Final Guidelines for Evaluating Joint Account Requests, 41951-41959 [2017-18705]
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Federal Register / Vol. 82, No. 170 / Tuesday, September 5, 2017 / Notices
7.3 percent of the voting shares of Union
Bankshares, Corporation, Richmond,
Virginia, and thereby indirectly acquire
Union Bank & Trust, Richmond,
Virginia.
B. Federal Reserve Bank of Dallas
(Robert L. Triplett III, Senior Vice
President) 2200 North Pearl Street,
Dallas, Texas 75201–2272:
1. Veritex Holdings, Inc., Dallas,
Texas; to merge with Liberty
Bancshares, Inc., Fort Worth, Texas, and
thereby indirectly acquire Liberty Bank,
Hurst, Texas.
Board of Governors of the Federal Reserve
System, August 30, 2017.
Yao-Chin Chao,
Assistant Secretary of the Board.
[FR Doc. 2017–18734 Filed 9–1–17; 8:45 am]
BILLING CODE 6210–01–P
FEDERAL RESERVE SYSTEM
Agency Information Collection
Activities: Announcement of Board
Approval Under Delegated Authority
and Submission to OMB
Board of Governors of the
Federal Reserve System.
SUMMARY: The Board of Governors of the
Federal Reserve System (Board) is
adopting a proposal to extend for three
years, without revision, the Notification
of Nonfinancial Data Processing
Activities (FR 4021; OMB No. 7100–
0306).
On June 15, 1984, the Office of
Management and Budget (OMB)
delegated to the Board authority under
the Paperwork Reduction Act (PRA) to
approve of and assign OMB control
numbers to collection of information
requests and requirements conducted or
sponsored by the Board. Boardapproved collections of information are
incorporated into the official OMB
inventory of currently approved
collections of information. Copies of the
Paperwork Reduction Act Submission,
supporting statements and approved
collection of information instrument(s)
are placed into OMB’s public docket
files. The Federal Reserve may not
conduct or sponsor, and the respondent
is not required to respond to, an
information collection that has been
extended, revised, or implemented on or
after October 1, 1995, unless it displays
a currently valid OMB control number.
FOR FURTHER INFORMATION CONTACT:
Federal Reserve Board Clearance
Officer—Nuha Elmaghrabi—Office of
the Chief Data Officer, Board of
Governors of the Federal Reserve
System, Washington, DC 20551, (202)
452–3829. Telecommunications Device
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AGENCY:
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for the Deaf (TDD) users may contact
(202) 263–4869, Board of Governors of
the Federal Reserve System,
Washington, DC 20551.
OMB Desk Officer—Shagufta
Ahmed—Office of Information and
Regulatory Affairs, Office of
Management and Budget, New
Executive Office Building, Room 10235,
725 17th Street NW., Washington, DC
20503 or by fax to (202) 395–6974.
Final approval under OMB delegated
authority of the extension for three
years, without revision, of the following
report:
Report title: Notification of
Nonfinancial Data Processing Activities.
Agency form number: FR 4021.
OMB control number: 7100–0306.
Frequency: On occasion.
Respondents: Bank holding
companies.
Estimated number of respondents: 2.
Estimated average hours per response:
2.
Estimated annual burden hours: 4.
General description of report: Bank
holding companies (BHCs) submit the
FR 4021 notification to request
permission to administer the 49 percent
revenue limit on nonfinancial data
processing activities on a business-line
or multiple-entity basis. These
notifications, which may be submitted
in letter form, should describe the
structure of the requesting BHC’s data
processing operations, the methodology
the BHC proposes to use to administer
the 49 percent revenue test and the
reasons why the BHC believes that the
proposed methodology is appropriate.
The Board will consider any request in
light of all the facts and circumstances,
including the interrelationships
between the data processing activities
conducted by the BHC’s separate
subsidiaries, the holding company’s
business or operational reasons for
conducting its data processing activities
in different subsidiaries, and the level of
the BHC’s ownership interest in the
individual subsidiaries.
Legal authorization and
confidentiality: The Board’s Legal
Division has determined that the Bank
Holding Company Act (12 U.S.C.
1843(c)(8), (j) and (k)) authorizes the
Board to collect this information and the
information is required to obtain a
benefit. A BHC may request confidential
treatment of the information contained
in the notice pursuant to exemption 4 of
the Freedom of Information Act (5
U.S.C. 552(b)(4)).
Current actions: On May 31, 2017 the
Federal Reserve published a notice in
the Federal Register (82 FR 24970)
requesting public comment for 60 days
on the extension, without revision, of
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the Notification of Nonfinancial Data
Processing Activities. The comment
period for this notice expired on July 31,
2017. The Board did not receive any
comments.
Board of Governors of the Federal Reserve
System, August 30, 2017.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2017–18694 Filed 9–1–17; 8:45 am]
BILLING CODE 6210–01–P
FEDERAL RESERVE SYSTEM
[Docket No. OP–1557]
Final Guidelines for Evaluating Joint
Account Requests
Under the Federal Reserve
Act (FRA), the Federal Reserve Banks
(Reserve Banks) have the authority to
open accounts for member banks and
other eligible depository institutions
(collectively, depository institutions).
The Reserve Banks routinely open and
maintain individual Federal Reserve
accounts for eligible institutions. Joint
accounts—those where the rights and
liabilities are shared among multiple
depository institution account-holders—
have not in the past been available as a
standard account option, but in limited
cases the Reserve Banks have opened
such accounts for specific purposes. The
Board of Governors of the Federal
Reserve System (Board) has approved
final guidelines for evaluating requests
for joint accounts at Reserve Banks
intended to facilitate settlement
between and among depository
institutions participating in privatesector payment systems (private-sector
arrangements). The guidelines broadly
outline factors that will be considered in
evaluating such requests, but are not
intended to provide assurance that any
specific arrangement would be granted
a joint account. Requests will be
evaluated on a case-by-case basis, with
the type and extent of information
necessary to evaluate a particular
request likely dependent on the
complexity of the arrangement.
DATES: September 5, 2017.
FOR FURTHER INFORMATION CONTACT:
Susan V. Foley, Senior Associate
Director (202–452–3596), Kylie Stewart,
Manager (202–245–4207), or Ian C.B.
Spear, Senior Financial Services
Analyst (202–452–3959), Division of
Reserve Bank Operations and Payment
Systems; Gavin Smith, Counsel (202–
452–3474), Legal Division; for users of
Telecommunications Device for the Deaf
(TDD) only, contact 202–263–4869.
