May 29, 2019 T O : All Clearing Banks/Institutions R E : NON-ACCEPTANCE OF OLD FORMAT CHECKS BY MAY 2, 2022 1. Further to CICS Operating Memo (OM) No. 19-030 dated February 11, 2019, we wish to remind that starting May 2, 2022, only the following clearing items shall be acceptable for clearing: 1.1. Checks that comply with the new Check Design Standards and Specifications. On top of the design revisions already published prior to the above stated Memo, new design Checks include the following changes: 1.1.1. Standard Month-Day-Year format (MM-DD-YYYY) for date, supported by date format guide below the dateline and box for each of the MM-DD-YYYY letters. 1.1.2. Peso (₱) Sign moved out of the Amount in Figures box (placed before the box). 1.1.3. Boxed Signature/s Line/Spaced 1.2. Old Format Checks in any of the following conditions: 1.2.1. Post-Dated Checks (PDCs) accepted/stamped ‘Warehoused’ by banks prior to May 2, 2022; 1.2.2. PDCs without ‘Warehoused’ stamp but bearing or printed with ‘Unique Identification Code’ (UIC) that indicates receipt by banks (for warehousing) prior to February 11, 2019 (date of issuance of CICS OM No. 19-030) ; and 1.2.3. Manager’s Check/Cashier’s Check issued by the clearing banks bearing the Waiver Statement and features required prior to the issuance of CICS OM No. 19-030 will still be acceptable for clearing beyond May 1, 2022. 2. Take note of item 1.2.2 above which is about PDCs that have no ‘Warehoused’ stamp. Notwithstanding the absence of the stamp, acceptance of such PDCs is allowed because stamping and recapturing of previously accepted PDCs may be tedious and prone to errors. 3. A non-compliant Check that does not fall within the conditions mentioned in 1.2 when presented for clearing shall be returned by the Drawee Bank to the Presenting Banks using the reason: Refer to Issuer: Old Format Check. Moreover, such presentment is subject to the applicable penalty of ₱1,000.00 per item/day or amount of item multiplied by the average IBCL rate of the day, whichever is higher, pursuant to the provision stated in CICS OM No. 17-019 dated 13 September 2017. 4. We count on the full cooperation of all participating banks.

February 11, 2019 T O : All Participant Banks/Institutions R E : CHANGES IN THE CHECK DESIGN STANDARD AND SPECIFICATIONS 1. Based on results of the survey on participant banks’ readiness, please be informed that the PCHC Board in its meeting of February 7, 2019, has set May 2, 2022 as the implementation date of approved changes to the Check Design Standards and Specifications (CDSS). 2. This means that starting May 2, 2022, PCHC will no longer accept old format Checks in its clearing operations. Except for post-dated Checks (PDC’s) that were accepted stamped ‘ Warehoused’ by banks prior to January 2, 2022, PCHC will only accept and process Checks that comply with the new CDSS. 3. As stated in Memo Circular No. 3494 dated December 4, 2018, the approved changes aims to guide Issuers/Drawers of Checks to observe a standard way of writing dates and along with other changes that will enable banks to automate signature verification/optical character recognition on date/amount information on the face of the check. Approved changes include: 3.1. Month-Day-Year as standard format for date; 3.2. Date format guide as indicated below the date line (MM-DD-YYYY) 3.3. Individual box provided for each character of the Date 3.4. Moving the Peso sign out of the amount box (Amount in Figures) 3.5. Boxing the Signature/s Line/Space (See attached illustration in Annex A) 4. The layout of the above changes with precise dimension will be incorporated in the CDSS Manual and will be sent to all designated Liaison/Clearing Officers of Banks and will be available upon request to all accredited security printers. 5. To start floatation, we encourage participant banks particularly those whose base stock will be consumed this year to print check books with the new check design standard and specs. 6. We count on the cooperation of all our members/participant banks.

December 18, 2018 T O : All Member/Participant Banks R E : UPDATED GUIDELINES FOR STORAGE OF NEGOTIATED OR PAID ORIGINAL CHECKS 1. In accordance with Section 12 of the Amended Check Image Clearing System Rules and Regulations (CICS RR) and as a matter of policy, all Member/Participant Banks are REQUIRED to keep the Original Checks that are already paid/negotiated. The Presenting Bank, however, may opt to outsource the safekeeping of the paid/honored Original Checks to a storage service company of its choice. 2. For fast identification and retrieval, outward items processed for capturing and transmission in a particular day must be bundled/wrapped and labelled with the following details (unless the member bank has its own Document Management Solution that creates unique labeling that easily identifies items for storage): 2.1. BRSTN of the Presenting Bank 2.2. Transaction Date 3. The stored documents will be kept for a period of twelve (12) months, after which the stored documents shall be destroyed except those documents earlier requested for retrieval by the Drawee Bank. 3.1. The additional six (6) months storage period for paid/honored Checks (in relation to the 180-day CICS RR-specified safekeeping period) is to ensure availability of the physical Check for verification in case a Check is deposited at the last day of safekeeping of a similar-looking paid/honored Check. 4. Within the 12-month retention period, a Drawee Bank may request for a paid/honored Original Check by sending a formal letter of request to the Presenting Bank, copy furnished PCHC, stating the following: 4.1. Purpose or nature of the request 4.2. Date of Presentation or Transaction Date 4.3. Check Number and Account Number 4.4. Drawee Bank/Branch Name 4.5. BRSTN of the Drawee Bank 4.6. Amount 4.7. Presenting Bank/Branch Name and BRSTN 5. The Presenting Bank shall only entertain a request for retrieval for any of the following reasons, viz: 5.1. Litigation Court Order 5.2. Fraud Investigation 5.3. Validation of Duplicate/Counterfeit Items 6. The requesting bank’s authorized signatory should sign the letter. 7. The standard turnaround period for retrieval request is as follows: 7.1. Presenting and Drawee Bank/Branches belong to the same region - the Presenting Bank is given five (5) working days to respond and inform the requesting Drawee Bank cc: PCHC, on the status of the request. PCHC shall not entertain any query or complaint regarding request for a paid/honored Original Check if it is not furnished any prior communication regarding the request. 7.1.1. The Presenting Bank has five (5) working days from receipt of the request letter to make available the requested item to the Drawee Bank. 7.1.2. If the requested item had already been submitted for safekeeping to an outsourced Storage Provider, within five (5) working days from its receipt of the request letter, the Presenting Bank shall submit a written Notice of Retrieval to the Storage Provider. From date of its receipt or retrieval of the requested item/s, the Presenting Bank has another five (5) working days to make available the retrieved item/s to the requesting Drawee Bank. 7.2. Either of the Parties belongs to a different region (Provincial/GMA) - the Presenting Bank has additional five (5) working days (a total of 10 working days, not counting the number of days needed to retrieve the item/s from outsourced Storage Provider) to make available the retrieved item/s to the requesting Drawee Bank. 8. The requesting Drawee Bank shall arrange for pick-up of the retrieved item/s from the Presenting Bank. Any pick-up to be made by the Drawee Bank shall be supported with authority to retrieve from the Presenting Bank/Branch concerned. 9. Once the requesting Drawee Bank obtains possession of the retrieved item/s, it shall automatically become the custodian of the said item/s. Hence, it shall formally inform the Presenting Bank and PCHC of its receipt of the retrieved items. 10. It is the responsibility of the Presenting Bank to strictly observe the forgoing policy and procedures. In case of failure to keep/store the Check within the required period, the Presenting Bank shall be liable for the entire value of the Check (or proportionately, as the case may be) if the requesting Drawee Bank loses a dispute/court case or is made to answer (whether fully or partially) for the loss suffered by the Drawee due to or attributable to the failure of the Presenting Bank to produce/show the relevant Original Check within the 12-month period provided in this Memo. 11. Should you need further details or more information, please do not hesitate to call our Help Desk at 523-0315/523-0616 and Press 1 after the voice prompt (look for Frederick Garcia or Hector Lasaleta) or 886-1344 to 47 (look for Anthony Manongas). Alternatively, any concern may be e-mailed at PHILCLEAR@pchc.com.ph. 12. This Memo supersedes CICS OM No. 17-015 dated May 16, 2017.

