A Study On The Finality Rules Governing China’s Large Value Payment System

China’s HVPS (High Value Payment System) is a Real Time Gross Settlement Credit Transfer System developed to meet the growing demands for domestic trade and to further facilitate cross-border trading, allowing parties to sent and execute payment orders in real-time. Although the funds transfer transaction is seemingly instantaneous, when put under the microscope a completed transaction requires a payment to be complete-along with the fact that the payment is irrevocable. Payment finality rules are established to determine the point in time which a payment is deemed ’final’, thereby providing parties with precise information to the ownership of funds during the transaction, along with the risks and liabilities associated with it.The transaction process is divided into payment acceptance and payment obligation; once the receiving bank receives a payment instruction from the sender, it creates an obligation for the sender to transfer the funds to the receiving bank’s account. After the funds have been received by the receiving bank, this section of the transfer is said to be final, meaning that that sender can no long cancel or revoke the transaction. This funds transfer process repeats itself through the multiple sending and receiving banks, until the funds have reached the beneficiary’s bank. This transfer process between the sending and receiving banks acting as intermediary parties is known as the first leg of the funds transfer. In the second leg, the beneficiary’s bank accepts payment order from a sending bank and this creates an obligation for them to pay the beneficiary according to the instruction. Here discrepancy arises in the current Chinese law; the rules inconsistently refers payment finality at the point which a receiving bank receives funds from its sender, and later delays finality to the time when beneficiary’s account is credited. In another words the law is supporting finality from the perspective of both the buyer and the seller; a buyer may view that a payment is made as soon as the funds have left his account, while a seller may view that a payment is made only when funds have been credited into his account.With regards to payment finality, The Uniformed Commercial Code (U.C.C.) and the UNICTRAL Model Law both provide valuable insights in this regard. The U.C.C. states that a payment is final when the payment order have been accepted by the beneficiary’s bank. It is reasoned that the beneficiary’s bank is chosen by the beneficiary to act as its agent in this chain of supply; the beneficiary should bear relevant risk such as insolvency, or the bank’s potential failure to credit the beneficiary’s account. Secondly, it is inherently unfair to hold payment originators accountable for potential errors that occur outside of their control, especially if the beneficiary and the chosen bank is outside of the HVPS system. The Model Law also supports this notion of "payment finality by acceptance".The final section addresses the issue of whether the EFT (Electronic Funds Transfer) law should be stated to explicitly discharge the originator’s payment obligation once the payment is deemed final. The Model Law also supported this notion in their commentary guide, and the U.C.C. also included such a statue in their regulations stating that the discharging effect is automatically applied upon payment acceptance by the beneficiary’s bank, as long as other "unless conditions" such as the breach of contract or timely payment refusal have not been met. Giving the funds transfer system mechanics of instantaneous transfer and thereby mimicking a payment made to the beneficiary as if it was in cash, the author proposes the Chinese legal community to take advantage of the system benefits and adopt a similar position in determining payment finality "at acceptance", and properly discharges the originator’s payment obligation owed to the beneficiary upon completion.