bangladesh automated clearing house
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BACH Operation
Kazi Mohammad Ismail Principal Officer & Incharge
IBBL Contact Center ADD, ICTW, HO
89, Mohakhali C/A, Dhaka
BACH in Definition Bangladesh Automated Clearing House
“BACH” means the overall system and facility that supports the Exchange and settlement of payment
items between Participating Banks and the Bangladesh Bank.
BACH Component
1. BACPS- Bangladesh Automated Cheque Processing System
“BACPS” means a facility that clears cheques and approved payment items for Bank companies.
2. BEFTN- Bangladesh Electronic Fund Transfer Network
The Bangladesh Electronic Funds Transfer Network (BEFTN) will operate as a processing and
delivery centre providing for the distribution and settlement of electronic credit and debit
instruments among all participating banks.
BACH Implementation History BACPS
1. Central Bank Started Project on 2008 partnership with DFID, UK
2. Payment & Settlement System Regulation issued on 2009
3. MICR Cheque issue started from 2009
4. BACPS Rules and Procedure Circular Issued on 17.01.2010
5. Live Day Simulation (LDS) started on 04.08.2010
6. BACPS go Live operation Started on 7.10.2010
BEFTN
1. BEFTN Operating Rules issued on 10.08.2010
2. BEFTN Live Operation started on 28.02.2011
* This paper is prepared as per BACPS & BEFTN rules & Procedures
BACH Infrastructure
Manual Clearing Flow
Automated Clearing Flow
Image of Cheque Scanner
Cheque Orientation:-
Put the Cheque here.
Front side of Cheque will place
at right side and back side will
place left side.
20 or 30 Cheques may
scan at a time.
Be sure no pin with the
cheque while scanning.
Introduction of MICR Cheque Front View
Instrument No. (7 digit) Routing No. (9 digit) Ins. A/c No. (13 digit) Instrument Type (2 digit)
Rear View
Payee’s A/C no. & Phone No Clearing Stamp Endorsement & Sign Endorsement line print
Manual & Automated Clearing
Manual Clearing
1. 45 clearing house in the country
2. Human required in clearing house
3. Time consuming
4. Huge collection cost from outside city
5. Time session may change by request
6. Establishment cost very poor
7. No charge from client
8. Same Day clearing for only few branch
9. Used by NIKASH or manual ledger
10. Data cannot save long time
11. Paying Bank preserve own cheques
12. Non MICR cheque can clear
13. Positive pay Instruction not mandatory
14. Paying banks responsibility is high
15. UV detector not required
16. Cheque lost incident was high
17. Physical movement was obvious need
18. Cheque mutilation possibility was high
19. No centralized system
20. Dependency on network was absent
21. High tech equipment not required
22. Physical cheques presented through BB
23. Controlled by Local Main Branches
24. Return reason were 7 to 15
25. Fraudulent attempt were frequent
Automated Clearing
1. Only one clearing house instead of 45
2. No Human required in Clearing House
3. Time reduced tremendously
4. Collection cost is same as own city
5. Time session is automated & unchangeable
6. Establishment cost is very high
7. Charges are collecting from client
8. Same Day clearing for whole country
9. Operated by Cheque Processing System
10. Data and Image have to save for 12 years
11. Presenting Bank preserve other banks cheques
12. Non MICR cheque is unacceptable
13. Positive Pay Instruction is mandatory
14. Presenting banks responsibility is high
15. UV detector is mandatory
16. Cheque lost incident is low
17. Physical movement was truncated
18. Cheque mutilation possibility is rare
19. Processed under a secured centralized system
20. Dependency on network is must
21. High tech equipment required
22. Only Data and Image presented through BB
23. Controlled by BACH Manager and Service Branch
24. Return reason are more than 29
25. Fraudulent attempt are reduced
Responsibility of Presenting Bank 1. Comply with the BACPS rules.
