Volume 42 | Number 3 Summer 2007
Recent International Developments in the Law of Negotiable Instruments and Payment and Settlement Systems
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I. Overview
This paper surveys four recent major developments worldwide in the areas of negotiable instruments and payment and settlement systems. Only private or commercial law aspects are considered; regulatory and public law issues are outside the scope of the present discussion. Topics covered are checks, payment cards, securities transfers, and payment transactions. A common theme is the adaptation by statute of the law to the world of electronic banking as it keeps evolving.
The first development, outlined in Part II, is concerned with the ongoing transformation of the check payment into an electronic funds transfer. The check has been characterized as the paper-based payment system par excellence. Recently, this view has been eroded in several ways. Principal developments outlined in this paper consist of the “electronic check” in the United States; the remotely created check in the United States and Canada; electronic presentment in the United States, UK, recent law reform in Sri Lanka and a proposal in Canada; and “electronic negotiation” under “Check 21 Act” in the United States. A procedure in which the physical movement of checks is curtailed or eliminated, being replaced, in whole or in part, by electronic transmission of information is called “check truncation.” To a large extent, check truncation reflects a partial conversion of the check collection process to an electronic funds transfer.
The second development, covered by Part III, is the evolving legal framework applicable to payment cards. A fundamental distinction has been known to exist between access and stored-value payment cards. The recent emergence in the United States of payroll, remittance and gift cards has required their classification in that framework. A recent amendment in the United States placed the payroll card under Regulation E governing access device. Yet earlier parameters established by the Federal Reserve Board, to which no reference was made in connection with the recent amendment, but which are followed in the literature and banking parlance, would have suggested the payroll card is a stored-value card. With the view of eliminating future confusion, Part III endeavors to reconstruct these earlier parameters, to clarify the distinction between access and stored-value cards, and thus to facilitate an appropriate framework for future developments. Specifically, Part III is designed to justify the treatment of the payroll card as an access device as conceptually sound.
The third development, outlined in Part IV, is the acceleration in the modernization of the law of securities transfers. Recent Canadian legislation modeled on Article 8 of the American Uniform Commercial Code, passed in May 2006, provides for a comprehensive framework dealing with all modes of securities holdings and transfers. Particularly, it covers the indirect-tier holding, namely, the transfer and pledge of “security entitlements” credited and debited to “securities accounts” maintained with “securities intermediaries” such as brokerage firms which in turn maintain securities accounts with a Central Depositary of Securities (CDS).
The fourth development, outlined in Part V, is the European march towards a Pan-European common payment law. With the view of creating a Single Payment Market where improved economies of scale and competition would help to reduce cost of the payment system, the Commission of the European Communities proposed in December 2005 to establish a common framework for the Community payments market creating the conditions for integration and rationalisation of national payment systems. Focusing on electronic payments, the Commission made a proposal for a Directive on payment services in the internal market, designed to provide for a harmonised legal framework. Intended to leave maximum room for self-regulation of industry, the Proposed Directive purports to harmonise only what is necessary to overcome legal barriers to a Single Euro Payment Area (SEPA).