December 17, 2018 T O : All Member/Participant Banks R E : IMPLEMENTING PROCEDURES COVERING RETURNS OF CLEARED/PAID ITEMS WITH TECHNICAL DEFECTS AND/OR FORGED ENDORSEMENT OR NO ENDORSEMENT (Returns Under Section 19 of the Amended CICS Rules and Regulations) 1. This Operations Memo covers the return of cleared/paid clearing items due to Technical Defects and/or Forged Endorsement or No Endorsement (when such endorsement is necessary for negotiation). 2. For purposes of this Operating Memo, the procedures for the return of cleared/paid items are classified into two (2) categories. The first category is the Return due to claim of Alteration or Counterfeit Check or Forged Endorsement or Lack of Endorsement (when such endorsement is necessary for negotiation), and the second is the Return due to Technical Defect/s other than Alteration or Counterfeit Check/s. 2.1. Returns due to claim of Alteration or Counterfeit Check or Forged Endorsement or Lack of Endorsement Upon the complaint of the Drawer, the Drawee Bank may return a cleared/paid clearing item to the Presenting Bank under Section 19 of the amended CICS RR provided the return is made within the required direct presentment period. Direct presentment of such return to the Presenting Bank is subject to the following procedure: 2.1.1. Drawee Bank 2.1.1.1. Prepare a Transmittal Letter (please refer to Annex A to this Operating Memo for the format) addressed to the Presenting Bank/Branch covering the item to be returned. 2.1.1.2. Generate a Post-payment Return Check Advice or PRCA (please refer to Annex B to this Operating Memo for the format) of the item and prepare a Clearing Receipt for reversal of the value of the returned item or the refund of the amount paid without authority of the Drawer; 2.1.1.3. Affidavit of the Payee/s or Affidavit of the Payee/s and of the Drawer, may be attached to the Transmittal Letter for the return of any item based on in any of the following claims: 2.1.1.3.1. Name of the Payee is Altered If the Drawer claims that the name of the Payee (of the Check covered by the return) is altered, the Drawer may execute an Affidavit to demand for refund. Additionally, the Drawer may at his/its option, attach an Affidavit of the person or the entity named by the Drawer as the Real Payee of the cleared/paid Check. 2.1.1.3.1.1. Drawer’s Affidavit The Drawer’s Affidavit shall state among other details that (a) the date of issue has been altered; or (b) the name of the Payee has been altered; or (c) the amount has been altered, as the case may be. .Suggested formats for the Drawer’s Affidavit are annexed to this Operating Memo, as indicated below: 2.1.1.3.1.1.1. Drawer’s Affidavit on Alteration – Individual (See Annex D1) 2.1.1.3.1.1.2. Drawer’s Affidavit on Alteration – Entity (See Annex D2) 2.1.1.3.1.2. Affidavit of the Payee/s The Affidavit of the person/entity named by the Drawer as the real Payee shall state, among other details, that (a) he/it was shown a copy of the cleared/paid Check/s and asked by the Drawer if he/it knew anything about the deposit of the Check/s; (b) he/it is not the person/entity indicated in the paid Check/item; (b) he/it did not authorize anyone to receive the proceeds of the Check/item; and (c) he/it did not receive the proceeds of the Check/item. Suggested formats for the real Payee’s Affidavit are annexed to this Operating Memo, as indicated below: 2.1.1.3.1.2.1. Affidavit of the Payee on Alteration – Individual (See Annex C1) 2.1.1.3.1.2.2. Affidavit of the Payee on Alteration – Entity (See Annex C2) 2.1.1.3.2. Forged Endorsement or Lack of Endorsement In case Forged Endorsement or Lack of Endorsement (when such endorsement is necessary for negotiation) is cited as basis for return, the Drawer may attach an Affidavit of the Payee/s attesting to the forgery of the endorsement or the non-receipt by the Payee/s of the proceeds of the item. Alternatively, the Drawer may attach any other document to substantiate the claim. 2.1.1.3.2.1. Affidavit of the Payee The Affidavit of the Payee shall state among other details that the Payee (a) did not authorize anyone to endorse the Check/item or deposit the Check with any Bank; and (b) did not receive the proceeds of the Check/item. Suggested formats for the Payee’s Affidavit are annexed to this Operating Memo, as indicated below: 2.1.1.3.2.1.1. Affidavit of the Payee on Forgery – Individual (See Annex C3) 2.1.1.3.2.1.2. Affidavit of the Payee on Forgery – Entity (See Annex C4) 2.1.1.3.2.1.3. Affidavit of the Payee on No Endorsement – Individual (See Annex C5) 2.1.1.3.2.1.4. Affidavit of the Payee on No Endorsement – Entity (See Annex C6) 2.1.1.3.2.2. Drawer’s Affidavit The Drawer’s Affidavit shall state among other details that he/it was informed by the Payee that (a) they/it did not endorse or authorize anyone to endorse the Check/s or deposit the same with any Bank; and (b) they/it did not receive the proceeds or amount of the Check/s, whether directly or indirectly. 