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Romanian laws governing negotiable instruments (that is, bills of exchange, promissory notes and cheques), drafted in 1934, have not been substantially amended since their entry into force. So the current methods of processing a negotiable instrument in Romania do not differ from the methods used in 1930, especially in relation to bills of exchange and promissory notes. While the technology applicable in the banking sector and especially in relation to non-cash payments has evolved, Romanian banks have been unable to make use of any modern means to process a negotiable instrument. The current legal provisions do not grant legal value to the presentment for payment of an electronic copy of a negotiable instrument. Instead the presentment of the original instrument is required.

To address this issue, the Government Emergency Ordinances 38/2008 and 39/2008 regarding certain amendments to the legal regime of the negotiable instruments bring the Romanian legislation in line with the modern electronic payment processes. This action will allow Romanian banks to extend their services to the benefit of their clients.

In order to overcome practical difficulties, such as the risk of the instrument being destroyed or lost and to reduce the costs to the parties involved, the aforementioned enactments, in force as of May 11 2008, set out the legal framework enabling credit institutions to electronically process a negotiable instrument. However, the Ordinances do not provide that the credit institutions are bound to apply and accept the electronic processing and presentment of negotiable instruments. The instruments can be electronically processed only if the institutions involved have adhered to such a payment mechanism, by concluding bilateral or multilateral agreements with other credit institutions.

In essence, the Ordinances:

  • Institute the truncation process (that is, the electronic processing and presentment for payment of negotiable instruments).
  • Clarify the concept of signature on the negotiable instruments.
  • Bring slight amendments to ensure the smooth implementation of the truncation process, which entail the elimination of the affixed slips to the instruments (allonge) and the obligation to write and sign the endorsement on the recto of the instrument and not on its verso.
  • Set the same period (that is, 15 days) for presentment a cheque for payment, irrespective of where the cheque was issued.

The truncation process presupposes the following operations: (a) electronic conversion of the relevant information on the instrument; (b) electronic conversion of the paper-based copy of the instrument; and (c) sending the above information to the credit institution that is to pay (the drawee).

Upon presentment for payment of a negotiable instrument, the credit institution performing the truncation is under the obligation to verify that the negotiable instrument is legally valid and to also verify the chain of endorsements that follows. However, the credit institution will not be obliged to attest the authenticity of the drawer and the endorser signatures.

Additionally, the credit institution performing the truncation is bound to guarantee the accuracy and completeness of the relevant truncation information to be transmitted for payment. It is noteworthy that if the credit institution fails to comply with these duties, the Ordinances state that it is liable for losses incurred by any party with rights and obligations arising out of a negotiable instrument.

It should be noted that the date of presentment for payment of a negotiable instrument to be electronically processed is considered to be the day the drawee receives the information for truncation and the electronic copy of the instrument. Should payment be refused, the drawee shall serve a written notification to the credit institution that possesses the original paper-based instrument, and the institution will make a note of it.

In order to make the truncation process easier, the Ordinances provide for a change in the format of the negotiable instruments in the sense that elements mentioned on the back of the instrument shall be mentioned on the recto.

It follows that, upon entry into force of the Ordinances, a negotiable instrument may also be processed electronically, subject to fulfilment of the aforementioned legal requirements in relation to the truncation process. However, the amendments must be delineated in the legal framework governing the electronic signature. It should be emphasised that this mechanism of processing negotiable instruments does not imply that a negotiable instrument bearing an electronic signature is valid; the Ordinances specifically state that such an instrument has to bear the handwritten signature of the drawer and the endorser.

Further clarifications with respect to the electronic processing and presentment for payment of negotiable instruments will be available when the National Bank of Romania issues the related technical instructions. It is expected that these amendments will have a positive impact on competition in the banking market by creating the necessary environment for more efficient and swifter processing of negotiable instruments. The result will be the reduction of fees charged to the natural or legal persons utilising such instruments in the course of their business.

Claudia Arnautu

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