Compilation of Payment System Rules - Modifications in Book III

Montevideo, September 22, 2023

CIRCULAR NO. 2436

Ref:

It is brought to your attention that this Central Bank adopted, on September 20, 2023, Resolution No. D/314/2023, which is attached.

DE LOS HEROS MENDEZ, ANA PAYMENT SYSTEM MANAGEMENT

1 Diagonal Fabini 777 - C.P. 11100 - Tel.: (598 2) 1967 - Montevideo, Uruguay - www.bcu.gub.uy

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BOARD OF DIRECTORS - RESOLUTION

Montevideo, September 20, 2023.

B O A R D O F D I R E C T O R S

HAVING SEEN: the modifications introduced by Law No. 20.038 of May 27, 2022, to Decree-Law No. 14.412 of August 8, 1975.

WHEREAS:

I) that Article 29 of Decree-Law No. 14.412 of August 8, 1975, in the wording given by Article 4 of Law No. 20.038 of May 27, 2022, authorizes the presentation for collection of a check through the transmission of its digitized image;

II) that such digitized image replaces the physical check, which will be rendered useless through the corresponding record of uselessness;

III) that Article 69 of Decree-Law No. 14.412 of August 8, 1975, in the wording given by Article 8 of Law No. 20.038 of May 27, 2022, recognizes the validity and efficacy of electronic and digitized documents transmitted for multilateral clearing in electronic clearing houses;

IV) that it is the responsibility of the Central Bank of Uruguay to regulate the content of the record of uselessness of the physical check that is digitized for presentation for collection; the issuance of the rejection certificate that will allow the exercise of exchange actions in the case of checks generated or transmitted by electronic means; the responsibility of the receiving bank regarding digitized checks; the operation of electronic check clearing systems; as well as all provisions of Decree-Law No. 14.412 of August 8, 1975;

V) that a regulatory proposal regarding the digitalization of paper checks was designed and submitted to public consideration on December 22, 2022;

VI) that the comments received, substantially, state that:

i) the operational procedure to accept digitized checks should be optional for banks and may be offered according to the risk profile of each client;

ii) the obligation to safeguard the digitized physical document should be eliminated or cease when it is paid;

iii) the custody of the digitized physical document should be established by the holder, without the regulation establishing a deadline for its transmission;

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iv) the retention period for the digitized image should be six months;

v) the date of digitalization may not coincide with the date of presentation for collection, and the digitalization of paper checks should be accepted for the discounting operation;

vii) the difficulties in stamping the record of uselessness on the front and back of the check, verifying the record of uselessness, and stamping the mention regarding uselessness should be addressed;

viii) the rejection certificate should be named and non-negotiable.

CONSIDERING:

I) that the comments received in the public consultation process were valued in light of the competencies and attributions of our institution according to the general applicable regulations in the matter of checks;

II) that without prejudice to the competence of the Central Bank of Uruguay to require banks to offer some mechanism that allows the transmission of digitized images by holders, it will be admitted that each bank evaluates which clients it will make the check digitalization operation available to, attending to their risk profiles;

III) that the digitized physical document retains probative value for both the holder, the drawee, and the drawer in case of payment and rejection of the check, so the obligation to safeguard the physical document corresponding to digitized checks will be maintained in the name of the drawee bank, but it will be authorized to agree with its clients that they safeguard the digitized physical document on behalf and order of the bank, with the drawee bank retaining primary responsibility for the custody of the digitized physical document;

IV) that since the digitized image replaces the physical document, constituting itself as the negotiable instrument, it is admissible and consistent to establish the same retention period for the paper check, the digitized physical document, and the digitized image; six months in all cases;

V) that Article 29 of Decree-Law No. 14.412 of August 8, 1975, in the wording given by Article 4 of Law No. 20.038 of May 27, 2022, regulates digitalization for the purposes of presentation for collection, so both acts must coincide temporally, discarding its use for the discounting operation;

