BANK OF THE REPUBLIC OF BURUNDI

REGULATION No. 001 OF 28/02/2020 OF THE BANK OF THE REPUBLIC OF BURUNDI ON THE DEMATERIALIZATION AND AUTOMATED PROCESSING OF CHEQUES

February 2020

TABLE OF CONTENTS CHAPTER I: GENERAL PROVISIONS.................................................................... 3 Article 1: Object ..................................................................................................................... 3 Article 2: Scope of Application........................................................................................... 3 Article 3: Definitions of Terms ......................................................................................... 4 Article 4: Adoption of the Dematerialized and Automated Cheque System....................... 5 CHAPTER II: THE DEMATERIALIZATION MODEL OF CHEQUES............... 6 Article 5: Dematerialization, Admissibility, and Regularity of a Cheque Image ..... 6 Article 6: Electronic Presentation of a Cheque............................................... 6 Article 7: Information Contained in an Electronic Cheque Payment ............ 6 Article 8: Electronic Capture of Data and Images, Entry of Supplementary Information on the Cheque, and Transmission to the Clearing System ..... 7 Article 9: Processing of the Cheque Image and Data ............................................ 7 Article 10: Request for Physical Cheque by the Drawn Bank......................................... 8 Article 11: Archiving of Cheque Data and Images ............................................ 8 Article 12: Ceiling Amount for Dematerialized Cheques.................................................. 9 Article 13: Standards for Dematerialized Cheque, Image Quality, and Storage of the Cheque ............................................................................................................... 9 Article 14: Retention Period for Original Cheque and Electronic Image....... 9 Article 15: Use of a Secure Network ............................................................................... 9 CHAPTER III: ROLES AND RESPONSIBILITIES........................................................... 10 Article 16: Common Obligations .............................................................................. 10 Article 17: Obligations and Responsibilities of the Presenting Bank.............................. 10 Article 18: Obligations and Responsibilities of the Drawn Bank ......................................... 11 Article 19: Obligations and Responsibilities of the Bank of the Republic of Burundi ................................................................................................................................ 12 Article 20: Arbitration .......................................................................................................... 12 CHAPTER IV: FINAL PROVISIONS ...................................................................... 12 Article 21: Launch of the Dematerialization and Automated Processing System ................... 12 Article 22: Repeal Provisions...................................................................................... 12 Article 23: Entry into Force ............................................................................................ 12

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REGULATION No. 001 OF 28/02/2020 OF THE BANK OF THE REPUBLIC OF BURUNDI ON THE DEMATERIALIZATION AND AUTOMATED PROCESSING OF CHEQUES

Having regard to Law No. 1/02 of 4 February 2008 on the fight against money laundering and terrorist financing; Having regard to Law No. 1/34 of 2 December 2008 on the Statutes of the Bank of the Republic of Burundi; Having regard to Law No. 1/17 of 22 August 2018 on the regulation of banking activities; Having regard to Law No. 1/07 of 11 May 2018 on the National Payment System; Having regard to Law No. 1/05 of 27 February 2019 on the regulation of the Burundi capital markets; Having regard to the Decree of 10 December 1951, establishing uniform law on cheques, made enforceable in Burundi by O.R.U. No. 41/98 of 30 July 1952; Having regard to Decree No. 100/49 of 14 March 1979 on the creation of the national archives deposit of the Republic of Burundi;

The Bank of the Republic of Burundi hereby enacts this regulation.

CHAPTER I: GENERAL PROVISIONS

Article 1: Object

This regulation aims to facilitate the implementation of an efficient and effective payment system by establishing rules and principles for managing the dematerialization and automated processing of cheques in Burundi, and by defining the rights and responsibilities of the presenting bank and the drawn bank within the dematerialized cheque exchange system, including the Bank of the Republic of Burundi in its capacity as clearing supervisor.

Article 2: Scope of Application

This regulation applies to the clearing and settlement activities conducted by the electronic clearing house of the Bank of the Republic of Burundi, which manages the automated dematerialized cheque exchange system in Burundi.

