Circular SINAP 1-10: National Payments System. Agreement on Check Truncation and Other Negotiable Instruments

“2006 - Year of Tribute to Dr. Ramón CARRILLO”

CENTRAL BANK OF THE ARGENTINE REPUBLIC
COMMUNICATION “A” 4596 13/11/2006

TO FINANCIAL ENTITIES,
TO ELECTRONIC CLEARING HOUSES:

Ref.: Circular
SINAP 1 - 10
National Payments System. Agreement on
Check Truncation and Other Negotiable Instruments.

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We address you to inform you that the agreement on check truncation has been modified, taking into account that this procedure will apply to all checks and other negotiable instruments processed through the Electronic Clearing Houses authorized by this Central Bank.

The new agreement is available to financial entities for subscription until November 22, 2006, at the Payment Systems Department of this Institution, and will be effective from the date of implementation of the image transmission procedure. The aforementioned subscription will be carried out through a legal representative or attorney with sufficient power of attorney accredited at the time.

Entities that do not subscribe to this single agreement will not be able to intervene directly in the electronic compensation of securities, which is the basis of the National Payments System.

We salute you very respectfully.

CENTRAL BANK OF THE ARGENTINE REPUBLIC
Julio César Pando José A. Barone
Manager of Payment Systems General Sub-manager of Payment Means

ANNEX

In the city of Buenos Aires, on the ...... days of the month of ...... of 2006,......, represented in this act by...... DNI N° ......, who constitutes domicile in......, and proves their status as ...... with......, adheres to the content of the following AGREEMENT ON CHECK TRUNCATION AND OTHER NEGOTIABLE INSTRUMENTS and its TECHNICAL AND OPERATIONAL INSTRUCTIONS, signing in proof of conformity each of the pages that integrate them.

B.C.R.A.
National Payments System. Agreement on check truncation and other negotiable instruments
Annex to
Comm. “A”

Agreement on Check Truncation and its Technical and Operational Instructions

1. General Concepts
   1.1 Objective
   The purpose of the present document is to regulate the banking compensation of checks and other negotiable instruments through the truncation system as defined by Communication "A" 4575 of the Central Bank of the Republic of Argentina (hereinafter BCRA), understanding that the financial entities that subscribe to it agree to grant and accept reciprocal mandates, regarding the fulfillment of their obligations as Drawee Entities and/or Depositary Entities, as applicable, by application of the Check Law and regulatory norms issued by the BCRA under the terms and conditions established herein.

Whenever reference is made to norms in this contract, it will be understood that the mention corresponds to legal, regulatory, and other applicable norms.

1.2 Technical and Operational Instructions
This document is complemented by the so-called "Technical and Operational Instructions" which are an integral part of it. These "Instructions" are treated separately, for the purpose of enabling a simpler and more expeditious procedure for modifying technical and operational aspects than modifying this document.

1.3 Documents Covered
Checks and other negotiable instruments that meet the conditions provided for in the norms issued or to be issued by the BCRA in the future to be subject to truncation are included within the scope of this document. This procedure implies that the covered documents will remain physically in the possession of the depositary entities regardless of their place of capture and place of payment.

2. Participating Entities
   The effects of this document extend to and bind the Financial Entities that participate in the compensation of checks and other negotiable instruments.

3. Formal and Legal Requirements
   Documents must meet the formal and legal requirements established by current legislation and by the provisions of the Central Bank of the Republic of Argentina.

4. Determination of Obligations and Functions
   4.1 Obligations of the Depositary Entity
   The Depositary Entity assumes responsibility for its proper conduct in the cases listed below:

4.1.1. To perform the controls arising from current norms, inherent to the physical examination of checks/negotiable instruments, including, by way of example, the following:
a) It must be verified that it meets the requirements demanded by current legislation to be considered a check/negotiable instrument. b) The design characteristics and security measures of the check determined by the BCRA in the consolidated text issued by Communication “A” 3745 and amendments, corresponding to the characteristics of payment instruments issued by Financial Entities. c) Verify the design and security characteristics corresponding to other negotiable instruments according to current regulations. d) Verify that the checks and other negotiable instruments presented for collection are within the legal validity period. e) Absence of alterations without the need for an expert in the matter. f) The existence of a regular chain of endorsements and that it does not exceed the limit established by regulations. g) The proper verification of the identity of the depositor and that they have endorsed "for collection" the check/negotiable instrument.

