© 2012 Earthport Plc. All Rights Reserved.                                             Because there’s a better way.
Transparency in cross-border                            “An invasion of armies canpayments & the impact of Dodd-          ...
Session SynopsisDodd-Frank Section 1073 is arguably one of the biggest changes to cross-borderpayments globally in recent ...
Agenda1. Overview of Dodd-Frank Section 10732. Key requirements3. Range of approaches4. Questions© 2012 All Rights Reserve...
Regulations              Major U.S. Financial Legislation: Pages in the                            Federal Register       ...
Dodd Frank 1073 - Background• Dodd Frank 1073 (DFS1073) seeks to protect consumers sending Electronic  Fund Transfer (EFT)...
Dodd Frank 1073 - Requirements• Full fee disclosure at the time of origination – including taxes imposed at  beneficiary• ...
Dodd Frank Section 1073 – issues and changes• As a result of market feedback, CFPB has     • excluded organisations which ...
Different approachesDifferent options for approaching DFS1073:     1. Exit consumer originated cross-border payments busin...
SWIFT is working with the industry to identify andshape potential solution(s)                   •    Enables the unambiguo...
How Hybrid/’Global ACH’ works            Channels                                                    Segregated Accounts  ...
Hybrid/Global ACH   DFS1073 Requirement                                  Hybrid/Global ACH                               C...
Impact on non-US FIsAbility to deliver transparent services to US FIsThough DFS1073 applies only to consumer-initiated tra...
Questions?• Will regulation be relaxed?• Will repudiation liabilities force prices higher?• Will major players exit?• Will...
Because there’s a better way.
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Sibos 2012 sessions - Transparency in cross-border payments & the impact of Dodd-Frank Section 1073

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Sibos 2012 - Dodd-Frank Section 1073 is arguably one of the biggest changes to cross-border payments globally in recent years. This session described the pros and cons of open loop, closed loop and hybrid approaches; and discussed whether the new requirement is likely to be adopted by corporates, and in other countries.

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Sibos 2012 sessions - Transparency in cross-border payments & the impact of Dodd-Frank Section 1073