2.1.1.3.2.2.1. Drawer’s Affidavit on Forged or No Endorsement - Individual (See Annex D5) 2.1.1.3.2.2.2. Drawer’s Affidavit on Forged or No Endorsement – Entity (See Annex D6) 2.1.1.3.3. Counterfeit Check In case the Drawer claims that the Check/s subject of the return is/are Counterfeit/s, the Drawer shall attach his/its Affidavit supporting such claim. Suggested formats for the Drawer’s Affidavit are annexed to this Operating Memo, as indicated below: 2.1.1.3.3.1. Drawer’s Affidavit on Counterfeit – Individual (See Annex D3) 2.1.1.3.3.2. Drawer’s Affidavit on Counterfeit – Entity (See Annex D4) 2.1.1.4. Deliver the Transmittal Letter and the Clearing Receipt to the Presenting Bank/Branch by messenger or special courier. 2.1.2. Presenting Bank 2.1.2.1. Acknowledge receipt of the Transmittal Letter. Such acknowledgement of receipt is mandatory if the letter is delivered to the Presenting Bank/Branch within: 2.1.2.1.1. One Hundred Eighty (180) days from clearing date if the reason for the return is Alteration or Counterfeit Check (This period limitation is set to ensure availability of the original deposited Check for physical examination). 2.1.2.1.2. Three (3) years from clearing date if the reason for the return is Forged Endorsement or No Endorsement (when such endorsement is necessary for negotiation). 2.1.2.2. The acknowledgement by the Presenting Bank/Branch of receipt of the Transmittal Letter shall not be construed as an admission by the Presenting Bank of liability nor an agreement to the demand of the Drawee Bank. 2.1.2.3. The refusal by the Presenting Bank to acknowledge receipt of the Transmittal Letter shall be reported in writing by the Drawee Bank to the PCHC Board for proper action or imposition of sanctions. 2.1.2.4. If the Presenting Bank/Branch consents to the return by direct presentation of the paid/cleared item, the Presenting Bank/Branch shall accept/sign all copies of the Clearing Receipt. The Drawee Bank shall effect the settlement by sending the Clearing Receipt in the next clearing session. The representative of the Presenting Bank/Branch who signs for the documents must be an Authorized Signatory; 2.1.2.5. If the Clearing Receipt is not immediately signed by the Presenting Bank authorized representative upon its receipt, the Presenting Bank is obliged to respond in writing to the claim/s of the returning Drawee Bank/Branch conveyed in the Transmittal Letter within ten (10) clearing days from date of receipt of the Letter; 2.1.2.6. If the response of the Presenting Bank is in the negative, the Presenting Bank shall indicate the reason for its refusal to accept (in the space provided for in the Transmittal Letter) the return of the paid/cleared item and furnish the Drawee Bank whatever document or affidavit it has to support such refusal. 2.1.2.7. If the Presenting Bank fails to respond to the Transmittal Letter within ten (10) clearing days from date of its receipt, or if the response of the Presenting Bank is not acceptable to the Drawee Bank, the claim of the Drawee Bank may be elevated or filed with the PCHC Arbitration Committee. 2.1.2.8. The detailed procedures for the elevation to the Arbitration Committee of claims between participating banks are covered under Section 33 of the CICS RR. 2.1.2.9. Banks are enjoined to strictly observe the foregoing procedures in order to preclude sanctions or penalties that may be imposed by PCHC Board should non-compliance persist. Any violation shall be subject to penalty, the amount of which shall be fixed by the PCHC Board of Directors. 2.2. Returns Due to Technical Defect other than Alteration or Counterfeit Check 2.2.1. Drawee Bank 2.2.1.1. Prepare a Charge Slip addressed to the Presenting Bank/Branch covering the item to be returned. The Charge Slip is to demand reimbursement of the amount that is shown to have been erroneously paid by the Drawee Bank on said item. 2.2.1.2. Generate a Post-payment Return Check Advice (PRCA) of the item to be returned (Please refer to Annex B to this Operating Memo for the format); 2.2.1.3. Deliver the Written Demand (please refer to Annex E for the format) to the Presenting Bank/Branch and present via CICS the Charge Slip; 2.2.1.4. Acceptance by the Presenting Bank/Branch of the Charge Slip is mandatory provided the Written Demand is delivered to the Presenting Bank/Branch within three (3) years from the clearing date of the item covered by the Charge Slip; 2.2.1.5. The refusal by the Presenting Bank to receive the Written Demand or to accept the Charge Slip shall be reported in writing by the Drawee Bank to the PCHC Board for proper action or imposition of sanctions. 3. This operating memo shall supersede CICS OM No. 17-007 dated January 18, 2017.

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.