VI) that the drawee bank must control the record of uselessness of the paper check and the image transmitted by the holder, as it corresponds to it to control the fulfillment of the requirements for the act of presentation of the check;

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VII) that the obligation to stamp the record of uselessness on the front and back of the check aims to minimize risks of fraud and double circulation of a document that has already been presented digitally for collection, without prejudice to which it will be admitted to include only the word "digitized" for such purposes;

VIII) that the legitimation of the holder will arise from the image of the check that will be incorporated into the rejection certificate, so no decrease in risks regarding such legitimation is seen from issuing a named and non-negotiable rejection certificate;

IX) that, taking into account the comments received in the public consultation instance, it is necessary to modify the drafted wording for articles 22.10, 22.10.1, 22.22, 22.23, 22.24, 22.32, and 41 letters f), n), and r) of the Compilation of Payment System Rules.

IN ATTENTION TO: what has been stated, what is provided by letter B) of Article 3 of Law No. 16.696 of March 30, 1995, and amendments, Articles 29, 36, 39, 66, and 69 of Decree-Law No. 14.412 of May 8, 1975, in the wording given by Law No. 20.038 of May 27, 2022, Articles 20 and 21 of Law No. 18.573 of September 13, 2009, what is provided in Book III of the Compilation of Payment System Rules, the opinion of Legal Advisory No. 2023/303 of August 4, 2023, what was reported by the Payment System Management on September 14, 2023, and other antecedents appearing in file No. 2023-50-1-1306,

IT IS RESOLVED:

1. Substitute the section of Book III of the Compilation of Payment System Rules, with the following:

"COMPENSABLE DOCUMENTS AND ELECTRONIC CLEARING AND SETTLEMENT SYSTEMS

TITLE I – OF PAPER CHECKS AND BILLS OF EXCHANGE

PART ONE

PAPER CHECKS AND THEIR DIGITALIZATION

Chapter I – Of paper checks in general"

2. Substitute Article 22.10 of Chapter I – Of paper checks in general, of Part One – Paper checks and their digitalization, of Title I – Of paper checks and bills of exchange, of Book III – Compensable documents and electronic clearing and settlement systems, with the following:

"Article 22.10 (OTHER ELEMENTS). In the design of the check (background), reactive inks (ultraviolet light) may be included, as established by Article 22.9.

Patterns of information specific to each bank must be included, which contribute to efficiently detecting attempts at forgery and/or adulteration."

3. Repeal the transitional provision of Article 22.10.

4. Incorporate the following article into Chapter I – Of paper checks in general, of Part One – Paper checks and their digitalization, of Title I – Of paper checks and bills of exchange, of Book III – Compensable documents and electronic clearing and settlement systems:

"Article 22.10.1 (RETENTION PERIOD). The paper check and the digitized physical document must be preserved and safeguarded for a period of no less than six months counted from the expiration of the presentation for collection period.

This period will be suspended if the drawer has promoted a judicial action for its payment or the holder has initiated a judicial action for its rejection, until the issued sentence has passed into the authority of res judicata. In both cases, it will correspond to the claimant to notify the receiving bank about the promotion of the corresponding judicial actions."

5. Rename in Part One – Paper checks and their digitalization, of Title I – Of paper checks and bills of exchange, of Book III – Compensable documents and electronic clearing and settlement systems, the title of Chapter V to "Chapter V – Of the digitized check", which will contain the following provisions:

"Article 22.22 (DECENTRALIZED CAPTURE OF THE DIGITIZED CHECK IMAGE). Financial intermediation institutions may offer their clients mechanisms that allow the transmission of the digitized image of the paper check for presentation for collection.

The image of the check, captured under the conditions regulated by the Central Bank of Uruguay, will replace the physical document, which, prior to its presentation for collection, must be rendered useless as established in this Compilation.

The date of digitalization of the paper check must always coincide with the date of presentation for collection. For these purposes, the date of transmission of the digitized image will be considered the date of presentation.

