PAYMENT AND SETTLEMENT SYSTEMS aCT

Arrangement of Sections

1. Short title.

PART I

GENERAL PROVISIONS

2. Objectives of the Act.

3. Regulatory schemes to be in addition to other schemes and powers of the Central Bank under this Act.

PART II

PAYMENT, CLEARING AND SETTLEMENT SYSTEMS AND MONEY SERVICES

CHAPTER I

THE NATIONAL PAYMENT SYSTEM

4. Responsibility of the Central Bank in relation to payment, clearing and settlement systems.

5. Payment System Policy.

CHAPTER II

SECURITIES ACCOUNTS

6. Securities accounts and securities account holders.

7. Disposition of securities.

8. Creditor Process.

9. Dealers lien.

10. Interpretation for Chapter 11.

CHAPTER III

MONEY SERVICES AND PAYMENT SYSTEMS

11. Central Bank to supervise service providers.

12. Directive for money services and payment systems.

13. Designated payment systems.

14. Rules of designated payment systems.

15. Directives for designated payment systems.

16. Information obligations and compliance.

17. Regulations for Chapter III.

18. Interpretation for Chapter III.

CHAPTER IV

CLEARING AND SETTLEMENT SYSTEMS

19. Designated clearing and settlement systems.

20. Agreements with clearing house or participant.

21. Directives.

22. Powers of Central Bank.

23. Insolvency proceedings.

24. Settlement rules.

25. Notice and information.

26. Audits and inspections by the Central Bank.

27. Powers of the Central Bank in relation to the clearing system.

28. Termination of netting agreements.

29. Central Bank may require proof of the existence of a clearing system.

30. Responsibility of participants.

31. Participation of foreign Banks.

32. Interpretation for Chapter IV.

PART III

ELECTRONIC CHEQUE PRESENTMENT

33. Electronic presentment of cheques for payment.

34. Procedure on non-payment of an electronically presented cheque.

35. Warranties and indemnity.

36. Certain provisions of the Bills of Exchange Ordinance not to apply.

37. Regulations to supersede agreements and arrangements.

PART IV

MISCELLANEOUS PROVISIONS

38. Action to be taken in case of failure to comply with the provisions of the Act.

39. Offences.

40. Confidentiality of information and documents.

41. Immunity.

42. No designation or directive to be stayed in case of application for judicial review being made.

43. Regulations.

44. Central Bank to issue instructions.

45. Regulation to be binding.

46. This Act to prevail in case of inconsistency.

47. Sinhala text to prevail in case of inconsistency.

28 of 2005.

AN ACT to provide for the regulation of payment, clearing and settlement systems; for the disposition of securities on the books of the Central Bank; for the regulation of providers of money services; for the electronic presentment of cheques; and to provide for matters connected therewith and incidental thereto.

[Date of Commencement: 20th September, 2005]

1. Short title.

This Act may be cited as the Payment and Settlement Systems Act.

PART I

GENERAL PROVISIONS

2. Objectives of the Act.

(1) The objectives of the Act shall be—

(a) to provide for the regulation, supervision and monitoring of payment, clearing and settlement systems;

(b) to provide for the disposition of securities in securities accounts maintained at the Central Bank;

(c) to provide for the regulation, supervision and monitoring of providers of money services; and

(d) to facilitate the electronic presentment of cheques.

(2) Subject to the definitions specifically provided for in the other provisions of this Act, and unless the context otherwise requires—

"clearing system” means a mechanism for the exchanging and processing of obligations to make payment or the transfer of securities among banks and other financial institutions for the purpose of settling them;

"money services” means services relating to money including safekeeping, money transmission, cheque encashment and currency exchange;

"payment system” means institutions and mechanisms facilitating payment in money and the transfer of monetary value by means of payment transactions. It includes mechanisms for clearing and settlement of obligations to make payment;

"electronic presentment of cheques” means the electronic transmission by a banker of an image and payment information of the cheque, to the banker on whom it is drawn;

"settlement system” means a mechanism for the discharge of obligations to make payment and to transfer securities cleared by banks and other financial institutions through the adjustments to their accounts.

"books, records, accounts, documents, information” means books, records, accounts, documents or information recorded or stored in any media including paper and data stored by electronic, optical, magnetic or in any information system.

3. Regulatory schemes to be in addition to other schemes and powers of the Central Bank under this Act.

(1) The obligations, requirements, powers and regulatory schemes established under the provisions of this Act, shall be in addition to the obligations, requirements, powers and regulatory regimes under any other written law, and the powers conferred on the Central Bank by this Act shall be in addition to those conferred on it by the Monetary Law Act, the Banking Act, No. 30 of 1988 or any other written law for the time being in force.

