Philippine Clearing House Corporation
Trusted as a neutral service bureau of the banks, PCHC extended its operating outfit by implementing several electronic-based payment system services for the banking community such as the Electronic Peso Clearing System (EPCS), Philippine Domestic Dollar Transfer System (PDDTS) and the Project Abstract Secure (PAS) System.
The Electronic Cheque Clearing System (ECCS) was introduced to complement the full computerization project of the settlement bank, i.e. Bangko Sentral ng Pilipinas(BSP), which required the early submission of clearing results. The ECCS provides an online communication linkage between the clearing banks and the PCHC, by which means, the transmission of electronic check data by the bank/branches to the PCHC ECCS Host Computer for netting purposes was expeditiously achieved. ECCS ushered new clearing concepts and procedures that directly addressed BSP’s accounting goals foremost of which was to have on hand the check clearing results by 4:30PM of the same day.
Reports and inward clearing data files derived from the ECCS processing and the finesorted physical items are made available for dispatch to the banks in the evening of the same clearing day.
The paper-based payment instrument, i.e. the Cheque, provides a convenient and predictable means of executing payments. While banks have developed various banking products revolving around the cheque, the basic functions of clearing and computing net settlement amounts stayed with the PCHC and remains unchanged except for the delivery mechanism which is now in electronic mode.
The PCHC already provides electronic payment systems albeit for very specific banks applications, e.g. PDDTS which complements the USD RTGS payment. In an expanding economy, other solution providers have been serving as alternative payment channels. This is evident in the increasing number of corporations that use banks’ ATMs for collection purposes. E-Banking thru the ubiquitous cellphone is getting a big push from the telecoms providers which continue to sign up banks to make use of their wireless networks. We are witnessing pockets of payment communities being formed among IT Service Providers and the Banks.
The BSP’s Real-Time Gross Settlement (RTGS) System focuses on high-value, time-critical transfers where participants and their customers are willing to pay a premium for the service. A batch system on the other hand will address the need for low-value repetitive payments.
In July 2002, the BSP, BAP and PCHC signed a Memorandum of Agreement for the development and implementation of the Electronic Peso Clearing and Settlement System (EPCS), with PCHC designated as the exclusive service provider. EPCS is an interbank account-to-account fund transfer system that supports bulk, recurring, low-value, less time sensitive payment and collection transactions.
Using data communication lines, participants electronically transmit transactions by batches to the EPCS Host Computer. Following the prescribed cut-off time for electronic transmissions, a netting process will then be performed by PCHC. Net clearing positions are forwarded by PCHC to the Bangko Sentral ng Pilipinas for posting to the participant banks’ respective DDA accounts. The banks’ clearing results and inward data files and reports are also generated by PCHC and made available to the participants for downloading and posting the accounts of the beneficiaries/depositors.
The FX Clearing and Settlement System effects the transfer of funds via direct credit to the bank accounts of beneficiaries without the need of “cutting” a Bank Draft or Manager’s Check. Instead, remittance advices are encoded onto (PC) diskettes by participating banks in accordance to an adopted standard format and sent to PCHC for the clearing process.
In 1994, the diskette method of funds transfer was converted into an electronic mode thus the birth of the Philippine Domestic Dollar Transfer System (PDDTS). The participating banks send domestic Interbank US Dollar Transfers thru a settlement bank in either of two (2) ways or both as they deem convenient:
• Gross Settlement Real Time (GSRT or Intra-day).
• End-of-Day (EOD Netting) – a system that supports bulk, recurring and less time sensitive payments.
While GSRT transfer instructions are sent directly by banks to the settlement bank, in EOD Netting, participating banks transmit transactions to PCHC by batches. Following the prescribed cut-off time for transmissions, a netting process will then be performed by PCHC. Net clearing positions are downloaded by the settlement bank for posting to the participant banks’ respective US Dollar deposit accounts. The banks’ clearing results and inward data files and reports are also generated by PCHC and made available to the participants for downloading.
In 1999, BAP renewed the appointment of its current settlement bank as the exclusive Settlement/Depository Bank for PDDTS Transactions. This time however, another entity the Philippine Central Depository Inc. (PCD) was designated as the service provider for the GSRT while PCHC retained its role as service provider for the End-of-Day Netting Method. This set-up has been further renewed in 2003 and again in 2005.
The Authorized Agent Bank (AABs) represented by the Bankers Association of the Philippines (BAP) accepted the obligation of collecting customs duties and taxes and the responsibility to remit accurately and timely to the Government Treasury all such collections. Thus, the BAP entered into an Agreement with the Bureau of Customs (BOC) to adopt and implement Project Abstract Secure (PASS) , a system that provides adequate security safeguards to the collection of revenues, ensure the propriety of official documents and put in place a system which will guarantee that access to information on such transactions shall be limited only to the duly authorized representatives of the BAP and BOC.
Philippine Clearing House Corporation (PCHC) was appointed as the exclusive service provider for the encryption and transmission of the abstracts of collection reports from the AABs to the BOC. Implemented in October 1996, PCHC provided a secure electronic messaging facility between the BOC and the AABs for the collection and confirmation of duties and taxes paid by the importers.
In 19981, the Supreme Court expressed the belief that “Arbitration is the ‘wave of the future’ in dispute resolution”. But as early as 1982, the Philippine Clearing House Corporation had institutionalized arbitration as the dispute resolution mechanism of choice for its member banks.
On 23 June 1982, the Philippine Clearing House Corporation (PCHC) approved the Clearing House Rules and Regulations (CHRR) which included the creation of the Arbitration Committee (ARBICOM) and the Arbitration Rules of Procedure.
By express provisions in the CHRR (i.e. Section 3 in relation to Section 36.6), the PCHC effectively imposed on its member banks the duty to submit to arbitration any dispute between and among said member banks whenever a check or item sent through clearing is the subject of the dispute. The Supreme Court in 19882 appreciated this duty when they said “the participation of the two banks, petitioner and private respondent, in the clearing operations of PCHC is a manifestation of their submission of its jurisdiction”. And reinforced this position in 19943 when they said “by its voluntary participation and its consent to the arbitration rules [disputant banks] cannot go directly to the Regional Trial Court when it finds it convenient to do so”.
Hence, “any dispute or controversy between two or more clearing participants involving any cheque/item cleared thru PCHC shall be submitted to the Arbitration Committee (ARBICOM for short) upon written complaint of any involved participant serving the same upon the other party(ies) or defendants”. (Section 36.1)
Over the years since its creation, the ARBICOM has passed upon disputes involving items falling under the purview of Regular Return Item Procedure (Section 20, CHRR), e.g. checks with forged or unauthorized signature of drawer(s), materially altered cashiers/manager’s check, counterfeit/spurious checks, and Special Return Items Beyond the
Reglementary Clearing Period (Section 21, CHRR), i.e. materially altered, or items bearing forged endorsement and/or lacking endorsement.
The process has proved to date that submission to ARBICOM is most satisfactory in that check disputes are decided by active or retired bank officers familiar with the clearing process (assisted by law members who are active or retired bank lawyers), and reviewed by the PCHC Board of Directors, all observing strictly the mandated Arbitration Rules of Procedure (ARP) timelines. Its record of affirmations at the Court of Appeals and the Supreme Court confirm the acute foresight and the wisdom of the early advocates of arbitration at the Philippine Clearing House Corporation.
1 BF Corporation vs. Court of Appeals, 288 SCRA 267, 286 (1998).
2 Banco de Oro vs. Equitable Banking Corp., 157 SCRA 188, 196 (1988).
3 Associated Bank vs. Court of Appeals, 223 SCRA 137, 145.