The Legal Framework of Electronic Clearing for Checks - A Comparative Study

This study examines the legal framework of electronic clearing for checks as an electronic system that facilitates check clearing operations by electronically capturing and exchanging check images among participating banks, allowing for same-day value settlement. The current advancements in information technology and communication in the banking sector have led to the utilization of innovative financial technologies and payment systems. However, these advancements may give rise to challenges and legal gaps, particularly in the insufficiency of the current banking legislation to adequately govern emerging electronic payment systems. The electronic clearing provisions for checks are currently regulated by the Bahrain Electronic Check Clearing System guidelines, which raise several questions regarding their suitability for conducting electronic clearing operations for checks, especially in light of the Bahrain Commercial Companies Law No. (7) of 1987 and its amendments, along with associated laws. This study analyzes and compares these provisions with other relevant legal systems, focusing on the position of the Jordanian and Egyptian legislations in this regard. The study concludes with several important findings and recommendations, including the expansion of legal liability resulting from potential disputes between the presenting bank and the paying bank regarding checks issued within the system. This highlights the need to establish a comprehensive legal framework for the Bahrain Electronic Check Clearing System, either through directives from the Central Bank of Bahrain or through specific legislation.