The daily delivery of cheques, moved around London by distinctive electric vans, is one part of the cheque clearing process remembered by Peter Sparkes, the Cheque and Credit Clearing Company’s Director of Risk and one its longest serving employees.

With the advent of the Image Clearing System, Peter looks back at the history of the clearings, how settlement worked as well as looking at the crucial role the Chief Inspector played in the daily settlement process. He explains:

“When the C&CCC was established in 1985, cheque payments were still increasing and banks still wanted to join the clearing system. Cheque volumes peaked in 1990 when 4 billion cheque payments were made.

As cheque volumes started to reduce, the challenges faced by the clearing banks were then of a different nature – how to benefit from technological improvements as unit costs rose.

Before automation, cheques were lodged at the central clearing house and they were sorted into bundles according to the paying banks. At the end of each day, each bank compiled a settlement sheet showing on one side the balance to be received from other banks whilst on the other side were listed the balances due to be paid to other banks. An important part of the process was then to check that the figures matched those of each counterparty bank, known as ‘calling out’.

Once agreed, the two sides were totalled and a ‘net’ balance calculated. It was the role of the Chief Inspector to oversee this balancing or reconciliation process – a role which could become very stressful due to manual errors particularly when you consider that at the peak of cheque usage over 10 million cheques each day were being cleared.

Nothing much had changed for decades in cheque clearing up until the early 1990s – around the time that the exchange centre (which was part of the bankers’ clearing house) in King William Street, London, was closed and the new exchange opened at the premises of the NatWest Bank in Goodman’s Fields. It was around this time that the last Chief Inspector, P M Rowe, was appointed and an idea about building a digital Inter- Bank Data Exchange (IBDE) began to be discussed. The IBDE network, which was introduced in 1996, allowed the main banks to pass digital files of cheque data between each other across a secure system. A small change to the 1882 Bills of Exchange Act was required in 1996 to enable the banks to use this data to update their customers’ accounts.

In parallel to the introduction of IBDE, settlement automation within the cheque processing system was fully underway. By the mid-1990s settlement reconciliation had moved from the Settlement Office in Lombard Street, where the customary ‘calling out’ could be witnessed every morning, to a more passive fax-based system. This was run in the operations room of the inspectorate located in the offices of APACS at Triton Court, 14 Finsbury Square. The next step was to automate the manual reconciliation process (ticking back) by receiving settlement data files onto a central computer via ISDN connections.

These changes to the clearing and settlement procedure marked the end of some very traditional, but nevertheless, very antiquated processes. The daily ‘bundling-up’ of cheques, where bag loads of cheques were delivered to the Bankers’ Clearing House, had disappeared with the arrival of reader/sorter machines in the 1960s. Cheques had to be sent in boxes, which now had to be moved on trolleys and the trolleys could only be moved in vans – the distinctive electric vans.

However, the move away from Lombard Street and King William Street also marked the beginning of the end for these very distinctive electric vans that moved the cheques around the City of London. These electric vans – designed rather like milk floats – were very quiet (noise was such a concern in the City that, at one stage, Lombard Street was actually paved with rubber blocks to keep noise to a minimum). The other big bonus of having electric vans was that they were not liable for road tax – saving money is something bankers always like! Their days finally came to an end when the Exchange Centre moved out of London to the Midlands in 2003.

A new company office was set up in April 1996 at 12, Finsbury Square as a separate unit dedicated to the work of the C&CCC. The office was to become the hub for the operational oversight, project management and audit control of all the company’s work. By 1997 the responsibility for clearing operations and settlement moved from the inspectorate to the company office. This is where the daily settlement amounts are still calculated and passed to the Bank of England for final settlement, albeit by a more modern internet-based system of submission from the banks and using the SWIFT network to pass final settlement figures to the Bank. And the office is now located in Thomas More Square just beyond St Katharine Docks by Tower Bridge.

The changeover to image clearing will revolutionise cheque clearing and will mean that cheques are cleared by the end of the next weekday at the very latest – a huge improvement on the current six weekday clearance period.

Chief Inspector of the Clearings

The position of Chief Inspector of the Clearing House was usually given to very senior bankers and their role was to oversee the daily balancing of the clearings. Inspectors were first appointed in 1821 and in those early days, nearly two centuries ago, it would appear that the duties of these inspectors were not arduous, as one, if not both, of them carried on business apart from that at the Clearing House. They were a Mr Wilham Thomas and a Mr John White. The latter not only appears to have been engaged in some capacity at the banking house of Messrs. Vere & Co., but also carried on a wine merchant’s business!

That all changed in 1858 when the full time position of Chief Inspector was created, as cheque volumes and workloads increased.  The Chief Inspectors were for many years remembered for their distinctive top hats and were very much associated with having power and authority over all operations conducted in the Clearing House. And, up until 1976, there was a Deputy Inspector as well and sometimes an Assistant Inspector too.

In all there were just 15 Chief Inspectors over the ensuing one hundred and forty years or so but automation of the cheque clearing process finally saw the demise of their role. The last Chief Inspector set up other functions that still persist today. Attempts to develop quality management processes within daily operations in the mid-90s have evolved over the years into today’s Service Level Codes. These remain the main tool for the C&CCC to monitor and manage the operational performance of the clearing banks, with particular focus on those aspects with customer impact. However, automation, together with the formation of the company office in 1996 eventually made the role of Chief Inspector of the Clearings redundant –the last Chief Inspector relinquished his role in 2000 and retired as APACS Head of Policy in 2004.”

There are many more curiosities and anecdotes to discover in the new edition of “Cheque and Cheque Clearing – an historical perspective”, which you can read here