• webadmin8462

CICS OM 18-027

Updated: Dec 11, 2020

December 14, 2018


T O : All Member/Participant Banks


R E : IMPLEMENTING PROCEDURES COVERING DISHONOR OF CHECKS (Returns Under Sections 18.1,

19.2 and 20 of the Amended CICS Rules And Regulations)


1. Enumerated hereunder are the procedures covering the return of a clearing item that is refused

payment by the Drawee Bank due to reasons listed under Section 18.1, as well as reasons

covered by Section 19 of the CICS Rules and Regulations (CICS RR):


1.1. Regular Return (Section 18.1 of CICS RR)

When the Drawee Bank dishonors a Regular Clearing item for any of the reasons

enumerated in Section 18.1 of the CICS RR, such item should be returned within the

Prescribed Period to obtain reversal via CICS.


1.1.1. Drawee Bank


The returning Drawee Bank shall perform the following procedure:


1.1.1.1. Tag the item for return and select appropriate reason code for such return

(see detailed guidance from Front-End System provider).

1.1.1.2. Transmit the return ICL within the 4:30 PM transmission cut-off for Day 11

or prior to the Returns Presentment Cut-off Time2, which is also known as

the “AM Return Cut-off of 8:00 AM of the Next Clearing Day.” Return ICL

transmitted prior to the 4:30 PM transmission cut-off for regular items will

be included in the Netting and Reports Generation after the Regular

Presentment Period of Day 1. While it will register zero effects on the

DDA of Day 1, the item will appear in both Regular Inward Items as well as

in the Outward Returned Items of Day 1.

1.1.1.3. Return ICL transmitted after the 4:30 PM transmission cut-off for regular

items but before the Returns Presentment Cut-off Time (or the AM Return

Cut-off of 8:00 AM of the Next Clearing Day) will be included in the

Netting and Reports Generation of the AM Returns.

________________________________

1 Day 1 is the date of processing of a regular clearing item by the Drawee Bank via CICS for settlement or netting purposes for the day; it is the first day of a regular clearing cycle.

2 Returns Presentment Cut-off Time is the deadline set by the BSP and implemented by PCHC for the banks to transmit dishonored items via CICS. As provided in Annex A of BSP Circular No. 986 (Series of 2017) effective 15 calendar days after publication (i.e. on January 10, 2018 in the Philippine Star), the Returns Presentment Cut-off Time is 8:00 AM of the Next Clearing Day (with reference to Day 1)


Page 2


1.1.2. Presenting Bank


When a Regular Clearing item is dishonored by the Drawee Bank for any of the

reasons enumerated in Section 18.1 of the CICS RR and returned within the

Prescribed Period via CICS, acceptance of such return by the Presenting Bank is

mandatory.


1.1.2.1. While Presenting Banks expect to receive Return ICLs after the 4:30 PM

cut-off, they should nonetheless verify from time to time, receipt of an

Inward Return ICL before that cut-off time or within the Regular

Presentment Period. Drawee Banks may opt to transmit Return ICLs before

the 4:30 PM cut-off or within the Regular Presentment Period. In addition,

auto-return by the Drawee PBM resulting from Duplicate items detection

will form part of the return transactions.

1.1.2.2. Validate received Inward return if such item was actually presented by the

Presenting Bank; there are instances when returns are misdirected.

1.1.2.3. Generate and print the Return Check Advice (RCA). Please refer to Annex

A to this Operating Memo (OM) for the format of the RCA that is to be

handed to the depositor together with the Original Check.

1.1.2.4. Debit the account of the depositor to reverse the deposit entry.

1.1.2.5. If reason for return does not allow for re-clearing, the Original Check must

be voided (MICR code line is punctured by a puncher) before turning it

over to the depositor.

1.1.2.6. However, in case an item is returned because it is a Defective or

Inaccurate Regular Clearing Item or it is a Duplicate or Counterfeit

Check, procedures in 1.1.2.6.1 and 1.1.2.6.2 respectively should be

followed.


1.1.2.6.1. Defective or Inaccurate Regular Clearing Item

An item is considered Defective or Inaccurate Regular Clearing

Item if it is presented with Mismatched Check Image and Data,

Image Usability Failure, Piggy-Back Image, Invalid Image Hash

Value, or an Untagged BIR/BOC Check3. If the reason for the

dishonor arises from errors in transmission or inaccuracy/ies in

the clearing item, the receiving Presenting Bank may perform

appropriate corrective actions in order that the returned item can

be re-cleared successfully as provided below:


1.1.2.6.1.1. Validate received Inward return if such item was

actually presented by the Presenting Bank; there are

instances when returns are misdirected.

3 As defined under Section 2 (Definition of Terms) of the

CICS Rules and Regulations


Page 3


1.1.2.6.1.2. Validate the reason for return, and apply corrective

action/s prior to processing of the item for reclearing.

No need to print/issue Return Check Advice. A separate

Operating Memo covers corrective actions to be

performed for Untagged BIR/BOC Checks.

1.1.2.6.1.3. Should the item subject for re-clearing be

subsequently dishonored due to funding or

Technical Defects4, procedures in Section 1.1.2

above shall be observed.

1.1.2.6.1.4. A Regular Clearing Item can only be re-cleared

once. Third presentation and subsequent return is

subject to penalty, for payment by the Presenting

Bank to the Drawee Bank.