SUPPLEMENTARY INFORMATION:
SUMMARY:
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I. Background
On December 22, 2016, the Board
requested comment on proposed
guidelines for evaluating requests for
joint accounts at Federal Reserve Banks
intended to facilitate settlement
between depository institutions
participating in private-sector
arrangements within the U.S. payment
system.1 The Reserve Banks routinely
open and maintain individual Federal
Reserve accounts for depository
institutions. Joint accounts have not
been available in the past as a standard
account option, but in limited cases the
Reserve Banks have opened such
accounts for specific purposes.2
Currently, the Reserve Banks maintain
joint accounts to facilitate settlement
between users of two private-sector
arrangements.3 Both of these joint
accounts are long-standing, with the
more recent account being established
approximately 15 years ago.
For purposes of these guidelines, a
joint account is an account at a Reserve
Bank where the rights and liabilities are
shared among multiple account-holders
(joint account holders), that is,
institutions that are eligible to open an
account with a Reserve Bank. The Board
contemplates that under these
arrangements, the joint account holders
will authorize a single entity to serve as
their ‘‘agent’’ in providing instructions
to the Reserve Bank at which the
account would be held (the accountholding Reserve Bank) with respect to
the account. The account-holding
Reserve Bank would be authorized to
act on any instruction provided by the
agent, consistent with the provisions of
the joint account agreement. The Board
1 81
FR 93923 (Dec. 22, 2016).
13(1) of the FRA authorizes each
Reserve Bank to receive deposits from its member
banks or other depository institutions (12 U.S.C.
342). In addition, section 16(14) of the FRA
authorizes the Board to direct a Reserve Bank to
exercise the functions of a clearinghouse for
depository institutions (12 U.S.C. 248–1).
3 The two joint accounts currently used to
facilitate settlement are operated by The Clearing
House (TCH): One to facilitate wholesale payments
through the Clearing House Interbank Payments
System (CHIPS) and another to facilitate TCH’s
Universal Payment Identification Code (UPIC)
service for ACH payments.
CHIPS is a multilateral netting system that
continuously settles wholesale payments between
two or more participating institutions.
TCH offers a UPIC service that enables its
customer’s end users to provide payment
instructions to third parties without disclosing their
bank account information and enables such end
users to change banking relationships without
needing to notify each payor of the change (the
UPIC remains the same). The joint account for UPIC
transactions enables the settlement of ACH credit
transactions using UPICs when the transactions are
sent by customers of the Reserve Banks’ FedACH
service and destined for participants in TCH’s UPIC
service.
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also contemplates private-sector
arrangements using joint accounts might
also use an ‘‘operator’’ (which could be
the agent of the joint account or a
separate entity) for the running of the
arrangement, which might include
undertaking various steps in the
payment process such as initiation,
clearing, settlement, and reconciliation,
or establishing rules and governance.
‘‘Participants’’ in the arrangement might
include joint account holders, as well as
other depository institutions and
nondepository institutions that are
directly part of the payment system
established by the private-sector
arrangement.
In 2016, Board and Reserve Bank
(collectively, Federal Reserve) staff
received a request from an organization
to open a new joint account for that
organization’s proposed real-time
payment system. Given the ongoing
evolution of the U.S. payment system,
the Board believes that other potential
providers may contemplate joint
account arrangements, or may
reconsider their options for settlement
capabilities if they understand better the
availability of joint accounts at Reserve
Banks.4
The Board therefore proposed to
establish a set of guidelines that would
be considered in evaluating requests for
joint accounts intended to facilitate
settlement between depository
institutions participating in privatesector arrangements. The Board
proposed guidelines based on the
following six principles:
(1) As a necessary condition for evaluating
a joint account request, each joint account
holder should meet all applicable legal
requirements to have a Federal Reserve
account, and the Reserve Bank will not have
any obligation to any non-account holder
with respect to the funds in the account.
(2) The private-sector arrangement should
demonstrate that it has a sound legal and
operational basis for its payment system,
including an effective legal framework for
achieving settlement finality.
(3) The design and rules of the privatesector arrangement should be consistent with
the Federal Reserve’s policy objectives to
4 A Faster Payments Task Force (Task Force) was
established in 2015 to help foster a desired outcome
set forth as part of the Federal Reserve’s Strategies
for Improving the U.S. Payment System efforts for
‘‘a ubiquitous, safe, faster electronic solution.’’ The
Strategies for Improving the U.S. Payment System
paper is available at https://
fedpaymentsimprovement.org/wp-content/uploads/
strategies-improving-us-payment-system.pdf. The
Task Force developed a process to assess proposals
for faster retail payment systems. As part of the
process, proposers were made aware that they could
discuss Reserve Bank services, such as settlement
options, with Federal Reserve representatives if
they had an interest in using those services to
facilitate their proposed faster retail payment
systems.
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promote a safe, efficient, and accessible
payment system for U.S. dollar transactions
and be consistent with the intended use of
the arrangement.
(4) The provision of the joint account
should not create undue credit, settlement, or
other risks to the Reserve Banks.
(5) The provision of a joint account should
not create undue risk to the overall payment
system.
(6) The provision of a joint account should
not adversely affect monetary policy
operations.
The Board requested comment on all
aspects of the proposed guidelines,
including whether the scope and
application were sufficiently clear and
appropriate to achieve their intended
purpose and any other criteria or
information that commenters believed
may be relevant to evaluate joint
account requests. The Board further
sought comment specifically on the
following:
• What information, if any, about the
establishment of an individual joint
account should be made public?
• How, if at all, would the possibility
(1) that the account agreement with the
account holding Reserve Bank may
include limits on balances, require
information on projected balances or
volatility of balances, or restrict further
joint accounts; or (2) that the joint
account may be closed if warranted
affect interest in establishing a joint
account, or use of such an account once
opened? Are there other types of
restrictions or conditions that, while
equally effective in attaining the same
objectives, might be less burdensome if
placed on joint accounts once in use?
• Are there additional criteria or
information that may be relevant to
evaluate joint account requests for U.S.
depository institutions to provide
services to foreign clearing and
settlement arrangements?
• Should the Board or the Reserve
Banks consider other steps or actions to
facilitate settlement in light of market
participants’ efforts to develop faster
retail payment solutions?
II. Summary of Comments and Analysis
on the Proposed Guidelines
The Board received nine comments in
response to its request. Comments were
submitted by depository institutions,
depository institution trade
associations, a national payments
association, service providers and
payment system operators, and an
individual. All nine commenters
supported establishment of the
guidelines. No commenter expressed
opposition to any of the six proposed
principles or the guidelines more
broadly. Five commenters requested
that the Board clarify certain aspects or
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consider additional elements as part of
the final guidelines.
