Cheque and Credit Clearing Company established
The publication of the Child Report in 1984 brought about the establishment of the Cheque and Credit Clearing Company (C&CCC) in the following year. The ten member banks of the Bankers’ Clearing House (Bank of England, Barclays Bank, Central Trustee Savings Bank, the Co-operative Bank, Coutts & Co, Lloyds Bank, Midland Bank, National Girobank, National Westminster Bank, and Williams & Glyn’s Bank) had participated in a major review of the “Organisation, Membership and Control of the Payment Clearing Systems”. The resulting report (known by the name of the author, DM Child) led to the formation of the Association for Payment Clearing Services (APACS), a new umbrella organisation that would oversee the development of the clearings and the payment industry as a whole.
The C&CCC was established in 1985, under the APACS umbrella, as the new membership-based industry body to manage the general clearing – which was renamed the “cheque clearing” - and the credit clearing, which processes bank giro credits. The company took over the business of the Bankers’ Clearing House with a remit covering England and Wales. All members of the clearings were to be shareholders in the new company and would also be required to become members of APACS.
When the C&CCC was established in 1985, cheque payments were still increasing and banks still wanted to join the clearings. Although the merger with the Scottish clearing was still over a decade away, two Scottish banks joined the C&CCC at this time. The Royal Bank of Scotland took over Williams & Glyn’s membership of the clearings when the two banks merged fully in 1985, and the Bank of Scotland joined in 1986 as it had some branches in England. Abbey National Building Society became a member of the clearings in 1988 - a year before it demutualised, became a public limited company and floated on the London stock exchange – and the Nationwide Building Society joined in 1991.
Cheque volumes peaked in 1990 when 4 billion cheque payments were made. Of these, 2.5 billion were cleared through the inter-bank clearing managed by the C&CCC, the remaining 1.5 billion being in-house cheques which were either paid into the branch on which they were drawn or processed intra-bank without going through the clearings. As volumes started to fall, the challenges faced by the clearing banks were then of a different nature: how to benefit from technology improvements in a declining cheque market environment.
The bulk of the processing of cheques and credits is undertaken either prior to the exchange process (known as out-clearing) or afterwards (in-clearing), but not during the exchange process itself.
Until the mid-1990s, keying the cheque value in magnetic ink took place at the banks’ encoding stations, supplementing the cheque codeline (the string of numbers at the bottom of a cheque) details. The introduction of image technology was set to reduce this manual intervention, by capturing the information directly from the amount box on the cheque and placing it into databases.
However, this new image technology was expensive. As volumes were falling and attention was turning to the development of systems for automated payments, the clearing banks wanted to be able to outsource their processing, either to specialist cheque processing organisations or to another member. So, in 1994, the C&CCC amended the clearing rules to enable members to do exactly this. The rules also allow them to use the same outsourcing company, which a number of them do.
The economies of scale offered by outsourcing meant that members could reduce their processing costs whilst benefitting from a more efficient system and the latest technological innovations available at the time.
Cheque Printer Accreditation Scheme (CPAS)
CPAS was set up in 1995 with the aim of tackling fraud involving company cheques. The scheme requires that all cheques for use in the clearing process in Great Britain are produced by C&CCC-accredited printers. It means there is much greater quality control in the paper, ink, and security features used in cheque production and it has helped to reduce some types of cheque fraud, namely fraudulent alteration and counterfeit.
CPAS members are also formally certified to print bank giro credits (BGCs). Businesses do not have to be a CPAS member to print BGCs - a compulsory scheme was thought to be impractical due to the number of firms that print BGCs. However, the voluntary scheme has led to improvements in the quality of BGCs and reduced processing errors.
The IBDE network
In the early 1990s banks were keen to reduce their reliance on the physical cheque for information processing and also move away from other manual paper processes, thus saving on costs. They had the ability to create data files from machine-read codelines for use in members’ out-clearing departments, and realised that if the collecting banks could send this information across a network to the paying banks, the paying banks could use this cheque data for their in-clearing process. The result would be that the paying banks would not have to recreate the same data files for their own use. All that was needed was a common application standard for the cheque data files and a network standard for the transmission of the data files.
