Directions for the Central Bank of China to Govern Electronic Interbank Fund Transfers and Settlements

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Title：

Directions for the Central Bank of China to Govern Electronic Interbank Fund Transfers and Settlements

Inactive Regulations

Announced Date： March 20, 1995

Amended Date： July 08, 2002

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Ｉ. General Provisions

2. The Central Bank of China (hereafter referred to as "the Bank") has prescribed these Directions for the purpose of governing electronic interbank fund transfers and settlements.

4. The term "Interbank funds" as referred to in these Directions shall mean deposits in the following accounts opened at the Department of Banking of the Bank:

(1) Bank funds-Type I reserve accounts

(2) Other financial industry funds

Funds in internal operating accounts opened at the Department of Banking by the Bank's various units will be deemed "interbank funds" as referred to in the preceding Paragraph.

4. The term "Electronic interbank fund transfers and settlements operations" as referred to in these Directions shall mean the use of the "Central Bank Interbank Fund Transfers and Settlements System" (hereafter referred to as "Central Bank Interbank Funds System") established by a computer connection between the Bank and the following institutions approved by the Bank in order to carry out transfers and settlements of funds:

(1) Financial institutions

(2) Check clearing institutions

(3) Electronic payment clearing institutions (hereafter referred to as " Clearing Institutions")

5. The term "Clearance" as referred to in these Directions shall mean the process of transmitting and processing payment instructions between financial institutions and calculating the resulting net-credit or netdebit positions.

7. The term"Settlement" as referred to in these Directions shall mean the procedures by which the Bank credits or debits designated accounts to eliminate the debtor/creditor relationship, based on net-credit or netdebit positions as per payment instructions between financial institutions.

Settlements may be effected by means of one of the two following methods:

(1) Real-time gross settlement: payment instructions will be effected in real time and gross in the order they are received.

(2) Deferred net settlement: payment instructions will first be offset against each other and performed at designated times based on the resulting net- credit and net-debit positions.

7. The term "Electronic Payment System" as referred to in these Directions shall mean the system for carrying out electronic payment and clearance between financial institutions.

9. The term "Online institutions" as referred to in these Directions shall mean institutions performing operations online through the "Central Bank Interbank Funds System" referred to under Direction 3.

11. The term "Transferor bank" as referred to in these Directions shall mean an institution making an outward transfer of interbank funds; "transferee bank" shall mean an institution receiving an inward transfer of interbank funds.

13. Interbank funds account balances fall into the following two categories:

(1) Book balance: refers to the resulting book amount after a transaction has been executed and completed; if the book balance is negative, it indicates intraday overdraft.

(2) Available balance: refers to the total of book balance plus intraday overdraft granted by the Bank.

The term "intraday overdraft" as referred to in the preceding Paragraph shall mean advances that the Bank provides to interbank funds accounts of financial institutions during daily business hours in accordance with the "Directions for the Conduct of Intraday Overdrafts of the Central Bank of China;" the term "intraday overdraft limit" refers to the intraday overdrafts credit that the Bank grants to a financial institution as per application in accordance with the said Directions.

11. The term "queuing mechanism" as referred to in these Directions shall mean an operating mechanism, in case the available balance of a financial institution is insufficient to cover the payment specified in payment instructions, through which the Bank may base on the nature of transactions to assign them a class of priority and place them in the queue for processing, where they will be executed in order as soon as the available balance becomes sufficient for the deduction of payment.

13. Units participating in the Clearing Institution Electronic Payment System ( hereafter referred to as "Participant Entities") shall be limitedt to the following institutions:

(1) Financial institutions required to deposit reserves under the Central Bank of China Act.

(2)Other financial institutions or government bodies as approved by the Bank.

13. Interbank fund transfer transactions fall into the two following categories:

(1) Real-time transfer: refers to a transaction that shall be executed immediately at the time it is received.

(2) Designated - time transfer: refers to a transaction that is held pending acceptance and shall be executed at the designated time.

The designated-time transfer as refrred to in the preceding Paragraph shall mean a transaction that the transferor bank may initiate a payment instruction to be executed on any business day within six months following the initiating date.

14. Interbank funds settlement operations refer to the following operations:

(1) Payments of negotiable instruments.

(2) Settlements of net-debit and net-credit positions from the exchange of bills.

(3) Settlements of net-debit and net-credit positions through other payment systems.

15. The interbank funds inquiry services shall allow online institutions to inquire about transaction details, account balances and other related information at any time during business hours.

17. Real-time transfers of interbank funds and encashments for negotiable instruments presented shall be executed only if the available balance at an account is sufficient for payment.

