No one really knows when cheques were first used. But many historians believe that in 13th century Venice, the cheque was created as a device to allow international trade.

The use of cheques has oiled the wheels of international trade for centuries as their transferability complemented cash in the exchange of goods.

The fast development in technology in the last few decades and the rise in financial crime is making the use of cheques redundant and undesirable. Regulators argue that the use of cheques is not only inefficient but very costly for the credit and financial institutions that operate the cheque clearing system. Cheques could also be a risk for the prevention of financial crime.

The Central Bank of Malta has issued a directive on using cheques and bank drafts, which will come into force from January 2022. The main effect of this directive is to eliminate the transferability of cheques, reduce their use and, by so doing, contribute towards the prevention of money laundering.

The Malta Bankers’ Association has welcomed the directive. It argues that the proposed measures would “change the nation’s payments landscape and ensure the further shift to more efficient modes of payment”. Some countries have already significantly reduced the use of cheques, encouraging clients to use electronic payment systems like credit and debit cards, internet banking for bills payment and direct debit for regular payments to third parties.

By eliminating the transferability of cheques, it will be easier for anti-financial crime authorities to trace the origin of funds passing through the payment system and their ultimate beneficiaries. When banks recently introduced new controls on cash transactions in business and personal monetary transfers, it was to be expected that non-bona fide transferors of money would exploit the transferability of cheques to hide the audit trail of illegal funds flowing in the payments system.

The financial services community is today burdened with complex anti-financial crime regulations that are very expensive to administer. They also have to finance the costs of a cheque clearing system that still requires considerable manual intervention to operate. This explains why, as of January 2022, cheques may not be drawn for amounts below €20.

By eliminating the transferability of cheques, banks can now more easily establish the origin of funds going into or out of a client’s account.

Malta’s present challenge is to prove to international regulators that it is genuinely determined to implement and enforce anti-financial crime regulations. The new directive should make that challenge less daunting.

The business community and private individuals who are still using cheques for payments need to adapt fast by switching to electronic means of payment. With the current high incidence of cybercrime, one can understand that some may be reluctant to use electronic means of payment. This means that both banks and businesses need to invest greater amounts of resources in making electronic payment systems more secure and resistant to cyberattacks.

The payments evolution may have taken a long time to take off in Malta, which still has one of the most significant volumes of cash in circulation and a high usage of cheques compared to other developed economies. The Central Bank’s move is, therefore, a step in the right direction.

Individuals and businesses would do well to start preparing to embrace the change and wholly adopt new payment methods as soon as the directive is implemented in January 2022. These changes should help show international anti-financial crime watchdogs that Malta has found a new determination to abide by sensible crime prevention regulations.