Agreement-BCH-04-2020

Purpose. The purpose of this Regulation is to establish the rules and provisions that must be applied in the processes of compensation, liquidation, and truncation of checks in the Electronic Check Clearing Chamber (CCECH).

Definitions. For the purposes of this Regulation, the following shall be understood as: 2.1. Administrator of the CCECH: Entity authorized by the Central Bank of Honduras (BCH) for the operation and functioning of the CCECH, which must exercise the necessary actions to coordinate the activities of the participating institutions in accordance with this Regulation. 2.2. Central Bank of Honduras (BCH): Institution in charge of organizing, regulating, and supervising the functioning of payment systems in the country. 2.3. Electronic Check Clearing Chamber (CCECH): System authorized by the BCH for the purpose of carrying out the compensation, liquidation, and truncation of checks among participating institutions. 2.4. Physical Check Exchange Centers: Offices where physical exchanges of checks are made during a defined schedule. 2.5. National Commission of Banks and Insurance (CNBS): Entity that supervises financial, insurance, pension, securities activities and others related to the management, use, and investment of public resources, to which, among other attributions, it corresponds to supervise that these have adequate levels of capital to safeguard their solvency and have systems for prevention of money laundering and terrorism financing, as well as good practices that allow adequate management of the risks inherent to the activities carried out by supervised institutions. 2.6. Compensation: Conversion of the rights and obligations derived from checks into a single credit or obligation, so that only the net credit or net obligation is enforceable, without requiring express consent of the participating institutions. 2.7. Electronic Signature: Data in electronic form contained in a data message or attached to or logically associated with it, which may be used to identify the signatory in relation to the data message and to indicate the intent of such party with respect to the information contained in the data message. 2.8. Advanced Electronic Signature: That certified by an accredited provider, which has been created using means that the holder maintains under their exclusive control, in such a manner that it is linked solely to them and to the data to which it refers, allowing for the subsequent detection of any modification, verifying the identity of the holder and preventing the denial of the integrity of the document and its authorship. 2.9. Participating Institution: Banking institution authorized by the CNBS to operate in the financial system and that has agreed to participate in the CCECH. 2.10. Electronic Transmission of Images: Exchange or electronic presentation of the image of the front and back of checks to the CCECH by each of the institutions of the Honduran banking system. 2.11. Check Truncation: Procedure of substituting the original physical check with computer records or electronic images processed through the payment system, in which the check-receiving entity transmits to the check-issuing entity the relevant information about it, without the need to send the original physical document that has been truncated in order to carry out the operation. CHAPTER II COMPENSABLE DOCUMENTS

Compensable Documents. Checks in national and foreign currency (United States dollars) issued by the Honduran banking system may be paid in the CCECH in accordance with the Standards for the Standardization of Check Format to be Used by the Honduran Banking System. The Administrator of the CCECH and the BCH shall assume no responsibility for the compensatory acts that are carried out with respect to the definitive payment of checks.

Check Requirements. Checks presented in the CCECH must comply with the following: 4.1. Be prepared and encoded in accordance with the Standards for the Standardization of Check Format to be Used by the Honduran Banking System. 4.2. Contain the endorsement of the participating institution that is presenting them for compensation, indicating the name, place, date, and the phrase "cancelled by compensation".

Characteristics of Check Images. The minimum characteristics of the images to be used in the electronic check compensation process and truncation shall be established by the Administrator of the CCECH and made known to the participating institutions. CHAPTER III OF THE ADMINISTRATOR OF THE CCECH

Functions and Responsibilities. The Administrator of the CCECH shall have the following functions and responsibilities: 6.1. Administer, control, process, and compensate the checks transmitted through the CCECH. 6.2. Develop the operational procedures of the CCECH, which must comply with the provisions of this Regulation and shall be authorized by the BCH and made known to the CNBS and to all participating institutions. 6.3. Certify that the equipment used for the transmission of check images complies with the minimum characteristics established according to Article 5 of this Regulation. 6.4. Request authorization from the BCH to make changes in its operational processes. 6.5. Provide the BCH with the net positions of the compensation process for final liquidation in the deposit accounts of the participating institutions. 6.6. Maintain privacy and confidentiality of the information that flows through the CCECH. 6.7. Collect and provide timely statistical information requested by the BCH and the CNBS for supervision and monitoring purposes, respectively, as well as the participating institutions. 6.8. Establish contingency plans that include having a processing center and backup systems at alternate locations, conducting tests at least once per year, which ensure business continuity and allow for control of the risks inherent to the CCECH. 6.9. Establish the necessary controls to document cases of alteration or falsification of checks. 6.10. Notify the BCH and the CNBS of non-compliance by participating institutions that violates the provisions of this Regulation, no later than the next business day following the presentation of the facts. 6.11. Any other function that in the judgment of the BCH is deemed necessary. CHAPTER IV OF THE PARTICIPATING INSTITUTIONS

