Palestine Monetary Authority

Palestinian Monetary Authority

Circular No. (2007/120)
To all banks operating in Palestine
Date: Monday, 27 August 2007

Subject: Issuance of New Checkbooks and Supervision of Their Users

Due to the growing phenomenon of returned checks and the increase in their volume, caused by the drawer's refusal to honor the check amount either due to insufficient funds in the account or making additions/changes that prevent the check from being cashed due to technical errors, and after consulting with banks and reviewing the measures taken by each, it has been decided to issue instructions to determine the minimum procedures that must be taken to regulate the issuance and supervision of checkbooks. It initially points out the following:

1. The process of issuing checkbooks to customers is considered a purely banking activity, whereas failing to honor check amounts or misusing them contrary to the law, considering them as a payment instrument, is considered an act violating legal provisions and entails the imposition of penalties.

2. Each bank's management is responsible for determining the form and supervisory procedures that ensure supervision over the issuance of checkbooks to customers and their use in accordance with legal provisions, and to prevent the issuance of new books to those who do not comply with legal provisions.

3. The supervisory procedure must include, as a minimum, the following matters:

First: Conditions Required in the Account (Customer) for Issuing Checkbooks:

1. The customer must not be listed on the black list or restricted list. In this case, the system must be programmed to automatically reject the request to issue a checkbook to the customer.

2. A sufficient period must have elapsed since the new customer's dealings with the bank to meet the "Know Your Customer" principle controls. For existing account holders, checkbooks will be issued based on their account activity and the nature of their business, provided the customer has a good moral and ethical reputation.

3. Sufficient balance must exist in the account according to each bank's estimates, with a minimum of 500 NIS (or equivalent) for first-time checkbook issuance. If the customer is an employee, a checkbook will be issued after their salary is regularly transferred to their account at the bank or after cash flows are established in the account.

4. Monitor check transactions drawn on the account before issuing new books to assess the customer's compliance in covering issued checks and their ability to settle obligations. New books will be delivered in batches according to their transaction history with the bank.

5. The checkbook issuance request form must include a statement informing the customer that their name will be added to the (black and restricted) lists if a certain number of checks are returned due to insufficient funds or technical reasons, in line with PMA instructions on the matter.

6. Educate customers on the instructions for listing on black and restricted lists by announcing this in branches and adding these instructions to a page in the checkbook or its cover.

7. Issuance of checkbooks is prohibited for accounts under guardianship, accounts for the benefit of others, minor accounts, dormant accounts, and closed accounts.

8. Banks must increase precautions when issuing checkbooks to non-resident customers, except in rare cases determined by risk assessments.

9. Banks may determine additional procedures provided they do not conflict with these procedures.

Second: Number of Books That Can Be Issued to a Single Customer.

1. Checkbooks will not be issued to a customer except after reviewing the customer's stock of issued checks and books in their possession, verifying their need for new books, and assessing the nature and volume of their business and activities.

2. Checkbooks will be issued based on account balance and activity (average deposits and withdrawals), the time elapsed since account opening, the nature of the customer's activity, the number of previously issued checks, and the account type (personal, institutional, corporate). A single book of ten sheets will be issued to new customers until their credibility is verified, after which books of higher denominations will be granted based on account activity and cash flows. This exception applies to major clients with facilities, known for financial solvency and good reputation.

3. Checkbooks with fewer sheets than usual will be issued after balances do not fall below three times the minimum specified in item (3), or for customers who were issued checkbooks but were not covered by the bank and more than six months have passed since then.

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Palestine Monetary Authority

Palestinian Monetary Authority

Third: Supervision of Customer Compliance in Properly Using Books in Their Possession According to Instructions Before Issuing New Books.

1. Monitor check transactions drawn on the customer's account to ensure proper use of issued checkbooks, identify beneficiaries as much as possible, and verify their suitability to the customer's activity by extracting an account statement at the check number level and periodically reviewing customer accounts to ensure compliance with honoring all checks issued on their bank account.

