The Bank of Canada announced that, effective 1 November 2003, it will no longer backdate the results of payments settling through the Automated Clearing Settlement System (ACSS), an accounting practice that has been in place since July 1986.

This change has been under consideration for some time. It was initially contemplated in conjunction with the introduction of the Large Value Transfer System (LVTS), the electronic, real-time system for large-value payments that began operations in February 1999.

Payment items in the ACSS will continue to settle in the accounts of the direct clearers held at the Bank of Canada at noon the day after the items are submitted for clearing. With retroactive settlement, the results of the clearings were recognized on the books of the Bank of Canada the business day before the items actually settled. The elimination of retroactive settlement means that the results of the settlement process will be recognized on the central Bank's books on the day the items actually settle in the ACSS. As a result, the operation of the ACSS will no longer be reflected on the Bank of Canada's balance sheet in the form of deposits or advances to members of the Canadian Payments Association. Frequent users of the Weekly Financial Statistics and the Bank of Canada Banking and Financial Statistics will see changes to the tables that present these data.

The change in accounting will not impact the customer base of the direct participants in the ACSS. Customer accounts will continue to be debited and credited to reflect the flow of payment items on exactly the same basis as is currently the case.

The change requires no major modifications to the current infrastructure of the payment systems. It will simplify the payment process and eliminate certain costs associated with retroactive settlement that direct participants have encountered in an LVTS environment. Moreover, the change improves the reporting of settlement risk incurred by direct participants in the ACSS by recognizing this exposure on their balance sheets. This accounting change does not affect the manner in which the Bank of Canada implements monetary policy.

A technical note which describes this process in more detail can be accessed on the Bank of Canada's Web site on the Payments Systems page under Presentations and Publications. The article will also be published in the autumn issue of the Bank of Canada Review, available in November 2003.

For further information, please contact:

Eric Tuer
Principal
Financial Markets Department
Bank of Canada
613 782-7040
Nancy Pearson
Team Leader
Department of Banking Operations
Bank of Canada
613 782-8984