Conditions of Participation. For their participation in the CCECH, all banking institutions authorized by the CNBS must submit a written request to the Administrator of the CCECH and sign the corresponding participation agreement.

Identification Number. The participating institutions in the CCECH shall have an identification number that shall be assigned by the Administrator thereof.

Responsibilities. The participating institutions in the CCECH shall have the following responsibilities: 9.1. Have sufficient funds to comply with the liquidation of operations carried out through the CCECH. 9.2. Guarantee that the checks transmitted through the CCECH meet the requirements required in accordance with the Standards for the Standardization of Check Format to be Used by the Honduran Banking System. Non-compliance with the aforementioned standards by the presenting institution shall entail the obligation to reimburse the funds claimed by the account holder to the issuing institution, without prejudice to the responsibilities that may arise from such non-compliance. 9.3. Transmit the data and images of the front and back of checks in accordance with the process established by the Administrator of the CCECH and that they be transmitted in such a manner that they reach the recipient unaltered, complete, and fully legible; likewise, the images must comply with the minimum characteristics established by the Administrator of the CCECH, according to Article 5 of this Regulation. 9.4. Verify that the checks transmitted have the phrase "cancelled by compensation" stamped on them and that they include the place, date, and name of the participating institution that presents them for compensation, placed in a location that does not interfere with the reading of the amount, account number, signatures, magnetic strip, and payee endorsement. 9.5. Verify that the checks received are properly endorsed by the payee. 9.6. Preserve the computer records and electronic images of truncated checks for a period of five (5) years, counted from the date of their processing, and attend to inquiries and requests for information or documentation that are made to them regarding the same by institutions that have a relationship with the requested information, including the BCH, the CNBS, supervisory entities, and competent authorities. The holder of the physical check must store it for a period of sixty (60) calendar days, counted from the capture and truncation of the check. 9.7. Validate the signatory signatures of checks with their respective records based on the images thereof. 9.8. The participating institutions must assign an identification number to each of their branches or agencies that operate in the country and update it in case of closure or opening of a new agency. Such numbering must be notified to the Administrator of the CCECH. The participating institutions shall be responsible for damages caused to other participating institutions due to non-compliance with the responsibilities set forth in this Article. CHAPTER V TRUNCATION

Check Truncation. The participating institutions in the CCECH must truncate the checks they receive in payment or deposit in the accounts of their customers, drawn on other participating institutions.

Scope. There shall be no physical exchange of truncated checks throughout the country.

Legal Validity. For the purpose of granting full legal effectiveness to checks truncated in the CCECH, the electronic transmission of images by participating institutions must be authorized by means of an advanced electronic signature, as established in the Financial System Law, Electronic Signatures Law, its Regulation, and other applicable legislation on the matter.

Electronic Check Deposit. The participating institutions that allow electronic deposit of checks drawn on other banks, that is, when they permit their customers to present for collection checks by means of the capture and transmission of the digital image of the check, must comply with the following: 13.1. The terms and conditions under which said service shall be governed must be aligned with compliance with what is established in this Regulation and in the Standards for the Standardization of Check Format to be Used by the Honduran Banking System. 13.2. Certify before the Administrator of the CCECH that the technology used allows them to transmit with the proper security the data and images required for electronic compensation thereof. 13.3. The images of checks captured by devices belonging to customers and incorporated into the payment instruction in Internet Banking or Mobile Banking must be aligned with compliance with the requirements established in the Standards for the Standardization of Check Format to be Used by the Honduran Banking System and the quality required in accordance with Article 5 of this Regulation.

