The Canadian Payments Association (CPA) implemented a four-phase initiative from 2010 to 2013 to transition the Canadian payments system to using check images. Phase I recognized images as legal documents. Phase II allowed banks to truncate checks and exchange images instead of physical checks. Phase III introduced returned check image exchange. Phase IV will implement an industry-wide image exchange when complete. The initiative modernized the Canadian payments system through a gradual transition to using check image technology.

1. Canadian Clearings
and Check Image Evolution
in Canada
Brian Salway, Symcor Inc.
March 13 2013

2. Notice
The material presented is for information purposes only. It is not intended for detailed technical
implementation planning.
The information on Canadian banking and clearings is intended for a general understanding of the
process. The detail and accuracy is sufficient for that purpose.
The information on Canadian Payments Association (CPA) image processes that are currently in
place, as of the date of this presentation, reflects information available on the CPA public website.
The information on the CPA image processes that are planned or pending implementation, as of the
date of this presentation, is intended to facilitate a general understanding of those services. It is a
summarization by the presenter, and contains assumptions that are subject to change at the
discretion of the CPA.
The presenter does not represent the CPA or its member institutions. The presenter does not speak
on their behalf.
The information on the existing US/Canada ‘north/south’ exchange is intended as a general
summary of the process. The detail and accuracy is sufficient for that purpose.
The information on the future US/Canada ‘north/south’ exchange is intended as an example to
facilitate an understanding of future service implications. It contains certain suppositions.
Brian Salway (March 13, 2013)
2

3. What We Will Cover
1) An overview of The Canadian Clearings process
– Objective: Understand how check payments exchange is done in
Canada, to appreciate how image aspects would be applied
2) The CPA four-phase initiative
– Objective: Understand the evolution in Canada, from paper-only,
through truncation and substitute presented items, and finally to
industry image exchange
3) Northbound and southbound cross-border exchange
– Objective: Understand how imaging options can affect the process
3

4. Canadian Clearings
Part 1:
‘Canada 101’ : The Clearings Principles
4

5. How Canada works ...
Canadian Banking Regulation
And
The Canadian Payments Association
5

6. Canadian Banking Regulation
A variety of legislation and statutes manage banking
• Examples of some core legislation:
– Constitution Act, 1867 s 91.15 (“Legislative Authority of Parliament of Canada”;
“Banking, Incorporation of Banks and Issuing of Paper Money”)
• Categorizes banking as under federal jurisdiction
– Bank Act
• Defines banks and banking practices
– Office of the Superintendant of Financial Institutions Act
• OSFI overlooks the proper regulation and soundness of financial institutions, to maintain
public confidence
– Bills of Exchange Act
• Defines ‘check’ and other payment instruments
– Extended in 2007 to add image of a check as a Bill of Exchange
– Canada Evidence Act
• Acceptability of electronic documents (imaged) as best evidence
• Of note: Canadian Payments Act
– Establishes the Canadian Payments Association (CPA)
6

7. The Canadian Payments Association (CPA)
• CPA Mandate
– Promote, develop and manage the efficiency and security of the
payments processes at a national level in Canada
• Includes both check and electronic (EFT, EDI)
• CPA Mechanisms to Meet Objectives
– Rules and standards that provide operational guidelines
– Systems that facilitate exchange, reporting and settlement
• CPA Structure
– Executive management; business support; technical support
– Membership consisting of all Canadian financial institutions
– Committees and boards
• Make decisions on payments development, regulation/management and
adjudication
• Consist of representatives from member institutions
• Responsible to the federal Minister of Finance
7

8. The Canadian Payments Association (CPA)
What the CPA Is and Is Not
• Is:
– The federal regulatory body that governs payments activities and
practices in Canada at a national level
• Is Not:
– A public standards development or standards accreditation organization
• But, provides rules and standards specific to its mandate, supporting its
members in participating in the national payments process
8

9. How Canada Works ….
The Principles of
Canadian
Direct Clearers and Indirect Clearers
9

10. Direct and Indirect Clearers
Canadian banks and financial institutions are divided into ‘Direct
Clearers’ (DC) and ‘Indirect Clearers’ (IC)
• Simple difference:
– Only Direct Clearers (DC) participate directly in interbank exchange and
settlement
– Indirect Clearers (IC) do not participate directly in interbank exchange and
settlement
10