The passing of the Deregulation Bills of Exchange Order 1996, enabled banks to exchange cheque data only. The IBDE (Inter-Bank Data Exchange) network was implemented the same year, following a two-year phased implementation project. It was the first network for the exchange of bulk clearing data between the major high street banks and building societies, predating the Bacs System which at the time was still exchanging old fashioned tapes of data. The network enabled member banks to transmit digital files of cheque data between each other across a secure system to which only they have access; all data has been encrypted since 2009.
The cheque clearing process became more efficient as a result of IBDE. The immediate benefit was that collecting banks no longer had to get staff manually to encode the amounts of the cheque for the paying bank as the reader/sorter machines, with new image technology, read both the codeline and the amount of the cheque automatically as the digital files were created. Over time, banks (or more likely their outsourced processors) streamlined their in-clearing processes with considerable staff savings and most being able to use the information from the data files to debit their customers’ accounts.
However, the banks never made the leap at that time to collecting bank truncation (leaving the paper at the collecting bank) because the paying bank retain the right to demand to see the paper before making its pay/no pay decision so that it could check for fraud, technical accuracy, signature and so forth. This right was enshrined in the Bills of Exchange Act 1882. The banks continued to transport the paper cheques round the country. The system became more efficient with the advent of the IBDE network but it was not as efficient as it might be.
Establishment of the Company Office
The Company Office was set up in April 1996 as a separate unit dedicated to the work of the C&CCC. The office is the hub for operational oversight, project management, audit control, and change control management. It monitors ‘live incidents’ through to resolution and calculates the daily settlement amounts. The office is also responsible for all stakeholder management and communication and relationships with the Payments Systems Regulator, the Bank of England, HM Treasury and other regulators.
Settlement used to take place daily at a central location in London where Bank of England and members’ representatives would agree their settlement totals. However, many banks wanted to relocate their clearing operation outside of London, which would make this approach impractical if the agreed timescales for exchange and settlement were to continue. In 1997 it was agreed that a settlement facility would be established and managed by the Company Office and this is where the daily settlement amounts are calculated.
Merger with the Scottish clearing
Cheques paid in to banks in Scotland are exchanged in Scotland and historically the exchange was managed by the Committee of Scottish Clearing Bankers. However, to enable the Scottish banks to capitalise on the benefits of the IBDE network, the Committee of Scottish Clearing Bankers agreed that from December 1996 responsibility for the management of the Scottish clearing should be passed to the C&CCC. Another benefit of the merger was a reduction by one day in the amount of time it took to clear “cross border” cheques between Scotland on the one hand and England and Wales on the other. The Royal Bank of Scotland and the Bank of Scotland were already members of the C&CCC as they had branches in England but Clydesdale Bank, whose branches were all within Scotland, were required to join the C&CCC, which they did in 1998.
In 1998 membership of the clearings comprised Abbey National (now Santander), Bank of Scotland, Barclays Bank, Clydesdale Bank, the Co-operative Bank, National Girobank, Lloyds Bank, Midland Bank, National Westminster Bank, Nationwide Building Society, Royal Bank of Scotland, TSB and the Bank of England. Decades were to pass before there were so many members again. The C&CCC was responsible for managing the exchange of paper in both London and Edinburgh and, in 1998, the IBDE network was extended to Scotland.
Non-standard paper clearing
Automated debit clearing by the IBDE network only works if the full codeline is present on the cheque. Paper items where a codeline is not present are exchanged as ‘non-standard paper’ and require significant manual effort to process. The only items which consistently fail to meet the codeline requirements laid down in C&CCC Standard 3 are cheques issued abroad, but payable in London. The C&CCC has no control over the quality or issue of such paper in the way that it does over domestic cheque printing. In 1997 it was agreed that these cheques should be processed in a separate low-volume clearing, called the non-standard paper clearing - so as not to hamper or slow down the main clearing process via IBDE, whilst still affording a practical bulk processing method.
Euro cheque clearing
Although the UK did not adopt the euro as its national currency when other European countries did in 1999, many banks began offering euro-denominated accounts with chequebooks, principally to business customers. The cheques can be used to pay for certain goods and services in the UK. The same year, the C&CCC set up the euro cheque clearing system to process euro-denominated cheques separately from sterling cheques in Great Britain. Following the closure of CHAPS Euro in 2008 and Bacs Euro in 2010, the euro bulk debit clearing is now the only domestic euro payment system in Great Britain.