19. Online institutions shall use the "Central Bank Interbank Funds System" in accordance with the relevant Directions of the Bank.

Ⅱ. Application and Management

Section 1: Financial institutions

18. Financial institutions participating in the "Central Bank Interbank Funds System" shall first submit by mail two copies of the " Application for Participation in the Central Bank Interbank Fund transfers and Settlements System" (Form 1) to the Department of Banking of the Bank.

20. After the Bank has issued a letter of approval, the institution shall proceed with the following preparatory measures:

(1) Designation of staff responsible for an operation plan.

(2) Drafting a schedule for the implementation of the online operation plan.

(3) Preparation of hardware and software for online operations as per Information Management Office of the Bank specifications.

(4) Application to arrange online operation tests in accordance with testing plan outlined by the InformationManagement Office of the Bank.

(5) Consultation with the InformationManagement Office of the Bank on other matters relating to the establishment of online connections.

20. A financial institution shall become an online institution when the Information Management Office of the Bank has confirmed the completion of error-free tests; the Department of Banking of the Bank will notify the official date for the commencement of operations.

The Department of Banking of the Bank will notify all other online Institutions when an institution becomes a new online institution in accordance with the preceding Paragraph.

21. An online institution shall appoint the following employees to carry out the matters set forth in these Directions:

(1) One operation director and one deputy operation director, responsible for the arrangement of internal matters, security control and connections with the Bank.

(2) Two to eight authorized transmission staffs, responsible for the verification and transmission of various fund transfers and corrections, as well as deposit, pledge, and cancellation of collateral.

(3) A certain number of data entry personnel, responsible for entering fund transfer data, corrections, and information for inquiries.

No personnel may concurrently serve in both authorized transmission and data entry positions, nor may personnel in either of the former two positions undertake security control.

22. An online institution shall submit the title, name, service unit, telephone number, and sample seal impression of the designated operation director and the deputy operation director referred to in Direction 20 in writing to the Department of Banking of the Bank; the same procedure shall be followed at the time of any change in the above positions.

The operation director referred to in the preceding Paragraph shall be issued a user ID and an initial password by the Department of Banking of the Bank, for the exclusive purpose of canceling the registrations of authorized transmission personnel. The operations director shall himself/herself transfer the user ID and password when a new operation director assumes the position.

23. An online institution shall compile and submit the titles, names, and service units of all authorized transmission personnel referred to in Direction 20 to the Bank in writing to apply for the issuance of an individual user ID and initial password for each; the said user ID and password shall be cancelled when an authorization is revoked.

Authorized transmission personnel issued with individual user ID and password as specified in the preceding Paragraph shall access the "update user password" field at an online institutions' workstation to change their passwords.

User IDs and passwords issued for applications submitted by Wednesday of each week shall become valid the following Monday; for applications submitted by Friday of each week, the user IDs and passwords will become valid the following Thursday.

Cancellations of user IDs and passwords for authorized transmission personnel shall be carried out by the online institution operation director by accessing the "cancel authorized transmission personnel" field on the operation director's workstation.

24. In carrying out the procedures regulated under these Directions, all online institutions shall establish rigorous security control and instruction manuals in order to prevent abuse.

Section 2: Clearing Institutions

25. A Clearing Institution applying to the Bank to handle settlement shall prepare a letter with the following documents attached for the Bank's approval:

(1) A license or document showing the competent authority's approval for establishment.

(2) The institution's articles of organization.

(3) The institution's operating rules.

(4) A description of its electronic payment system (including computer hardware and software, network structure, security control, and disaster preparedness facilities.

(5) A commitment to abide by these Directions and other relevant provisions.

Applications shall be rejected for failure to submit any of the documents listed in the preceding Paragraph or information required therein; applications shall also be rejected where the supplementation of the aforementioned documents or nformation is possible but not made within a specified time period.

26. The operating rules referred to under Subparagraph 3, paragraph 1, Direction 24, shall include the following:

(1) Standards for the review and acceptance of Participant Entities.

(2) The rights and obligations existing between Participant Entities and between Participant Entities and Clearing Institutions.

(3) Items of business and operating hours.

(4) Settlement methods, times, and operational flows.

(5) Risk management measures for payment and settlement.

(6) Procedures for dealing with errors or negligence in the transmission of payment information.

(7) Disaster preparedness measures.

(8) Other matters related to information exchange between financial institutions.

27. The Bank may withhold approval when a Clearing Institution applying to handle settlement lacks any of the following qualifications:

(1) Sound and effective operating rules.

(2)Transparency in information sufficient to allow Participant Entities to understand related risks and responsibilities.

