NACHA Rule Changes 2013 / 2014

Don Jackson, AAP, CTPSenior Vice President, First Tennessee Bank, N.A.

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NACHA Rule Changes – 2013 / 2014

DISCUSSION TOPICS

NACHA Rule Making Process ACH Security Framework Heathcare Payments P2P Transactions Same Day ACH – Market Survey Expanded Addenda Records - RFI

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NACHA Rule Making Process

Current Structure of the Rulemaking Process became effective January 1, 2012• Guiding principles• Hierarchy, roles and composition of groups• Participation policies• Process flow and annual timeline• Benefits and considerations

Interpretative Rules Process Pilot and Opt-in Program Approval Processes

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Guiding Principles for the Rulemaking Process

Efficient, effective use of members’ and volunteers’ time and resources

Consensus reached in order to achieve voting thresholds• Inclusive of members and other stakeholders• Open to participation• Solicit and respond to feedback

Federal Reserve and Treasury incorporation of NACHA rules is predicated on an open process

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NACHA Rule Making Process - Balance

Inclusive

ThoroughResponsive

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NACHA Rule Making Process - Hierarchy

Rules & Operations Committee

Product Innovation Risk & Quality Compliance &

Operations

Operator Technical Issues

Software Information

Exchange

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NACHA Rule Making Process – SRG Roles

Rules and Operations Committee (R&O)

• Provide strategic oversight to the Rulemaking Process

• Assess potential new applications and services

• Monitor the progress of issues through the Process and make decisions on next steps for an initiative based on recommendations from the Work Group

• Review Requests For Information and Requests For Comment

• Approve membership of Standing Rules Groups and provide oversight to these groups

• Review and approve pilot and opt-in program proposals

• Review and approve distributing ballots to the NACHA Voting Membership

• Responsible for reporting to the Board.

Operator Technical Issues (OTI)

• Provide input focused on potential ACH Operator impacts and time needed for development.

• Review all proposals prior to RFC and prior to ballot.

Software Information Exchange (SIX)

• Provide input focused on ACH processing software impacts to the participants in the Network, including the amount of modifications needed and time needed to implement a change.

• Review all proposals prior to RFC.

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NACHA Rule Making Process - SRG Roles

Product Innovation

• Focus on new ways to use the Network or substantial enhancements

• Subgroups "Industry Work Groups" could be formed for specific topics

• No limit to number of RFCs/ballots per year

Risk & Quality

• Focus on Rules related to risk and quality in the ACH Network

• 2 RFC/ballot periods per year (May & November)

Compliance & Operations

• Focus on Rules related to operations, maintenance, and compliance with other regulations

• 2 RFC/ballot periods per year (February & August)

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NACHA Rule Making Process Flow

Idea submission•Rules Committee reviews Submission and determines SRG placement• Standing Rules Group develops proposal• Input from Operator Technology & Software Information Exchange update provided to Voters•Rules Committee approves distributing RFC to industry

RFC•After RFC comment period, Group reviews responses, makes revisions to proposal•Review by Operator Technology & Voters•Rules Committee approves distributing ballot to Voters

Ballot

•Voters have 15 banking days to cast vote

•Proposed rule amendment must be approved by 2/3rds of the votes cast or by 3/4ths of members

Implementation

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NACHA Rule Making Process

First Quarter

• February – RFC/Ballot period for Compliance & Operations SRG

• March – Rules implementation date (software changes)

Second Quarter

• May – RFC/Ballot period for Risk & Quality SRG

• June – Rules implementation date

Third Quarter

• August - RFC/Ballot period for Compliance & Operations SRG

• September– Rules implementation date (software changes)

Fourth Quarter

• November– RFC/Ballot period for Risk & Quality SRG

Product Innovation may release RFCs/Ballots as needed Rules with no software impacts may implement as

needed December implementation date available but rarely used

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NACHA Rule Making Process - Pilots

Purpose: Allows NACHA to test an application and impacts on FIs (their clients and customers) to determine whether to move into rulemaking - generally involves determining whether to adopt a new SEC Code

Baseline Assumption: There is a need for a new SEC Code or changes to the Rules that would require industry-wide participation, and that a pilot would be needed to test technological, operational and customer service impacts before going into rulemaking

Term: Defined start and end dates Business Case:

Industry level preliminary business case needed to justify pilot

Pilot to demonstrate benefits and impacts Full business case needed to move into rulemaking

(typically for a new SEC Code)

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NACHA Rule Making Process – Opt In Programs

Purpose: Allows FIs to utilize the ACH Network, under the auspices of NACHA, where there may not be a need by all FIs on the Network, and where there is no immediate need for a broad-based Rule.