Each of the proposed principles, the
comments received, and the Board’s
final guidelines are described in
additional detail below. Throughout the
final guidelines, the Board has made
changes to clarify the application of the
final six principles and more
specifically identify the parties to a
private-sector arrangement for which
individual principles and evaluation
factors are relevant.
1. Each joint account holder must
meet all applicable legal requirements
to have a Federal Reserve account, and
the Reserve Bank will not have any
obligation to any non-account holder
with respect to the balance in and
operation of the account.
Unless otherwise specified by statute,
only those entities that are member
banks or other depository institutions
are legally able to obtain Federal
Reserve accounts and payment
services.5 Therefore, under the first
proposed principle, only an institution
eligible to have a Federal Reserve
account under the applicable federal
statute and Federal Reserve rules,
policies, and procedures is able to be a
joint account holder. Consistent with
Federal Reserve policies and
procedures, under the first proposed
principle the account-holding Reserve
Bank must approve all joint account
holders that are part of a proposed
private-sector arrangement.6 The Board
also explained that, consistent with the
limits on the Reserve Banks’ deposittaking authority, an account-holding
Reserve Bank’s obligation with respect
to any funds in a joint account will be
limited to the joint account holders, and
non-account holders will not have any
5 Section 13(1) of the FRA permits Reserve Banks
to receive deposits from member banks or other
depository institutions. 12 U.S.C. 342. Section
19(b)(1)(A) of the FRA includes as depository
institutions any federally insured bank, mutual
savings bank, savings bank, savings association, or
credit union, as well as any of those entities that
are eligible to make application to become a
federally insured institution. 12 U.S.C. 461(b). In
addition, there are certain statutory provisions
allowing Reserve Banks to act as a depository or
fiscal agent for the Treasury and certain
government-sponsored entities (See i.e. 12 U.S.C.
391, 393–95, 1823, 1435) as well as for certain
international organizations (See i.e. 22 U.S.C. 285d,
286d, 290o–3, 290i–5, 290l–3). In addition, Reserve
Banks are authorized to offer deposit accounts to
designated financial market utilities (12 U.S.C.
5465), Edge and Agreement corporations (12 U.S.C.
601–604a, 611–631), branches or agencies of foreign
banks (12 U.S.C. 347d), and foreign banks and
foreign states (12 U.S.C. 358).
6 Under the first proposed principle, the
designated agent or operator of the private-sector
arrangement would not need to be a depository
institution.
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rights against the Reserve Bank with
respect to those funds.
Three commenters addressed the first
proposed principle and supported the
proposed principle as consistent with
existing account policies regarding
Federal Reserve accounts. Two of the
three commenters further stated that the
first proposed principle would ensure
the integrity of the payment system.
None of the three commenters proposed
changes to the first proposed principle
or its considerations.
In the final guidelines, the Board has
adopted the first principle as proposed
with minor technical changes for clarity.
As proposed, only an institution eligible
to have a Federal Reserve account under
applicable federal statute and Federal
Reserve rules, policies, and procedures
is able to be a joint account holder.
Some institutions may be eligible for a
Federal Reserve account but may
present atypical risk profiles, such as
uninsured institutions. In these cases, a
heightened analysis of that institution’s
participation as a joint account holder
may be performed under one or more of
the other guidelines. The final
guidelines now provide further
clarification that under the first
principle, the designated agent or
operator of the private-sector
arrangement would not need to be
eligible for a Federal Reserve account,
assuming it is not a joint account
holder.7 In the final guidelines, the first
principle also clarifies that no party
other than an account holder shall have
a claim against the account-holding
Reserve Bank in connection with
operation of the joint account, including
any decision related to opening or
refusing to open the account.
2. The private-sector arrangement
should demonstrate that it has a wellfounded, clear, transparent, and
enforceable legal basis in all aspects of
its proposed arrangement.8
Under the second proposed principle,
the Board proposed that a private-sector
arrangement seeking a joint account
should have a sound legal and
operational basis for its payment
system, including an effective legal
framework for achieving settlement
finality. The Board explained that under
the second proposed principle,
requestors of a joint account would be
expected to provide supporting legal
analysis as well as the system’s rules,
agreements, and other governing
documents.9 The Board also proposed
that the private-sector arrangement
should have established appropriate
compliance procedures and have
policies and procedures to minimize
disruption to its system when one of its
participants, the agent, or the operator
fails, when fraudulent activity occurs, or
in the event of operational failures.
Evaluation under the second proposed
principle would further consider the
applicable supervisory framework for all
parties to the private-sector
arrangement, with the expectation that
the agent and operator should be subject
to the examination authority of a federal
or state supervisory agency.
Three commenters addressed the
second proposed principle. All three
commenters were generally supportive,
stating that the expectations described
under the second proposed principle
reduce risks to participants and the
broader payment system. Only one of
the commenters, a payment system
operator, suggested modifications.
Specifically, the commenter suggested
that joint account requests only be
approved if the agent and operator are
subject to federal examination authority,
in particular the Federal Financial
Institutions Examination Council’s
significant service provider or
technology service provider programs.10
In considering the appropriate level of
supervision for an arrangement whose
participants use a joint account at a
Reserve Bank, the Board seeks to reduce
risks for the Reserve Banks and the
payment system as a whole while at the
same time avoiding posing unwarranted
access barriers. However, the Board
does agree that, at some point in the
maturity of a private-sector
arrangement, federal supervision or
examination may be important. For
example, a successful private-sector
arrangement is likely to grow over time
7 The designated agent would need to enter into
an agreement with the account-holding Reserve
Bank.
8 As described below, in the final guidelines the
Board has clarified certain aspects of the second
proposed principle. Significant changes from the
proposed language are indicated in italics: The
private-sector arrangement should demonstrate that
it has a well-founded, clear, transparent, and
enforceable legal basis in all aspects of its proposed
arrangement (the second principle as proposed read
‘‘The private-sector arrangement must demonstrate
that it has a sound legal and operational basis for
its payment system, including an effective legal
framework for achieving settlement finality’’).
9 For example, the Board explained that
requestors would be expected to analyze the
application of laws and regulations, such as U.C.C.
4A, the Electronic Funds Transfer Act, U.S.
sanction programs, Bank Secrecy Act and antimoney-laundering requirements or regulations, and
other relevant laws and regulations. In addition, the
arrangement would be expected to analyze
significant matters that may pose legal risks, such
as the attachment risk related to the funds in the
joint account and the impact of participant
insolvency on the account.