(3) Clear risk management procedures.

(4) An systemdesigned to ensure the smooth completion of each day's settlement procedures.

(5) Fair and open standards for participation.

(6) Security and back upmeasures to ensure the stability of operations.

28. The risk management procedures of a Clearing Institution applying to the Bank to employ deferred net settlement procedures shall include the following:

(1) Risk limit: including the establishment of a bilateral credit limit between Participant Entities and maximum net-debit limit for each Participant Entity.

(2) Risk collateral: including the standardization of guarantees or collateral items to be deposited by Participant Entities and a mechanism for shared distribution or liability for loss.

(3) Follow-up procedures: including procedures for the completion of clearance after the occurrence of the risk event and for sharing any loss.

29. A Clearing Institution may apply to use the "Central Bank Interbank Funds System" for the following payment transactions, with real-time gross settlement carried out by the Bank:

(1) Electronic fund transfers for transactions above a specified amount.

(2) Settlement of funds in relation to delivery-versus-payment arrangements in securities transactions.

The specific amount for transactions referred to in Subparagraph 1, preceding paragraph shall be separately prescribed by the Bank.

30. A Clearing Institution shall notify the Bank of any addition to, deletion of, or change in the business items it handles; in addition, the Bank shall also be notified when there is a change in any item included in the submissions required under Direction 24.

32. A Clearing Institution shall conscientiously apply a sound system of internal controls and auditing with respect to electronic payments between financial institutions, and shall attend to improving the assessment of employees' ethical standards.

34. A Clearing Institution shall provide information online as required by the Bank ; the Clearing Institution shall also prepare statistical statements on a regular basis for submission to the Bank.

36. The Bank may, whenever necessary, dispatch personnel to inspect electronic payment operations at a Clearing Institution; the Clearing Institution shall offer its cooperation during such inspections.

38. A Participant Entity shall open a deposit account at the Bank or an agent bank designated by the Bank for settlement.

40. A Participant Entity shall seek to enhance the maintenance and management of computer and information facilities in order to ensure the smooth operation of the system; the Participant Entity shall also adopt concrete and effective safety and back up measures in order to avoid affecting the rights and interests of clients due to system breakdowns or service interruptions.

42. A Participant Entity providing electronic payment services between financial institutions may not violate the relevant consumer protection regulations.

44. Where the conduct of a Participant Entity violates these Directions or the operating rules of a Clearing Institution, resulting in the hindrance to the smooth operation of the electronic payment system, a Clearing Institution may take the necessary measures as warranted by the particulars of the Participant Entity's violation.

A Clearing Institution shall clearly set forth the measures referred to in the preceding Paragraph in the relevant agreement between it and the Participant Entity.

38. Where a Clearing Institution's conduct is in violation of these Directions or where the Bank determines that other matters have hindered the smooth operation of the electronic payment system, the Bank may, as warranted by the particulars of the situation, terminate or suspend for a given period the provision of ettlement services or take other appropriate measures.

Ⅲ. Interbank Fund transfers

39. The transferor bank shall initiate the transfer information, with each transaction order to include the user ID and password of the authorized transmission personnel, the transferor bank account, the time of the transfer (real-time or designated-time transfer), the transferee bank account, the transfer amount, the date of transfer and the type of transaction. Upon the receipt of the information, and once the Bank has verified the password and that the authorized transmission personnel user ID is tallied, the order will be executed as instructed therein; otherwise it shall be returned.

Where a transfer has been effected in accordance with the provisions of the preceding Paragraph, an online institution may offer no opposition to the transfer on the grounds that the transmission personnel were not those originally authorized, that others assumed their role under pretense, or for any other reason.

40. The Bank may, if necessary, stipulate a minimum amount for each interbank fund transfer.

42. Once a real-time transfer transaction is accepted by the Bank, the account transfer will be executed immediately and irrevocably if the available balance of the transferor bank is sufficient for payment. After the execution, the Bank will simultaneously inform both parties of the transaction as well as record the resulting book balance. However, if the available balance of the transferor bank is insufficient for payment, the said transaction shall be alternatively processed through the queuing mechanism.

44. Once a transaction is accepted by the Bank, if the available balance of the transferor bank is insufficient for payment, the Bank shall assign one of the following classes of priority to the said transaction based on its nature, and process it through the queuing mechanism:

(1) First class: Funds payable by the financial institution to the Bank.

(2) Second class: Negotiable instruments for clearing payable by a financial Institution, the net amount payable for negotiable instrument cleared by the clearing house, or the fund appropriated to the "interbank fund transfers guaranty special account" by the financial institution.