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The provision of this new decentralized capture mechanism does not authorize the receiving bank to cease offering traditional channels for presenting documents for collection.

Article 22.23 (RECORD OF USELESSNESS OF THE PAPER CHECK). Prior to transmitting the digitized image of the document to the receiving bank, the holder of the check must render the physical document useless. Once digitized with the appropriate record of uselessness and presented for collection, the paper check cannot be presented for collection again, neither digitally nor physically.

For these purposes, the phrase "digitized" must be stamped on the front and back, either manually or automatically.

The receiving bank cannot accept or validate images that do not have the aforementioned record of uselessness. The client must be notified of this rejection of the image and the reason that motivated it.

When the record is stamped manually, it must not be placed over any endorsements that may exist.

The receiving institution will be responsible for verifying, at the moment of receiving the digitized check, the fulfillment of what is established in this article.

The Payment System Management will determine the cases in which the uselessness and digitalization of the paper check must be carried out exclusively automatically by a digitizing device.

Article 22.24 (MINIMUM CONTENT OF DECENTRALIZED CAPTURE CONTRACTS). Receiving institutions of digitized checks must contractually define the conditions under which they will provide the service of decentralized check digitalization.

The contracts must include at least the following:

i. object of the contract; ii. specifications for the digitalization of the check; iii. obligations, responsibilities, and rights of the parties (client and institution); iv. costs; v. mechanism for rendering the paper check useless;

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vi. deadlines and conditions for the transmission of the physical document to the receiving bank. The period agreed contractually cannot exceed 30 calendar days; vii. complaint handling process; viii. non-compliance regime.

Regarding the responsibilities of the client, it must be indicated that they will bear the civil and criminal responsibility of the depositary while they are in custody of the physical document.

The receiving bank may contractually agree that the client safeguards the digitized physical document on their behalf and order. In any case, the receiving bank will retain its responsibility for the custody of the digitized document during its retention period.

These conditions may be incorporated into the already celebrated contract or into a specific one for the development of this operation.

The model of contract to be signed must be available to the Payment System Management, which may require its modification in case of finding abusive, unclear, inaccurate, or insufficient clauses in the information provided.

Article 22.25 (RISK POLICY). Financial intermediation institutions must have a risk policy that allows them to define the profile of their clients, to determine the type of service to offer them. The description of profiles must be clear, transparent, and accessible to clients.

The institution may differentiate the check digitalization services offered to each client based on the risk profile assigned to them.

The risk policy must foresee the conditions under which the service of decentralized capture of the paper check will be provided, including detail of the technology to be used, operational limits, and other information that the Payment System Management regulates.

The institution must continuously analyze the risks resulting from this operation, developing or updating controls to mitigate them.

Article 22.26 (RESPONSIBILITIES OF THE RECEIVING BANK OF DIGITIZED CHECKS). Financial intermediation institutions receiving digitized checks must:

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i. Sign with their clients the contracts defined in Article 22.24; ii. Establish a risk policy in the terms of Article 22.25; iii. Verify that the image of the digitized check contains the record of uselessness and that both the image and the record of uselessness meet the quality requirements established in this Compilation; iv. Require their clients, when appropriate, to transmit the physical documents of the digitized checks, in case they omit to transmit them within the contractually agreed period; v. Be responsible for the custody of the physical documents and digitized images, for at least the retention period provided in Articles 22.10 and 22.32, respectively; vi. Issue rejection certificates as established in Article 22.29; vii. Comply with the requirements established in this Compilation, laws, and principles of good practices in the matter and any other related regulation issued by the Central Bank of Uruguay.

Article 22.27 (REQUIREMENTS FOR IMAGE CAPTURE). For the purposes of capturing images to be transmitted for presentation for collection, the following specifications are established:

1. Technical conditions: Front and back must be presented, in a single image or in multiple related images, under the following conditions: • Color Digitization • Resolution: Minimum 200dpi • Maximum size: 1,000 KB. • Coverage: entire document

2. In the captured and transmitted image to the Receiving Bank, the digitalization of the front and back of the paper check must be stated, as well as the complete chain of endorsements of the document.