Baseline Assumption: Not all FIs may need functionality, so there is no need for a new SEC Code or broad-based changes to the Rules. This utilization will bring new volume onto the Network or prevent volume from moving off the Network, while still being governed under the auspices of NACHA

Term: No defined end dates Business Case:

No direct impact beyond opt-in group of FIs participating and their customers

Each FI develops its own business case - no industry-wide assessment required

Limited NACHA resources to support if outside annual Plan of Work

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NACHA Rule Making Process – Opt In Programs

Rules proposals are categorized as:

(A) Major impact to Network (Category A),

(B) Moderate impact to Network (Category B), or

(C) Minor impact to Network (Category C).

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NACHA Rule Changes 2013 / 2014

DISCUSSION TOPICS

ACH Security Framework Heathcare Payments P2P Transactions Same Day ACH – Market Survey Expanded Addenda Records - RFI

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NACHA Rule Changes 2013

ACH Security Framework This amendment is aimed at protecting the

security and integrity of ACH data throughout it’s lifetime. Participants are required to establish, implement and update

Security Policies, Procedures and systems to initiate, process or store ACH entries

ODFIs are required to establish the identity of Originators and Third Parties using the ACH Network

All DFIs, Third Party Service Providers and Third Party Senders are required to conduct and annual audit of compliance with this amendment.

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NACHA Rule Changes 2013

Healthcare Payment via ACH The Patient Protection and Affordability Care Act

(AKA Obama care) requires standards for healthcare electronic funds transfers. Use if the CCD+ NACHA standard entry class with addenda has

been adopted as the standard Use of the EDI TRN segment has been adopted to contain the

“reassociation number” Providers must contact their FIs to receive CCD Batch Header to contain HCCLAIMPMT to identify the entry

as a health care transaction CCD Batch Header to contain a Company Name that is easily

recognizable by the receiver

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NACHA Rule Changes 2014

P2P Payments via ACH Standardize the use of the ACH Network for

person-to-person payments Previously, the WEB Standard Entry Class only allowed debit

entries WEB Standard Entry Class for credit entries is restricted to P2P Unlike other origination activity, an Originator of a P2P entry is

not required to have an origination agreement with the ODFI The Sender of the credit entry is identified within the Individual

ID field and the P2P Service Provider is identified in the Company Name field of the Batch Header record

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Same Day ACH

Market Survey Potential Rule “Strawman”

ODFIs to submit files by 10:00 a.m. ET and 3:00 p.m. ET, available to RDFIs by 11:00 a.m. ET and 4:00 p.m. ET

Phase I – ACH Credits only, limited to $25,000 or less, proposed effective date of September 2016, Settlement at 5:00 p.m. ET

Phase II – ACH Credits and Debits, limited to $25,000 or less, proposed effective date of September 2017, Settlement at 5:00 p.m. ET

Phase III – ACH Credits and Debits, limited to $25,000 or less, proposed effective date of March 2018, Settlement at noon ET and 5:00 p.m. ET

Survey gathers data from RDFIs regarding the incremental expenses incurred under the above Strawman. Staff, potential risk, and to bank’s P&L.

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Expanded Addenda Records

Request for Information Payments plus Information - Expansion of

Addenda Records All Standard Entry Classes with the exception of CTX are limited

to one addenda record with 80 characters of available space for additional information.

The RFI considers increasing the number of records for 1 to 9 and possibly removing the restriction 9,999 records on CTX.

Modifications are also considered that would include a type code to indicate if the addenda contains free text, URL, HML, etc.

QUESTIONS?

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