(2) The provisions of the Act shall be read and construed in conformity with the Monetary Law Act and the Banking Act, No. 30 of 1988.

(3) For the purposes of this Act, "Central Bank” means the Central Bank of Sri Lanka, established under the Monetary Law Act.

(4) Where under this Act any power, duty or function is required or authorised to be exercised, performed or discharged by the Central Bank, the Monetary Board of the Central Bank of Sri Lanka may in writing authorise any officer of the Central Bank, to exercise, perform or discharge such powers, duties or functions.

PART II

PAYMENT, CLEARING AND SETTLEMENT SYSTEMS AND MONEY SERVICES

CHAPTER I

THE NATIONAL PAYMENT SYSTEM

4. Responsibility of the Central Bank in relation to payment, clearing and settlement systems.

(1) The Central Bank shall be the authority responsible for the preparation of a plan for a National Payment System. The Central Bank shall also be charged with the responsibility of providing guidance and leadership for the establishment and development of payment, clearing and settlement systems in Sri Lanka.

(2) The Central Bank shall facilitate—

(a) the interaction of its clearing and settlement systems and related arrangements with other systems or arrangements connected with the exchange, clearing or settlement, of payments or securities;

(b) the development of new methods and technologies for payments in domestic or foreign currencies and the transfer of securities; and

(c) the co-operation among all participants in the evolution of payment systems and the provision of payment services.

(3) In the exercise of its powers under this Act, the Central Bank may, notwithstanding anything to the contrary in any other law—

(a) regulate and supervise the services and facilities provided by any Bank, any other financial institution or person, with regard to the sending, processing and receiving of payment orders and instructions for the transfer of securities on its own account and for its customers in domestic or foreign currencies, and assist any bank or other financial institution in the establishment, operation and organisation of such services and facilities;

(b) establish, operate, organise, promote, participate or assist in the establishment, operation, organisation and promotion of, and regulate and supervise—

(i) any system for the clearing and settlement of payments and other arrangements for the making or exchange of payments in domestic or foreign currencies;

(ii) any system for the clearing and settlement of securities and other arrangements for the exchange of securities; and

(iii) any system to facilitate the clearing and settlement including other arrangements for the making or exchange of payments or the exchange of securities in any currency against other payments or securities in another currency.

5. Payment System Policy.

(1) The Central Bank shall have the power to formulate, adopt and monitor the implementation of a Payment System Policy for Sri Lanka. Such policy shall be made public.

(2) In the exercise of its powers under subsection (1) the Central Bank shall be guided by best international standards. The Payment System Policy of the Central Bank shall primarily be designed to facilitate the overall stability of the financial system, promote payment system safety and efficiency and control risk. Subject to this primary objective, the policy shall be designed to enhance other aspects of the public interest and particularly contribute to the promotion of competition in the market for payment services and the protection of payment system users.

(3) In promoting safety and efficiency of the payment system the Central Bank shall co-operate with Central Banks of other countries and with other relevant domestic or foreign authorities.

CHAPTER II

SECURITIES ACCOUNTS

6. Securities accounts and securities account holders.

(1) The Central Bank shall maintain securities accounts for each direct participant and for each customer of a dealer direct participant. A person may have more than one securities account. A securities account may be a designated securities account.

(2) A securities account holder may exercise all the rights that comprise the security credited to his or her securities account, or designated securities account, subject to any applicable adverse claim:

Provided however, a customer securities account holder may deal with his or her securities account as provided in this section only through a dealer direct participant authorised to act in that customer's securities account:

Provided further that, no remedy against the account holder will be prejudiced where the exercise of rights under this section is in breach of a contract or is otherwise in violation of the rights of any other person.

(3) All communications and payments relating to a securities account shall be submitted or made to or by the Central Bank exclusively by or to—

(a) direct participants, in respect of own securities accounts; and

(b) dealer direct participants, in respect of both own accounts and on securities accounts of their customers in respect of which they are authorised to act.

Each disposition shall be recorded directly in the securities accounts of the transferor and transferee of the security and not pass through the own account of a dealer direct participant authorised to act on behalf of a customer who is the transferor or transferee.

(4) The provisions contained in this section shall be read consistently with the provisions of the Local Treasury Bills Ordinance and the Registered Stocks and Securities Ordinance respectively. The provisions contained in such Ordinances shall prevail in the event of an inconsistency.

7. Disposition of securities.

(1) A disposition of a security is carried out by means of debit and credit posted to the transferor's and transferee's respective securities account.