4.1.2 The proper verification of the instruments when the depositor acts by mandate or assignment.

4.1.3 Compliance with the norms and regulations of the Electronic Clearing Houses in all that is applicable.

4.1.4 Compliance with the norms established in the Technical and Operational Instructions.

4.1.5 Deposit and custody of original documents:
a) Original checks and other negotiable instruments must be kept for the period established in the "Instructions". b) The original check/negotiable instrument will be delivered to whom legally corresponds within the period arising from this document and the "Technical and Operational Instructions".

4.1.6 Delivery to the Drawee Entity, within the period established by BCRA regulations, of the original or image of the document if requested for any reason.

4.1.7 Non-presentation for a second time of a check/negotiable instrument previously rejected by the Drawee Entity for grounds of insufficient funds, closed account, stop payment order, or judicial order.

4.1.8 Conservation, during the period established in the "Instructions", of the information corresponding to checks/negotiable instruments presented for compensation.

4.1.9 Communication to the Drawee Entity of rejected checks and other negotiable instruments according to point 4.1.1, arising from the control of the instrument.

4.1.10 Recording and stating the causes of rejection of checks/negotiable instruments rejected by itself, or on behalf and order of the Drawee Entity. The aforementioned record must be integrated in the manner fixed by the norms.

4.1.11 Retention and delivery to the Drawee Entity of original documents rejected by stop payment order for: "Report of loss or theft of the check", "Values stolen or lost from checkbooks not delivered to clients", "Judicial Order", "Forged Check", and "Altered Check". In the last two cases ("Forged Check" and "Altered Check"), the exception will apply even if there is no prior Stop Payment Order.

4.1.12 Delivery of the rejected check/negotiable instrument to the client, except in the case of checks rejected by stop payment order for: "Report of loss" or "theft of the check", "Values stolen or lost from checkbooks not delivered to clients", "Judicial Order", "Forged Check", and "Altered Check". In the last two cases ("Forged Check" and "Altered Check"), the exception will apply even if there is no prior Stop Payment Order. In all cases, original checks will be replaced by respective photocopies certified by the depositary bank, as indicated by current regulations.

4.1.13. Transmit to the Drawee Entity, as applicable, the data and/or images of the front and back of checks/negotiable instruments according to what is established by the BCRA for this purpose.
Image transmission will be carried out through the procedure and under the safeguards provided for in current regulations, to enable them to be transmitted in such a way that they reach the recipient unaltered, complete, and fully legible.

4.2 Obligations of the Drawee Entity
The Drawee Entity assumes responsibility for its proper conduct in the cases listed below:

4.2.1 Instruct the Depositary Entity, when applicable, on the rejection of the check/negotiable instrument and the reason for it under some of the authorized grounds.

4.2.2 Payment of checks/negotiable instruments that have not been rejected within the period resulting from the norms that will regulate the functioning of the Chamber.

4.2.3 Preserve, during the period established in the "Instructions", the information corresponding to documents received in compensation.

4.2.4 Fulfill obligations derived from the current account contract and from regulations emanating from the BCRA based on electronic data and/or images provided by the Depositary Entity, through electronic records transmitted by it through the Electronic Clearing Houses.

4.2.5 Compliance with the norms established in the Technical and Operational Instructions.

4.2.6 Compare the drawer's signature/s of the checks with their respective records, when they individually exceed the amount established by the BCRA, based on the images of them provided by the Depositary Entity.

4.2.7 At the request of the check holder, supply information to the Depositary Entity to integrate the record of check rejection in order to identify the drawer and their last registered address.

4.3 Power of the Drawee Entity
In the event that the received image of the check/negotiable instrument reveals the existence of grounds warranting its rejection by the Depositary Entity, the Drawee Entity will be authorized to proceed with its rejection under the corresponding ground, as established by the instructions issued on this matter.