Claims. For the purpose of addressing claims that account holders present to banks regarding paid checks that have been truncated, the same must be made in accordance with what is established in Article 9, numeral 9.6 of this Regulation and in matters of procedures and deadlines, the same must be carried out in accordance with what is established in the Standards for Strengthening Transparency, Financial Culture and Attention to the Financial User in Supervised Institutions issued by the CNBS and what is established in the Commercial Code on this matter. The issuer's bank is responsible for attending to claims presented by the issuer. The depositor's bank is responsible for the delivery of the original check to the issuer's bank. CHAPTER VI OF THE OPERATIONAL CYCLE

Operation Cycle. The operation cycle of the CCECH shall be carried out in accordance with the following stages: 15.1. First Compensation: Daily process of sending and receiving checks presented through electronic data and image for immediate review by the participating institutions. 15.2. Second Compensation: Process of return or rejection of checks that were presented in the first compensation. 15.3. Definitive Compensation: Process of net multilateral compensation, by which the file of the final positions of each participating institution is generated, which shall be transmitted exclusively to the BCH. 15.4. Liquidation: Process by which the BCH carries out the liquidation of the net positions resulting from definitive compensation in the deposit accounts of the participating institutions. 15.5. Accreditation of Funds: Participating institutions must make available to their customers the funds from checks presented for compensation no later than 12:00 p.m. on the following business day to the day the checks were presented and liquidated in the CCECH.

Schedules. The compensation and settlement of checks presented at the CCECH shall be conducted from Monday to Friday during the schedules established by the BCH, through the Management, which shall be communicated to the participating institutions by circular. CHAPTER VII RETURN OR REJECTION OF CHECKS PRESENTED FOR COMPENSATION

Check Return Criteria. Checks that for any reason cannot be compensated at the CCECH must be returned electronically to the participating institution that presented them, during the schedule established by the BCH. The reasons for return or rejection of checks presented for compensation are limited to the following: 1. Insufficient funds. 2. Incorrect or incomplete signatures. 3. Check issued incorrectly. 4. Check endorsed incorrectly. 5. Check altered or counterfeit. 6. Account canceled. 7. Payment suspension. 8. Lack of seals or phrase. 9. Transmission errors: (Illegible image, incomplete image, network problems, download errors, image duplication, among others). 10. Non-compliance with the security measures established in the Standards for the Standardization of Check Format to be Used by the Honduran Banking System.

Rejected Checks. Checks that have been rejected by the CCECH may be presented again for compensation when the participating institution that presented them and the bank of the drawer have previously agreed to their payment.

Issuance of Checks Without Funds. Without prejudice to incurring in what is provided in the applicable legislation on the matter and in what is established in the Commercial Code, the participating institutions in the CCECH must submit for analysis those account holders who have issued at least three (3) checks without funds in a period of three (3) consecutive months. The participating institutions shall conduct an analysis that includes the following: 19.1. The defenses presented through any means, by clients, that explain the reasons for the issuance of checks without the provision of funds. 19.2 Average balances of the account holder's accounts. 19.3. Sum of amounts of checks issued by the account holder without the due provision of funds. 19.4. Average quantity of checks issued per month by the account holder. 19.5. Analysis of the customer's overall business relationship.

Account Cancellation. The accounts of account holders who do not present the corresponding defenses or to which the analysis conducted indicates mismanagement of their account must be permanently canceled by the participating institutions, applying what is established in Article 966 of the Commercial Code.

Provisions Regarding Checks Returned Due to Insufficient Funds. The participating institutions shall take action to inform clients about the provisions established in articles 19 and 20 of this Regulation, which shall include, but shall not be limited to the following: 21.1. Include in new account opening contracts the possible reasons for cancellation of an account. 21.2. Include these provisions on web pages, email communications or other means, for existing accounts. The CCECH Administrator shall communicate to each participating institution, no later than within the first five (5) business days of each month, the information related to the quantity of checks returned due to insufficient funds by their account holders. CHAPTER VIII RISK MITIGATION MEASURES

Total or Partial Exclusion of Transactions. If at the time of settlement, one or several participating institutions do not have the necessary resources for the settlement of net positions, the BCH shall communicate to the CCECH Administrator to conduct the process of exclusion of transactions or recomposition of results, excluding from the compensation system the necessary checks of said participating institutions until the deficit is covered and settlement can be executed in the deposit accounts at the BCH. When a participating institution in the CCECH presents a deficit, the BCH must communicate it to the CNBS no later than the next business day.