2. Certifies that presented Item is a copy of the original instrument.
3. Prima facie genuineness of the cheque be verified with
i) Due diligence and ordinary care.
ii) Genuineness of the cheque leaf,
iii) Material alteration of payee name, amount or date.
iv) Verification by UV detector
4. Instruments, Image & data preserve for 6 years.
5. Original cheque available for inspection within 7 calendar days.
6. If failed, it will result in non-payment of the instrument.
7. Credit to customer A/C on settlement date or internal rules of the bank.
8. Central Bank holding the Bank’s Settlement A/C to credit on house date.
9. Indemnify the BB processing/settling for the item for any loss or expense.
10. Reconciliation.
Presenting Banks Due Diligence As settlement will be done on the basis of image and data, conducting due diligence is the responsibility
of the presenting bank
1. Verify the prima facie genuineness of the cheque
2. To be truncated
3. Attempt to detect any fraud, forgery or tampering
4. Enforce KYC norms in letter and spirit.
5. Observe all precautions which a prudent banker takes,
6. To check the apparent tenor of the instrument,
7. Physical feel of the instrument,
8. Tampering visible to the naked eye with reasonable care, etc.
For enhanced attention banks may employ suitable risk management techniques like
1. Scrutiny of high value transactions,
2. Limit based checking by officials,
3. New accounts alerts, etc.
Operational Due Diligence 1. Sorting of Instruments
2. Stamping
3. Capture of images and data
4. Reject repair and balancing
5. DIN (document identification no) endorsement
6. Re presented cheques
7. Validation
8. Master table synchronization
9. Image quality checking
10. Handling IQA failure
11. Frequency of submission
12. Submitting electronic data and images
13. Alternative delivery media
14. Submitting items to The Bureau Service
15. Electronic File Acceptance or not Acceptance
16. Internal Control
Responsibility of Paying Bank A Paying Bank, by maintaining or using an Account with the Bangladesh Bank for settlement of items or
by accepting an item from the Bangladesh Bank:
1. Comply with the applicable BACPS rules
2. Agrees to process the item in accordance with these Rules.
3. Authorizes the Bangladesh Bank to charge the amount of a payment item to the Paying Bank’s
Settlement Account on the Settlement Date
4. Indemnify the Bangladesh Bank for any loss or expense incurred as a result of a breach of the
foregoing agreements or of any action taken by the Bangladesh.
5. The agreements, authorization and indemnity do not limit any other agreement, authorization or
indemnity not inconsistent with these Rules.
6. Return an approved payment item to the Bangladesh Bank by the deadline in the BACPS schedule.
7. Taking Positive Pay Instruction from cheque issuer.
Paying Bank’s Due Diligence 1. Transmission of Posting File
2. Digital Certificate Verification of CHM
3. Payment Processing
i) Signature verification
ii) Account balance verification
iii) Verification of endorsement
iv) Positive Pay instruction
v) Restriction to account by customer or other legal authority
vi) Stop payment verification
vii) Verification of date
viii) Matching amount and figure
ix) verification of data entry error
x) vii) Other prudent practice
4. Returned Cheque
5. Request for Paper
6. Internal Control
7. Reconciliation of Clearing Differences
Abbreviation 1. MICR: Magnetic Ink Character Recognition
2. CPS : Cheque Processing System
3. CBS : Core Banking System
4. CH : Clearing House
5. CHM: Clearing House Module
6. PBM: Participant Banks Module
7. OCE: Outward Cheque Envelope
8. ORE: Outward Return Envelope
9. ICE : Inward Cheque Envelope
10. IRE : Inward Return Envelope
11. IQA : Image Quality Analysis
Processing at PBM PBM:- Participating Bank Module
The BACPS Participating Bank Module (PBM) provides cheque envelope validation and provides an
interface for sending and receiving cheque envelopes from and to BACPS.
