recognized substitute of the original cheque for re-presentment purpose. The document is recognized under the Bills of Exchange Act 1949. A specimen IRD is attached.
11. Would dishonoured cheques be returned to the accountholders?
    
    No, an Image Return Document (IRD) or Cheque Return Advice for non-representable items (example due to "words and figures differ") will be issued to drawees, when a cheque is returned unpaid. The IRD serves as a notice of dishonour that the cheque cannot be paid for various reasons and replaces the original cheque for the purpose of re-presentment, where applicable, for clearing under CTCS. It is a legal document in place of the original cheque for representment purposes. The IRD may only be deposited into the bank (or any of its branches nationwide), where the cheque was originally deposited and into the same account. Representment is only permitted for the following return reasons:-
    • Refer to Drawer
    • Exceeded Arrangement / Amount Limit Exceeded
    • Effects Not Cleared
    • Not Arranged For
    • Other Reason (for insufficient funds)
    • Post Dated
    • Cleared In Error
    • Large Value Confirmation required
12. Why can't the banks return the original unpaid cheque?
    
    CTCS uses electronic image and data for clearing of the cheques. The physical cheque is removed from the clearing process once it is presented for payment/collection. The Bills of Exchange Act 1949 has been amended to accord legal status to the Image Return Document (IRD), which will be issued in place of the returned cheque, for representment purposes.
13. Can the drawee request for the original cheque instead of IRD?
    
    Yes, but he/she needs to surrender the IRD in exchange for the original cheque. A fee may be imposed by the bank concerned for the retrieval of the cheque based on cost recovery.
14. Can a drawer request for a copy of a paid cheque? If yes, how?
    
    The physical cheques will be retained by the Collecting bank for one year. Drawer may request the original through his/her bank.
15. Who will issue the Image Return Document (IRD) for the customers?
    
    The collecting bank, where the cheque was deposited, will issue the IRD.
16. What is the validity period of an IRD?
    
    The validity period for an IRD, as in the case of the original cheques, shall be six months from the date of the original cheque.
17. What must I do if an IRD cannot be presented?
    
    You should return the IRD to the drawer in exchange for a new replacement cheque. The replacement cheque should address the reasons for the return of the IRD in order that it may be cleared successfully through CTCS.
18. What should I do if I have lost the IRD?
    
    As an IRD is a substitute of a dishonoured cheque, the lost IRD will be regarded as a lost cheque. The drawee should request for another cheque from the drawer in such circumstances. On the other hand, the drawer of the cheque should also place a 'Stop Cheque' instruction on the lost IRD.
19. Can I present an IRD to a bank for cash payment over the counter?
    
    An IRD can only be presented for clearing and not for encashment.
20. Are there any charges imposed on the depositor when the bank issues an IRD?
    
    No, other then the usual returned cheque charges, which will be imposed on the issuer/drawer, there will be no additional charges as the IRD is a replacement of the returned cheque.
21. If I present an IRD and it is returned, will I get back the same IRD again?
    
    No, a new IRD will be generated for each return of the same cheque. Therefore, if an IRD is presented and subsequently returned, another IRD will be generated stating clearly that it is the second IRD.
22. Why is the cheque return (for representable items) effected through the IRD? What is the purpose of the IRD?
    
    The IRD offers the following benefits over the usual return cheque process.
    • The IRD conveniently contains, in one document, the following information:-
    • the reason for its return
    • that it can be represented
    • the validity period for its representment
    • the number of times the cheque has been represented
    • The IRD is also more secure as alterations are not allowed, thereby eliminating the possibility of unauthorized alterations.
23. How should one present an IRD?
    
    You can present the IRD over the counter or deposit it into the Cheque Deposit Machine/Box at any branch of the bank that you originally deposited the cheque.
24. Can an IRD that is mutilated, altered or torn be represented?
    