December 13, 2018 T O : All Member/Participant Banks R E : UPDATED CICS OPERATING GUIDELINES 1. In view of revisions on Sections 2, 12, 16, 18 and 19 of the CICS Rules and Regulations that were published in CICS Operating Memo No. 18-024, we are updating the Operating Guidelines for the Check Image Clearing System (CICS), to wit: Sec. 1 – INTRODUCTION This document describes the operating guidelines primarily for the use of all Member/Participant Banks’ personnel who are responsible for the preparation and submission/transmission of all outward check transactions to the CICS as well as the processing of inward clearing items. Similarly, this document also covers the preparation and submission/transmission of outward returns to the CICS and processing of incoming return transactions. 1.1. Coverage CICS’ nationwide implementation covers the Greater Manila Area, all cities, provinces formerly defined under the Integrated and Regional Local Exchange (RLX) Clearing Centers. The Member/Participant Banks/branches located in these areas will truncate checks deposited with them or issued in their favor that need to be cleared in accordance with the provisions of Sec. 3 of these Operating Guidelines. 1.2. Clearing Session CICS supports different categories of clearing transactions. These clearing transactions will have separate clearing windows and are basically of the following types: 1.2.1. Regular Presentment or Forward Window - for the submission/transmission by the Presenting Bank of its demand to the Drawee Bank for payment of a Regular Clearing Item (RCI), i.e., Check deposited with or issued to the Presenting Bank to be cleared by presentation of its electronic image and data via the CICS; On any clearing day, cut-off time for the Regular Presentment Session is at 4:30 PM of that day. All RCIs received by the CICS within the cut-off time of a clearing day will be included in the settlement for the day. RCIs received by the CICS after this cut-off time will automatically be included Page 2 in the Regular Presentment Session of the Next Clearing Day (i.e. the clearing day immediately following Day 11). Special clearing of RCIs that do not meet the 4:30 PM netting cut-off (i.e. direct physical presentation of clearing items to the Drawee Bank) is unnecessary (and not allowed) as such items will automatically be included in the Regular Presentment Session of the Next Clearing Day. 1.2.2. Returns Presentment or Returns Window - for the transmission by the Drawee Bank to the Presenting Bank via the CICS of an RCI that is dishonored or unpaid. Returns Presentment Session is the period immediately after the 4:30 PM cut-off of a Regular Presentment Session and will end at the prescribed Returns Presentment Cut-off Time2 which is also known as the “AM Return Cut-off of 8:00 AM of the Next Clearing Day.” Any RCI received by the Drawee Bank within the Regular Presentment window however, may be returned by it prior to the day’s 4:30 PM cut-off time. Though it will have zero effect on the Netting Results, such item will form part of the Session’s transactions and will be included in the usual processing reports. For the Presenting Bank, a returned RCI will appear on the list of Regular Outward Items as well as on the list of Return Inward Items. Consequently, the same item will be included in the list of Regular Inward Items of the Drawee Bank as well as on the list of Return Outward Items. All return transactions received by the CICS on or before the prescribed Returns Presentment Cut-off time (or the AM Return Cut-off of 8:00 AM of the Next Clearing Day) will be value-dated Day 1. The PBM will reject Return Items that do not meet the Returns Presentment Cut-off Time (or the AM Return Cut-off of 8:00 AM of the Next Clearing Day) and as such, the Drawee Bank may opt to present them directly (special clearing) to the Presenting Bank Central Clearing Unit on or before the prescribed Special Clearing Delivery Cut- off of same day pursuant to Section 20 of the CICS RR. Settlement of Special Clearing of Returns shall be thru Clearing Receipt. Details such as Presenting Bank/Branch Name, BRSTN, check number, amount of the Check/Item to be returned and the reason for dishonor must be clearly indicated or written on the Clearing Receipt to serve as reference. The Clearing Receipt should be accompanied by Special Return Check Advice (SRCA) with the images of the item to be returned and a covering letter to document the manual exchange. 1.2.3. Express Presentment - for the submission/transmission by the Presenting Bank of its demand to the Drawee Bank for immediate payment of an RCI. ________________________________ 1 – Day 1 is the date of processing of a Regular Clearing Item (RCI) 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 3 Initial implementation of CICS however, will be for local currency only and will not yet include express clearing. Sec. 2 - CLEARING REQUISITES UNDER IMAGING AND TRUNCATION 2.1. Sending Bank/Receiving Point A Member/Participant Bank may have multiple points of capture but will only have one main single point of connection to the CICS, which will be termed as “sending/receiving point.” Member/Participant Banks may opt to have additional sending points (but not additional receiving points) by allowing one or any of its branches to have additional PBM. Additional PBM will enable the Head Office to have back-up server that can be used simultaneously with the primary PBM and transmit directly to the CICS or a branch in a certain location to act as the lead branch where all the transactions of the other branches are transmitted to the Head Office or directly to PCHC. 2.2. Digital Signatures Security of data and image is a primary consideration in CICS operation. The implementation of the Public Key Infrastructure (PKI) shall ensure data authenticity, integrity and non- repudiation. The PBM of the Presenting Bank will encrypt every Image Cash Letter (ICL) File and affix digital signature on it before its transmission to the CICS. The image and data must be secured using the PKI throughout the entire transmission cycle between the Presenting Bank, PCHC and the Drawee Bank. All images of clearing items shall include a hash using the SHA256 algorithm and this must be included in the ICL File. The purpose of this hash is for the Drawee Bank to validate whether the Images received are not altered. It is the responsibility of the Presenting and Drawee Banks to ensure that the movement of electronic files from their host capturing systems to the PBM is secured. Access to the bank’s PBM must be limited to authorized personnel only. 2.3. Management of Digital Certificates PCHC shall be the entity to manage the issuance, revocation, and maintenance of the digital certificates that will be installed in all the Member/Participant Banks’ PBM servers. All PBMs must be installed with a Hardware Security Module (HSM) component and corresponding digital certificates that will be used for the digital signing and encryption of the ICL Files. The validity of the digital certificates was set to five (5) years and it will be up to the participant bank to coordinate with PCHC for the renewal of these certificates at any time. 2.4. Use of Secure Network All the generated ICL Files duly validated, encrypted & digitally signed, will travel over a secure communication link between the connecting Member/Participant Page 4 Bank to the CICS. All acknowledgement messages will be transmitted via the same link. Banks may connect to the CICS via the Internet IP/VPN or leased line. 2.5. Settlement Transactions settlement in every clearing Session shall be made based on the electronic Check data. 2.6. Storage/Archive and Retrieval Original paid Checks (captured items) must be stored for 180 days from the date of their payment (“Payment Date”) through the CICS. PCHC will archive the images and data in its original ICL form. These electronic records will be made available online to the Member/Participant Banks for twelve (12) months from their respective Payment Dates. Only authorized personnel of Member/Participant Banks will have access to the PCHC storage and archiving system. Images and data archived by PCHC beyond the said 12-month period will be stored in hard disks and other storage media for future reference. PCHC shall keep Archived images and data for a period of ten (10) years from Payment Date. Request for retrieval/copies of these archived records must be duly signed by authorized bank officer. 