11. Canadian Direct Clearers
There are 12 Direct Clearers :
• 001: Bank of Montreal
• 002: Scotiabank
• 003: Royal Bank
• 004: TD Canada Trust
• 006: National Bank
• 010: CIBC
• 016: HSBC Canada
• 039: Laurentian Bank (regional)
• 117: Bank of Canada (check issuer, no deposit taking, bonds)
• 219: Alberta Treasury Branches (regional)
• 815: Caisse centrale Desjardins du Quebec (CU central, Quebec)
• 869: Central One (CU central, outside Quebec)
11

12. Canadian Indirect Clearers
There are approximately 120 Indirect Clearers
• ICs are members of the CPA (as are DCs)
– Governed by Rights and Responsibilities (CPA Rules), as are DCs
• ICs are: deposit takers; check issuers; loan issuers
• ICs comprise a variety of financial institution types:
– Individual credit unions
– Trust companies
– Subsidiary banks of foreign national banks, operating in Canada
• Eastern, European, American, etc.
• Includes prominent US banks (eg. Bank of America, Wells Fargo, JPMC, Citi)
– Special purpose banks (eg. Capital One Bank, Amex Bank)
12

13. Direct Clearing Services
to Indirect Clearers
• Indirect Clearers (ICs) do not participate directly in interbank
exchange and settlement
– Each IC contracts the services of a DC to represent it for exchange
• The DC assumes full national inter-DC exchange and settlement
responsibility for its ICs, including:
– Collection: Delivery of ‘other bank’ items that the IC has taken on deposit
– Payment: Receipt of the IC’s items taken on deposit at other financial
institutions
– Outbound Return: delivery of the IC’s items that it is dishonoring
– Inbound Return: Receipt of ‘other bank’ items returned to the IC as BOFD
• Also, receipt of ‘other bank’ items returned to the IC as 3rd party bank
13

14. Direct Clearing Services
to Indirect Clearers
• The ICs assigned to each DC are known to all the DCs
– Each IC has its uniquely assigned 3-digit Bank Number in the MICR
Routing Field of its items
• “nnnnn – BBB” [more on this format later ...]
– Financial Institutions File (FIF) issued regularly by the CPA
• Identifies the affiliation between each IC and its DC clearing agent
• Note: Changes in existing affiliations do not frequently occur
• The IC has a ‘corporate client’ relationship with its DC agent
– The IC’s items are considered ‘On-Us’ to its DC agent
• DC delivers/receives as ‘On-Us’:
– Items between itself as DC and any of its own ICs
– Items between any pair of its own ICs
– These items do not pass through interbank exchange and settlement
processes
14

15. How Canada Works ….
The Principles of
Exchange and Settlement
By Canadian Direct Clearers
15

16. Exchange:
Checks and Paper Sourced Payments
• Each DC exchanges (delivers) separately to each other DC, the items belonging to the
other DC that it has taken on deposit
– Includes delivering and receiving for their respective ICs
• Six regional exchange points
– Vancouver, Calgary, Winnipeg, Toronto, Montreal, Halifax
• In the past, this once included Regina, Quebec City and others
– Some provisions for ‘regionals’ with limited / no presence:
• Collection: a DC with a small presence in a particular region may opt to ‘sell’ its deposits to another DC
– No longer widely practiced
• Inclearing: A DC with no presence in a particular region may opt to have its ‘out-of-region’ inclearing items
picked up by an agent (could be another DC)
• Multiple exchange ‘streams’
– Two separate currencies: US and Canadian
– Five categories of items: ‘encoded’ (LT $50M); ‘large value’ (GE $50M); ‘unqualified’ (the
‘goo’); ‘rejects’ (computer); ‘remittance’ (credits, i.e. bill payment vouchers)
• Some items not acceptable for exchange, examples:
– Checks GT $25MM can’t be presented for clearing via ACSS (use LVTS) [next slide ...]
– Checks with future dates (postdates) are not negotiable before inscribed date
16