10 The significant service provider program was
formerly known as the Multi-Regional Data
Processing Servicers program.
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in terms of number of participants and
geographic reach (interstate or
international), which may pose
increasing risks to the overall payment
system in light of the potential to
operate on a 24/7/365 basis. The Board
sees benefit in uniform supervision and
examination authority for private-sector
arrangements that have reached this
point of maturity.
Therefore, the Board has added to the
provision that the private-sector
arrangement be subject to federal or
state supervision an expectation that the
payment system established by a
private-sector arrangement (including
the operator) is also subject to the
jurisdiction of a federal banking agency
with the authority to examine or inspect
the private-sector arrangement and take
supervisory actions against the
arrangement or its participants.11 This
means for a payment system established
by a private-sector arrangement and
supervised by a state regulatory body, a
federal banking agency need not be
engaging in active supervision or
examination, but should have the
authority to do so when the risk, scope,
and operations call for such supervision
or examination. For example, under the
Bank Service Company Act, federal
banking agencies have the authority to
examine third-party service providers
that perform services for depository
institutions that the depository
institution could otherwise do itself.
The Board also believes that
consideration of those supervisory
factors, as well as consideration of
issues related to the operational
soundness of the private-sector
arrangement, would be more
appropriately addressed under the final
guidelines’ third principle as part of
considering the Federal Reserve’s
objectives to promote a safe, efficient,
and accessible payment system for U.S.
dollar transactions. In the final
guidelines, the Board has therefore
identified those elements as
considerations under principle three.
Finally, as part of the final guidelines,
and as indicated above, the Board has
clarified the phrase ‘‘sound legal basis’’
in the second principle to mean a wellfounded, clear, transparent, and
enforceable legal basis in all aspects of
the proposed arrangement. The Board
has also made other minor technical
changes for clarity.
3. The design and rules of a privatesector arrangement should be consistent
with the Federal Reserve’s policy
11 A federal banking agency would include the
Board; the Federal Deposit Insurance Corporation
(FDIC); and the Office of the Comptroller of the
Currency (OCC).
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objectives to promote a safe, efficient,
and accessible payment system for U.S.
dollar transactions.
As explained under the third
proposed principle, a private-sector
arrangement using a joint account to
facilitate settlement would be expected
to manage risks consistent with Part I of
the Board’s Policy on Payment System
Risk (PSR Policy), even if the privatesector arrangement is not otherwise
subject to the PSR Policy. Also of
relevance was (1) whether the system is
widely available for use by its intended
end users and is designed to minimize
the risk of disruption (rejection or delay
of payments) to end users and (2)
whether the system creates undue
inefficiencies in the payment process or
undue barriers to interoperability within
the U.S. dollar payment system. The
Board also explained that evaluation of
a joint account request would assess
whether the private-sector arrangement
promotes payment system
improvements and innovations and the
extent to which the arrangement fosters
competition in the payment system. The
design and rules of the private-sector
arrangement, including rules relating to
the funding of and disbursements from
the joint account, should also be
consistent with the intended use of the
account. For example, the rules should
not provide an incentive for a
participant that is not a joint account
holder and not eligible for its own
individual Federal Reserve account to
use its participation in the arrangement,
including the funding of its obligations
under the arrangement through a joint
account holder, to inappropriately take
advantage of the credit-risk-free nature
of the joint account for purposes other
than settling payments through the
arrangement.
The Board did not receive any
comments suggesting modifications
under the third proposed principle but
did receive one comment from a
national payments association related to
principle five that the Board believes
has implications for principle three. The
commenter suggested that it would be
relevant for the Board to consider the
extent to which a private-sector
arrangement facilitates payments as part
of a transparent payment system, noting
that less transparent mechanisms could
reduce effective risk management of
participants by providing inadequate
visibility for all parties to sufficiently
monitor and manage risks, which may
affect the payment system more broadly.
The Board believes that effective risk
management will be adequately
considered in the final guidelines but
agrees that promoting transparency in
the overall payment system is also an
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important policy objective. Therefore
the final guidelines include under the
third principle a consideration of the
extent to which a private-sector
arrangement promotes transparency for
end users and the public more broadly
(for example by making operating rules,
rulemaking processes, list of
participants, or certain network
statistics publicly available).
As described in the discussions
regarding the Board’s second and fourth
proposed principles, the Board believes,
based on the comments received, that
several considerations proposed under
those principles would be more
appropriately evaluated as part of
principle three, specifically factors
related to supervision, operational
soundness (such as policies and
procedures to minimize disruption
when one of its participants, the agent,
or the operator fails or in the event of
operational failures), and financial
soundness of the operator (such as
financial statements and cash flow
projections). The third principle of the
final guidelines also provides greater
clarity on the consideration of the
Board’s PSR Policy, specifically that a
private-sector arrangement would be
expected to comply with the general
policy expectations for payment systems
outlined within Part I of the PSR Policy
at a minimum, even if it is not otherwise
subject to the policy, in addition to any
supervisory obligations.12
The Board has also clarified that as
part of the third principle, the
arrangement’s rules should sufficiently
address the responsibilities and
liabilities of the participants, agent, and
operator in cases of operational
disruption, or erroneous or fraudulent
conduct. Lastly, the final guidelines
provide additional clarity related to
consideration under the third principle
of the extent to which the design and
rules of the arrangement are consistent
with the intended use of the
arrangement.
4. Provision of a joint account should
not create undue credit, settlement, or
other risks to the Reserve Banks.
The Board in its proposal explained
under the fourth proposed principle that
granting a request for a joint account
should not create undue risks to a
Reserve Bank. For instance, the Board
proposed that an operator for an
arrangement must be financially sound
and that the agent should demonstrate
12 Those expectations are identified in Part I,
section C of the PSR Policy, ‘‘General policy
expectations for other payment systems within the
scope of the policy’’ (as amended effective
September 23, 2016). The PSR Policy is available
at https://www.federalreserve.gov/paymentsystems/
files/psr_policy.pdf.
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an ongoing ability to meet all
obligations under the joint account
agreement with the account-holding
Reserve Bank. Evaluation under this
proposed principle would consider the
manner in which the joint account will
be used, including any anticipated use
of Reserve Bank services and methods
in place by the private-sector
arrangement to avoid overnight and
intraday overdrafts, which would not be
permitted in a joint account. Under the
fourth proposed principle, the agent
would also need to demonstrate that it
has ways to monitor the joint account
and transactions into and out of the
account, including the ability to avoid
overdrafts and promptly cover any
inadvertent overdrafts.