For Outward Clearing 1. Duplication Checking
i) Destination Routing Number
ii) Origin Routing Number
iii) File Creation Date
iv) File Creation Time
v) File ID Modifier
2. Receiving Outward Presentment
3. Image Quality Analysis and Failure Handling
4. Item Processing
5. Session Attachment
6. Use of PKI
7. Reconciliation of Outward Presentment
For Inward Clearing
1. Receipt of Inward Data/Images
2. Validation, Authentication and Acknowledgement
3. Control Mechanism
4. Generation of Posting File
Eligible Instruments for BACPS Following MICR encoded payment Items and instruments are eligible for BACPS
No. Type of Instruments MICR CODE No. Type of Instruments MICR CODE
1 Savings Bank Account Cheque 10 2 Current Account Cheque 11
3 Refund Warrant 18 4 Banker’s Cheque 12
5 Pay Order 19 6 Cash Credit Account Cheque 13
7 Govt. Cheque 31, 32 8 Dividend Warrant 14
9 Credit Card Cheque 20 10 Demand Draft 15
11 Foreign Taka Demand Draft 23 12 Gift Cheque 16
13 Fractional Dividend Warrant 15 14 Interest Warrant 17
BACPS Threats The whole system is highly secured but some fraudulent attempts have found misusing the BACPS
system:
What they did -
1) Material alternation in amount both numeric and word figure
2) Material alternation in instrument no.
3) Material alternation in MICR encoded line
4) Material alternation in MICR line
5) Duplicate print
Protection way -
1) Verifying by UV detector before present
2) Instrument print with erasable UV ink
3) Positive pay Instruction
4) New account alert
5) KYC update and monitoring
Example
Bangladesh Electronic Funds Transfer Network (BEFTN)
Kazi Mohammad Ismail Principal Officer & Incharge
IBBL Contact Center, ADD, ICTW, HO 89, Mohakhali C/A, Dhaka
The Bangladesh Electronic Funds Transfer Network (BEFTN) will operate as a processing and delivery
centre providing for the distribution and settlement of electronic credit and debit instruments among all
participating banks. This Network will operate in a real‐time batch processing mode. All payment
transactions will be calculated into a single multilateral netting figure for each individual bank. Final
settlement will take place using accounts that are maintained with Bangladesh Bank.
Participants in BEFTN The EFT Network is a multilateral electronic clearing system in which electronic payment instructions
will be exchanged among Scheduled Banks. The system involves transmitting, reconciling and calculating
the net position of each individual participant at the end of each processing cycle. The participants
involved are:
(a) Originator.
(b) Originating Bank (OB)
(c) Bangladesh Electronic Funds Transfer Network (EFT Operator)
(d) Receiving Bank (RB)
(e) Receiver
(f) Correspondent Bank
a) Originator
The Originator is the entity that agrees to initiate EFT entries into the network according to an
arrangement with a receiver. The originator is usually a company, government agency or an individual
directing a transfer of funds to or from a consumer’s or a company’s account. The originator executes an
EFT fund transfer entry through an Originating Bank (OB).
b) Originating Bank (OB)
The originating bank is the bank which receives payment instructions from its client (the originator) and
forwards the entry to the BEFTN. A bank may participate in the EFT system as a receiving bank without
acting as an originating bank; however, if a Bank chooses to originate EFT entries, it must also agree to
act as a receiving bank.
c) Bangladesh Electronic Funds Transfer Network (BEFTN)
BEFTN is the central clearing facility, operated by Bangladesh Bank that receives entries from OBs,
distributes the entries to appropriate RBs, and facilitates the settlement functions for the participating
banking institutions
d) Receiving Bank (RB)
The receiving bank is the bank that will receive EFT entries from BEFTN and post the entries to the
account of its depositors (Receivers).
e) Receiver
A receiver is a person/organization who has authorized an Originator to transmit an EFT entry to the
account of the receiver maintained with the Receiving Bank (RB).
f) Correspondent Bank
In some cases an Originator, Originating Bank or Receiving Bank may choose to use the services of a
Correspondent Bank for all or part of the process of handling EFT entries. A Correspondent Bank’s
function can include, but is not limited to, the creation of EFT files on behalf of the Originator or acting
on behalf of an OB or RB, respectively. All Correspondent Banks must be approved by Bangladesh Bank
before a bank enters into an agreement with the Correspondent Bank.
Authorization A written arrangement with the originating company signed by an employee or customer to allow
payments processed through the EFT Network to be deposited in or withdrawn from his or her account
at a bank. Authorization can also be a written agreement that defines the terms, conditions and legal
relationship between Originator and Receiver.