3. Image quality controls: Receiving institutions must ensure that the captured images allow clearly reading the information contained in each of the fields of the document.

4. The digitalization of a paper check must be carried out at the moment of its presentation for collection; the use and sending of a previously generated image is not accepted, an aspect that must be ensured by the receiving bank.

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Article 22.28 (SECURITIES). Images must be transmitted to the Receiving Bank using mechanisms considered secure according to international standards.

At the moment of reception, the Receiving Bank will electronically sign the received images, considering that in the case that the same document is presented with separate images of front and back, the electronic signature must cover both images.

This signed image will be the one that replaces the paper document, according to what is established by law and regulation.

Electronic signature certificates used must be issued by a certification entity authorized according to what is provided by the current legal framework.

Article 22.29 (REJECTION CERTIFICATE). The bank that rejects the payment of a digitized check must issue and deliver to the holder the corresponding rejection certificate, which, without any other requirement, will entail execution.

Article 22.30 (CONTENT OF THE REJECTION CERTIFICATE). The rejection certificate must be signed by a person authorized by the Receiving Bank and contain at least:

i. The image of the front, back, and extension sheet of endorsements (if any) of the paper check transmitted by the holder at the moment of its presentation for collection. ii. Express mention of the grounds for the rejection. iii. Date and time of presentation for collection. iv. Data of the drawer: name or business name, identity card or Unique Tax Registry number (RUT), and domicile registered in the Bank.

When the signer(s) of the check act on behalf of the account holder, a natural or legal person, the data of the holder and of the signer(s) must be recorded. In the case of a natural person, the identity document number will also be noted, in all cases. In the case of a legal person, the Unique Tax Registry (RUT) number will be noted.

According to the second paragraph of Article 39 of Decree-Law No. 14.412 of August 8, 1975, regardless of the cause of rejection of the check, if the drawer did not have fund provision or if it was insufficient for the payment of the check, it must also be expressly recorded in the rejection certificate to be delivered to the holder.

In case the current account against which the check is drawn is seized, the institution will record this circumstance with an express mention of whether it has sufficient funds or not.

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Article 22.31 (SUPPORT OF THE REJECTION CERTIFICATE). The rejection certificate may be delivered both on paper support and in digital format, guaranteeing the holder its transferability and executability, having the minimum requirements stated in the previous article.

The rejection certificate issued in paper format must be signed with the autograph signature of authorized personnel of the Receiving Bank. The rejection certificate issued in digital format must be signed by authorized personnel of the Receiving Bank using advanced electronic signature.

In case the holder of the rejected check expresses their explicit will to opt for the issuance of the certificate in paper format or digital format, the rejection certificate must be issued in the format that they request from the Bank.

Article 22.32 (RETENTION PERIOD OF THE DIGITIZED IMAGE). The digitized image received and electronically signed by the receiving bank must be preserved for a period of no less than six months counted from its capture.

This period will be suspended if the drawer has promoted a judicial action for its payment or the holder has initiated a judicial action for its rejection, until the issued sentence has passed into the authority of res judicata. In both cases, it will correspond to the claimant to notify the receiving bank about the promotion of the corresponding judicial actions.

It is admitted that the aforementioned custody be carried out by entities other than the receiving bank, who always maintains their final responsibility for the custody."

6. Incorporate into Title I - Of paper checks and bills of exchange, of Book III – Compensable documents and electronic clearing and settlement systems, a Second Part – titled "Bills of Exchange", with the following article:

"Article 22.33 (BILLS OF EXCHANGE). The material characteristics of bills of exchange must contemplate the provisions established by Title Two of Law No. 14.701 of September 12, 1977, its regulatory norms, and any eventual modifying laws. For those elements not provided for in the legislation, bills of exchange will be governed by what is established in this Compilation."

