The introduction of the International ACH Transaction (IAT) rule has led to almost 600,000 transactions being made globally in December 2009, a 50% rise on September 2009. This represents a total cost of US$2.7bn.
The rule, implemented by the National Automated Clearing House Association (NACHA) in September 2009, was intended to help financial institutions (FIs) in their Office of Foreign Assets Control (OFAC) compliance and money laundering duties by adding transparency to international payments.
In an interview with gtnews, Janae Sasman, director of compliance product management at technology firm Fiserv, said: “It is likely that we will see a rise this year as well, but I think 2011 is where we’re going to see some very consistent volumes for IAT transactions and we’ll get a better picture of what it’s going to look like. I think institutions struggled a lot at the end of 2009 to understand what type of volumes they were going to get for IAT.”
The new rule requires:
- All IAT to be identified.
- All IAT should be screened for unlawful entries.
- International payments must include identifying information as to their origin.
As part of the change from two to one cross-border classification code, IATs themselves have also been redefined to include:
- An ACH entry that is part of a payment involving a financial agency’s office that is not located in the jurisdiction of the US.
- Where the financial agency that handles the payment transaction is located, not where other parties to the transaction (e.g. originator or receiver) are located.
Although cross-border payments have existed for many years, tracking the transactions as they move into the US has been difficult. FIs would often lose track of who initiated the original transaction and would therefore be unaware that it originated as an international transaction. “As they passed through the US, we changed their transaction type and eventually we could no longer tell that it was an international transaction,” Sasman said. “They put in the new rules regarding IATs to eliminate this issue with individuals flying under the radar and financial institutions that weren’t receiving those transactions, they weren’t really able to comply with the law, because they couldn’t tell it was an international transaction.”
Because NACHA also changed how it defined an international transaction, it has profoundly changed the way the US market viewed those transactions. This has placed a lot more responsibility on the institutions that accepted those transactions. In addition to being identified as an international transaction, IATs had to be screened for any type of watch list filtering, by checking the OFAC list for individuals that might be conducting unauthorised business within the US.
“The other thing that has really affected the process is the amount of data in an IAT transaction that has to be checked. Normally when we check a transaction for watch list filtering we’re checking an originator name and a receiver name. With a wire, we’re checking the country it’s coming from and the people it’s going to or coming from,” Sasman explained.
“In an international cross-border ACH payment we have to check their name and addresses, as well as the institutions that originated it and anybody who touched the transaction. So there’s a lot more going on, maybe from four elements to 15 and up to 18 that have to be checked. That profoundly changes the way an institution views an international transaction as for each one transaction there are multiple elements that have to be checked.”
FIs have two options as to how to take on the operational challenge of checking each of these payments, to prevent themselves falling foul of these regulations. They can either handle it manually by making separate file of all their IAT transactions every day and checking them against the watch. Obviously, this is not the most efficient process, and is fraught with error owing to the manual processes. Ot they can automate the process, which greatly increases efficiency and reduces the risk of errors.
The information available to FIs on payments’ origin as IAT volumes continue to grow could prove useful, Sasman said. “There are institutions which, rather than just trending blocked countries, want to look at where they are getting the most transactions from, and what the average dollar amount is. They could then start looking at certain dollar amount transactions above a certain amount for specific countries, for example. I definitely could see that happening in the future.”
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