2.7. Scanning Standard Scanning of the item transactions must conform to the prescribed image standards: 2.7.1. Front and Rear CCITT G4 Format (200 DPI) 2.7.2. Front Image JPEG Format (100DPI) 2.7.3. Front UV Image (Inverted CCITT G4 Format 200 DPI) High-value items (500,000.00 and above) will be transmitted to PCHC with corresponding UV Image. If dishonored with service charge however, the resulting reduction in the amount (below 500,000.00) will no longer require sending of the UV Image. Member/Participant Banks must ensure that their equipment meets the requirements of the Image Quality Assurance (IQA) standards. The 1st level IQA should be at the point of capture for immediate detection of exceptions. The PBM shall perform 2nd level IQA tests to validate all captured images transmitted by the banks. Sec. 3 – PREPARATION OF OUTWARD CLEARING ITEMS 3.1. Presenting Bank’s Due Diligence Requirements Clearing and settlement will be done based on image and electronic payment information. Hence, it is the responsibility of the Presenting Bank to ensure that captured images of the Checks meet the Image Usability Requirement. This is necessary for the Drawee Bank to exercise ‘Pay’ and ‘No Pay’ decision. Likewise, Page 5 it may help the Drawee Bank to detect any fraud, forgery or tampering apparent on the face of the instrument that can be verified with due diligence and ordinary care. Member/Participant Banks must enforce strict KYC (Know Your Customer) standards and procedures in order to protect the integrity of the image-based Check clearing system. The banks should observe all precautions. e.g. to check the minimum security standards set in the Check paper, apparent tenor of the instrument, physical feel of the instrument, any tampering visible to the naked eye with reasonable care, etc. For enhanced attention, based on exceptions, the banks may employ suitable risk management techniques like scrutiny of high value transactions; limit-based checking by officials, new accounts alerts, etc. The Presenting Bank takes full responsibility for collecting on behalf of the intended payee and exercises due diligence in accordance with the conditions set forth in the CICS Rules and Regulations (CICS RR) and accompanying guidelines. 3.2. Physical Check/ Instrument Capture Image and MICR code line of a Physical Check/Instrument when captured by scanners/devices must meet the Image Usability Requirement. 3.3. Unique Identification Code (UIC) UIC must be generated and printed at the back of the Check/ instrument or electronically imposed on the dorsal image of the Check. UIC information will be included in the ICL File that will be transmitted by the Presenting Bank to the CICS. 3.4. Data Entry The Front-end solution of the Presenting Bank shall have the capability of amount data entry and correction/completion of MICR details misreads. All items with corrected MICR details must be properly tagged in the ICL File by the Front-end solution to alert the Drawee Bank of the corrections effected manually during capture on the MICR details. 3.5. Re-clearing of Checks Any Check that is eligible for re-deposit can be re-cleared once with the original Presenting Bank under the same depository account. The Front-end solution of the Presenting Bank should be able to likewise tag this item in the ICL File for the information of the Drawee Bank. 3.6. BRSTN Register Updating The BRSTN master table shall be automatically updated by PCHC in the Bank’s PBM. Member/Participant Banks shall update its Front-end/capture system accordingly. 3.7. Preparation and Submission of Outward Transactions The Presenting Bank shall ensure that: Page 6 3.7.1. The Checks are compliant with the minimum security standards prescribed under the amended Check Design Standards and Specifications as well as other internal/security controls prior to acceptance. 3.7.2. The account number of the depositor/payee is legibly written on the portion below the depositor’s signature/payee’s endorsement on the dorsal portion of the Check. 3.7.3. The said account number is correct and tallies with the depository account number. 3.7.4. The account number is not obscured by any markings/stamp affixed on the Check’s dorsal side. 3.7.5. The UIC appears on the dorsal side of the Check or electronically imposed on the dorsal images of the check 3.7.6. If a returned Check is sent for re-clearing, a 2nd presentment stamp shall be affixed by the Presenting Bank on the dorsal portion of the physical Check 3.7.7. Outgoing items to be captured should be classified and batched accordingly, to wit: 3.7.7.1. Regular CICS items 3.7.7.2. Checks payable to the BIR 3.7.7.3. Checks payable to the BOC 3.7.7.4. Checks for re-clearing 3.7.7.5. IQA Failed Items 3.7.8. Batch size in an ICL File shall be limited to 100 items or less 3.7.9. The front and rear images of the Check and the MICR code line data are captured within groupings referred to as batches. 3.7.10. At the point of Check processing and scanning of the rear of each document, the Presenting Bank’s capture device will print an endorsement line i.e. Unique Identification Code (UIC). Such info shall also be included in the electronic Check data to be transmitted to the CICS. 3.7.11. The Front-end system of the Presenting Bank shall perform the Image Quality Assurance (IQA) Tests to all the captured images in order to assure its usability. 3.7.12. All outward batches presented to the CICS are balanced. The MICR Code line correction must have been carried out to ensure that all MICR data are present and amount entry made to assign an amount electronically to each Check. Any correction done on the pre-qualified MICR Code Line must be tagged to caution the Drawee Bank. Page 7 3.7.13. Once balanced, batches are converted into its equivalent ICL File in accordance with the published standard as defined in the recently released PBM Technical Specifications prior to their transmission/ submission to the CICS. A batch can contain a maximum of 100 items. 3.7.14. The Presenting Bank Front-end solution must observe the rules for the generation of ICL Files, i.e. ICL File can contain multiple batches at a maximum of 200 items. 3.7.15. The Front-end system will submit the generated outward ICL File to the Participant Bank Module (PBM) embedded within its own system for preliminary validation and transmission. 3.8. Frequency of Submission It is recommended that Member/Participant Banks submit ICL Files to the CICS every so often in order not to clog the lines particularly in the last hour before cut-off. 3.9. Alternative Delivery Media For contingency, the files in the PBM that fail to be transmitted to CICS can be copied to an alternative media such as a CD, USB or any type of removable disks. Files delivered by a bank to PCHC thru the use of storage media for uploading shall be accepted subject to the same acceptance criteria as those for files received via a communications link. This contingency procedure requires previous confirmed notification with PCHC and similarly subject to the usual 4:30 PM cut-off. 3.10. Image Cash Letter (ICL) Files accepted by the CICS ICL Files received at the CICS will be initially validated by the Clearing House Module (CHM), an equivalent version of the PBM at the PCHC’s back-end. Each ICL File will have its digital signature validated and decrypted if valid. This module will carry out structure and content validation and continue to accept and process when there is no exception. Accepted files are passed to the CICS where they are converted into inward ICL files for distribution to the Drawee Banks. When CICS accepts an outward ICL File, an acknowledgement file is automatically generated and sent to the originating PBM. If the Primary PBM of the Drawee Bank is unavailable to receive Inward files, the Drawee Bank shall use the bank’s Secondary PBM upon request for reconfiguration. Outward Return ICLs and Inward Return ICLs are similarly handled as described above. 