    No. As an IRD is a substitute for a dishonoured cheque, the mutilated or torn IRD will be regarded as a mutilated or torn cheque. Similarly, alteration is not allowed on the IRD as an altered IRD will not correspond to the stored cheque's image in the CTCS. The customer should request for a replacement cheque from the drawer in the above circumstances.
25. How can I ensure that the IRD is genuine?
    
    The front and back image of the original cheque will be printed on the IRD, which itself will be printed on security paper. Each IRD will also have a serial number and controlled strictly by the bank that issued the IRD.
    
    The Collecting bank (or the bank that issued the IRD) will also have to ensure that adequate security and internal controls are in place to protect it against fraud. Alterations on the IRD are not allowed. If the IRD is tempered with, the collecting bank will return it unpaid.
    
    Rubber Stamp, Chop and Personal Seal
26. Will a cheque affixed with rubber-stamp, chop and personal seal be accepted for clearing under CTCS? If not, why?
    
    No. Company stamp/seal/chop on the new design cheque is deemed unnecessary as details of the drawer are preprinted on such cheques. The preprinted name of the company and registration number on the cheque complies with the requirements of the Companies Act 1965.
    
    With CTCS, verification and authorization by the paying banks will be based on the image and data of the cheque. Hence, it is of utmost importance that legible images are available to the paying banks. The use of company stamp, chop and personal seal shall be discontinued as the ink may penetrate the paper or interfere with the legibility of the information, either printed or written, on the cheque or any reproduction of it through imaging. The use of company stamp, etc. may overshadow the clear appearance of the basic features of the cheque in the image. Therefore, companies that use the existing blank cheques would need to exchange such cheques with the newly designed cheques immediately.
    
    Cheques Clearing Outside Klang Valley
27. What happens to the existing manual clearing of local cheques in the East Coast, Sabah and Sarawak under the CTCS Environment?
    
    All cheques, whether local or outstation, including those in the East Coast, Sabah and Sarawak , will be cleared centrally under CTCS.
28. Will cheques be cleared regionally e.g. Kuala Lumpur , Pulau Pinang and Johor Bahru under CTCS?
    
    No, all cheques will be cleared centrally in Kuala Lumpur.
    
    Others
29. Why is there a need to change the cheque design under CTCS?
    
    The cheque size has been standardised to 3.5" x 7" to facilitate cheque truncation. A single cheque size would assist the commercial banks with automation of the clearing process, besides maintaining an acceptable file size for electronic transmission of the cheque images and data. Boxes for the date and amount (in figures) have been introduced to facilitate optical capture in the future. Besides, customers need not complete pay-in slips, when depositing the cheques. Security features have also been enhanced to combat fraud.
30. We currently have cheques, which are completed on computer printers using magnetic ink for the printing. Can we continue to use magnetic ink for the printing?
    
    You may continue to use magnetic ink for printing of cheques, provided it does not impinge on the clear band area or affect the scanning/imaging/processing of the cheques nor affect any material part i.e date, payee name, amount in words and numericals and signature on the cheque.
31. What measures are in place to reduce cheque fraud?
    
    Security is of paramount importance in the CTCS and the banking industry. As such, several security measures have been put in place to ensure the safety and security of cheques cleared under CTCS. These include security features on the physical cheques, implementation of digital signature to ensure that all information are digitally signed and transmission of image and data via a secured network.
    
    
    Migration to e-payments
32. BNM is actively promoting the migration to e-payment agenda. Since cheques are paper-based, why is BNM making the paper-based payment instruments more efficient?
    
    While there has been a shift in the payment mode from cheques to more electronic payments in the recent years, cheques still account for a significant portion of non-cash retail transactions, at 93% in 2007. Hence, enhancing the efficiency of cheque clearing is still an important area of focus for BNM in efforts to lower the cost of doing business. Besides, the experience in the United States has shown that cheque conversion is a necessary prelude to transforming such paper-based payment modes into e-payments.

Bank Negara Malaysia
8 April 2008

Original Article: http://www.bnm.gov.my/index.php?ch=103&pg=456&ac=589