Speech by the Minister for Health and Second Minister for Finance at the Second Reading of the Bills of Exchange (Amendment) Bill 2002
Date: 23 Jul 2002
Mr. Speaker, Sir, I beg to move, "That the Bill be now read a second time".
2 Sir, the Bills of Exchange Act provides the legal framework of bills of exchange, cheques and promissory notes. It was last amended in April 1998.
3 This Bill seeks to amend the Act for the purpose of establishing a Cheque Truncation System, or CTS in short.
4 Sir, I shall begin by giving an overview and benefits of CTS.
Overview of Cheque Truncation System (CTS)
5 Singaporeans have written an average of more than 83 million cheques a year over the past ten years. In 2001, the figure was 92 million. Significant costs are incurred by the banking industry to clear these cheques. Today, after a bank's customer deposits a cheque at his bank, also referred to as the presenting bank, the bank will batch it together with other cheques and transport them to the Automated Clearing House. The Clearing House then sorts the cheques for the respective paying banks to collect, whereupon each paying bank verifies whether the cheques can be paid. If the cheque cannot be paid, it is then returned to the presenting bank in the same way.
6 Over the years, the banking industry in Singapore has introduced new technologies to improve this cheque clearing process. An example of this is the magnetic-ink character recognition (MICR) information on cheques that banks have been exchanging to facilitate faster cheque clearing. However, physical cheques are still required by the paying bank because they need to verify information such as dates and signatures on the cheques.
7 CTS, to be launched later this year, leverages on new imaging technology that enables banks to exchange electronic images of cheques. Cheques will be scanned when deposited and their electronic images will be transmitted throughout the entire clearing cycle. The new system will use a private network with public key cryptography to ensure that images are encrypted and transmitted securely between banks. In addition, the system includes a centralised image archive for banks to store and retrieve cheque images. Since a cheque image contains all the necessary information required by a paying bank to determine whether the cheque can be paid, there is no longer an operational necessity for them to have the physical cheque.
8 This Bill contains amendments to allow banks to present a cheque by electronic means in place of physical presentment. The Bill will also recognise the rights of a holder of an Image Return Document, or IRD in short, which is a document that banks will issue instead of returning the original cheque when a cheque is dishonoured. The amendments have been drafted so that under the new process, the respective rights and duties of the various parties to a cheque will be the same as at present.
9 Other jurisdictions have passed, or are in the process of passing, similar amendments to their cheque legislation. The United Kingdom has allowed the clearance and payment of cheques using MICR information instead of physical presentment since 1996. In the United States, the Federal Reserve Board is in the process of getting Congress to enact a Check Truncation Act.
10 Sir, I shall now explain the proposed amendments in detail.
Allowing electronic presentment to replace physical presentment
11 Clause 6 of the Bill introduces Section 87A that will allow the presentment between banks to be done through electronic transmission of cheque image and payment information instead of the physical cheque. However, the paying bank will still have the right to demand that the physical cheque be presented instead, if it deems it necessary.
Image Return Document (IRD)
12 Clause 6 also introduces Section 87B, which will allow for the presenting bank to issue an IRD instead of returning the original cheque to its customer if the cheque is dishonoured by the drawer's bank. An IRD is a banking document bearing the image of the cheque together with other related information. However, if the customer requires the original cheque, he or she can still request it from the bank. The bank may also choose to return the original cheque instead of issuing an IRD. If the holder of the IRD deems that the reason for the original dishonour is no longer valid, for instance the original cheque was post-dated or the account had insufficient funds, this holder can present the IRD for payment at the same presenting bank as if the IRD were the original cheque. The Bill also gives a person who has lost an IRD the same rights of recourse against the drawer that are currently available to a person who has lost a cheque.
13 Clause 3 amends Section 49 to allow an IRD to serve as a notice of dishonour to the drawer of the cheque, as per a dishonoured cheque in today's context. The holder of the IRD will be able to use the IRD to notify the drawer that the cheque was dishonoured. The holder can then request for a new cheque from the drawer if necessary.
14 Clause 4 amends Section 86 of the Act to clarify that the new cheque truncation provisions in the Act that are applicable to cheques will also apply to other instruments such as cash cheques and banker's drafts.
15 The addition of Section 87C of the Act will allow the Monetary Authority of Singapore (MAS) to make regulations relating to cheque truncation with the approval of the Minister. MAS intends to prescribe via regulations, the electronic payment information required when a cheque is presented electronically and the particulars contained in an IRD.
16 The Bill has incorporated the various comments that MAS received through consultation with public bodies.
17 Sir, the CTS will enhance the banks' efficiency by reducing transportation and microfilming costs, thus allowing banks to offer new services to customers. The amendments in this Bill will enable banks to keep up with technological changes and help Singapore move to a more efficient payment system.
Mr. Speaker, Sir, I beg to move.