3.11. Item/s not Accepted by the CICS If an item fails validation at the Presenting Bank’s PBM for any reason, that item will be rejected but remaining valid items will continue to be processed. The acknowledgment file generated will include the details of the rejected items and the reason for rejection thus the need for the Presenting Bank to verify the acknowledgment message. If an item fails validation at the Drawee Bank’s PBM, it Page 8 will be automatically returned to the Presenting Bank, i.e. Duplicate Item detected by PBM. If all items are rejected, the ICL File will not be accepted. 3.12. Balancing and Reconciliation Member/Participant Banks should document the process flow and ensure establishment of control mechanisms. Special care and adequate quality controls should be in place during rescanning and re-clearing of Checks. The banks must have internal control reports at the end of each Regular/ Returns Presentment window to effectively reconcile the presentation made against the total credit in the clearing result for the day. Similar control should also be observed in validating inward transactions received against the total debit. Reports showing the Total (count and values) Outward and Inward Clearing transactions are available at the PCHC web portal for reference. In case of discrepancy, the same should be resolved immediately. CICS Rules and Regulations as well as CICS Operating Memos provide mechanism to settle clearing discrepancy if needed. The service branches of the banks following distributed-outward model should refer to the branch clearing control reports for verification of actual credit received from PCHC. SEC. 4 – PROCESSING AT THE PARTICIPATING BANKS MODULE: OUTWARD 4.1. Participating Bank Module (PBM) The CICS PBM server provides ICL Files validation and provides an interface for sending and receiving ICL Files from and to the CICS. 4.2. Checking of Duplicate ICL Any duplicate ICL File that is detected by PBM will be rejected in its entirety. An ICL File is considered a duplicate if the filename of the ICL File matches that of a previously processed ICL File. In case of item duplication however, only the duplicate item/s detected during CICS processing will be rejected. The rest of the items in the ICL File will be accepted and processed. 4.3. Receiving Outward Presentment The PBM will receive the duly balanced Outward clearing files containing Check image and electronic data from the Front-end system of the bank and will perform the required validations of the files prior to transmission to the CICS. 4.4. Image Quality Assurance and Failure Handling All images of the items in the Outward ICL Files are subjected to Image Quality Assurance (IQA) by the Presenting Bank PBM. Any image failing validation will result in the rejection of the item with the reject details included in the acknowledgement file. The bank may rescan and resubmit as many times as necessary to meet the IQA requirements. 4.5. Item Processing The Outward Files presented by the capture system are validated by the PBM against the validations indicated in the PBM Specifications. After validation, the Page 9 PBM generates acknowledgement files which contain information related to acceptance or rejection of each file and the items present in each file with appropriate reason codes. 4.6. Reconciliation of Outward presentation At the end of each Presentment Session (Regular and Return) at the PCHC, it shall be the responsibility of the Sending Bank to reconcile its total outward transactions vs. items processed by the CICS as listed in the web portal. 4.7. Dishonored Checks/Re-clearing The Presenting Bank safe-keeps all original paid Checks for 180 days from Payment Date. In case of return or dishonor, the Presenting Bank shall return the original unpaid Check to its client. A Return Check Advice (RCA) bearing images of the Check shall support the returned Check. However, when a clearing item is returned by the Drawee Bank for the reason that it is found to be a Duplicate or is deemed a Counterfeit, the Presenting Bank shall issue a RCA to the client but shall turn over the custody of the unpaid Check to the Drawee Bank in accordance with the procedure to be prescribed by PCHC. 4.7.1. The Presenting Bank shall, as presently being practiced, affix a Return Stamp (format below) on the dishonored Check before it is released to the client. REASON FOR RETURN | INITIAL | DATE ____________________|____________|_______________ (1st return) 1. __________________|____________|_______________ (2nd return) 2. __________________|____________|_______________ 4.7.2. When the dishonored Check is re-deposited, a 2nd presentment stamp shall be affixed by the Presenting Bank at the dorsal side of the Check before it is captured and stored for safe-keeping. A second line UIC will either be printed on Check’s dorsal portion or electronically imposed by the Presenting Bank’s Front-end system on the dorsal image of the Check. SEC. 5 – PROCESSING AT PARTICIPATING BANK MODULE: INWARD 5.1. Receipt of Inward Data/Images The inward processing deals with accepting data and images of Incoming Items from the CICS for onward push to the Drawee Bank’s PBM. The process also includes providing data in the form of files for use within the Drawee Bank’s in-clearing system. The Drawee Bank’s PBM will receive digitally signed inward electronic data and image exchange files from the CICS in the form of ICL. 5.2. Validation The Primary PBM of the Drawee Bank shall authenticate and load the exchange file data into the system. The PBM will send an acknowledgement exchange file to the CICS if the inward electronic data and image exchange files are accepted. 5.3. Balancing and Reconciliation Page 10 The Drawee Bank should verify that all the items in the Inward ICL Files are received to ensure that there is no data loss in the transmission from the CICS to its PBM. The Drawee Bank will not be able to generate posting files unless all the inward items are actually received at the Primary PBM. If any file is lost in transmission, the Drawee Bank may request PCHC for retransmission of images/data of the lost/missing file. 5.4. Generation of Posting File (Magtape Transaction File) With the decommissioning of ECCS, banks may either use the inward ICL Files in uploading data into their CASA or make use of the Magtape Transaction File (MTF) generated at the PBM. MTF generated from CICS has the same file structure with the previously ECCS- generated file except that it is bank-level and unfiltered (regular and return transactions are merged). 5.5. Digital Certificate Validation PBM of the Drawee Bank shall verify the digital certificate of PCHC. 5.6. Payment Processing The Drawee Bank shall do the payment processing based on the image and electronic data of the Checks following all the prudent practices including signature verification, account balance verification, and electronic payment information examination. 