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7. Replace in Chapter II – Authorization to participate in the electronic document clearing system, of Part One – Electronic document clearing systems, of Title II – General Requirements of Clearing and Settlement Systems, of Book III – Clearable documents and electronic clearing and settlement systems, the following articles:

“Article 26 (AUTHORIZATION TO PARTICIPATE). Financial intermediary institutions legally authorized to receive demand deposit accounts that wish to operate in the electronic clearing of credits and debits will request the corresponding authorization from the Payment System Management.

Those institutions that, at the time of entry into force of this Compilation, are participating in the Clearing House, are considered already authorized.

Article 27 (REQUIREMENTS). Financial institutions authorized to participate in the electronic clearing system of credits and debits must establish policies, procedures, and controls that guarantee the proper functioning of the system.

To this end, they must comply with the requirements established in this Compilation and those derived from minimum operating standards established in accordance with international principles and best practices by the Payment System Management.”

8. Replace in Chapter III – Technical Definitions, of Part One – Electronic document clearing systems, of Title II – General Requirements of Clearing and Settlement Systems, of Book III – Clearable documents and electronic clearing and settlement systems, the following articles:

“Article 30 (REQUIREMENTS FOR IMAGES TO BE USED IN CLEARING). Regarding the images that will be used in each presentation session, the following technical specifications are established:

1. Format: In a single file that will include the front and back of the document, in that order, each image will be included, under the following conditions: • Color: black and white • Resolution: around 200 pixels per inch • Type: TIFF • Size: around 50 KB.

2. Requirements: Receiving institutions must have equipment to capture digital images of the documents presented for collection, which allows capturing at least the front and back of the document, in black and white format. Likewise, in the case of presentation for collection of digitized checks, they must have the necessary software to adapt the received images to the format established in point 1 of this article.

3. Image quality controls: Institutions must ensure that the images presented for clearing allow clearly reading the information contained in each field of the document.

Article 32 (SECURITY). To ensure that the digital image used in the clearing process is a faithful copy of the original document, the following will be used:

1. Electronic signature scheme. The images transmitted between receiving institutions, drawers, and the Clearing House must be sent under an electronic signature scheme that complies with what is provided by the Law on Electronic Document and Electronic Signature, (No. 18.600 of September 21, 2009) and current related regulations.

Electronic signature certificates must be issued by an authorized certification entity in accordance with what is provided by the current legal framework.

Documents must be digitally signed, which can be done individually or at the level of the data and image file.

2. Encrypted communications network. The transmission of files containing both images and electronic data records will be carried out through a private and encrypted communications network, which ensures the confidentiality of the transmitted information.”

9. Replace in Chapter V – Rights and obligations of participants, of Part One – Electronic document clearing systems, of Title II – General Requirements of Clearing and Settlement Systems, of Book III – Clearable documents and electronic clearing and settlement systems, the following article:

“Article 41 (RESPONSIBILITIES OF THE RECEIVING BANK IN THE CLEARING PROCESS). By virtue of being authorized, institutions that operate in the electronic clearing of credits and debits and act as a receiving bank must:

a. Comply with the rules and regulations of the Clearing House in all that is applicable.

b. Control, on behalf of the drawee bank and for those documents issued for an amount higher than that reported by the Central Bank of Uruguay to the participants of the Clearing House, that the document is not torn, deteriorated, or with visible signs of attempted adulteration or forgery. For physical documents, the receiving bank will be responsible for controlling all security elements that allow the technology required by the Central Bank of Uruguay for these purposes.

c. Verify, on behalf of the drawee bank and for those documents issued for an amount higher than that reported by the Central Bank of Uruguay to the participants of the Clearing House, that the quality of the paper and other material characteristics of the physical document presented for collection are adjusted to the requirements established by current legislation, as well as by the definitions for the standardization of documents regulated by the Central Bank of Uruguay. This provision does not apply to those documents presented for collection as provided in Chapter V of Part One of Title I of this Book.