Loss of Participant Status. An institution shall lose its status as a participant in the CCECH when the CNBS has resolved the cancellation of its authorization to operate as a banking entity.

Contingency. The participating institutions that due to technical defects cannot electronically transmit the information of their checks to be compensated may send it on electronic devices; likewise, they may use backup equipment and programs that shall be available in the offices of the CCECH Administrator in Tegucigalpa or in another designated location for such purpose, without prejudice to the schedules established by the BCH for its normal operation. CHAPTER IX SUPERVISION AND OVERSIGHT OF THE CCECH

Oversight. The BCH shall perform the oversight function of the CCECH and shall ensure that the objectives of efficiency and security are achieved through the monitoring of system operations and the evaluation of compliance with applicable regulations.

Supervision. The supervision function of the CCECH Administrator and of the participating institutions shall be the responsibility of the CNBS, which shall ensure that they comply with what is provided in this Regulation and with the other provisions that the BCH and the CNBS issue on the matter.

Information Requirements. The BCH and the CNBS may require the CCECH Administrator and the participating institutions to provide the necessary information to fulfill the oversight and supervision function. Such information must be provided in the terms and time frames that the BCH and the CNBS determine. CHAPTER X SANCTIONING REGIME

Classification of Infractions of the Administrator. For the purposes of this Regulation, the infractions committed by the CCECH Administrator shall be classified as follows: 28.1 Minor Infractions 28.1.1 Presenting delays in the information requested by the CNBS and the BCH for purposes of supervision and oversight. 28.1.2. Presenting problems or technical failures that affect its capacity for interconnection, information processing security, contingency, telecommunications or the normal operation of the CCECH. 28.2 Serious Infractions 28.2.1 Making changes in its operational procedures without the authorization of the BCH. 28.2.2 Failing to provide the BCH with the net positions of the compensation process, in accordance with the schedule established by the BCH for final settlement in the deposit accounts of the participating institutions. 28.2.3 Repeating minor violations three (3) times in a period of six (6) consecutive months. 28.3 Very Serious Infractions 28.3.1 Failing to inform the CNBS and the BCH of the non-compliance incurred by the participating institutions in the CCECH, against the provisions of this Regulation. 28.3.2 Repeating serious violations two (2) times in a period of six (6) consecutive months.

Classification of Infractions of Participating Institutions. For the purposes of this Regulation, the infractions committed by the participating institutions in the CCECH shall be classified in the following manner: 29.1 Minor Infractions 29.1.1. Presenting problems or technical failures that affect their capacity for interconnection, information processing security, contingency, telecommunications or the normal operation of the CCECH. 29.1.2 Delays in the submission of information requested by the CNBS and the BCH for purposes of supervision and oversight. 29.2 Serious Infractions 29.2.1 Failing to comply with the operational processes and other administrative provisions issued by the CCECH Administrator. 29.2.2 Failing to conduct the necessary verifications to ensure that the checks transmitted comply with what is established in the Standards for the Standardization of Check Format to be Used by the Honduran Banking System. 29.2.3 Failing to credit funds to their clients in accordance with what is established in Article 15, paragraph 15.5 of this Regulation. 29.2.4 Failing to cancel the accounts of account holders in accordance with what is provided in Article 20 of this Regulation. 29.2.5 Repeating minor violations three (3) times in a period of six (6) consecutive months. 29.3 Very Serious Infractions 29.3.1 Exposing to operational and financial risks that cause losses or harm other participating institutions and third parties. 29.3.2 Failing to have sufficient funds to comply with the settlement of operations conducted through the CCECH. 29.3.3 Repeating serious violations two (2) times in a period of six (6) consecutive months.

