Insights

To consolidate the efforts in ensuring that payments are conducted in line with international anti-money laundering expectations and also for payments to be made in a safe and effective manner, the Central Bank of Malta (the “CBM”) has issued Directive 19 on the Use of Cheques and Bank Drafts (the “Directive”) on the 7^th July 2021 in collaboration with the Malta Bankers’ Association (“MBA”), which shall be effective as of 1^st January next year.

The CBM, empowered by the Central Bank of Malta Act (the “Act”) to issue directives fostering stable and sustainable use and provision of payments services on the island, has published Directive 19 primarily to safeguard the safe and effective use of cheques and bank drafts (generally referred to as ‘paper-based instruments’). As outlined by the MBA, it is hoped that the enactment of this Directive would nurture a different payment culture on the island by altering Malta’s payments landscape and tailoring it more in line with the objectives of the National Strategy for Electronic Payments of August 2018.

As of next year, cheques and bank drafts shall only be encashed or credited to the person named by the payer on the instrument itself. To curtails the use of post-dated cheques, the Directive outlined that these payment instruments have to be dated on the date of issue – hence, the payer cannot issue a cheque written with a future date, unless such cheque is negotiated by the payer himself to be accepted before a specified future date. while mandating banks to withdraw their services for users who repeatedly issue cheques that cannot be honoured by their bank. Moreover, cheques and bank drafts cannot be issued for amounts lower than €20 and cheques issued for amounts exceeding €5,000 cannot be encashed but can only be deposited into the account of the beneficiary. Another important aspect is that the Directive empowers banks to discontinue users’ cheque issuance facilities if dishonourable cheques are repeatedly presented. In addition, the Directive provides that payment service providers must retain all information related to cheques for a minimum period of five years.

Pursuant to the Directive, CBM may impose administrative penalties stipulated in the Act, in cases of breach of the provisions of the Directive by both payment service providers and payment service users. While the penalties imposed on the service providers must be “effective, proportionate, and dissuasive”, the sanctions levied on the users must “not exceed two hundred euro (€200) for each paper-based instrument issued, negotiated, deposited, or encashed in contravention of the requirements of this Directive.”

The Directive invites any interested parties to submit their complaints or disputes concerning alleged infringements of its provisions, by payment service providers whether the user is recognized as an eligible customer in terms of the Arbiter for Financial Services Act or not. However, while payment service users eligible as customers under the Arbiter for Financial Services Act must direct their complaints or disputes to the Office of the Arbiter for Financial Services, those not eligible as customers under the same Act and any other interested parties must direct their complaints or disputes to the CBM.

The CBM and the MBA are launching a comprehensive communication campaign to ensure that the public is knowledgeable of its rights and obligations under these regulations while also providing information on the implications of the new provisions. Both entities are making sure that service providers will promote the respective alternative means of payment methods available in time for users to prepare for the January 2022 deadline.

Fundamentally, this Directive reflects a current growing trend in the increased use of credit transfers, direct debits and other electronic payment methods in conducting payments at the expense of cheques’ usage as demonstrated by respondents of Maltese surveys. The CBM also highlights that cheques are considered to be a highly inefficient mode of payment that is more susceptible to money laundering issues and which is also not used confidently by many payers and payees. In fact, the MBA is positive that this Directive shall be an aid to the important developments in ensuring that money-laundering issues related to the use of cheques and bank drafts are avoided and that it will contribute to raising confidence in the use of such payment instruments.