17. Reporting and Settlement:
Paper Sourced and Electronic Payments
• The delivering DC reports the value of the items it is presenting to each
of the other DCs, in two distinct currencies, and for six regions
– Canadian Currency:
• Via the CPA “Automated Clearing Settlement System” (ACSS)
– US Currency:
• Via the CPA “US Dollar Bulk Exchange” (USBE)
• At the end of the process (next morning) each DC-to-DC pair does a
single high-value settlement to net out their positions
– Includes check and electronic payment settlement
– Canadian Currency:
• Via the CPA “Large Value Transfer System” (LVTS)
• Through Direct Clearer settlement accounts at the Bank of Canada
– Irrevocable payment
– US Currency:
• In New York via wire transfers
• Each DC settles directly with each other DC
– Does not involve the Bank of Canada
17

18. View of Direct Clearer and Indirect Clearer
Exchange Relationships
Scenarios - From BOFD to Paying Bank:
• Any variation among (A, A1 and A2) is ‘On-Us’, managed by A – there is NO interbank exchange or settlement
• Any variation from (A, A1 or A2) to (B, B1 or B2) is transit – A clears to B and settles with B
18

19. How Canada Works ….
Compare and Contrast ...
United States
And
Canada
19

20. Canadian Clearings - Summary
What the Canadian Clearings has:
• Point-to-point exchange
– All are bilateral pairs: DC-to-DC
• Two fully recognized and supported distinct currency streams
– Canadian and US
20

21. Canadian Clearings - Summary
What the Canadian Clearings does not have:
• No US-style domestic Correspondent Bank services
– Definition: Check collection for one-way outbound delivery to exchange
– Note: Not to be confused with:
• The Canadian DC-to-IC relationship for clearings
• Northbound / southbound delivery between a US bank and a Canadian bank
– [Discussed later ....]
• No Exchange Channels
– Definition: An Intermediary that collects, disperses, delivers and arranges
settlement
• Federal Reserve Bank, SVPCo, Viewpoint, Endpoint Exchange
21

22. Canadian Clearings - Summary
What the Canadian Clearings does not have: (continued)
• No Opt-in / Opt-out industry private membership rules
– Eg. ECCHO
• No check “conversion”
– Whereby original check MICR data is transposed to an EFT transaction
• Example: ACH ‘ARC’, ‘BOC’, ‘XTC’, ‘RCK’
– Canadian transactions begin and stay in the same stream
• EFT is EFT
• Check is original paper, or CRD or image (following truncation)
• No check re-presentment / re-deposit
– As traditionally used in the US
22

23. A Simple Canadian View of
the US Exchange Process
Logos are trademarks of respective organizations 23

24. A Simple Canadian View of
the Canadian Exchange Process
• For each DC-to-DC pair, the pattern is repeated in each region, for each currency, and in each ‘stream’
• Bank of Canada only receives checks for payment and delivers returns (eg. Fraud, bond interest errors)
• Paper exchange includes forward (check) items intermixed with return items – not exchanged separately.
Logos are trademarks of respective financial institutions 24

25. Representative Canadian Check Clearing
Volumes (CPA Stats Oct 2012)
Canadian Inter-DC Exchange 2011 2010 2009 2008 2007
Total Annual Check Volume (MM) 877.3 922.5 950.5 1,019.7 1,077.7
Canadian plus US currency streams
Average Daily Volume (MM) 3.37 3.55 3.66 3.92 4.15
Canadian plus US currency streams
Year-over-Year Total Decline -4.9% -2.9% -6.8% -5.4%
Canadian plus US currency streams
5-Year Total Decline -18.6%
Canadian plus US currency streams
Total Annual Value $3.01B $2.94B $2.88B $3.30B $3.42B
Canadian streams only
Average Value per item $3,370. $3,128. $2,980. $3,170. $3,117.
Canadian streams only
• Values are for illustrative purposes
– Includes only check clearings
» No ‘On-Us’ (‘On-Us’ payments are about 20% to 40% of all daily payment types)
– Item volumes include Canadian currency with US currency, and all streams
» ‘Unmachineable’ and ineligible items (the ‘goo’) are 0.75% of total volume
» US currency items are 0.75% of total volume
25

26. Canadian Clearings - Useful links
CPA Website
• CPA home page:
http://www.cdnpay.ca/
• Section for Canadian Clearings Rules and Standards:
http://www.cdnpay.ca/imis15/eng/Act_Rules/Automated_Clearing_Settl
ement_System_ACSS_Rules/eng/rul/Automated_Clearing_Settlemen
t_System_ACSS_Rules.aspx (always up to date)
• Section for Financial Institution Member List:
• Note: Direct Clearers are marked as ‘DC’
http://www.cdnpay.ca/imis15/eng/Membership/Member_List/eng/me
m/Member_List.aspx?hkey=aa6503c9-2385-442f-b06b-
065816362f78 (always up to date)
26