Without prejudice to this power of the Drawee Entity, it is noted that the responsibility for the controls and obligations enumerated in point 4.1 of this document rests exclusively with the Depositary Entity.

4.4 Non-compliance with Depositary Controls
Non-compliance by the Depositary Entity with the controls on checks/negotiable instruments stipulated herein will entail the obligation of reimbursement by the Depositary Entity of the amount claimed by the account holder from the Drawee Entity for up to the amount for which the instrument was issued on which the mentioned controls were omitted, without prejudice to the responsibility that may fall upon it in other instances.

5. Economic Obligations of the Entities
   The Entities that subscribe to this agreement will agree on obligations regarding the payment of interbank remuneration for services provided among them.

6. Procedure for Modification of the Instructions
   The modification of the "Instructions" will be carried out at the discretion of the "Interbank Commission of Payment Means of the Argentine Republic" (CIMPRA) and the BCRA, who will inform the adhering entities, indicating the date of entry into force of the modification, its compliance being mandatory for all Entities.

7. Communications between Entities and obligation of cooperation.
   In the event of any claim or request of any nature regarding truncation directed at an entity intervening in the aforementioned regime, said entity will communicate it to the other entities that could be involved in such claim, in sufficient time for them to take defense measures or of another nature that they consider pertinent. Likewise, entities will provide each other with the cooperation necessary for the best resolution of claims.

TECHNICAL AND OPERATIONAL INSTRUCTIONS

1. Introduction
   The purpose of this document is to expand and detail those variable aspects of the present document, whose modification over time does not require the drafting and signing of a new document because it will be carried out at the discretion of the Interbank Commission of Payment Means of the Argentine Republic and communicated to adhering financial entities by the BCRA. The methodology followed in its drafting has been to develop in an ordered and detailed manner the different technical and operational issues contemplated in the body of the present document.

2. Applicable Norms
   The instructions regarding standardization of checks and other negotiable instruments and procedures are collected in the following provisions:

2.1 Of document standardization
Check Law
BCRA Provisions and other applicable instructions.

2.2 Of exchange procedures
BCRA Provisions and other applicable instructions.

3. Scope of Truncation
   There will be no physical transfer for checks and/or other negotiable instruments throughout the country, regardless of amount, with all of them remaining in the possession of the Depositary Entities regardless of their place of capture and place of payment.

Depositary Entities must transmit, in addition to the electronic record, the image of the front and back of checks exceeding the amount determined by the BCRA and of all other negotiable instruments.

4. Deadlines
   4.1 Conservation of physical documents
   Original documents must be kept by the Depositary Entity for the period fixed by the Commercial Code of the Nation.

4.2 Remission of original documents
The delivery to the drawee of checks must be carried out within the period indicated by current regulations, which at the date of signing this agreement is fixed at ten business days, from the electronic receipt of the information corresponding to the rejection by stop payment order for: "Report of loss or theft of the check", "Values stolen or lost from checkbooks not delivered to clients", "Judicial Order", "Forged Check", and "Altered Check". In the last two cases ("Forged Check" and "Altered Checks"), the exception will apply even if there is no prior Stop Payment Order.

Regarding the delivery to the Drawee Entity of the original or image of the document, if requested for any reason, the period established by BCRA regulations and other applicable instructions must be observed.

5. OTHER PROVISIONS
   The following recommendations pointing to the good functioning, efficiency, and security of the truncation system are highlighted:

5.1 With the implementation of truncation, Entities will rely on the electronically transmitted information to proceed with the payment or rejection of checks and other negotiable instruments. Therefore, it is necessary for entities to maximize controls on the information supplied and received to ensure the proper outcome of operations.

5.2. Maximize measures conducive to the correct use of rejection reason codes that correspond to them to apply, whether in their role as Depositary or Drawee Entity.

5.3. Have all necessary means to facilitate the control of checks and other negotiable instruments regarding the formal requirements corresponding to the issuance of those documents - with the exception of the drawer's signature/s - and also the security measures stipulated in the consolidated text corresponding to the characteristics of payment instruments issued by Financial Entities, which are fixed by the BCRA.