Thursday, January 20, 2011


I have an account with the Gibraltar office of a UK building society –no name, no pack drill as they say. If I pay a cheque drawn on a British bank in to my account I have to wait for over two weeks for it to clear. Why?
If I asked the building society I would be told in a patronising manner about banking procedures, the distance, the need to establish whether the funds are there and so on and so forth.
There was a time when you might have taken what your bank manager said at face value. However in recent years two things have dramatically change the financial landscape so patronising homilies are no longer acceptable.
The first change has been the economic crisis brought about by our once trusted banks that at the best were woefully incompetent and at worst acted in a criminal manner. The second change is we are all now savvy with the all singing and dancing ATM machines and some people even have internet banking so we are more clued up on how things work.
Back in 2002 I paid two thousand pounds in to my Gibraltar building society account. The cheque just happened to be drawn on my UK bank. Forty eight hours later I was in the UK, checked my bank balance on the ATM and got a nasty shock. Whilst I still had the funds to meet the cheque my account was way down on what I thought the balance was – two thousand pounds lower! I then realised that within 48 hours of my having handed the cheque over in Gibraltar it had been removed from my UK account.
Given the speed the money was withdrawn from my UK account did it arrive in Gibraltar as quickly? Not on your Nelly – it took the full two weeks. So let us grasp this – my two thousand pounds went missing for 12 days – I didn’t have it in the UK, I didn’t have it in Gib – so who had it?
Have things improved over the years. The answer in short is “no!” Last week I paid a UK cheque in to my account. The word from my building society is and I quote: “You will need to allow 10 working days after the day you pay a UK cheque into Gibraltar Branch - before being able to draw against it.” So that is 10 working days, add four days for weekends and the day you paid it in – total two weeks and a day. Yet I happen to know the funds were drawn from the UK account within days. So who has it?
I decided to ask a man who should know – after all he is the CEO of the Financial Services Commission. Marcus Killick told me: “The UK cheque clearing process is a fairly time consuming procedure which is a legacy from the times when banks did not have computers - in fact the process is largely determined by how long it takes to move pieces of paper (i.e. the cheques) around the country. The system not only involves a number of main clearing banks   but also a very large number of agency banks (this group includes building societies, small domestic banks and subsidiaries of foreign banks). 
“The process involves manual intervention, manual checking and manual handling which can invariably lead to errors such as cheques getting mislaid or misread. Because of this banks/building societies often do not give credit for value (i.e. withdrawal) until a number of days has passed.  Since 2006 this length of time should not normally exceed T+6 i.e. 7 days.”

Well seven days it isn’t, it is 15 and in the electronic banking age as well. So why do UK cheques paid in to a Gibraltar building society take 15 days when the sum is removed from the account in around 48 hours? A cynic might say it allows the bank or building society to sit on it, invest it and earn a high rate of interest because it is lumped in with other funds in transit. Luckily I’m not a cynic

Footnote: In his comments Marcus Killick also pointed out that UK cheques will be phased out by 2018. This will mean that Gibraltar-based building societies that operate the payment book system will have to completely change their modus operandi as cash and cheques are the only straightforward method of operating. Clients do not have a banking account code so transfers have to go through a rather confusing system.