Article 3: Definitions of Terms

In this regulation, unless the context otherwise provides, the following words and expressions mean:

1. "Archive": a facility used for storing and indexing images and related information for long-term preservation, ensuring the integrity, confidentiality, and accessibility of these records.
2. "MICR Magnetic Strip": the digits, including the cheque number, bank code, branch code, account number, currency code, and control key, as well as the data field separators printed at the bottom of a cheque in magnetic ink during cheque personalization, in accordance with Burundi's cheque standards and contained in the interbank data standardization document.
3. "Presenting Bank": the bank receiving the cheque from its client, whether directly or through a third party, or presenting the cheque image to the electronic clearing house for payment and settlement.
4. "Drawn Bank": the bank on which, or through which, a cheque is drawn and to which the cheque image is sent for payment authorization.
5. "Clearing House": the electronic clearing house managed by the Bank of the Republic of Burundi.
6. "Automated Clearing House": an electronic fund transfer system between participating financial institutions.
7. "Cheque": a cheque as defined in the Decree of 10 December 1951, establishing uniform law on cheques, made enforceable in Burundi by Ordonnance du Rwanda Urundi (O.R.U.) No. 41/98 of 30 July 1952.
8. "Circulating Cheque": a cheque subject to physical exchange between the presenting bank and the drawn bank upon the latter's request.
9. "Dematerialized Cheque": elements consisting of standardized front-and-back images of the physical cheque and electronic records resulting from the electronic capture of information contained in the standardized cheque's magnetic strip following the scanning process.
10. "RIB Key": The RIB (Bank Identification Statement) key is a number derived from a mathematical formula, consisting of 2 digits ranging between 01 and 97. It verifies the validity of the RIB by ensuring that all digits comprising the RIB (bank code, branch code, and account number) are correct.
11. "Dematerialization of Cheque Exchanges": the process of replacing an original cheque with information regarding the initial cheque, materialized in electronic form, with or without surrender of the original cheque.
12. "Cheque Standard": a set of agreed rules conforming to international standards for the representation and design of bank cheques to enable their dematerialization and automated processing. To this end, the banking sector has adopted the E-13B standard with Magnetic Ink Character Recognition (MICR) code, a technology for recognizing characters printed at the bottom of the cheque. The MICR encoding, known as the MICR line, located at the bottom of cheques includes the cheque number, bank code, branch code, account number, currency code, and RIB control key. This technology enables MICR E-13B compliant scanners to digitize, read, and record information in an information system. The MICR E-13B font was adopted as the international standard by ISO 1004:1995.
13. "Document Reference Number": a unique number assigned to a transaction sent to the automated clearing house.
14. "Interbank Operation Reference": a reference enabling unique identification of an operation exchanged through the electronic clearing system. It is used for all interbank exchanges via the clearing house between the presenting bank and the drawn bank. It also enables reconciliation of electronic data with the corresponding scanned cheque image.
15. "Bank Identification Statement (RIB)": The Bank Identification Statement enables unique identification of a bank account. It comprises the bank code, branch code, account number, and currency code.

Article 4: Adoption of the Dematerialized and Automated Cheque System

The dematerialization and automated processing system for cheques is mandatory for all banks and banking institutions in Burundi.

CHAPTER II: THE DEMATERIALIZATION MODEL OF CHEQUES

Article 5: Dematerialization, Admissibility, and Regularity of a Cheque Image

The dematerialization, admissibility, and regularity of the cheque image in the automated clearing system are recognized through Articles 22 to 24 of Law No. 1/07 of 11 May 2018 on the National Payment System, regarding the dematerialization of payment instruments, admissibility of electronic and optical image evidence, and maintenance of electronic and optical archives. Any payment made based on the presentation of a cheque as per Article 6 below shall not be considered outside the normal course of business, in bad faith, or through negligence merely because it was executed based on transmission of electronic images and payment information instead of the physical presentation of the cheque itself. When a cheque is presented in accordance with Article 6, the presenting bank and the drawn bank are subject to the same obligations regarding the collection and payment of said cheque as if the physical cheque itself had been presented for payment.

Article 6: Electronic Presentation of a Cheque

A bank may present a cheque for payment to the drawn bank by transmitting, via the electronic clearing house, grayscale front-and-back and ultraviolet images along with electronic payment information of the cheque, instead of presenting it physically. The presenting bank must ensure, through a quick verification, the regularity of the cheque presented for payment before passing it through the scanner.