2. Develop statements showing check transactions drawn on the customer's account to verify proper use of issued checkbooks and their credibility in settling them. Review the number of checks drawn compared to the number of books delivered in the previous period. Statements must show reasons for returned checks, their dates, numbers, and any additional details to help evaluate the volume of new books that can be issued.

3. Study the customer's need for new checkbooks based on the volume and nature of their activity, monitor and follow up on customer account activity, and notify them that their names will be added to the "black and restricted" lists according to PMA instructions.

4. General/Regional management is responsible for providing a suitable mechanism to monitor customer checkbook inventory balances and the volume of returned checks, and developing periodic reports on returned checks to help study customer conditions and inform branches of PMA's instructions related to documentation.

Fourth: Supervision of Checkbook Printing.

Necessity to verify the accuracy of all data related to checkbook printing and fulfill required conditions.

A. Printing Checkbooks Inside the Bank:

1. Printing checkbooks in branches is strictly prohibited, except for banks operating through a single branch, or the bank branch located in the Gaza Strip, as centralized printing aids in control and supervision.

2. Bank management is fully responsible for providing procedures and operational mechanisms to supervise check printing inside the bank. To assist, the most important procedures we deem necessary to follow are:

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Palestine Monetary Authority

Palestinian Monetary Authority

• A report on approved checkbook requests from branch officials will be sent to the department responsible for check printing.
• Checkbooks will be printed based on signed requests from branch management, printed in a separate, isolated room away from responsible employees.
• Reports on printed books will be issued and reconciled with reports sent from branches. Printed books will be sent to branches via a signed supervisor according to regulations immediately after printing and verification.
• Checks with technical errors will be stamped "Void" immediately upon exiting the printing machine. Voided check papers will be destroyed according to official destruction minutes by a committee of at least three employees, one from internal audit.
• Unused papers and unprinted books will be deposited in a fireproof safe under dual control.

B. Printing Checkbooks Outside the Bank:

Each bank must sign an agreement with the printing management outlining all legal and penal conditions ensuring confidentiality and holding the printing management directly responsible for any resulting defects, including paper type, printing, information confidentiality, and not using data for other purposes besides printing checkbooks for customers upon the bank's request and approval, as follows:

1. Consolidate checkbook requests at General/Regional management, review and verify customer name, account number, and number of requested books, and deliver them.

2. Send requests to the approved printing press and verify receipt, where contents will be matched by the press.

3. After receiving checkbooks from the press, inventory them and verify customer names and number of requested books before signing for receipt. Store them in a fireproof safe under dual control, then distribute them to relevant branches via signed shipments according to regulations. Branches will review them, verify compliance, and store them in fireproof safes under dual control.

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Palestine Monetary Authority

Palestinian Monetary Authority

Note that printing checks outside the bank is considered an outsourcing operation requiring approved internal plans, alternatives, and policies by the Board of Directors, as well as PMA approval.

C. Delivery of Checkbooks to Customers:

Management is responsible for providing detailed procedures to facilitate checkbook delivery to customers, approving and applying them in all branches, and supervising them. These procedures may include:

• Checkbooks will be delivered to customers through their branches after verifying customer identity and signature matching, using a special form for this purpose.
• If the customer authorizes another person to receive checkbooks, a signed authorization from the customer must be provided. The signature will be verified, and the recipient's data and signature on the receipt will be obtained.
• Dual control must be provided for storing and delivering checkbooks, with periodic reconciliation to ensure proper procedures.
• Checkbooks that have been in possession for six months since issuance will be destroyed according to destruction minutes by a specialized committee for this purpose.

Fifth: Monthly Data:

The Banking Supervision Department at the PMA must be provided monthly with a statement including names, account numbers, and national ID numbers of all customers in possession of ten or more checkbooks in all currencies and the branch they work with. These checks must be unused (the mentioned number does not include all accounts for which more than ten checks were issued, but rather accounts where the total number of issued unused books exceeds ten).

Banking Supervision Department
Palestine Monetary Authority

Ramallah - Al Bireh P.O. Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 E-mail: info@pma.ps www.pma.ps Ramallah - Al Bireh P.O. Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 www.pma.ps