27. Before we go further …
De-Mystifying the
Canadian MICR ‘Routing Transit’ Field
27

28. Canadian MICR Routing Transit Field:
The Format
US “Routing” Field > > Fed district, office, presentment point Accuity bank number check digit
US ABA Number format -----> DDOP BBBB C
MICR character position -----> 1234 5678 9
MICR character position -----> 12345 6 789
Canadian Routing Transit format -----> TTTTT - FFF
Canadian “Routing Transit” Field >> Bank Transit number dash ‘-’ Canadian bank number
28

29. Canadian MICR Routing Transit Field:
The Meaning
Format: TTTTT – FFF
1)TTTTT
• Bank’s proprietary numeric transit number
– Meaningful to the owning bank
» Can represent physical branch, operations location, division, financial cost center
» Value is of no interest or consequence to other banks
» Value is proprietary, “On-Us”: validated only by owning bank
– There is no industry-wide centralized assignment of values
2)‘-’
• Fixed character ‘dash’
3)FFF
• Canadian Bank Number
• Unique to each bank, assigned by CPA
• Note:
• Often referred to as “CBA format”
• For visual distinction, in this presentation the ‘Canadian Format’ is referred to as …
5d3
29

30. The Canadian Industry Image Direction
Part 2:
The Canadian Payments Association (CPA)
Four Phase Image Initiative
30

31. CPA Four-Phase Industry Initiative
(2010 – 2013)
• Phase I (2010): Recognize Image
– Permit certain check returns without returning the actual check
• Phase II (2011): Introduce the Return Replacement Document (RRD)
– A formal MICR document for returning items
• Phase III (2012): Introduce the Clearing Replacement Document
(CRD)
– A formal MICR document for presenting items
• Phase IV (2013): Introduce industry image exchange
– A formal process to allow presentment and return by image
31

32. CPA Phase I: Recognize Image
(the precursor – image recognition)
In effect since 2010
• Based on change to enabling legislation to legitimize images
– Essentially, the first industry-wide formal application of image, in
accordance with the Bills of Exchange Act
• An “Official Image” is “created by or for a bank according to CPA rules”
• The returning bank has the option to place a printed substitution of a
presented item in a Return envelope
– Referred to as an “Image printout”, complies with “Official Image”
• Can be a check image archive print, other similar format
• Does not imply a formal or structured MICR document
• This was already permitted before under certain circumstances but
the use of this process was given wider latitude:
– Examples: forged, post-dated, wrong currency, incorrect amount,
material alteration, intended payee not paid
32

33. CPA Phase II: Introduce RRD
(the 1st step of item exchange - returns)
In effect since 2011
• An RRD is a formalized MICR document that can be used in place of
returning the original check inside a MICR envelope
• The option is with the dishonoring DC delivering the return
a) Return the original check in an envelope
b) Return an “image printout” in an envelope
c) Return an RRD (no envelope needed)
• The onus is with the receiving (return-to) DC to accept whatever arrives
• With the RRD introduction, all reclearing of the original check is no
longer allowed
– Previously, the payee could certify at the payor’s bank then reclear
– Now, the payee must get another check or use bank-to-bank collection
33

34. CPA Phase II: The RRD
• The RRD is similar in use and in generic form to the US ‘Return-IRD’
• Commonalities:
– Front and back image segments
– Information about the returned item (e.g. reason for return)
– Dual MICR lines: Upper - Original check; Lower - Return-to location
– MICR EPC Field “5” (some exceptions)
• Divergences:
– Images are anchored at top of the RRD
• Not at the bottom above the codeline area, as with the IRD
– Front image is likely Bitonal or Grayscale, while back is Grayscale
• Not mandated: reflects current Canadian industry capture convention
– MICR codeline: Routing Field is 5d3 format; Mandatory On-Us Field
Process Control value ‘28’; Mandatory Aux On-Us Field value ‘28’
• Mimics the traditional MICR return envelope
– More verbose elements on front (reason, bank name, amount)
34

35. CPA Phase II: The RRD – Front View
Anchor
Descriptive Aux On-Us EPC On-Us Process Control
Elements (mandatory) (mandatory)
35