  1. 1. © 2012 Earthport Plc. All Rights Reserved. Because there’s a better way.
  2. 2. Transparency in cross-border “An invasion of armies canpayments & the impact of Dodd- be resisted, but not an idea whose time hasFrank Section 1073 come.” Victor HugoJ. Christopher Ward, PNC BankExecutive Vice President, Head of Product Management,Treasury ManagementNeil Burton, EarthportDirector, Product StrategySibos, Osaka, Japan29.10.2012© 2012 Earthport Plc. All Rights Reserved. Because there’s a better way.
  3. 3. Session SynopsisDodd-Frank Section 1073 is arguably one of the biggest changes to cross-borderpayments globally in recent years.It requires banks providing cross-border payments services to US consumers tocommit to all fees, funds delivery date and more, upfront.This session will describe the pros and cons of open loop, closed loop and hybridapproaches; and discuss whether the new requirement is likely to be adopted bycorporates, and in other countries.© 2012 All Rights Reserved. Because there’s a better way.
  4. 4. Agenda1. Overview of Dodd-Frank Section 10732. Key requirements3. Range of approaches4. Questions© 2012 All Rights Reserved. Because there’s a better way.
  5. 5. Regulations Major U.S. Financial Legislation: Pages in the Federal Register Federal Reserve (1913) Glass-Steagall (1993)Interstate Banking Efficiency (1994) Sarbanes-Oxley (2002) Gramm-Leach-Bliley (1999) Other Acts, Combined Dodd-Frank (2010) 0 200 400 600 800 1000 © 2012 All Rights Reserved. Because there’s a better way.
  6. 6. Dodd Frank 1073 - Background• Dodd Frank 1073 (DFS1073) seeks to protect consumers sending Electronic Fund Transfer (EFT) payments across borders• Imposed by Congress Summer 2010; statute finalized by CFPB and entered into the Federal Register 7 Feb 2012• The Final Rule takes effect February 7, 2013• Echoes many of the transparency requirements imposed by the EC Payment Services Directive (PSD) in 2009; however • Unlike the PSD, DFS1073 is unique in shifting liability to the remitting bank regarding the accuracy of the payment; and in doing so removes primacy of the account number for settlement of disputes.© 2012 All Rights Reserved. Because there’s a better way.
  7. 7. Dodd Frank 1073 - Requirements• Full fee disclosure at the time of origination – including taxes imposed at beneficiary• Guarantee of amount of final funds delivered• Guarantee on when funds will be received• Right to cancel a transaction up to 30 minutes after submission• 180 days of rolling liability for disputed transactions• estimates initially acceptable; certainty required by Jul 2015© 2012 All Rights Reserved. Because there’s a better way.
  8. 8. Dodd Frank Section 1073 – issues and changes• As a result of market feedback, CFPB has • excluded organisations which transact fewer than 100 cross-border consumer payments p.a., up from the initial 25 • published ‘safe harbour’ list of countries for which estimates are acceptable: • Aruba • Brazil • China • Ethiopia • Libya• Establishment of tax deductions on payout remains a major challenge: • Only a few countries publish reliable data • Industry bodies have carried out feasibility studies for other countries • May lead to development of a universal tax utility for all banks to tap into© 2012 All Rights Reserved. Because there’s a better way.
  9. 9. Different approachesDifferent options for approaching DFS1073: 1. Exit consumer originated cross-border payments business 2. Adapt ‘open loop’ wire (correspondent banking) model Rationalize entry channels, currencies, countries 3. Adopt a closed loop solution 4. Outsource via Agent Agreement 5. Adopt Hybrid/‘Global ACH’ service© 2012 All Rights Reserved. Because there’s a better way.
  10. 10. SWIFT is working with the industry to identify andshape potential solution(s) • Enables the unambiguous identification of transactions requiring compliance • A CR for SR 2013 was submitted to PMWG proposing an update to the Codeword User Handbook to include the use of a codeword “CCT” (‘Consumer ‘CCT’ in 26T Credit Transfer’) Industry Liaison • in field 26T of the relevant MT messages • Market Practice Guidelines around usage • Cash & Trade are being discussed by the PMPG Subcommittee of the SWIFT U.S. NMG • Federal Reserve • SWIFTRemit provides full transparency on Board amounts, fees, charges; delivery timeline, • The Clearing House SWIFTRemit supports cancellation and return process; • BAFT-IFSA allows account validation and transaction status • Payments Market Practice Group (PMPG) • Payments Maintenance Working Group (PMWG)Source: SWIFT Because there’s a better way.
  11. 11. How Hybrid/’Global ACH’ works Channels Segregated Accounts PhoneBranch Online FI: NO: EUR UK: NOK GBP US: SG: Funding in SGD SGD SGD Funding in USD US: US: USD USD Payment Instructions ZA: PL: ZAR PLN JP: PH: JPY AU: PHP FX No FX AUD process process © 2012 All Rights Reserved. Because there’s a better way.
  12. 12. Hybrid/Global ACH DFS1073 Requirement Hybrid/Global ACH Comment Full fee disclosure at the point of • Fixed end-to-end fee per transaction All fees are known upfront origination. • FX rate ‘fixed on send’ Domestic payments schemes do not support per transaction bene deduct/lifting fees Guarantee on final principal settled. 100% predictability for all fees other than FX rates are set upfront taxes: Any fees imposed by local service • No beneficiary landing fee. providers are known upfront and hence • No ‘incoming credit’ posting fee. absorbed by global service provider Guarantee on when funds will be 100% predictability of value date Domestic payments schemes have delivered. known and predictable clearing cycles; hence time/date of payment is known upfront 30 min cancellation right from Service enhancement ; generic warehousing origination requirement which can be achieved either via ODFI or global ACH partner. 180 days rolling liability ODFI responsibility© 2012 All Rights Reserved. Because there’s a better way.
  13. 13. Impact on non-US FIsAbility to deliver transparent services to US FIsThough DFS1073 applies only to consumer-initiated transactions, the fee and FXrate transparency and transaction predictability is expected to impact othersegments, especially SME.Regulators in several other countries are observing the effects of the PSD andDFS1073. Greater transparency seems inevitable.© 2012 All Rights Reserved. Because there’s a better way.
  14. 14. Questions?• Will regulation be relaxed?• Will repudiation liabilities force prices higher?• Will major players exit?• Will estimates result in better service levels?© 2012 All Rights Reserved. Because there’s a better way.
  15. 15. Because there’s a better way.

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