One commenter, a depository
institution, addressed the fourth
proposed principle. The commenter
suggested that evaluation under the
principle should consider the
contingency processing capabilities of
owners, participants and operators of a
private-sector arrangement. The Board
agrees that contingency processing
capabilities will be important when
evaluating joint account requests and
believes that such considerations are
already accounted for under several of
the principles, including consideration
of the private-sector arrangement’s
ability to minimize disruption to its
system and to meet the requirements of
the PSR Policy (principle three), the
agent’s ability to monitor transactions
originated and received by the account
(principle four), and whether the
arrangement poses undue risk to the
overall payment system (principle five).
As those considerations are included in
the final guidelines, the Board does not
intend to include a separate contingency
assessment as part of principle four.
The same commenter asked that the
guidelines set forth a clearly defined
review process for assessing the
financial soundness of operators. The
Board agrees that providing further
information may be helpful to
requestors and the final guidelines
clarify that it will likely be necessary to
review (among other things) the
financial statements of operators, as
well as cash flow projections (including
capital and operating expenses). The
Board also believes that those financial
soundness factors would be more
appropriately addressed under the final
guidelines’ third principle when
considering the Federal Reserve’s
objectives to promote a safe, efficient,
and accessible payment system for U.S.
dollar transactions. In the final
guidelines, the Board has therefore
identified those elements as
considerations under principle three.
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The Board does not believe, however, it
would be appropriate to create a
standardized review process for
assessing the financial soundness of
every operator, or to establish
expectations that only certain
information related to the financial
condition of the operator will be
relevant as part of assessing a joint
account request. Ultimately, the specific
considerations necessary to determine
whether an operator is financially sound
will vary depending on the nature of the
private-sector arrangement and the
individual entity.
The final guidelines no longer discuss
an assessment of the financial
soundness of each participant under
principle four (absent a potential for
further analysis of any atypical risk
presented by a potential joint account
holder, as discussed under the first
guideline). The Board believes that the
Reserve Banks already apply
appropriate controls to account holders
as necessary to mitigate risks that may
result from financially unsound
institutions. Moreover, the financial
soundness of participating depository
institutions is already considered by a
depository institution’s supervisor. In
light of these various factors, the Board
does not believe it is necessary to assess
each individual joint account holder’s
financial soundness as part of
evaluating a request.
Lastly, the explanatory paragraphs to
the final guidelines provide that the
account agreement with the accountholding Reserve Bank at the time of
account opening, or any time thereafter,
may include obligations relating to, or
conditions or limitations on, use of the
joint account as necessary to limit any
operational, credit, legal, or reputational
risks posed to the Reserve Banks.
5. Provision of a joint account should
not create undue risk to the overall
payment system.
Under the fifth proposed principle, a
private-sector arrangement should not
cause undue credit, settlement, or other
risks to the efficient operation of other
payment systems or the payment system
as a whole. In evaluating a joint account
request under this proposed principle,
the Board proposed that the operational
and financial interaction with, and use
of, other payment systems would be
relevant, as would the extent to which
use of the joint account may restrict a
portion of funds from being available to
support intraday liquidity needs of
depository institutions for other
payment and settlement activity.
Three commenters addressed the fifth
proposed principle. While all three
commenters were generally supportive,
two of the commenters suggested
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modifications to the proposed principle
and its considerations. As discussed
above, the Board received one comment
from a national payments association
under principle five that the Board
believed was relevant for evaluation
under principle three. One depository
institution commenter suggested that
the principle should include an
assessment of individual joint account
holders’ liquidity needs to ensure that
the private-sector arrangement does not
negatively impact the ability to meet
further obligations. The Board does not
believe, however, that it would be
appropriate to assess the liquidity needs
of each individual account holder in
considering a joint account request.
Joint account holders should be
effectively managing their unique
liquidity needs, which may change over
time. Institutions participating in
private-sector arrangements should
ensure liquidity management is
appropriately robust and quantitative in
light of the nature of the arrangement,
particularly where its objective is to
facilitate faster payments. Moreover, the
liquidity of participating depository
institutions will likely already be
considered by a depository institution’s
supervisor. However, the Board agrees
that issues of liquidity will be a critical
consideration in evaluating joint
account requests and believes that the
overall impact of the private-sector
arrangement on liquidity should already
be adequately assessed as part of the
fifth principle, which includes
consideration of the extent to which the
use of the joint account may restrict a
portion of funds from being available to
support liquidity needs of depository
institutions for other payment and
settlement activity.
In addition, the explanatory
paragraphs of the final guidelines
provide that the account agreement with
the account-holding Reserve Bank at the
time of account opening or any time
thereafter may include obligations
relating to, and conditions or limitations
on, use of the joint account to limit risks
to financial stability and the
implementation of monetary policy (see
principle six), as well as other risks that
may arise.
6. Provision of a joint account should
not adversely affect monetary policy
operations.
Finally, the provision of a joint
account could have important
implications for monetary policy
implementation, particularly if the endof-day balances in a joint account or
joint accounts in the aggregate fluctuate
to the extent that they materially affect
the demand for or supply of reserve
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balances.13 Such fluctuations would be
a concern in a monetary policy
framework that relies on controlling the
supply of reserves and in which reserve
balances are relatively scarce. Under the
sixth proposed principle, a joint account
would not be opened if it would
adversely affect the conduct of monetary
policy. The Board explained that
evaluation of the potential monetary
policy implications would include
whether the balance in the joint account
would be treated as reserves (that is,
would either be available to satisfy any
joint account holder’s reserve balance
requirement or be treated as excess
reserves), the expected predictability
and volatility of the aggregate end-ofday balance of the joint account, and the
potential for a Reserve Bank to impose
limitations on account volatility without
affecting the intended function of the
arrangement. The Board further
identified several areas where it may be
necessary for the account agreement
with the account-holding Reserve Bank
to include limits or controls, such as
limiting account volatility and account
size or requiring a private-sector
arrangement to provide information
related to such issues.14 The Board
requested comment on (1) how, if at all,
the possibility of such limits affected
interest in establishing a joint account
or use of such an account once opened
and (2) whether commenters believed
other types of restrictions or conditions
might be less burdensome, while being
equally effective in attaining the same
objectives.
Four commenters addressed these
issues. One commenter suggested that
the Board treat balances held in a joint
account as reserves. The treatment of
joint account balances, however, will
depend on the nature of the privatesector arrangement, including the rights
and obligations of the parties involved.