Article 7: Information Contained in an Electronic Cheque Payment

Electronic payment information of a cheque must contain the following elements:

1. The cheque number;
2. The date on which the cheque was issued;
3. The code identifying the drawn bank;
4. The code identifying the branch of the drawn bank;
5. The account number of the drawer;
6. The currency code;
7. The amount, in figures and words, of the cheque as stated by the drawer;
8. The signature of the drawer and that of the endorser; and
9. The RIB (Bank Identification Statement) key.

Article 8: Electronic Capture of Data and Images, Entry of Supplementary Information on the Cheque, and Transmission to the Clearing System

The magnetic strip data and grayscale front-and-back and ultraviolet images of the cheque are captured during scanning using scanners deployed for this purpose, which comply with the technical specifications provided by the Bank of the Republic of Burundi, specifically in the most recent version of the interbank data standardization document made available to the banking sector. This electronic capture is completed by entering additional cheque information, including the amount in figures and words, the final beneficiary, and the place and date of cheque issuance. Cheques must be dematerialized at the presenting bank within the time limits prescribed by the operating rules of the electronic clearing system. After entering and recording the cheque image and data, the presenting bank validates them and transmits them to the electronic clearing system. The Electronic Clearing House acts as an intermediary between the presenting bank and the drawn bank for the electronic transmission of data and images.

Article 9: Processing of the Cheque Image and Data

Upon receiving the data and grayscale front-and-back and ultraviolet images of the cheque transmitted by the presenting bank, the electronic clearing system processes them automatically and sends them to the drawn bank for verification. The latter has a defined time within the operating rules of the clearing system to proceed with verification and approve or refuse payment of the cheque. If, after verifying the cheque image and data, the drawn bank does not approve payment, it communicates this refusal with mandatory mention of the rejection reasons (in Annex) to the presenting bank through the electronic clearing system. The presenting bank must then make any necessary corrections and retransmit, within the clearing system, the information and cheque image for payment. If the refused cheque is not represented in clearing, the presenting bank must provide the latter with scanned copies of the front-and-back images of the refused cheque, mentioning the rejection reasons and duly signed and stamped by that bank. If no communication of refusal and its reasons is sent to the presenting bank within the time limits set in the operating rules of the clearing system, the cheque and its related data are deemed accepted, and the clearing system may proceed with their processing and settlement. Provided that the conditions for presenting a cheque are valid, a refused cheque may be represented only once.

Article 10: Request for Physical Cheque by the Drawn Bank

At any time, before payment is effected, the drawn bank has the right to request additional information related to the dematerialized cheque from the presenting bank in case of reasonable suspicion regarding the authenticity of the cheque. If the suspicion relates to fraud, falsification, or damage to the cheque, the drawn bank has the right to additionally demand the physical cheque for verification. A request for physical presentation of a cheque to the drawn bank does not constitute a refusal of payment.

Article 11: Archiving of Cheque Data and Images

All cheques presented for payment by banks and processed in the clearing system hosted at the Bank of the Republic of Burundi, accompanied by their grayscale front-and-back and ultraviolet images obtained during scanning and associated electronic records, are stored electronically in a centralized archive, held within the clearing system and operated by the Bank of the Republic of Burundi. Electronic data, image copies, printed forms, or any other documents generated by the computer system from the electronic image of a cheque stored in the Central Archive by or on behalf of a bank are admissible as evidence during judicial proceedings, in accordance with Article 23 of Law No. 1/07 of 11 May 2018 on the National Payment System. Commercial banks and the National Post Office may access the front-and-back grayscale and ultraviolet data and images of cheques processed in clearing upon simple requests sent to the Bank of the Republic of Burundi.

Article 12: Ceiling Amount for Dematerialized Cheques

All cheques meeting the agreed standards are admissible to dematerialization subject to a ceiling on the cheque amount. This ceiling may be imposed by the Bank of the Republic of Burundi whenever necessary and in accordance with the operating rules of the electronic clearing house.

Article 13: Standards for Dematerialized Cheque, Image Quality, and Storage of the Cheque

Standards regarding the dematerialized cheque and image quality are established and communicated by the Bank of the Republic of Burundi through the interbank data standardization document. Storage of information related to the dematerialized and processed cheque in the electronic clearing house is governed by national archiving law.