36. CPA Phase II: The RRD – Back View
Anchor
36

37. CPA Phase III: Introduce the CRD
(the 2nd step of item exchange - forwards)
In effect since October 2012
• A CRD is a formalized MICR document that can be used in place of
the original check (like the US IRD)
– For deposit
– For presentment
– To give to account holders who want checks back
• Statements, commercial accounts, Indirect Clearers
37

38. CPA Phase III: Introduce the CRD
Implications for Negotiation / Deposit of CRDs:
• The option is with the depositor that negotiates the item with the
delivering DC:
a) Provide the original check for deposit
b) Provide a CRD for deposit
• Typical option for ‘bulk deposit’ such as items from an IC or a US bank
• The onus is on the DC to accept whatever is deposited
38

39. CPA Phase III: Introduce the CRD
Implications for Presentment (Exchange) of CRDs:
• The option is with the collecting DC that delivers the transit item for
payment
a) Deliver the original check for payment
b) Deliver a CRD for payment
• Delivering DC may choose to present a CRD in place of the originally
deposited check
• May be no choice, if a CRD was deposited
• The onus is on the paying DC to accept whatever is presented
39

40. CPA Phase III: Introduce the CRD
Implications of CRDs after Payment is made:
• The option is with the paying DC that accepts the item
a) Give back to the account holder the original check
• If original was presented
b) Give back to the account holder a CRD
• The paying DC may give back a CRD even if the original check was
presented
• May be no choice, if a CRD was presented
• The onus is on the account holder to accept what is given
• A note on Returns:
– This adds another option for dishonored items:
• The returning DC may place a CRD in a return envelope
40

41. CPA Phase III: Introduce the CRD
The CRD is similar in use and almost identical in form to the US ‘IRD’
• Commonalities:
– Front and back image segments, with the same anchor points
– Surface ‘regions’ for Truncator, Creator, BOFD Overlay and Subsequent
Endorsement Overlay:
• Same location, format, content, font, orientation
– MICR line represents original check
• And includes EPC Field “4”
• Divergences - Front:
– There is no Legal Legend (“This is a LEGAL COPY of ...”)
– MICR codeline contents:
• Routing Field is 5d3 format
• On-Us Field – no dashes; may also be absent (e.g. transit item with MICR read errors)
• Aux On-Us Field - may be absent (e.g. transit item with MICR read errors)
41

42. CPA Phase III: Introduce the CRD
• Divergences – Back:
– No ‘Text and Line Overlay’ in Region 1B
• Do not endorse or write below this line. instruction is not used
– Reason: A captured CRD may have a transport stamp / endorsement descending into
Region 2B ‘Back of MICR’
– Limited ‘Subsequent Endorsement Overlay’ in Region 1B:
• Fewer subsequent endorsers, fewer handlers of the item
• Divergences – General:
– The CRD size is variable:
• Height: 2.75 to 4.25 inches Width: 6.25 to 8.75 inches
• Accommodates the fixed IRD dimensions
– Height: 3.667 Inches Width: 8.50 Inches (plus tolerances)
– ‘Subsequent-IRD’ is not proposed for use in Canada
• Once a CRD is created, the payment item remains in this paper format
42

43. CPA Phase III: The CRD – Front View
5d3 RT
No Legal Legend Aux On-Us: On-Us:
could be absent EPC no dashes;
could be absent
43

44. CPA Phase III: The CRD – Back View
Endorsement spray from transport capture of CRD 5d3 RT
44

45. CPA Phase III: Introduce the CRD
Exchange Usage of the CRD:
• Between collecting/paying Direct Clearers in Canada
1. All Canadian currency items are CRD eligible
• Exceptions: Government of Canada bonds, Treasury bills, remittances
2. Most US currency items are CRD eligible
1. All US items with 5d3 Routing Number
2. Certain US items With ABA Routing Number
– Items complying with CPA Rule K1 s 9.(c) “drawn on a U.S. office of a [Canadian] Direct
Clearer or Indirect Clearer”
» BNS (061002746, 011001749, 026002532, 123006130, 121026921)
» RBC (026004093)
» TD (026003243)
» CIBC (026002558)
Note: All US currency ABA items other than CPA “Rule K1” items are
rendered as IRDs
45

