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HM Treasury - Cheque Imaging

Response to consultation

We are in broad agreement with the proposal to legislate to allow for the introduction of cheque imaging in the UK.  We are encouraged by the possibilities that this technology could present in terms of the potential for much faster payment by cheque and for creating more certainty around the clearing process for cheques which can present difficulties for consumers, particularly those with limited income for whom delays in clearing can be costly.  

Our principle concern in relation to the proposals is around any increased possibility of error and fraud therefore we are keen that the security requirements of imaging are robust to ensure our members and their member-customers are not caused undue detriment.  
Consultation questions

Q1. The current cheque system faces a number of challenges, and legislation to introduce cheque imaging will help resolve these and deliver a set of wider benefits.  Do you agree this analysis?

We are in broad agreement with the analysis as set out in the consultation document.  The enabling introduction of cheque imaging technology should help to alleviate some of the problems with the existing cheque regime while speeding up processing and improving the customer experience.  Our members, who use cheques to varying degrees, should begin to experience a superior processing experience when paying cheques into their bank which is welcome.  Similarly, credit union members – particularly those on low incomes – are likely to find the faster processing of digital cheque images much more manageable since it will begin to eliminate the delay in the cheque clearing process which can make it difficult to manage financially. Furthermore, there are likely to be benefits for those that live in remote areas through the elimination of the need to travel to a branch to pay in cheques.

We should also sound some notes of caution, however, in that there would appear to be potential for security threats arising from the use of cheque imaging unless robust security protocols are put in place.  Similarly, if a two (or more) speed clearance system emerges through some banks adopting digital technology and others not this could make it even more difficult to manage the cheque clearance delay than it is currently.  

Q2. The current legislation preserves the practice of exchanging paper instruments, and does not accommodate the transmission of digital imagines.  Do you agree that the legislation should be amended to remove the right of the paying bank to demand delivery of the original paper cheque, and require a certified, digital image of the cheque to be treated as equivalent to the original paper cheque for the purposes of presentment?

Yes, we are in agreement with this proposal.

Q3. Do you agree that the government should legislate to protect the choice of consumers to deposit paper cheques in branch, even where there is the option of paying in via smartphone?

We are strongly of the view that the option to pay in by paper must be preserved for the consumer.  This is not least because not everyone is in possession of a smartphone or would be comfortable paying cheques in digitally and, therefore, to require this would exclude people from accessing one of the most inclusive mechanisms within the payments infrastructure.

Q4. The government believes there is a strong case for the industry moving as one onto a cheque imaging model with a central scheme infrastructure, but is willing to consider permitting banks to request paper substitute cheques as an alternative.  Should the government legislate for a date by which all financial institutions must be ready to accept cheque imagines?  If so, what is a reasonable period of time to allow the industry to prepare for cheque imaging?  Or should the legislation provide the option for financial institutions to accept an IRD as an alternative? A new model of “1-2-2” has been put forward as a desirable and realistic target for the industry. Do you agree?

We do not take a strong position in either direction here.  We agree that there is a strong case for requiring the industry to move to the new technology by a required date as this would prevent a tiered system being created whereby certain cheques are processed more quickly than others.  However, we are also aware that requiring this transition may create new costs for industry participants, particularly small players such as credit unions.

The “1-2-2” clearance model is desirable since today many people find difficulty in managing lengthy delays in cheque processing, particularly where they are on a low income.   The main point for improving these consumers’ experience however will be ensuring that there is a consistent standard, whatever it may be, in order that there can be certainty about the length of time required for cheques to clear.

Q5. Do you agree that the proposed legislative changes should apply to all of these paper instruments, to allow them to be cleared in image form?

We agree that there should be a consistent standard across all paper payment instruments.

Q6. Do you agree that the liability should be with the collecting bank, rather than the paying bank? For agency arrangements, should the liability be with the collecting banks, or the beneficiary bank, or shared between them?  Should the government impose specific due diligence obligations on the collecting and/or beneficiary bank, as well/instead of transferring the liability?

We are encouraged by the discussion of potential security benefits from cheque imaging due to speeded up processing and the elimination of opportunities for human error.  We are very keen to urge robust and effective protocols around image quality in order to prevent security risks in that respect.
In terms of liability, we are in general agreement that the liability should lie with the bank whose system introduces the cheque into clearing. Since this is the collecting bank under the new system, it seems appropriate that the collecting bank takes the liability.

The full response is available to download on the right hand side.