Article 14: Retention Period for Original Cheque and Electronic Image

An efficient storage and archiving system for data and images of dematerialized cheques is an integral part of the electronic clearing system. This system facilitates the settlement of potential disputes and complaints. Drawn banks/RNP organize the recovery, from presenting banks/RNP, of physical cheques already paid based on a form developed by the Central Bank. The minimum retention period for physical cheques by the presenting bank and/or the drawn bank is ten (10) years. The electronic image and data of the dematerialized cheque are retained, after processing by the electronic clearing system, for a minimum period of ten (10) years.

Article 15: Use of a Secure Network

Images accompanied by data contained in the magnetic strip (MICR), duly authenticated and accepted by the system, must be routed through an adequate network linking the interfaces of all commercial banks and the National Post Office with the Clearing House.

CHAPTER III: ROLES AND RESPONSIBILITIES

Article 16: Common Obligations

Banks/RNP must put in place all necessary human and technical means to ensure adequate automated processing of dematerialized cheques. Systems and equipment used for the utilization and automated processing of cheques must be located in premises offering appropriate physical security measures (anti-intrusion devices, fire safety, etc.). Banks must observe criteria related to security concerning the automated cheque processing process, namely:

1. Integrity of the cheque content,
2. Confidentiality of the transaction,
3. Traceability of the operation. Banks must formalize written procedures regarding automated processing and control of dematerialized cheque operations and ensure their wide dissemination throughout their network. Banks remain solely responsible for the obligations incumbent upon them under this regulation, in case of recourse to external service providers.

Article 17: Obligations and Responsibilities of the Presenting Bank

The presenting bank is responsible for information related to the cheque it transmits to the electronic clearing house. The presenting bank must verify the material and formal regularity of the cheque in accordance with legal provisions, including the following:

1. Currency denomination of the cheque;
2. Unconditional order to pay a specified sum;
3. Name of the drawee;
4. First and last name(s) of the drawer, for natural persons;
5. Name of the beneficiary;
6. Company name or trade name of the drawer, for legal entities;
7. Amount in figures and words;
8. Place and date of cheque issuance;
9. Signature of the drawer. The presenting bank must also verify:
10. Regularity in the sequence of endorsements;
11. Conformity of the amount in words and figures;
12. Absence of erasures and superscriptions;
13. Whether the cheque is not prescribed or post-dated. The presenting bank must also ensure:
14. Quality of the scanned cheque image;
15. Concordance of electronic data with that appearing on the cheque image before transmitting the flow to the clearing house;
16. Unitary reconciliation via the interbank operation reference for each financial flow with its image flow. The presenting bank thus guarantees strict conformity of the security references appearing on the physical title, for which it remains the depositary on behalf of the drawn bank. The responsibility to provide the physical cheque lies with the presenting bank if requested by authorities within the framework of criminal activity investigations or when required by a judicial decision. This responsibility falls to the drawn bank after the transfer of the cheque to them.

Article 18: Obligations and Responsibilities of the Drawn Bank

The drawn bank must control the validity of operations performed by the presenting bank and proceed with reconciliation between the electronic data of the cheque and the cheque image. The drawn bank must also verify:

1. Legal regularity of the cheque;
2. Signature of the drawer;
3. Authorizations of representatives;
4. Payment opposition for loss, theft, fraudulent use, or falsification;
5. Insolvency proceedings initiated against the drawer;
6. Cheque provision;
7. Closed accounts. The drawn bank remains responsible for declaring payment incidents within the required time to the entity in charge of managing and centralizing payment incidents. Archiving of circulating cheques is the responsibility of the drawn bank.

Article 19: Obligations and Responsibilities of the Bank of the Republic of Burundi

The Bank of the Republic of Burundi is responsible for the proper functioning of the electronic clearing system.

Article 20: Arbitration

[Arbitration provisions apply as per the operating rules of the electronic clearing system.]

CHAPTER IV: FINAL PROVISIONS

Article 21: Launch of the Dematerialization and Automated Processing System

The dematerialization and automated processing system for cheques shall be launched in accordance with the timeline established by the Bank of the Republic of Burundi.

Article 22: Repeal Provisions

All previous regulations, rules, and circulars contrary to this regulation are hereby repealed.

Article 23: Entry into Force

This Regulation shall enter into force on the date of its publication in the Official Gazette.