46. CPA Phase IV: Industry Image Exchange
(the final stage)
Plan: Approval - June 2013
In Effect - August/September 2013
• Industry-supported DC-to-DC image exchange
– Standard image files
• Four separate files
a) Forward (check) or Return, together with
b) Canadian currency or US currency
– File standard specifications based on ANS X9.100-187-2008
• Complemented by industry ‘Canadian Companion Documents’ (CCDs)
– CCDs were developed by Symcor and offered to the industry for general use
– One CCD for Forward presentment, one CCD for Returns
» Each respective CCD covers both currencies
– CCDs are supplemented with separate CPA ‘Image Rules’
» The ‘business rules’ for item content on the file, file delivery and receipt, notification, etc.
– File format and content specifications (‘the standards’) are now finalized
• Will be made publicly available in due course
– This approach essentially parallels the US industry
• US has: ANS X9.100-187 plus ‘UCD’
• Canada has: ANS X9.100-187 plus ‘CCD’
46

47. CPA Phase IV: Industry Image Exchange
Sample - Main File Differences: Canadian content versus US content
– ‘Destination’ and ‘Origin’ routing identifier fields (Types 01,10,20 and Type
52) have a special structured format
• Identifies:
– Delivering DC and Receiving DC; Currency of items on file (Canadian or US); Type of items
on file (forwards or returns)
– 5d3 Routing Field format is used in various records
• In payment records (Check Detail Type 25, Return Type 31)
• In addendum records (Endorsement addenda Types 26,28,32,35)
• In image view detail record (Type 50)
– More limited use of subsequent endorser Addendum records (Types 28,35)
• Canadian exchange process is simpler than US
– Fewer handling points, no re-presentment
47

48. CPA Phase IV: Industry Image Exchange
The Image Exchange Process:
• Participation is optional, not mandatory
– However, the expectation is that the market will cause acceleration to
image away from paper, including CRDs
• Each Delivering and Receiving DC pair must mutually consent to
image exchange, and set a start date
– This is to ensure readiness on both sides
• Consenting DC pairs may optionally exchange without images
– Assumes a shared archive or a common external archive
• Two new CPA exchange / reporting ‘streams’ have been created
– Image forwards, image returns
48

49. CPA Phase IV: Industry Image Exchange
Pending Final CPA Decision:
• Image segments
– Originally contemplated:
• Should this be: Bitonal? Grayscale? Both? Either? Sender’s choice? Mandated?
– Current recommendation: Front plus Back bitonal is Mandatory
• However, other additional segments permitted via bilateral agreement
• National Settlement for check image exchanged items
– For consideration as truncation volumes grow
• Promotes expediency, simplification
• Rationale: Already in place today for EFT
– Caveat: All physical paper exchange and settlement remains within six
national regions
• Includes: checks, CRDs, ineligibles, unmachinables, RRDs, envelope returns
49

50. CPA Phase IV: Industry Image Exchange
Pending Final CPA Decision: (continued)
• Under Consideration: When does “Presentment” occur?
– Current thinking:
• When the image of the item is accessible to the Drawee (payor)
• Under Consideration: Timeline to “Return” an image presentment?
– Current thinking:
• Similar to the paper process
– When the responsible / owning organizational unit has access to the item (i.e. its image)
to make a pay/no-pay decision
– Then, to be returned within two days from the time access is available
• Anticipate some streamlining to be applied once image exchange settles in
50

51. CPA Rules and Standards
for Image Exchange
• Currently Available
– [Refer to the CPA web site]
– ACSS Standards
• 012 – “Image Security Standard”
• 013 – “Return Replacement Document Design Standard” (RRD)
• 014 – “Clearing Replacement Document Design Standard” (CRD)
– ACSS Rules
• A10 – “Images, Image Printouts, Clearing Replacement Documents and Return
Replacement Documents”
• Pending
– [Planned for availability on the CPA web site]
– ACSS Standards
• New: Canadian Companion Documents to the ANS X9.100-187-2008 (CCDs)
– For Forwards and for Returns
– ACSS Rules
• Updates: Rule A10 and others, as needed for image exchange
51