EFT Transaction Flow
EFT Entries
A) EFT Credits
• Inward Foreign remittances
• Domestic remittances
• Payroll private and government
• Dividends/Interest/Refunds of IPO
• Business to business payments (B2B)
• Government tax payments
• Government vendor payments
• Customer‐initiated transactions
B) EFT Debits
• Utility bill payments
• Equal Monthly Installments (EMI)
• Government tax payments
• Government license fees
• Insurance premium
• Mortgage payments
• Club/Association subscriptions
Consumer Vs. Corporate Payments EFT transactions are typically categorized as either consumer payments, Government payments or
commercial payments. These transactions are defined in accordance with the relationship of parties
involved in the transaction and the type of receiver account.
Consumer payments that could be made via the EFT network include credit applications such as payroll,
dividend, interest and annuity payments and so on. Consumer EFT debit applications include the
collection of utility bills, insurance premiums, loan installments and other recurring obligations.
Corporate EFT applications include cash collection and disbursement, corporate trade payments,
government, tax payments etc. Cash collection and disbursement allows companies to achieve efficiency
in cash management through intra‐company transfer of funds. Corporate trade payments enable
corporations to exchange both data and funds with trading partners, facilitating an automated process
of updating their accounts receivable and accounts payable systems.
Payment Application I. Consumer Applications
• CIE – Customer Initiated Entry: Customer initiated entries are limited to credit applications where the
consumer initiates the transfer of funds to a company or person for payment of funds owed to that
company or person, typical example of these entries are utility bill and other Internet banking product
payments.
• PPD – Prearranged Payment and Deposit Entry
Direct Deposit: Direct deposit is a credit application that transfers funds into a consumer’s account at
the receiving bank. The funds being deposited can represent a variety of products such as payroll,
remittances, interest, pension, dividends and/or refunds, etc.
Preauthorized Bill Payment: A preauthorized payment is a debit application. Companies with existing
relationship with the customers may participate in the EFT through the electronic transfer (direct debit)
of bill payment entries. Through standing authorizations, the consumer grants the company authority to
initiate periodic charges to his or her account as bills become due. This concept is especially applicable
in situations where the recurring bills are regular and do not vary in amount such as insurance
premiums, loan installments, etc. Standing authorization may also used for bills where the amount does
vary, such as utility payments.
II. Corporate Applications
• CCD – Corporate Credit or Debit: This application can be either a credit or a debit application where
funds are either distributed or consolidated between corporate entities or government entities. This
application can serve as a stand‐alone fund transfer between corporate or government entities, or it can
support a limited disclosure of information when the funds are being transferred between organizations
(i.e. sister concerns) under the same group.
• CTX ‐ Corporate Trade Exchange: This application supports the transfer of funds (debit or credit)
within a trading partner relationship in which business payment remittance information is sent with the
funds transfer. The payment‐related information is placed in multiple addenda records in a format
agreed to by the parties and BEFTN.
III. Other Applications
• ADV – Automated Accounting Advice: This SEC Code represents an optional service to be provided by
BEFTN that identifies automated accounting advices of EFT accounting information in machine‐readable
format to facilitate the automation of accounting information for Participating Banks.
Settlement Settlement is the actual transfer of the funds between participating banks to complete the payment
instruction of an EFT entry. The transactions processed by the BEFTN will affect the accounts of the
concerned banks maintaining accounts with BB at the end of each processing cycle.
Legal Framework 1) The EFT process operates from beginning to end through a series of legal agreements.
2) BEFTN Rules and Procedures
Other laws/regulations that have a direct bearing on EFT operation are listed as under:
• Bangladesh Bank Order, 1972 (Amended 2003)
• The Banks Companies Act, 1991
• Money Laundering Prevention Act, 2009
• Information and Communication Technology Act, 2006.
• The Bankruptcy Act, 1997
• The Foreign Exchange Guidelines, Volume 1 & 2.
• Foreign Exchange Regulation Act, 1947.
• The Bangladesh Telecommunication Act, 2001.
• Anti Terrorism Act 2009
• Combating on Financial Terrorism Act 2013
• Bangladesh Payment and Settlement Systems Regulations, 2009 (amendment 2013)
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