Regulatory Alerts2017-01-01
Circular No. 224: Preferential Collection Rights and Check Discounting
The Palestine Monetary Authority issued Circular No. 224 to mandate strict compliance measures for banks handling preferential collection rights and check discounting products due to their high associated risks. The directive prohibits accepting self-drawn or related-party checks, requires banks to establish approved internal policies, define clear administrative authorities, and set client-specific coverage limits based on verified economic activity and tangible collateral. Additionally, banks must implement robust monitoring mechanisms, ensure full transparency of these facilities in client financial profiles, and report all related concentrations and exposures in periodic submissions to the regulator.
Palestine Monetary Authority
Circular No. (229/2017) To all banks operating in Palestine Date: Monday, October 23, 2017
Subject: Preferential Collection Rights and Check Discounting
In continuation of Item (3) of Article (5) of Instructions No. (02) of 2015 dated 15/02/2015 concerning the determinants and controls for granting credit, we emphasize the necessity for banks to fulfill the requirements outlined below and take the necessary and adequate measures to ensure compliance. Banks must exercise utmost caution and prudence when dealing with these products due to their high and multiple associated risks, and the requirements below constitute the minimum standards for handling them:
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Banks are prohibited from accepting checks drawn on the customer's own account or on the account of related parties when granting preferential collection rights and check discounting to the customer.
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Banks must provide approved policies and procedures for granting preferential collection rights and check discounting. These must specify the activities and businesses eligible for such rights and discounting, the nature of the checks, their dispersion and concentration at the drawer level, ensuring coverage of all checks drawn across the entire network of correspondent banks, the collateral requirements, and the oversight mechanism.
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Checks eligible for preferential collection rights and discounting must arise from genuine and verified commercial transactions with the bank, and ownership of the checks must be fully transferred to the order of the bank through proper endorsement.
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Establish transaction and coverage limits for each client, based on an assessment of the client's economic activity volume and aligned with the client's financing needs, along with defining the size and type of tangible collateral required.
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Define the authorities for granting collection rights and check discounting across different administrative levels within the executive management.
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Enhance the effectiveness of relevant departments and units by defining their specific mechanisms, tools, roles, and reports for monitoring preferential collection rights and check discounting.
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Provide a mechanism that ensures these products are reflected in the client's financial profile, including granted limits, and address check concentration across the banking system. Furthermore, these facilities must be included in the bank's periodic reports submitted to the Palestine Monetary Authority (related party disclosures, top borrowers, and credit concentrations).
Supervision and Inspection Department Palestine Monetary Authority
Ramallah - Palestine P.O. Box 452 | Tel: +970 2 2415250 | Fax: +970 2 2415310 | +970 2 2415310: Fax | +970 2 2415250: Tel | P.O. Box 452 Ramallah - Palestine Gaza - Palestine P.O. Box 4026 | Tel: +970 8 2825292 | Fax: +970 8 2844487 | +970 8 2844487: Fax | +970 8 2825292: Tel | P.O. Box 4026 Gaza - Palestine Email: info@pma.ps | info@pma.ps: Email