COVID-19: CBN’S TEMPORARY SUSPENSION OF CHEQUE CLEARANCE IN THE CLEARING SYSTEM

In the wake of COVID-19 pandemic, the governments all over the world and their institutions have taken drastic measures to stem the spread of coronavirus (the virus). The Federal Government of Nigeria has also taken steps in this direction. On 29 March 2020, President Muhammadu Buhari, through a broadcast ordered the shutdown of business activities in Lagos and Ogun States, as well as the Federal Capital Territory (FCT) Abuja for two weeks. This decision is very significant for commerce in Nigeria given the importance of Lagos State (Nigeria’s commercial capital) and FCT (Nigeria’s seat of power). Other states have also issued orders shutting down non-essential activities and placing significant restrictions on movement within their states and across states. These orders designed to curtail the spread of the virus have no doubt largely resulted in grounding business activities within the country. The financial sector like most other sectors has also been impacted as a result of the measures put in place by governments.

On 30 March 2020, the Central Bank of Nigeria (CBN) issued a Circular to all Deposit Money Banks (DMBs), as well as to the Nigeria Interbank Settlement System (NIBSS), directing the temporary suspension of cheque clearing in the Nigerian clearing system (the “Circular”). In a bid to achieve seamless clearing and settlement activities, the CBN directed that commencing from 31 March 2020, the clearing of cheques in the Nigerian Clearing System (the “Clearing System”) be suspended until further notice. To clarify the Circular, the CBN pointed out that from the effective date of the Circular, no cheques will be allowed to pass through the Clearing System, rather only cheques which have been returned will be treated on that date. The implication of the above is that after 31 March 2020, all cheques (including returned cheques) cannot be attended to by banks to which they are presented, as they have been shut out of the clearing system until such time when the suspension is lifted.

Two possible reasons which relate to the nature of a cheque may explain the decision to suspend cheque clearing from the Clearing System. These reasons relate to bank capacity during the lockdown and safety concerns. In terms of bank capacity, one needs to understand that the clearance process begins with the presentation of the cheque at the presenting bank. As a consequence of the order of the Federal Government (for Lagos and Ogun States and the Federal Capital Territory) and other state governments, all banks are generally closed to the public and are expectedly working below optimal capacity. The human and material resources required to deal with the inward clearing of cheques, internal confirmations and reconciliations and other clearing processes will not be available during this period. More important is the safety concern. Even if the banks were open to the public, the presentation of cheques – a paper-based instrument – is likely to put bank employees at risk of contracting the virus. As cheques have to be physically presented over the counter, an infected person may endanger bank employees and increase the chances of further spreading the virus.

This is not to say that the Nigerian Clearing System is entirely shutdown, as according to the Circular, the Clearing System will continue to process electronic instruments. Thus, fund transfers on electronic platforms, such as through mobile banking applications of traditional banks and other payment solutions providers, or through automated teller machines (ATM), will continue to be processed. This notwithstanding, to the extent that electronic payment and switch operation involves human interaction, there will likely be hitches in payment processing, at least during the period of lockdown.



Stephen Azubuike
Author: Stephen Azubuike
Stephen is a lawyer with expertise in Commercial Dispute Resolution and Technology Law practice. He is a Partner at Infusion Lawyers. He has successfully argued cases from the High Courts of various jurisdictions to the Appellate Courts on behalf of financial institutions, other corporate bodies and multinationals. He has worked with a number of startup tech companies. He tweets @siazubuike.
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