There is less than a year before the NACHA rule and format for international ACH transactions (IATs) go live. The rule change, which will enable all U.S. financial institutions to readily identify cross-border payments carrying remittance information that details all the parties to the payment, takes effect March 20, 2009, and presents both opportunities and challenges for banks.
The new IAT rule will identify international automated clearing house (ACH) transactions by focusing on where the financial agency that handles the payment transaction is located, according to NACHA, the Herdon, Va.-based payments organization. As a result, certain international transactions that currently are formatted as domestic transactions because they are conducted through a U.S.-based correspondent relationship instead will be classified as IATs.
The identification of these payments as international transactions and the addition of the Bank Secrecy Act's Travel Rule information -- including the originator's and receiver's names, addresses, account numbers and financial institutions -- will make it easier for receiving depository financial institutions to comply with Office of Foreign Assets Control (OFAC)-sanctioned guidance around anti-money laundering, experts say. "The new IAT code supports the end of anonymity and promotes traceability of international electronic payments," according to the Federal Reserve.
"ACH is a batch-processing system," explains Aite Group senior analyst Nancy Atkinson, who notes that currently international ACH transactions are sent in batches separate from domestic payments. International batches are coded as either "corporate cross-border payments" (CBR) or "consumer cross-border payments" (PBR), she relates. Those codes, Atkinson says, will be replaced by the IAT codes. The IAT codes, she continues, are standard entry class (SEC) codes that "help banks direct how batches get processed" and enable the desegregation of international and domestic ACH transactions.
Changes to ACH Systems
The rule change, however, will require changes to banks' ACH systems, which will have to be able to scan for the IAT codes to flag international items and interface with OFAC tables, Atkinson notes. "[Current] systems are not designed to do that," she says. But some ACH vendors -- such as Atlanta-based CheckFree, a division of Fiserv (Brookfield, Wis.) -- already are implementing appropriate changes, according to Atkinson.
"Given the significance of this change, it is essential that financial institutions start now to understand and implement the rule," said Richard Oliver, EVP and retail payments product manager of the Federal Reserve System, in a release. "The testing process, both internally and with vendors, will be extensive."
However, "There is no NACHA testing to certify a bank ready for the IAT," Priscilla Holland, senior director of network development at NACHA, tells BS&T. "Banks will need to test with their software vendors, ACH operators and, if they originate IAT transactions, with their customers."
The effort should create new opportunities for banks to build ACH businesses that serve the international market, according to Aite's Atkinson. Most existing ACH systems, she says, are domestic to their originating country.
The new rule also will make U.S. ACH formats more consistent with other network formats, such as wire transfers, that carry the Travel Rule information. The change also is consistent with field requirements in SWIFT formats to ensure efficient mapping of data.