Dodd-Frank Section 1073 is arguably one of the biggest changes to cross-border payments globally in recent years. It requires banks providing cross-border payments services to U.S. based consumers to commit to all fees, funds delivery date and more before initiating the transaction. This session describes the pros and cons of open loop, closed loop and hybrid approaches. Speakers also discuss whether the new requirement is likely to be adopted by corporates and internationally.

1. Transparency in cross-border payments & the
impact of Dodd-Frank Section 1073
Paul Trozzo
Senior Vice President
PNC Bank
Jonathan Lear
Head of Business
Earthport North America

2. 2
Session Synopsis
Dodd-Frank Section 1073 is arguably one of the biggest
changes to cross-border payments globally in recent years.
It requires banks providing cross-border payments services to
US consumers to commit to all fees, funds delivery date and
more, upfront.
This session will describe the pros and cons of open loop, closed
loop and hybrid approaches; and discuss whether the new
requirement is likely to be adopted by corporates, and in other
countries

3. 3
Agenda
1. Overview of Dodd-Frank Section 1073
2. Key requirements
3. Range of approaches
4. Questions

4. 4
Regulations
0 200 400 600 800 1000
Dodd-Frank (2010)
Other Acts, Combined
Gramm-Leach-Bliley (1999)
Sarbanes-Oxley (2002)
Interstate Banking Efficiency (1994)
Glass-Steagall (1993)
Federal Reserve (1913)
Major U.S. Financial Legislation: Pages in the
Federal Register

5. 5
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 originally scheduled to take effect February 7, 2013.
Proposed rule changes from December 2012 delayed implementation.
– 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.

6. 6
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

7. 7
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

8. 8
Different approaches
Different 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

9. 9
SWIFT is working with the industry to identify and shape
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 User Handbook to
include the use of a codeword “CCT” (‘Consumer
Credit Transfer’)
• in field 26T of the relevant MT messages
• Market Practice Guidelines around usage
are being discussed by the PMPG
SWIFTRemit
Codeword
‘CCT’
in 26T
• SWIFTRemit provides full transparency on
amounts, fees, charges; delivery timeline,
supports cancellation and return process;
allows account validation and transaction status
Industry Liaison
• Cash & Trade
Subcommittee of the
SWIFT U.S. NMG
• Federal Reserve
Board
• The Clearing House
• BAFT-IFSA
• Payments Market
Practice Group
(PMPG)
• Payments
Maintenance Working
Group (PMWG)
Source: SWIFT

10. 10
How Hybrid/’Global ACH’ works
Segregated Accounts
Payment Instructions
Funding in USD
FI:
EUR UK:
GBP
SG:
SGD
US:
USD
PH:
PHPAU:
AUD
JP:
JPY
ZA:
ZAR
US:
USD
US:
SGD
NO:
NOK
PL:
PLN
FX
process
Branch
Phone
Online
Funding in SGD
No FX
process
Channels

11. 11
Hybrid/Global ACH
DFS1073 Requirement Hybrid/Global ACH Comment
Full fee disclosure at the point of
origination.
• Fixed end-to-end fee per transaction
• FX rate ‘fixed on send’
All fees are known upfront
Domestic payments schemes do not
support per transaction bene
deduct/lifting fees
Guarantee on final principal settled. 100% predictability for all fees other than
taxes:
• No beneficiary landing fee.
• No ‘incoming credit’ posting fee.
FX rates are set upfront
Any fees imposed by local service
providers are known upfront and hence
absorbed by global service provider
Guarantee on when funds will be
delivered.
100% predictability of value date Domestic payments schemes have
known and predictable clearing cycles;
hence time/date of payment is known
upfront
30 min cancellation right from
origination
Service enhancement ; generic warehousing
requirement which can be achieved either via
ODFI or global ACH partner.
180 days rolling liability ODFI responsibility

12. 12
Impact on non-US FIs
• Ability to deliver transparent services to US FIs
• Though DFS1073 applies only to consumer-initiated transactions, the fee
and FX rate transparency and transaction predictability is expected to
impact other segments, especially SME.
• Regulators in several other countries are observing the effects of the PSD
and DFS1073. Greater transparency seems inevitable.

13. © 2012 All Rights Reserved.
Questions?
– Will regulation be relaxed?
– Will repudiation liabilities force prices higher?
– Will major players exit?
– Will estimates result in better service levels?