ACH Operators: Viewing Network Risk in HD

Transcription

1 ACH Operators: Viewing Network Risk in HD

2 The Clearing House Brief History Integral part of economic infrastructure since Leading private sector provider of ACH, wire, and check image solutions. Premier forum for dialogue, collaboration and action on issues of significance to financial institutions. 2

3 The Clearing House - Products EPN The Clearing House s Electronic Payments Network provides ACH processing and related services to financial institutions of all sizes from coast to coast. SVPCO The Clearing House s Image Payments Network provides financial institutions of all sizes with a cost-effective way to get check images anywhere they need to go. CHIPS Clearing House Interbank Payment Systems delivers highly effective and efficient wire transfer payments in real time with finality. 3

4 The Federal Reserve Bank Brief History Established by Congress in Multiple Roles Central Bank of the United States Bank Supervisor and Regulator Promotion of an efficient nationwide payments systems. Established the first nationwide check clearing system. Worked with the private sector to develop ACH in the early 1970s. 4

5 Federal Reserve Financial Services FedACH The FedACH Services product suite provides financial institutions with efficient, low-cost batched payment services that enables an electronic exchange of debit and credit transactions through the Automated Clearing House (ACH) network. FedWire The Federal Reserve Banks' Fedwire Services are designed to offer a secure, reliable method of handling large-value, timecritical payments. Check Services The Federal Reserve Banks Check Services offer you a suite of electronic and paper check processing options to support all of your needs. 5

6 Federal Reserve Financial Services FedCash The Federal Reserve Banks offer FedCash Services to help ensure that depository institutions have sufficient supplies of currency and coin to meet public demand. National Settlement Services The National Settlement Service is a multilateral settlement service owned and operated by the Federal Reserve Banks. The service is offered to depository institutions that settle for participants in clearinghouses, financial exchanges and other clearing and settlement groups. 6

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8 ACH Risk Management NACHA reported Billion ACH payments in 2009 transmitted via both ACH Operators. There has been strong collaboration among NACHA, ACH Operators (FRB and TCH), RPA s and Financial Institutions in the initiative to mitigate risk. Overall the percentage of returns of unauthorized ACH items declined from.09% to.03% from 2001 to

9 Forward items increasing as the percent of unauthorized items decreasing (data from NACHA.org) 20,000,000, ,000,000,000 16,000,000, ,000,000,000 12,000,000,000 10,000,000, ,000,000,000 6,000,000, ,000,000,000 2,000,000, Total ACH Payments % Unauthorized (Debit only) 9

10 NACHA Initiative to Mitigate Risk: The Risk Management Advisory Group (RMAG) was formed in October 2005 to advise NACHA on the implementation of a strategic framework to evaluate and mitigate risk. RMAG participants include financial institutions of all sizes, regional payments associations, and from both ACH operators (FRB and TCH). RMAG efforts initially focused on three areas: Network Entry, Ongoing Requirements, and Enforcement 10

11 NACHA/RMAG Initiatives: Enforcement Network Enforcement Rule: Implemented in December, 2007 and March, Goals: To reduce level of unauthorized returns in the network. To provide a meaningful fine structure. To take a proactive role in addressing high risk originators. 11

12 NACHA/RMAG Initiatives: Ongoing Requirements Company Name ID Rule: Implemented in June, 2008 Goals: To reduce the level of unauthorized returns in the network. To require a company to identify itself within the ACH transaction. To enable consumers to more readily identify companies that are the sources of ACH transactions. 12

13 ODFI Responsibility - Ongoing Monitor origination/return volume. Enforce restrictions on the types of ACH transactions that may be originated. Enforce exposure limits. Regular communication with the Originator/Third Party sender. 13

14 Risk Management and Assessment Rule: Network Entry Implemented in June, Goals: To improve risk management and to reduce risk in the ACH Network. To introduce the requirement of annual assessments by DFI s of the risks of their ACH activities. To require ODFI s to conduct risk management functions prior to originating ACH entries and to address specific risk management related topics in their agreements with originators and third party senders. 14

15 ODFI Responsibility - on boarding Due Diligence. Determine the nature of the Originator/Third Party sender s activity. Determine the risk of the Originator/Third Party sender s activity. What is their origination and return History? Why are they moving? Establish an exposure limit. 15

16 Unauthorized Returns: Items by quarter (Operator data) 16

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18 Federal Reserve Bank FedACH Risk Analyst Actively monitors forward and return volume. Invalid, unauthorized, and total returns are scrutinized. Monitors possible suspicious activity and identifies areas that need additional scrutiny. Communicates with participants when changes are noticed or automatic thresholds are hit. 18

19 Federal Reserve Bank Credit and Risk Management The FRB monitors the safety and soundness of all DFIs that use FRB services or have access to the Discount Window Collateral required for all loans. Condition monitoring identifies entities that pose an undue risk to the payments system. Communication of relevant info to staff within FRB system and other supervisory agencies (if and when necessary). Implementation of appropriate measures to mitigate risk posed by such entities. 19

20 The Clearing House Product Risk Manager: Monitors external risks that may affect TCH products. Evaluates possible risks associated with payment types. Monitors possible suspicious activity and identify areas that need additional scrutiny. 20

21 Ensure the on boarding safety and soundness of TCH ACH Network Methods for Risk Management Identify rating for current and pending participants. Assign processing caps based on ratings. Communicate with participants 21

22 Ensure the Ongoing safety and soundness of TCH ACH Network Methods for Risk Management Ongoing Monitoring of Participants Activity on the system Rating changes and cap adjustments. Review returns of Unauthorized and Invalid items Monitor bank closures Communicate regularly with participants 22

23 Operator Collaboration Ensure the Ongoing safety and soundness of the ACH Network Annual meeting between TCH and FRB, along with Ad Hoc Meetings as needed. Regular communication. Exchange of observations. 23

24 In Closing In order to keep the ACH Network safe and secure, we all need to do our part. ACH transactions continue to grow and the threat of risky transactions is always probable. Due diligence is required when bringing an originator/third party sender and participant onto the network as is regular ongoing monitoring. Steps have been taken by NACHA/RMAG, Financial Institution participants, RPAs and the ACH Operators to mitigate risk. Evaluation of existing rules and events is ongoing in an effort to continuously improve the network s safety and soundness. 24

25 Questions?? 25

26 Thank you for joining us today 26