d. Verify, on behalf of the drawee bank and for those documents issued for an amount higher than that reported by the Central Bank of Uruguay to the participants of the Clearing House, that the document does not present any return stamp.

e. Verify, on behalf of the drawee bank for those documents issued for an amount higher than that reported by the Central Bank of Uruguay to the participants of the Clearing House and presented for collection through the submission of their digitized image, that this image satisfies the requirements established in Chapter V of Part One of Title I of this Book.

f. Ensure that the image sent for clearing corresponds faithfully to the cartular document or digitized check, as applicable.

g. Implement some mechanism to render the document that has already been presented for clearing unusable.

h. Custody, on behalf of the drawee bank, the original documents for a minimum period of six months for checks and in case they are sent by the holder, and three years in the case of bills of exchange, counted from the day following their presentation of the document to clearing.

i. Deliver to the drawee bank all those original documents already cleared and settled, which for any reason are requested by it. It will have a period of 5 (five) business days, counted from the next business day after the receipt of the request from the drawee bank.

j. Have the necessary equipment and technology to carry out the capture of the data of all deposited documents, the generation of electronic records and their corresponding images.

k. Transmit the digitized images of the documents received for clearing considering the schedules, procedures, and other precautions established by the Central Bank of Uruguay, so that they reach their destination unchanged, complete, and legible.

l. Control that the image files do not exceed the size established by the technical documents prepared by the Central Bank of Uruguay.

m. Control that the quality of the sent image reaches the minimum quality established by the regulation.

n. Keep a copy of the sent images, for a period of no less than six months for checks and three years in the case of bills of exchange, counted from the day the receiving bank sends the document for clearing.

o. Provide and have the necessary connection capacity for transmission, based on the planned operation, as well as allowing its adaptation to increases in the number of operations.

p. Ensure the fidelity of the data provided to the clearing system from the original documents.

q. Reject on behalf of the drawee bank, those documents that cannot be debited normally from the client's demand account, due to some cause for rejection.

r. Retain and deliver to the depositor on behalf of the drawee bank the rejected documents, after having signed the “certificate by authorized person” or, in the case of digitized checks, issue and deliver the rejection certificate, within the timeframes established by the regulation. The documents will be rejected for the causes established in the applicable regulations. Express mention will be made of the reason and legal basis for the rejection as indicated in Article 39 of Decree-Law No. 14.412 of August 8, 1975.

The receiving bank must retain documents that are visibly forged and notify the situation to the judicial authorities, using the usual procedures.

s. Respond to the drawee bank for the payment of a document issued for an amount higher than that reported by the Central Bank of Uruguay to the participants of the Clearing House, when it is visibly forged or adulterated and only when the irregularity or manipulation can be detectable on the original document itself or on the digitized image of the document sent to the receiver for collection, and not on the transmitted image. Nevertheless, the responsibility will cease when the drawee bank is notified of the presumption of forgery or fraudulent manipulation of the document and does not communicate it to the receiving bank.

t. Respond to the drawee bank for any damages and losses that may be caused to the drawee bank by the incorrect signing of the certificate or rejection certificate, as well as the performance of acts that violate the rules or instructions received from the drawee bank, whether due to errors committed by its employees or any other attributable to the receiving bank.

u. Verify that the drawee bank is registered and active as a participant in the Clearing House.”

10. Repeal in Title II – General Requirements of Clearing and Settlement Systems, of Book III – Clearable documents and electronic clearing and settlement systems, the transitional provisions of Articles 32, 33, 42.2, and 52.2.

11. Entrust the Payment System Management with the communication of what is provided by means of Circular.

(Session of today – Minutes No. 3671) (File No. 2023-50-1-1306) Jorge Christy General Secretary Dv/am/ds Publishable Resolution

Signatory: Jorge Eduardo Christy Davies Date: 20/09/2023 21:22:15