MANILA, Philippines —Banks will soon be allowed to return high-value but insufficiently funded and defective checks as early as the day these are deposited.
That would mark a departure from the previous practice of waiting for the next banking day to return bounced and defective checks, while the transfer of funds to the drawee bank was dated on the day of the check’s deposit, the Bangko Sentral ng Pilipinas (BSP) said in a statement on Friday.
According to the BSP, the old practice of retroactive dating causes changes in the balances of bank settlement accounts with the Philippine Payments and Settlements System-Plus (PhilPaSSPlus), the BSP-operated facility that enables check settlement.
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Banks will still be allowed to return unfunded and questionable checks the next banking day, the central bank explained, but settlement would no longer be retroactively dated to mitigate risks that may arise from the mismatch.
“As a result, the amended check policy ensures certainty of funds transfer from the check issuer to the payee,” the BSP said.“Hence, aside from improving confidence in the check clearing and settlement system, the enhanced policy enables better fund management among check users,” it added.
In check clearing, banks will no longer be allowed to incur overdrafts, or to draw funds exceeding what a bank’s demand deposit account holds. This will eliminate the need for banks to tap the BSP’s overdraft credit line (OCL), which allows lenders to cover shortfalls in demand deposit accounts due to clearing activities.
The amended check policy will be implemented three months from its effectivity date, which is 15 days after its publication.
In the same statement, the BSP also announced the implementation of the “Intraday Settlement Facility (ISF),” reflecting operational changes from the adoption of global payment standards and the full automation of this system.
The facility allows banks to obtain funds from the central bank to prevent gridlocks due to timing mismatch in the settlement of payments at PhilPaSSPlus.
The ISF regulation will be enforced three months from the date of publication to allow banks to make appropriate internal changes in compliance with revised regulations. Once the transitory period ends, the BSP will close the OCL and the ISF will become its sole funding facility. —Ian Nicolas P. Cigaral INQ