Determining whether balances held in a
joint account qualify as reserves
therefore will be assessed for each
request individually. Moreover, the
determination of whether balances in
joint accounts are treated as reserves
will not affect the potential need to
predict and limit the volatility in the
13 End-of-day balances refers to the balances in
joint accounts at the time the Federal Reserve’s
accounting system closes for a given day.
14 An information requirement might include a
notice period within which the agent must notify
the Reserve Bank of shifts in account balances
greater than a designated threshold. The Board
further explained that if other potential conditions
discussed above are ineffective at mitigating the
risks identified or if the obligations, limits or
controls are breached, the account agreement with
the account-holding Reserve Bank might be
restricted further or the joint account may be closed
if warranted.
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joint accounts. If joint account balances
are determined to be reserve balances,
then these balances will affect the
demand for such balances, which is
closely monitored and supplied by the
Federal Reserve in a scarce reserve
regime. Likewise, if joint account
balances are not treated as reserves, they
are a factor affecting the supply of
reserve balances, meaning, all else
equal, movements in joint account
balances have similarly sized but
opposite effects on the supply of reserve
balances, which the Federal Reserve
will need to offset to provide the
appropriate level of reserves in a scarce
reserve regime.
None of the commenters opposed the
principle or objected to the potential
imposition of limits or controls. One
commenter stated that institutions
would be able to adequately adjust to
any necessary limits or controls placed
on the account. Two commenters
suggested that any limits or controls be
identified prior to opening a joint
account, or be included in the account
agreement with the account-holding
Reserve Bank to provide clarity and
certainty to private-sector arrangements.
While the Board agrees that providing
certainty would be beneficial to privatesector arrangements, limits or controls
placed on joint accounts to mitigate
monetary policy implications will
necessarily depend on the framework in
which the Federal Reserve is conducting
monetary policy. Under a monetary
policy framework where the policy rate
is targeted by tightly managing the
supply of reserves balances, the
magnitude and predictability of daily
changes in joint account balances would
become important for monetary policy
operations, and therefore it may be
necessary to limit the volatility or size
of a joint account or require advance
notice of significant daily changes.
However, under a monetary policy
framework where the supply of reserve
balances far exceeds the demand for
reserve balances, joint account balances
are likely to have a negligible effect on
monetary policy operations, and such
controls may not be necessary. The
Board does not believe it would be
possible to identify the exact limitations
and controls that will be needed in all
future policy frameworks.
As explained previously, the
explanatory paragraphs of the final
guidelines provide that the account
agreement with the account-holding
Reserve Bank at the time of account
opening or any time thereafter may
include obligations relating to, or
conditions or limitations on, use of the
joint account to limit risks to financial
stability and the implementation of
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monetary policy, as well as other risks
that may arise. Accordingly, the final
guidelines have been modified to
include only the evaluation
considerations under principle six.
Finally, the Board has made minor
technical changes under principle six
for clarity.
7. Responses to Additional Questions
Posed by the Board.
In response to the Board’s request for
comment on any other criteria or
information that commenters believed
may be relevant to evaluate a joint
account request, one national payments
association commenter suggested that
the final guidelines include separate
elements to evaluate a designated agent
or operator of a joint account.15 The
Board agrees that evaluation of the agent
and operator is important. The Board
does not believe, however, that it would
be appropriate to establish separate,
distinct criteria to evaluate the agent
and operator apart from the privatesector arrangement, because the roles
(and corresponding risks) of an agent or
operator may vary depending on the
specific design of a private-sector
arrangement. Evaluating a private-sector
arrangement’s joint account request will
necessarily consider the agent and
operator, and the Board believes that
both entities will be appropriately
evaluated as part of that process under
the final guidelines. For example, the
risks posed to the participants of the
private-sector arrangement will be
necessarily considered in determining
whether the private-sector arrangement
has a sound legal and operational basis
under principles two and three
respectively, and the risks posed to the
payment system as a whole would be
considered under principle five.
Three commenters supported making
some level of information public about
joint accounts established under the
final guidelines. Two commenters noted
that certain information should not be
made public. One payment system
operator commenter stated that
confidential information (such as
functional, technical, or operational
details) should not be made public as it
may result in risk or harm to the privatesector arrangement or its participants.
Another commenter, a depository
institution trade association, stated that
15 The commenter suggested that such separate
criteria include, among other things, an appropriate
risk assessment addressing the risks posed to the
participants of the private-sector arrangement, the
safety and integrity of the particular payment
system established by the private-sector
arrangement, and risks posed to the payment
system as a whole, and an assessment of the agent’s
or operator’s compliance with legal requirements
and regulatory oversight.
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unsuccessful joint account applications
should not be made public.
In considering these comments, the
Board believes that public
announcement of joint accounts could
be interpreted by some as an
endorsement by the Federal Reserve of
the private-sector arrangement or of its
safety and soundness. The Board
believes it is necessary to avoid any
appearance of endorsing a private entity
or arrangement using a joint account.
The Board also believes that making the
disapproval of a joint account
arrangement public could result in
competitive harm to the entities
involved. Therefore, the Board has
determined that neither it nor the
Reserve Banks intend to announce the
opening of individual joint accounts or
the corresponding individual privatesector arrangements. The Board believes
that the private-sector arrangement will
provide sufficient transparency to
participants and end users about the
method of settlement, including the use
of a joint account. This approach is
generally consistent with the treatment
of other Federal Reserve accounts, for
which neither the Board nor the Reserve
Banks publish information upon
account openings, with limited
exceptions.16
Consistent with the foregoing, the
Board has clarified in the final
guidelines that establishment of a joint
account by the Reserve Banks is not
intended as an endorsement or approval
by the Federal Reserve of the payment
system established by the private-sector
arrangement and does not relieve any
party to the private-sector arrangement
or end user from conducting its own
diligence on the arrangement generally,
the associated risks of using the system
established by the arrangement, or the
acceptability of such risks.