1.1.2.6.2. Duplicate or Counterfeit Check

If an item is deemed to be a Duplicate (presented after the 4-day

archiving period of the PBM) or a Counterfeit, the Presenting

Bank instead of handing the Original Check to the depositor,

shall turn over the Original Check to the Drawee Bank in

accordance with the procedure below:


1.1.2.6.2.1. Validate received Inward return if such item was

actually presented by the Presenting Bank; there are

instances when returns are misdirected.

1.1.2.6.2.2. Generate a Returned Check Advice (RCA) with the

Image of the Counterfeit or Duplicate Check printed

on it. Please refer to Annex A to this Operating

Memo (OM) for the format of the RCA.

1.1.2.6.2.3. Debit the account of the depositor to reverse the

deposit entry.

1.1.2.6.2.4. The RCA shall be handed over to the client

depositor without the Original Check (dishonored),

and

1.1.2.6.2.5. Within ten (10) banking days from date of its receipt

of the Return ICL, the Presenting Bank shall turn

over to the Drawee Bank the custody of the Original

Check (dishonored) for use as evidence in case of

claims or legal action that may be pursued by an

interested party or parties, or to serve any other legal

purpose. Such turn-over of the Original Check shall

be covered by a turn-over letter in form and

substance shown in Annex B to this OM.

_____________________________

4 As defined under Section 2 (Definition of Terms) of the CICS Rules and Regulations


Page 4


1.2. Returns Due to Technical Defects (Section 19.2 of CICS RR)


An item with Technical Defects is not acceptable for clearing and as such should not be

presented for clearing. In the event that it is inadvertently accepted for deposit and

presented for clearing, the Drawee Bank may return it to the Presenting Bank if detected

during the normal course of account and funding verifications. The procedure for the

handling of Inward Returns due to Technical Defects is as follows:


1.2.1. Drawee Bank


A Drawee Bank has no responsibility to check on the existence of Technical

Defects (which term includes Alteration and Counterfeit item) on Inward clearing

items. However, in instances where a Drawee Bank notices Technical Defects or

gets informed of Technical Defects of an Inward clearing item and decides not to

honor the item, the procedure stated in Section 1.1.1 above shall be performed by

the Drawee Bank in its return of the item to the Presenting Bank.

1.2.2. Presenting Bank


1.2.2.1. Validate received Inward return item if it was actually presented by the

Presenting Bank; there are instances when returns are misdirected.

1.2.2.2. Generate and print the Return Check Advice (RCA). Please refer to Annex

A to this Operating Memo (OM) for the format of the RCA that is to be

handed over to the depositor together with the original Check.

1.2.2.3 If reason for return does not allow for re-clearing, the Original Check

must be voided (MICR code line is punctured by a puncher) before

turning it over to the depositor.

1.2.2.4 Debit the account of the depositor to reverse the deposit entry.


1.3. Special Clearing (Section 20 of the CICS RR)


If the Drawee Bank fails to return a dishonored clearing item within the Prescribed Period,

the Drawee Bank may upon the consent of the Presenting Bank, directly present the

dishonored item for Special Clearing.


1.3.1. Drawee Bank

The Drawee Bank (Returning Bank) shall immediately inform the Presenting Bank

via fastest available communication channel. If Presenting Bank will accommodate

the request for special clearing, the Drawee Bank shall observe the following

procedure:


1.3.1.1. The returning Drawee Bank/Branch shall print 2 copies of Special

Return Check Advice or SRCA (please refer to Annex C to this OM for the

format) bearing the images of the item/s to be returned;

1.3.1.2. The SRCA must be delivered to the Presenting Bank’s Central Clearing

Unit together with a Letter (please refer to Annex D to this OM for the

format) not later than 11:00 AM of the clearing day immediately following

Day 1. The SRCA and the attendant Clearing Receipt should be

signed/acknowledged by authorized signatory of the Presenting Bank; and

1.3.1.3. Effect settlement by sending the Clearing Receipt the next clearing session.


1.3.2. Presenting Bank


The Presenting Bank (Receiving Bank) shall observe the following special clearing

procedure:


1.3.2.1. Receive and verify the SRCA, validating the authenticity of the printed image/s

against the original check;

1.3.2.2. Acknowledge and sign the Clearing Receipt as well as the receiving copy of the

SRCA;

1.3.2.3. Debit the account of the depositor to reverse the entry.

1.3.2.4. Hand over the SRCA together with the dishonored Original Check to the

Depositor. The Original Check must be stamped with the reason for return and

voided (punched a hole in the MICR Code Line) before handing it over to the

Depositor.


2. Returns of paid/cleared clearing items that are subsequently claimed to be a Counterfeit or to bear Alteration, Forged Endorsement or No Endorsement (when necessary for negotiation), or Technical Defects other than Alteration or Counterfeit item are governed by a separate operating memo.


3. For your proper guidance and compliance.

CICS OM No.18-027
.Implementing Procedure
Download IMPLEMENTING PROCEDURE • 713KB
CICS OM No.18-027.Annex A
.Return Check A
Download RETURN CHECK A • 535KB
CICS OM No.18-027.Annex B
.Suggested Pro-
Download SUGGESTED PRO- • 248KB
CICS OM No.18-027.Annex C
.Special Return
Download SPECIAL RETURN • 514KB
CICS OM No.18-027.Annex D
.Suggested Pro-
Download SUGGESTED PRO- • 81KB