5.7. Dishonored Checks Items that are not honored must be returned to the CICS in electronic format within the prescribed period as set by PCHC and announced to the banks (Prescribed Period). For return items, the images are also included in the return ICL File (front and rear CCITT, front JPEG, and for high-value items, the UV image). Return items are to be marked with the appropriate return reason (code) as mentioned in the CICS Rules and Regulations Section 18. Return Image Cash Letters (ICLs) are to be transmitted to the CICS via the Drawee Bank’s PBM where the files will be validated, encrypted and digitally signed and sent to the CICS provided they meet the necessary validation criteria. Invalid items will be rejected by the Drawee Bank’s PBM for its correction. Return ICLs received by the CICS will be validated and an acknowledgment shall be issued to the generating Drawee Bank indicating their acceptance or rejection. Return items accepted by the CICS will be passed to the Presenting Bank‘s Primary PBM in an Inward Return ICL and an appropriate posting made to the settlement system. Any return item not received by the CICS within the Prescribed Period will be treated as an honored item and accordingly the settlement files will be prepared and posted. SEC. 6 – SPECIFICATIONS FOR ELECTRONIC EXCHANGE OF CHEQUES The following section describes the types of Image Cash Letter (ICL) Files. Page 11 All items in an ICL File must be of the same type: outward items; return items; or archive-only items. Items in an ICL File must not be co-mingled. ICL File must contain items of the same currency: Philippine Pesos or U.S. Dollars (when local US Dollar Clearing becomes available). In addition, the items within the ICL File must have valid work types for the type of ICL. The valid items within an ICL File are: ICL Type Currency Item Work Types Allowed Regular or Return | Philippine Peso | CICS (Normal, BIR or BOC), | | Non-CICS (Normal, BIR or BOC), ________________|_______________|__IQA Fail Items________________ Archive-Only | Philippine Peso | CICS (Normal), | | Non-CICS (Normal), | | IQA Fail Items Note 1: Normal indicates Checks that are not BIR or BOC. Note 2: Archive-Only batches are batches containing On-us items sent in an ICL File for archive only; they are not distributed to other banks, so are not returned, and are not included in settlement totals. 6.1. Regular ICLs Each Outward ICL File that is accepted by the CICS is assigned a settlement session, date and window by the CICS. The settlement window is always set to ‘Forward’. The settlement session is set to 1 and the settlement date is set as follows: 6.1.1. ICL Files received before the cut-off time of the Regular Presentment Session (4:30 PM of Day 1) will be processed for settlement within Day 1 (i.e., included in the 4:30 PM Netting Summary to be sent to BSP for Settlement on Day 1). 6.1.2. ICL Files received after the cut-off time of the Regular Presentment Session (4:30 PM of Day 1) will be processed for settlement on the Next Clearing Day (These Inward ICLs, which shall be pushed to the Drawee Bank PBM on Day 1, shall bear the Regular Presentment Session date of the Next Clearing Day and they shall not be included in the 4:30 PM Netting Summary of Day 1 to be sent to BSP). Each item in an Outward ICL File is assigned a Return Presentment Cut-off. This is used by the CICS to validate and accept returns only if they are received prior to the cut-off time for the corresponding settlement date. 6.2. Return ICLs Each Outward Return ICL File that is accepted by the CICS is processed for settlement as follows: 6.2.1. Return ICL Files received before the cut-off time of the Regular Presentment Session (4:30 PM of Day 1) will be processed for settlement within Day 1. Page 12 They shall have zero effect and thus have no impact on the 4:30 PM Netting Summary of Day 1 to be sent to BSP for Settlement; 6.2.2. Return ICL Files received after the cut-off time of the Regular Presentment Session (4:30 PM of Day 1) but before the Returns Presentment Cut-off Time (or the AM Return Cut-off of 8:00 AM of the Next Clearing Day) on the Next Clearing Day will be processed with settlement back valued Day 1. Each item in a Return ICL File is validated by the CICS to ensure that it is received prior to the cut-off time pertaining to the presented Regular Item. 6.3. Archive Only ICLs Member/Participant Banks may submit to PCHC On-us checks/ICLs for Archive-Only. PCHC will issue separate operating memo for this service. 6.4. Additional Work Type for all ICL Types The additional Work Type 7 provides means for exception items failing the IQA test for all ICL types like foreign drafts and rejected BIR payments to be processed and pass through the workflow of CICS thus giving the paying bank an opportunity to exercise Pay or No Pay decision. Sec. 7 – Return Reason Codes A Return Item may or may not be eligible for re-clearing, depending on the Return Reason, as indicated in the table below: Return Description Tran Code Re-clearing Reason R=Allowed Code N=Not Allowed 1 Drawn against insufficient funds 14 R 2 Drawn against uncollected deposit 14 R 3 Drawn against a closed account 24 N 4 Account is non-existent 24 N 5 Payment thereof has been stopped - Funded 14 N 6 Payment thereof has been stopped-Unfunded 14 N 7 Invalid Image Hash Value 24 R 8 Post-dated check 24 R 9 Stale-dated check 24 N A Out-of-date 24 N B Counterfeit check 24 N C 3rd presentment and subsequent dishonor 24 N D Amount in words and in figures differs 24 N E Documentary Stamp Missing (for foreign checks converted to Peso) 24 R F Account under garnishment or covered by Hold/Freeze/ Conservatorship/Receivership Order 24 R G Validity Restricted 24 N H Deceased Depositor 24 N I Previously Negotiated Check/Cancelled Check 24 N J Bank has declared a self-imposed holiday 24 R K Fortuitous Event/Civil Disturbance/Bank Strike 24 R L Refer to Drawer/Issuer: Merged bank/Conduit Agreement Terminated 24 N M Untagged BIR/BOC Check 24 R N Miscleared 24 R O No Advice on File 24 R P Differs from Advice (Payee, Date, Serial Number or Amount) 24 R Q Mismatched Image and Data 24 R R Refer to Issuer: Old Format Check 24 N S Duplicate Check Detected by PBM 24 N T Image Usability Failure 24 R U Piggy Back Image 24 R V With Alteration-date 24 N W With Alteration-payee 24 N X With Alteration-amount in figures 24 N Y With Alteration-amount in words 24 N Z With Alteration-signature 24 N a With Alteration-account name 24 N b With Alteration-account number 24 N c With Alteration-check number 24 N d With Alteration-pre-qualified MICR characters 24 N e Missing Date 24 R f Missing Payee 24 R g No Amount in Figures 24 R h No Amount in Words 24 R i Missing Signature of Drawer 24 R j Lack of Signature (Number of signatures required) 24 R k Bears forged signature of the drawer (s) 24 N l Unauthorized drawer’s signature 24 N m Signature differs 24 N n Exceeds authority limit 14 N o DAIF/DAUD-1 Thousand Pesos and below 24 R p Payment Stopped-funded-1 Thousand Pesos and below 24 N q Payment Stopped-unfunded-1 Thousand Pesos and below 24 N r Amount in Words and Figures differ-1 Thousand Pesos and below 24 N s Other Technicalities-1 Thousand Pesos and below 24 N t Per Instruction of BSP 24 R u Indicated Payee Company or Person includes a combined "Pay To Cash" option, i.e. Payee Name/Cash, Payee Name or Cash 24 N v Deleted w Deleted x Re-clearing of a Check by a bank other than the original presenting bank 24 N y Penalty Charges Waived/Cancelled 24 R z Wrong Account Number 24 N Revisions in Section 7 (Return Reason Code) of this Operating Memo shall require corresponding updates to the PBM Specs to be deployed to servers. 2. Should you need further clarification, feel free to call our Service Help Desk at 8523-0315 (look for Erick Garcia or Hector Lasaleta) or 8886-1344 to 47 (look for Anthony Manongas). 3. This memo supersedes CICS OM No. 17-018 dated August 15, 2017.