Commenters were generally silent as
to additional criteria or information that
may be relevant to evaluating joint
account requests for U.S. depository
institutions to provide services to
foreign clearing and settlement
arrangements. The final guidelines will
generally apply in the event that a
request is received related to a foreign
clearing or settlement arrangement, but
the level of scrutiny and information
necessary may vary from domestic
arrangements.17
Finally, the Board requested comment
on other steps or actions the Federal
Reserve should consider to facilitate
settlement in light of market
participants’ efforts to develop faster
retail payment solutions. One
commenter, a payment system operator,
suggested that the Board coordinate
with the Office of the Comptroller of the
Currency’s initiative on evaluating
national bank charter applications from
financial technology companies that
engage in the business of banking. The
Board does collaborate with other
federal banking agencies on efforts to
improve the payment system. Another
depository institution trade association
commenter recommended that the
Federal Reserve continue to foster
collaboration among a wide range of
payments stakeholders across a broad
range of issues in the same model as the
Faster Payments Task Force to facilitate
payment system improvements. The
Board agrees that a collaborative
approach has been productive and
believes that it will continue to be
valuable as the Federal Reserve and
industry work to achieve the desired
outcomes set forth in the Strategies for
Improving the U.S. Payment System
paper.
Another payment service provider
commenter suggested that the final
guidelines be applied using a risk-based
approach to evaluating joint account
requests so that smaller private-sector
arrangements or new entrants are
evaluated in light of their specific
volumes and risks. The Board does not
believe that it would be prudent to
evaluate smaller arrangements or new
entrants under less-stringent criteria; an
evaluation under the final guidelines
should necessarily consider the specific
risks posed by each private-sector
arrangement. In certain instances, that
may mean a smaller private-sector
arrangement presents less risk by nature
of its size. In other instances, a smaller
private-sector arrangement may present
significant risks in spite of its size. For
these reasons, evaluation under the final
guidelines will consider the specific
risks posed by a joint account request,
regardless of size.
One commenter, a depository
institution, asked the Federal Reserve to
study how new payment methods have
affected the payment system. Two other
16 For example, the Board’s H2 release publishes
actions of the Board and the Reserve Banks,
including authorizations to establish accounts for
designated financial market utilities in accordance
with the Dodd-Frank Act.
17 Like domestic arrangements, requests will be
evaluated on a case-by-case basis; the
considerations and information to evaluate a
particular request will likely be based on the
complexity of the arrangement and other factors.
For example, in considering a request related to a
foreign clearing or settlement arrangement, the
relevant supervisory and examination framework
under principle three may be whether the payment
system established by the private-sector
arrangement is subject to a level of supervision and
examination commensurate with those of domestic
arrangements.
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commenters recommended that the
Board strive to balance burdens
imposed by the final guidelines against
the importance of payment system
developments. The Board agrees that
ensuring balanced guidelines is
important to further the Federal
Reserve’s objectives of a safe, efficient,
and accessible payment system, while
avoiding undue burdens that lead to
unintended consequences. The Board
also agrees that monitoring existing and
emerging payment methods provides
useful information for achieving those
objectives, and Federal Reserve staff
will continuously consider
developments in the payment system
and any corresponding implications.18
II. Final Guidelines for Evaluating Joint
Account Requests
The Board of Governors of the Federal
Reserve System (Board) has adopted six
principles and corresponding
considerations (collectively, the
guidelines) to be used in evaluating
requests to the Federal Reserve Banks
(Reserve Banks) for joint accounts
intended to facilitate settlement
between and among member banks and
other eligible depository institutions
(collectively depository institutions)
participating in private-sector payment
systems (private-sector arrangements).
For purposes of these guidelines, a
joint account is an account at a Reserve
Bank where the rights and liabilities are
shared among multiple account holders
(joint account holders), that is,
institutions that are eligible to open an
account with a Reserve Bank. The Board
contemplates that under these
arrangements, the joint account holders
will authorize a single entity to serve as
their ‘‘agent’’ in providing instructions
to the Reserve Bank at which the
account would be held (the accountholding Reserve Bank) with respect to
the account. The account-holding
Reserve Bank would be authorized to
act on any instruction provided by the
agent, consistent with the provisions of
the joint account agreement. The Board
also contemplates that private-sector
arrangements using joint accounts might
also use an ‘‘operator’’ (which could be
the agent of the joint account or a
separate entity) for running the
arrangement, which may include
undertaking various steps in the
payments process such as initiation,
clearing, settlement, and reconciliation,
or establishing rules and governance.
‘‘Participants’’ in the arrangement might
18 Including, for example, as part of the Federal
Reserve Payments Study and through the Reserve
Banks’ payment research groups. https://
www.federalreserve.gov/paymentsystems/payres_
about.htm.
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include joint account holders, as well as
other depository institutions and
nondepository institutions that are
directly part of the payment system
established by the private-sector
arrangement.
The guidelines broadly outline
considerations necessary for evaluating
requests, but are not intended to provide
assurance that any specific arrangement
would be granted a joint account. Every
request will be evaluated on a case-bycase basis, with the type and extent of
information necessary to evaluate a
particular request likely dependent on
the complexity of the arrangement. The
guidelines apply to both domestic
private-sector arrangements and foreign
clearing or settlement arrangements. In
the event that a request is received
related to a foreign clearing or
settlement arrangement, the level of
scrutiny and information necessary may
vary from domestic arrangements.
In addition to the evaluation under
the guidelines, the account agreement
with the account-holding Reserve Bank
may include (at the time of account
opening or any time thereafter)
obligations relating to, or conditions or
limitations on, use of the joint account
as necessary to limit operational, credit,
legal, or reputational risks posed to the
Reserve Banks. The account agreement
may also impose obligations relating to,
or conditions or limitations on, use of
the joint account to limit risks to
financial stability and the
implementation of monetary policy, as
well as other risks that may arise.
Obligations, limitations or conditions to
limit risks to financial stability, the
implementation of monetary policy, or
other risks that may arise would be used
only as deemed necessary and may
include, for example, limits on the level
or volatility of account balances and
requirements for information on
projected balances or volatility of
balances. An information requirement
might include a notice period within
which the agent must notify the
account-holding Reserve Bank of shifts
in the end-of-day account balances
greater than a designated threshold. If
the obligations, limitations, or controls
are ineffective at mitigating the risks
identified or if the obligations,
limitations, or controls are breached, the
account agreement with the accountholding Reserve Bank might be
restricted further or the joint account
may be closed if warranted.
Establishment of a joint account by
the Reserve Banks under these
guidelines does not relieve any
participant in the private-sector
arrangement or any end user from
conducting its own diligence on the
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arrangement generally, on any
associated risks of using the payment
system established by the private-sector
arrangement, or on the acceptability of
such risks. Establishment of a joint
account by the Reserve Banks under
these guidelines is not an endorsement
or approval by the Board or Reserve
Banks (collectively the Federal Reserve)
of the payment system established by
the private-sector arrangement.
Moreover, nothing in the Board’s
guidelines relieves any institution from
compliance with obligations imposed by
an institution’s supervisor.