Application of Sanctions. When the Administrator or the participating institutions of the CCECH violate the provisions contained in this Regulation, according to the classification of infractions described in articles 28 and 29 above, they shall be sanctioned by the CNBS in accordance with what is established in the Law of Payment Systems and Securities Settlement and in the provisions issued by the Supervisory Authority regarding sanctions. CHAPTER XI GENERAL PROVISIONS

Conflict Resolution. The participating institutions shall clarify and resolve directly among themselves the errors that may occur in the electronically transmitted information of checks for clearing; in case of discrepancies, the Administrator of the CCECH shall intervene in the resolution.

Unforeseen Cases. Cases not provided for in this Regulation shall be resolved by the BCH in accordance with the applicable legal framework. CHAPTER XII TRANSITORY PROVISIONS

The process of implementing check truncation in the CCECH shall be carried out in stages, for which purpose the BCH shall define, by means of a Board Agreement, the maximum value of checks that shall be truncated in each of them.

While the process of check truncation is initiated and until the complete implementation thereof is concluded, the following provisions are established: 34.1 Physical Exchange of Non-Truncated Checks: Non-truncated checks shall be exchanged on the business day following the date of presentation for clearing, at the time established by the BCH through Management, for which purpose they must be accompanied by a detail indicating the participating institution number, branch or agency number, batch number, amount, and quantity of checks delivered to each participating institution. 34.2 Physical Review of Non-Truncated Checks: Exchanged checks that in the physical review show reasonable indications of alterations or falsifications must be returned to the presenting participating institution no later than 12:00 p.m. on the next business day following the date of presentation at the CCECH. The drawee bank shall inform the Administrator of the CCECH regarding this matter. 34.3 Physical Exchange Centers for Non-Truncated Checks. In Tegucigalpa, checks shall be exchanged at the offices of the Honduran Association of Banking Institutions (AHIBA); in San Pedro Sula, La Ceiba, and Choluteca, the exchange shall be conducted at the offices of the BCH; however, other locations for physical check exchange may be established previously agreed upon by the Administrator of the CCECH and the participating institutions. The Administrator of the CCECH must designate its representative at the physical check exchange centers, who shall witness the event and ensure compliance with the established procedures and schedules. 34.4 Delegates. The participating institutions in the CCECH must formally credential at least two (2) delegates to represent them at the physical check exchange centers designated for that purpose. The delegates designated by each participating institution must maintain their signature registered in the records kept for such purpose by the physical check exchange centers. 34.5 Obligations of Delegates. The obligations of the delegates are: To attend the physical check exchange centers every business day, presenting themselves five minutes in advance of the scheduled time, even when they do not have checks to present. To correctly effect the exchange of checks for clearing, placing them in the boxes corresponding to each participating institution or delivering them to each delegate representative. In the event that a delegate does not appear for the physical exchange of checks, the absent participating institution is obligated to honor the obligations resulting from the clearing process, assuming responsibility for such non-compliance, and must coordinate with the other participating institutions for the receipt of checks presented to them in that session. 34.6 Non-Presentation of Checks. If a participating institution does not receive the non-truncated checks in physical form, the receiving participating institution shall request from the Administrator of the CCECH the reversal of the cleared values to the BCH; however, this does not exempt the participating institution that did not remit the physical checks from the obligation to release funds to its customers. 34.7 Rejected Checks. In the case of non-truncated checks returned electronically, each delegate must bring to the physical exchange thereof a copy of the image with the stamp indicating the reason for the return. II. Grant to the Interbank Processing Center, S.A. (Ceproban), as Administrator of the CCECH, a maximum period of twelve (12) months to implement the process of check truncation and advanced electronic signature, as of the entry into force of this Agreement. III. Communicate this Agreement to the Interbank Processing Center, S.A. (Ceproban), to the Honduran Association of Banking Institutions (AHIBA), to the banks of the national financial system, and to the National Commission of Banks and Insurance (CNBS) for the relevant purposes. IV. As of the entry into force of this Agreement, Resolutions numbers 27-1/2005, 344-8/2007, 167-5/2008, 77-2/2013, and 441-10/2013, issued by the Board of Directors of the Central Bank of Honduras on January 27, 2005, August 31, 2007, May 8, 2008, February 28, 2013, and October 17, 2013, respectively, shall be repealed, as well as any other resolution that conflicts with this Agreement. V. This Agreement shall enter into force as of July 1, 2020, and shall be published in the Official Gazette La Gaceta.