(3) Third class: Funds for designated-time transfers to repay due interbank call loans.

(4) Fourth class: Fund transfers between financial institutions as well as other payments.

43. Payment orders of the same priority stated in Direction 41 shall be executed based on the principle of first-in-first-out. However, if the available balance is insufficient to cover payments for payment instructions of high priority, the Bank may first execute the payment instructions of a lower priority, and after completing all payment instructions of the same priority in order, then process payment instructions of the next priority.

In case a transferor bank intends to revoke a real-time transfer transaction in queue, or discovers an error in the payment instruction, it may initiate an instruction for revocation.

44. For transactions processed in accordance with the preceding two Directions, if the available balance is still insufficient for payment towards the cutoff time of the queuing mechanism, all payment orders remaining in the queue shall be immediately revoked, and the Bank shall simultaneously notify both parties to the transaction; among the cancelled orders, the negotiable instruments for clearing and the net amount payable for negotiable instruments clearing for first class and second class shall be processed in accordance with pertinent directions of this Bank.

For those transfer transactions revoked as stated in the preceding Paragraph, the Bank may issue a "Certificate of Transfer Transaction Revoked due to Insufficient Funds" as per transferee bank's application.

45. The designated-time transfer instruction shall include the transfer date on which the transfer will be executed. The Bank shall inform both parties of the transaction in advance upon receiving the instruction, and place it in file. The transfer shall be executed and posted to the related account at 1:30 in the afternoon on the designated transfer date; if there is insufficient fund to cover payment of a designatedtime transfer transaction, it shall be processed through the queuing mechanism.

If the designated transfer date is not a business day, the execution of the transaction shall be deferred to the next business day.

46. If a transferor bank intends to revoke a designated-time transfer transaction or discovers an error in the content of the instruction, it may negotiate with the transferee bank for initiating an instruction for revocation either on the transmission date or the designated transfer date.

Where the transferee bank in the preceding Paragraph is an offline institution, it may fill out a "Letter of Authorization for the Revocation of Interbank Fund transfer Transaction" (Format 2) to entrust the Department of Banking of the Bank to revoke the instruction on its behalf.

47. If an offline institution sends its staff bearing negotiable instruments to the Bank to process fund transfers, in all cases the transfers will be processed on a real-time basis. However, if the available balance of the transferor bank is insufficient for payment, it will not be placed in queue and the negotiable instrument will be returned on the spot. The staff sent to conduct the transfer shall wait for the processing result before they leave.

49. In order to avoid the delay of processing payment instructions, the Bank may set up criteria to require the financial institutions to ensure that a certain proportion of their outgoing payments are processed before a specified time each day.

51. Any payment or receipt of funds between an online institution and the Bank's relevant unit arising out of the online institution's open market securities trading, rediscounting transactions, bond or treasury bill trading, foreign exchange transactions or other operations shall be handled according to the following provisions, and a statement of the payments or receipts of funds and the account balance after transaction settlement shall be provided to the online institutions:

(1) For payments due to the Bank from an online institution, except where the relevant laws and regulations stipulate payment through the issuance of a note with theBank as payer, the System Usermay use the "Central Bank Interbank Funds System" to transfer funds from its online institution account to a designated Central Bank account or have a deduction made from its own account by the Bank in accordance with prior agreement.

(2) For payments due to an online institution from the Bank, the Bank shall transfer the funds into the online institution's account.

50. Where a transferor bank transmits fund transfer information and fails to receive a return confirmation from the Bank for an inordinate amount of time, it shall trace the transaction, and where the transaction order has not been successfully transmitted, the online institution shall retransmit the information.

Ⅳ. Interbank Fund Settlements

Section 1: Electronic payment and settlement

51. Prior to the stipulated time for settlement, a clearing institution shall notify each participant entity of the net-credit or net-debit positions for verification, and then transmit the same to the Bank or the agent bank designated by the Bank for the execution of settlements.

In executing settlements as referred to in the preceding Paragraph, all participant entities with net-debit positions shall supplement those net settlement positions, after which the Bank or the agent bank designated by the Bank will transfer net-credit positions into their accounts.

Where the balance in the settlement account of a participant entity is insufficient to effect payment of amounts payable, the clearing institution shall be responsible for notifying the participant entity to make up the shortfall.

The stipulated time for settlement referred to in Paragraph 1 shall be separately prescribed by the Bank.

52. Where a participant entity is unable to perform the settlement of debt at the stipulated settlement time, the clearing institution shall perform a supplementary settlement to complete settlement procedures within the time stipulated by the Bank as per Subparagraph 4, Direction 26 herein.

