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Notice from the Law Society of Manitoba - Re: New Banking procedures for payments in excess of $ 25 million

The Canadian Payments Association (CPA)* has adopted a new procedure with respect to payments made in excess of $ 25 million. Effective February 3, 2003, payments in the form of cheques, bank drafts and other paper-based items in excess of $25 million will no longer be processed through Canada's clearing system. Instead, these payments must be made via wire transfer using the CPA's Large Value Transfer System (LVTS). (LVTS wire transfer payments are offered by financial institutions under various proprietary names.)

This change is made in response to international banking and payments systems regulations and standards that require large payments be made through systems that will reduce clearing and settlement risks, as well as the amount of time a payment is in process. The CPA press release notes that under this system, the payor can ensure that the funds are delivered faster and more efficiently. Meanwhile, recipients of payments can access the funds the same day received, and can be certain that the payment will not be reversed for any reason, such as insufficient funds, or a stop payment order. This new procedure is relevant to transactions in Canadian dollars only.

Law Society Rule 5-43(1)(b) requires that all withdrawals from the trust account be made via consecutively numbered cheques, unless otherwise authorized by the chief executive officer. Therefore, if your firm anticipates being involved in a transaction that will require a trust payment in excess of $25 million, you must first contact the Law Society. The Law Society will review the types of controls that are necessary prior to using wire transfers (some of these controls differ from the traditional controls your firm may use for cheques).

* The CPA is a non-profit federal statutory corporation. Its mandate is to establish and operate national systems for the clearing and settlement of payments.

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