October 19, 2018 T O : All Participating Banks/Institutions R E : AMENDMENTS TO THE CICS RULES AND REGULATIONS 1. We are pleased to inform that the PCHC Board in its meeting of October 11, 2018 approved the proposed amendments to Check Image Clearing System (CICS) Rules and Regulations. 2. It may be recalled that the initial draft was exposed/released on July 31, 2018 thru Memo Circular No. 3462 soliciting comments/inputs from clearing participants. The proposed amendments were likewise presented to all Clearing/Liaison Officers of banks on August 31, 2018 during a general meeting called for the purpose. 3. The amended version not only contain changes that were already circularized via CICS Operating Memos but also considered the feedback, suggestions and inputs raised during series of consultative meetings between PCHC and the leadership of the Clearing Officers Club, Inc. (COCI). 4. Appended is Annex A which summarizes all the amendments for easy reference. A secure copy of the CICS Rules and Regulations as amended will be sent to all Liaison/Clearing Officers. For new provisions that were not part of the earlier issued CICS Operating Memos, effectivity date shall be November 01, 2018. 5. Should you need further information or clarification please do not hesitate to call our Makati Help Desk at 8861344 up to 47 and look for Anthony Manongas or Manila Help Desk at 5230315. For Manila, you may look for Hector Lasaleta. 6. Please be guided accordingly.

September 28, 2018 T O : All Clearing Banks/Institutions R E : INCORRECT AMOUNT ENCODING IN THE ELECTRONIC PAYMENT INFORMATION (EPI) 1. In order to avoid inconvenience to both Check issuer and payee, effective immediately Drawee Banks should no longer return Regular Clearing Items (RCIs) if the EPI transmitted to them show incorrect (“over or under” encoded) Check amount. Instead, Drawee banks shall coordinate/initiate settlement with the Presenting Bank any difference/discrepancy between the Check and the encoded amount on the next clearing session via the usual Charge Slip. 2. The foregoing change was discussed and agreed during PCHC’s consultative meeting with the Clearing Officers/Members of the Board of the Clearing Officers Club, Inc. (COCI) to proactively manage impact/consequence of such error between and among banks. 3. For the effort exerted and/or monetary loss caused by erroneously encoding/transmitting an incorrect amount on the Check, the following inconvenience fee shall be collected by the Drawee Bank from the Presenting Bank, viz: 3.1. For over-encoding, ₱1,000.00 or the amount of discrepancy multiplied by the Average IBCL Rate for the day, whichever is higher; 3.2. In case of under-encoding, fixed ₱100.00 per item. 4. This CICS Operating Memo supersedes CICS 17-020 dated September 25, 2017. 5. Please be guided accordingly.

October 26, 2018 T O : All Participating Banks/Institutions R E : UPDATED CONTINGENCY PROCEDURES FOR BANKS 1. We publish the updated Contingency Procedures (see Annex A) which banks and PCHC will observe in case any of the following contingency scenarios/conditions exists: 1.1. Check Image Clearing System (CICS) 1.1.1. Scenario 1: Inability to use the CICS Front-end System (FES) and there is no connectivity to the Head Office (H.O.) PBM 1.1.2. Scenario 2: Inability to transmit ICL via PBM located at the H.O. 1.1.3. Scenario 3: Inability to use FES but connectivity to PBM is working 1.1.4. Scenario 4: Inability of PCHC to operate CICS at the Main Site 1.2. Philippine EFT System and Operations Network (PESONet) 1.2.1. Scenario 1: Participant is unable to access PESONet due to front-end or connectivity concern/s 1.2.2. Scenario 2: Participants are unable to access PESONet due to backend or general connectivity issues/concern/s 1.3. Philippine Domestic Dollar Transaction System (PDDTS) 1.3.1. Scenario 1: Banks are unable to access PDDTS due to front-end or connectivity concern/s 1.3.2. Scenario 2: Banks are unable to access PDDTS due to backend or general connectivity concern/s 1.4. Project Abstract Secure 5 (PAS5) 1.4.1. Scenario 1: Banks are unable to access PAS5 System due to front-end or connectivity concern/s 1.4.2. Scenario 2: Banks are unable to access PAS5 System due to backend or general connectivity concern/s. 2. Should you need further information or clarification please do not hesitate to call our Makati Help Desk at 8861344 up to 47 and look for Anthony Manongas or Manila Help Desk at 5230315. For Manila, you may look for Eric Garcia or Hector Lasaleta. 3. Please be guided accordingly.

April 24, 2018 T O : All Clearing Banks/Institutions R E : NON-ACCEPTANCE OF CHECKS WITH TECHNICAL DEFECTS 1. Further to CICS Operating Memo (OM) No. 17-019 we wish to reiterate that Checks with technical defects are not acceptable for clearing. As such, Presenting Banks take “full responsibility” of making sure that Checks are examined and verified to be free from technical defects before they are accepted for clearing/electronic transmission to the Drawee Bank. 2. Section 16.3 of the CICS Rules and Regulations states that in electronically transmitting a Regular Clearing Item (RCI) to the Drawee Bank through CICS, the Presenting Bank warrants that the Deposited Check is complete and regular on its face. Hence and for uniformity of interpretation, we enumerate once again technical defects that fall under the examination/verification responsibility of the Presenting Bank: 2.1. Post-dated Check 2.2. Stale dated Check 2.3. Out of date (i.e. Feb. 30, 2017), Missing Date or Incomplete Date 2.4. 3rd Presentment 2.5. Amount in words and figures differ 2.6. Documentary Stamp missing (for peso-converted foreign denominated draft) 2.7. Validity restricted (printed on the face of the Check) 2.8. Previously Negotiated/Cancelled Check 2.9. With alteration, smudges/stains (on the face of the Check which includes the date, payee, amount in figures/words, account number, account name, check number and MICR characters) 2.10. Missing Payee 2.11. No amount in figures 2.12. No amount in words (except for bank issued MCs, CCs and DDs) 2.13. Missing Drawer Signature 2.14. Payee line indicated: 2.14.1. Customer Name and Cash 2.14.2. Customer name and/or Cash 2.14.3. Business Name or Cash 2.14.4. Business Name and/or Cash 2.14.5. Government Agency and/or Cash 3. The Drawee Bank shall be responsible on the following aspects only as regards the Regular Clearing Item (RCI): 3.1. Verification of Drawer’s signature; 3.2. Determination of funding; and 3.3. Validation of data transmitted by Presenting Bank 4. For proper guidance and strict compliance.