Neither the Bank nor its designated agent banks shall bear liability for the compensation of any loss resulting from the inability to complete daily settlement on time due to the participant entity's delay in the settlement of net-debit positions.

Section 2: Negotiable instruments clearing and settlement

53. Where the available balance of an "interbank funds account" is insufficient to cover the payment for negotiable instruments presented for clearing, the Bank shall process the transaction through the queuing mechanism and simultaneously notify the online institution that issued the said negotiable instruments. The online institution is required to immediately make up the difference upon ceiving the notification.

For dishonored negotiable instruments, if sufficient funds are not replenished by 3:30 in the afternoon, they shall be returned in accordance with pertinent rules.

54. For daily negotiable instrument clearing and settlement, financial institutions shall immediately replenish sufficient funds for payment upon receiving an advance notification of their balance payable. The Bank begins to process negotiable instrument clearing and settlement at 3:00 in the afternoon.

The settlement procedure stated in the preceding Paragraph requires that all financial institutions with a balance payable make up their balance payable.

After the deduction has been completed, the Bank then posts balances receivable to their accounts.

Ⅴ. Accounting Information Inquiries

55. No further receipts shall be issued for any remittances into interbank funds deposit accounts following the issuance of a notification through the Central Bank Interbank Funds System.

57. Where during the course of operations an online institution has any doubt about the Bank's notices of remittance or payments into or out of interbank funds accounts, it may verify the transaction in question by inspecting an itemized transaction record.

Where an error is discovered through an attempted verification of remittance or payment notices as per the preceding Paragraph, the relevant personnel of the Bank shall be notified immediately and the matter handled in accordance with the relevant regulations.

57. An online institution shall print out a closing ledger after each daily closing of accounts, and shall verify each transaction individually. Where discrepancies are found, the System User shall immediately notify the Department of Banking of the Bank and jointly track the discrepancy. Where no opposition is offered within three business days beginning from the day after the transaction date, the transaction will be considered confirmed, except for those handled in accordance with the provisions of Direction 59 or 60 herein.

Ⅵ. Handling of Breakdowns

58. Where there is a breakdown or interruption to connections in the Bank's central server system resulting in the inability to carry out online procedures, the Bank may, after the restoration of service, consider extending the normal period of operations in view of the length of the interruption and business conditions.

60. Where the computer equipment of an online institution breaks down or connections are interrupted, the user shall notify the Information Management Office of the Bank and joining work out a solution. The online institution may not immediately resume use of the Central Bank Interbank Funds Systemfor transfers of funds, but shall dispatch personnel to the Bank to carry out ransfers in person.

62. When a breakdown of the Central Bank Interbank Funds System or an error by operation personnel results in interbank fund transfers at variance with the original receipts, the Bank will effect correction in accordance with the relevant accounting regulations. The Bank shall not be liable for any resulting influence on or adjustment of deposit reserves.

64. When an interbank fund transfer initiated by a transferor bank is at variance with the original receipts, the transferor bank shall notify and make arrangements with the transferee bank to make correction by a reverse transfer or to make adjustments through other means. The transferee bank shall act in good faith to resolve the situation on the day it receives the notification.

66. Where a transferor bank fails to discover a transaction error as set forth in Direction 60 on the date of the transaction and correction is made at a later date, and where delay is disadvantageous to the transferee bank, it may request the transferor bank to pay interest from the date of the transaction until the date of correction for the amount receivable pending payment during that time or for any underpayment. The transferor bank shall not be liable for any other damages.

The payment of interest as per the preceding Paragraph, except as stipulated by a previous agreement between the parties to a transfer, shall be calculated at the weighted average of the interbank call loan rate for the number of days the payment was delayed.

Ⅶ. Fees

63. Consideration may be given to collecting processing or service fees for interbank fund transfers and settlements, with fee rates to be determined separately.

The fees referred to in the preceding Paragraph shall be totaled once a month, with the Bank making collection through deductions from interbank funds deposit accounts or paid by check from online institutions.

Ⅷ、 Operation Schedules

64. The Central Bank Interbank Funds System shall be in operation from 8:30 a.m. until 6:20 p.m.. Scheduling of various transactions shall be in accordance with the "Interbank Funds Transfer and Settlement System Daily Operations Flow Chart" (Appendix).

Ⅸ、 Transitional Provisions

65. Where prior to the amendment of these Directions, if a clearing institution has used the "Central Bank Interbank Funds System" for interbank funds settlement or used its Electronic Payment System in a manner not conforming to these irections, it shall make rectification or adjustments within the time limit set by the Bank.