(2) Upon a disposition, the transferee acquires rights to the extent of the interest transferred in the security that the transferor had or had the power to transfer. Where the credit for the interest acquired was posted to the transferee's securities accounts, and the transferee gave value without notice of any adverse claim, the transferee also acquires the transferor's interest in the security, free of any adverse claims. For the purposes of this subsection—

(a) notice to the dealer direct participant authorised to act in the securities account of the transferee customers is not to be attributed to the customer; and

(b) notice only that the transferor acts as a trustee, an agent or in a representative capacity, or that the transfer is out of a designated securities account, is not notice of breach of trust or authority and does not amount to notice of an adverse claim.

(3) A dealer direct participant who deals with a security under the authority of a customer, is not liable to a person who has an adverse claim to the security, unless the dealer direct participant—

(a) acted in collusion with any person who violated the rights of the adverse claimant; or

(b) acted, after having been served with an injunction, restraining order or other creditor process issued by a Court of competent jurisdiction enjoining the dealer direct participant from so dealing, and the dealer direct participant has had an opportunity to act on the injunction, restraining order, or other creditor process as the case may be.

(4) In the handling of a disposition of securities and having it recorded in securities accounts, the Central Bank shall not incur any liability whatsoever to any person, including a direct participant, customer, adverse claimant or third party, unless the Central Bank acts contrary to a binding and effective injunction, restraining order or other creditor process, issued by a Court of competent jurisdiction which has been lawfully served on the Central Bank, or unless the Central Bank acts in bad faith or in collusion with any wrongdoer.

8. Creditor Process.

(1) A security credited to a securities account may be made subject to creditor process or insolvency proceedings by or for the benefit of a creditor of the securities account holder, only to the extent of the interest of the securities account holder and subject to any adverse claim to satisfy a debt of the securities account holder.

(2) Without prejudice to the generality of subsection (1), a security credited to a securities account held by a customer, may not be subject to creditor process or insolvency proceedings by or for the benefit of a creditor of the dealer direct participant authorised to act in the customer's securities account, to satisfy any debt of that dealer direct participant.

(3) The interest of a debtor in a security may be reached only by creditor process duly served on the Central Bank. The Central Bank shall comply with any creditor process duly served on it.

9. Dealers lien.

A security held in customers securities account, sold to the customer by the dealer direct participant authorised to act in the securities account of the customer, is subject to a lien in favour of the dealer direct participant to secure the payment of its price.

10. Interpretation for Chapter II.

(1) In this Chapter unless the context otherwise requires—

"adverse claim” means a claim to a property interest in a security credited to the securities account of a person other than that of the claimant, including the right of redemption of a debt, under a mortgage, pledge or charge, or any other transaction intended to secure the payment of a debt and a beneficial interest under a trust;

"creditor process” means any process of execution issued by a Court of competent jurisdiction on behalf of a creditor or other claimant with respect to a security or securities account, such as a levy, attachment, garnishment, notice of lien, sequestration or similar process, including any order restraining or blocking a disposition, but shall not include any action taken by a securities account holder of a designated securities account to extinguish an adverse claim to a security credited to the designated securities account;

"customer” means in relation to a dealer direct participant, a transferor or transferee in a disposition, who is a securities account holder, other than a direct participant;

"deafer direct participant” and ”direct participant” shall have the same meanings as are assigned to them in the Local Treasury Bills Ordinance and the Registered Stocks and Securities Ordinance;

"designated securities account” means a securities account in which title to securities held in it is stated to be subject to adverse claims;

"disposition” means any absolute transfer of title to a security between a transferor and transferee;

"own securities account” means a securities account in the name of a direct participant as the securities account holder;

"securities account” means an account maintained at the Central Bank to which securities may be credited and debited and in which dispositions of securities are recorded;

"securities account holder” means a person in whose name the Central Bank maintains a securities account;

"security” means any—

(a) treasury bills issued in a scripless form in accordance with the provisions of the Local Treasury Bills Ordinance;

(b) treasury bonds issued in a scripless form in accordance with the provisions of the Registered Stocks and Securities Ordinance;

(c) securities issued in a scripless form by the Central Bank in accordance with the provisions of the Monetary Law Act;

"transferee” means the party to a disposition to whom a security is transferred and whose securities account is credited as the result of the disposition; and

"transferor” means the party to a disposition who transfers a security and whose securities account is debited as a result of the disposition.

CHAPTER III

MONEY SERVICES AND PAYMENT SYSTEMS

11. Central Bank to supervise service providers.

The Central Bank shall in terms of the provisions of this Chapter, regulate, supervise and monitor all service providers or any specified category of service providers in accordance with such regulations which the Minister may make for the purposes of this Chapter.

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