Inform your clients about changing cheque system

Last week, banks and building societies announced changes to the way they handle cheques.

From next year, people will have to add further details, such as the name of the person whose account is to be credited to the payee line of cheques, as well as the name of the bank or building society. This change is being introduced to better protect consumers against fraud after it was found that an IFA had asked clients to make a cheque payable to an institution for a product.He then deposited the cheque not into the account of the client but into his own account with the named institution.Because there was no detail of which account the cheque was destined for he was able to perpetrate the fraud on a number of occasions, to the tune of several million pounds.In 2004 there were over 2.1 billion cheques processed in the UK and cheque fraud amounted to 46.2m in 2004 (up 2% on 2003).While only a small number of the cheques processed each year are made payable to a financial institution the risk of fraud is still there and it needed to be addressed.As a result, the British Bankers Association and the Building Societies Association worked with the Financial Services Authority to find the best way of preventing fraud of this kind happening again, reaching an agreement which will mean that from October 2006, cheques for personal accounts made out to an institution are likely to be declined in certain circumstances. Cheques made out to personal or business customers will be unaffected.Philip Robinson, financial crime sector leader at the FSA, commented on the changes, saying that “in reaching this agreement the FSA, the BBA and BSA have helped end a practice that was exposing consumers to thepossibility of fraud. We were concerned that consumers were at risk following recent inci- dences of fraud in this area, and we are pleased that the industry has responded positively to our calls for change”.However, many of the customers who regularly write cheques to an institution are likely to have been doing so for a long time. Habitual behaviour is hard to break which is why the industry is working hard to get the message out.During the next nine months banks and building societies will be communicating with customers likely to be affected by the revised practice in a variety of ways including using whatever channels of communication are appropriate to the types of accounts those customers have. So expect to see information on statements, inserts with other communications (e.g. cheque books or paying in books), emails, in person at the branch counter, or specific notifications to customers. The BSA has also produced a leaflet, available from our website.In the short term, changing the way people write cheques will give them greater protection from fraud. In the longer run it will save customers from the potential inconvenience of having a cheque declined.We are asking that any brokers who have clients used to writing cheques payable to an institution pass on the message about these changes. rachelblackmoreis external affairsmanager at the Building Societies Association