· Document Number：No. 59 [2016] of General Office of the China Banking Regulatory Commission

· Area of Law： Negotiable Instruments

· Level of Authority： Departmental Regulatory Documents

· Effective Date：06-01-2016

· Issuing Authority： People's Bank of China

· Status： Effective

Notice of the General Office of the People's Bank of China on Regulating the Issues concerning the Use of Encrypted Code for Payment on Checks
(No. 59 [2016] of the General Office of the People's Bank of China)
The Shanghai Head Office of the People's Bank of China (“PBC”), all branches and business management departments of the PBC, and all central sub-branches of the PBC in capital cities of provinces (autonomous regions), and central sub-branch of the PBC in Shenzhen; and the China Development Bank, all policy banks, state-owned commercial banks, joint-stock commercial banks and Postal Savings Bank of China:
For the purposes of further regulating the check business of banking financial institutions (hereinafter referred to as “banks”) and directing enterprises and public institutions and individuals to correctly handle the check business, you are hereby notified of the following issues on the use of encrypted code for payment on checks:
I. Use of encrypted code for payment under the principle of free will of clients
(1) When recommending a client to handle the check business by using encrypted code for payment, a bank shall follow the principle of free will.
(2) Where a client uses encrypted code for payment on checks at free will, a bank shall, in the agreement on obtaining and use of checks, agree with the client on the liabilities, rights and obligations of the both parties, the business rules and procedures and the dispute handling, etc. Concurrently, it is specifically agreed that:
(a) Besides the specimen of signature or seal provided by the drawer for the bank in advance as the basis for the bank's examination for payment of the check, the encrypted code for payment shall also be the conditions for the bank's examination for payment of the check.
(b) Where a check of a client is dishonored for several times during a certain period of time due to inconsistent or missing encrypted code for payment, the bank may stop the client's use of encrypted code for payment on checks or stop handling the check business for the client.
II. Regulating the handling of the check business using encrypted code for payment
(1) When selling checks to a client that has signed an agreement on the use of encrypted code for payment, a bank shall indicate “encrypted password” on the checks.
(2) For a check on which “encrypted password” has been indicated, but whose encrypted code for payment has not been entered, if the holder entrusts collection to his or her bank of deposit, the holder's bank of deposit shall refuse to accept it; and if a holder directly presents payment to the payment bank, the payment bank shall refuse to make payment. The bank of deposit or payment bank of the holder shall effectively conduct communication with and interpretation for the holder, and issue a notice of rejection or note of dishonor in accordance with the provisions.
(3) A check on which “encrypted password” has not been indicated but the encrypted code for payment has been entered in the column of code shall be accepted by the bank of deposit or payment bank of the holder.
(4) When the payment bank examines the check payment basis and conditions, if the issuer has signed an agreement on the use of encrypted code for payment and the payment bank verifies that the encrypted code for payment is inconsistent, no payment shall be made.
III. Banks shall direct clients to fully understand the relevant business specifications
(1) A drawer and bank agreeing to use the encrypted code for payment shall correctly enter the encrypted code for payment in the front code column of the check, besides affixing signature or seal on the check according to the Negotiable Instruments Law, the Measures for Payment and Settlement and other provisions.
(2) A drawer entering a wrong encrypted code for payment during the issuance process may enter the correct encrypted code for payment after crossing out the wrong encrypted code for payment and affix signature or seal to the correction for confirmation.
(3) A payee or endorsee shall, when receiving a check, confirm that the encrypted code for payment has been entered in the front code column of the check on which “encrypted password” has been indicated; and shall refuse to accept a check on which “encrypted password” has been indicated, but on which the encrypted code for payment has not been entered.
This notice shall enter into force on June 1, 2016. The Shanghai Head Office of the PBC, all branches and business management departments of the PBC, central sub-branches of the PBC in capital cities of provinces (autonomous regions) and central sub-branch of the PBC in Shenzhen shall forward this Notice to all urban commercial banks, rural commercial banks, rural cooperative banks, foreign-funded banks, urban credit cooperatives, rural credit cooperatives and village banks within their respective jurisdictions.