52. Delivery Between Canada and US
Part 3:
The Canadian Image Initiative
and
‘North/South’ Considerations
52

53. Delivery Between Canada and US:
US Currency ‘ABA’ Formatted Items
Basically, This is today’s status quo
• Northbound Items: With US ABA Format Routing Field
– Scenario: Negotiator / BOFD is in US; check account is in Canada
– Forward presented to Canada:
• Traditional options: Original check, IRD, image file
– Returns back to US:
• Traditional options: Original check, IRD, ‘Return-IRD’ image returns file
• Southbound Items: With US ABA Format Routing Field
– Scenario: Negotiator / BOFD is in Canada; check account is in US
– Forward presented to US:
• Traditional options: original check, IRD, image file
– Returns back to Canada:
• Traditional options: ‘Return-IRD’, image returns file
53

54. Delivery Between Canada and US:
US & Canadian Currency ‘5d3’ Formatted Items
• Northbound Items: With Canadian 5d3 Format Routing Field
– Scenario: Negotiator / BOFD is in US; check account is in Canada
• Can be US currency or Canadian currency
• Note: US and Canadian currency streams must remain segregated
• Forward presented to Canada:
– Traditional option: Original check only
• On arrival, the original check items pass through the Canadian clearings via the
Canadian correspondent bank
– New options for delivery:
• CPA Image Phase III - CRD (today): The items delivered on an image file can be
printed as CRDs and passed through the Canadian clearings via the Canadian
correspondent bank
• CPA Image Phase IV – image file (2013): The items delivered on an image file
can be image-exchanged through the Canadian clearings via the Canadian
correspondent bank
54

55. Delivery Between Canada and US – 5d3
• Northbound Items: With Canadian 5d3 Format Routing Field
(continued …)
• Returns back to US (traditional options):
– Depends on the procedure in place between the returning Canadian bank
and the US correspondent receiving the returns
– Common practice:
• The Canadian bank gives the paper returns to the US correspondent for paper
delivery to various BOFDs in the US
• Options:
– Original check (with 5d3 Routing Field) accompanied by a return envelope (with 5d3
Routing Field), and an advice
– The original check (with 5d3 Routing Field) by itself, and an advice
55

56. Delivery Between Canada and US - 5d3
• Northbound Items: With Canadian 5d3 Format Routing Field
(continued …)
• Returns back to US (new possibilities):
– Again, depends on the procedure in place between the returning Canadian
bank and the US correspondent receiving the returns
– New options for delivery:
• CPA Phase II – RRD (today):
– RRD (has 5d3 Routing Field), with/without an advice
» The returning information is on the RRD
• CPA Image Phase III – CRD (today):
– CRD (has 5d3 Routing Field), accompanied by a return envelope (has 5d3 Routing Field), and
an advice
– The CRD (has 5d3 Routing Field) by itself, and an advice
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57. In Conclusion:
Rules, Regulations, Arrangements, Agreements ...
What applies when?
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58. CPA, Direct Clearers and Client Banks:
Rules versus Decisions and Agreements
• The CPA imposes national exchange and settlement rules and
standards for the Canadian payments industry
• CPA members (financial institutions) develop operational procedures
and customer agreements
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59. CPA, Direct Clearers and Client Banks:
Rules versus Decisions and Agreements
• Within the CPA jurisdiction (“Rules and Standards”)
– The rules for using the RRD or the CRD
• For exchange purposes between Direct Clearers
• For account holder services by a Direct Clearer
– The format and content of the RRD and the CRD
– The rules for exchanging image files between Direct Clearers
– The format and content of the image exchange file used between Direct
Clearers
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60. CPA, Direct Clearers and Client Banks:
Rules versus Decisions and Agreements
• Outside the CPA concern (Individual decisions, proprietary practices and
arrangements)
– Direct Clearer business decisions:
• To use RRDs or CRDs in place of original items
– For DC-to-DC exchange purposes
– For account holder purposes
• To use image files for DC-to-DC exchange, in place of paper
– Checks, CRDs, RRDs, return envelopes
– Direct Clearer customer agreements:
• Bank-to-bank customer service agreements outside of the exchange:
– Northbound / Southbound service between a US bank and a Canadian bank
– Service between a Direct Clearer and an Indirect Clearer (proviso: must abide by CPA rules)
– Direct Clearer operating procedures:
• The internal and customer procedures around the use of image based services
• The choice of application software and platforms:
– To truncate items, to create (print) CRDs or RRDs
– To create image files
– To capture CRDs and RRDs
– To receive image files
• The format and content of image files used outside the exchange
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61. Moving towards
greater interoperability
between the US and Canada !
Thank you. Questions?
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