The following will be used in
evaluating requests to the Reserve Banks
for joint accounts intended to facilitate
settlement between depository
institutions participating in privatesector arrangements:
1. Each joint account holder must meet all
applicable legal requirements to have a
Federal Reserve account, and the Reserve
Bank will not have any obligation to any nonaccount holder with respect to the balance in
and operation of the account.
Æ Only an institution that is eligible to
have a Federal Reserve account under
applicable federal statute and Federal
Reserve rules, policies, and procedures is
able to be a joint account holder. Unless
otherwise specified by statute, only those
entities that are member banks or meet the
definition of a depository institution under
section 19(b) of the Federal Reserve Act are
legally able to obtain Federal Reserve
accounts and payment services.19
Æ As part of evaluating any joint account
requests, and consistent with Federal Reserve
policies and procedures, the account-holding
Reserve Bank must approve all joint account
holders that are part of a proposed privatesector arrangement. Some institutions may be
eligible for a Federal Reserve account but
may present atypical risk profiles, such as
uninsured institutions. In these cases, a
heightened analysis of that institution’s
participation as a joint account holder may
be performed under one or more of the other
guidelines.
Æ The designated agent or operator of the
private-sector arrangement would not need to
be a depository institution, assuming it is not
a joint account holder.
Æ Consistent with the Reserve Banks’
deposit-taking authority, a Reserve Bank’s
obligation with respect to any balance in a
joint account will be owed solely to the joint
account holders, and no non-account holders
may have any rights against the Reserve Bank
19 There are certain statutory provisions allowing
Reserve Banks to act as a depository and fiscal agent
for the Treasury and certain government-sponsored
entities (See i.e. 12 U.S.C. 391, 393–95, 1823, 1435)
as well as for certain international organizations
(See i.e. 22 U.S.C. 285d, 286d, 290o–3, 290i–5,
290l–3). In addition, Reserve Banks are authorized
to offer deposit accounts to designated financial
market utilities (12 U.S.C. 5465), Edge and
Agreement corporations (12 U.S.C. 601–604a, 611–
631), branches or agencies of foreign banks (12
U.S.C. 347d), and foreign banks and foreign states
(12 U.S.C. 358).
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with respect to the balance. No party other
than an account holder shall have a claim
against the account-holding Reserve Bank in
connection with the operation of the joint
account, including any decision related to
opening or refusing to open the account.
2. The private-sector arrangement should
demonstrate that it has a well-founded, clear,
transparent, and enforceable legal basis in all
aspects of its proposed arrangement.
Æ Requestors of a joint account should
provide supporting legal analysis as well as
the system’s rules, agreements, and other
governing documents. The legal analysis
should consider the application of applicable
laws and regulations, such as U.C.C. 4A, the
Electronic Funds Transfer Act, U.S. sanction
programs, Bank Secrecy Act and anti-moneylaundering requirements or regulations, and
other relevant laws and regulations; the
attachment risk related to the account; and
how the operation of the account would be
affected by a participant’s insolvency.
3. The design and rules of the privatesector arrangement should be consistent with
the Federal Reserve’s policy objectives to
promote a safe, efficient, and accessible
payment system for U.S. dollar transactions.
Æ In addition to any party’s supervisory
obligations, a private-sector arrangement that
uses a joint account approved under these
guidelines will be expected to manage risks
consistent with the general policy
expectations for payment systems outlined
within Part I of the Board’s Federal Reserve
Policy on Payment System Risk (PSR Policy)
at a minimum.20 These policy expectations
apply even if the private-sector arrangement
is not otherwise subject to the PSR Policy.21
Thus, before authorizing the establishment of
a joint account, the private-sector
arrangement would be expected to
demonstrate that it has a general riskmanagement framework appropriate for the
risks the system poses to the operator, agent,
participants, the Reserve Bank granting the
joint account, and other relevant parties and
payment systems.
Æ The private-sector arrangement should
have policies and procedures to minimize
disruption to its system when one of its
participants, the agent, or the operator fails
or in the event of operational failures. The
arrangement’s rules should also sufficiently
20 As of the date of publication of the final
guidelines, those expectations are identified in Part
I, section C of the PSR Policy, ‘‘General policy
expectations for other payment systems within the
scope of the policy’’ (as amended effective
September 23, 2016). The PSR Policy is available
at https://www.federalreserve.gov/paymentsystems/
files/psr_policy.pdf.
21 The Board’s PSR Policy sets forth standards
regarding the management of risks that financial
market infrastructures (FMIs) present to the
financial system when an FMI expects to settle a
daily aggregate gross value of $5 billion on a given
day and when providing accounts and services to
FMIs. Generally, FMIs are multilateral systems
among participating financial institutions,
including the system operator, used for the
purposes of clearing, settling, or recording
payments, securities, or other financial transactions.
For the purposes of a system that uses a joint
account to facilitate settlement, the standards
would be applicable regardless of the daily
aggregate gross value in a given day.
E:\FR\FM\05SEN1.SGM
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Federal Register / Vol. 82, No. 170 / Tuesday, September 5, 2017 / Notices
address the responsibilities and liabilities of
the participants, agent, and operator in cases
of operational disruption, or erroneous or
fraudulent conduct.
Æ Requests for joint accounts involving a
financially unsound operator would not be
approved. Evaluation may include, among
other things, reviewing financial statements
of the operator, as well as cash flow
projections (including capital and operating
expenses).
Æ Evaluation under this principle will take
into account the applicable supervisory
framework for the private-sector
arrangement.22 The payment system
established by a private-sector arrangement
(including the operator) should be subject to
federal or state supervision and should also
be subject to the jurisdiction of a federal
banking agency with the authority to
examine or inspect the private-sector
arrangement and take supervisory actions
against the arrangement or its participants.23
This means for a payment system established
by a private-sector arrangement and
supervised by a state regulatory body, a
federal banking agency need not be engaging
in active supervision or examination, but
should have the authority to do so when the
risk, scope, and operations call for such
supervision or examination. For example,
under the Bank Service Company Act, federal
banking agencies have the authority to
examine third-party service providers that
perform services for depository institutions
that the depository institution could
otherwise do itself.
Æ An evaluation under this principle
would assess whether the system is widely
available for use by its intended end users,
is designed to minimize the risk of disruption
(rejection or delay of payments) to end users,
and promotes transparency for end users and
the public more broadly (for example, by
making its operating rules, rulemaking
processes, list of participants, or certain
network statistics publicly available).
Evaluation under this guideline would also
assess whether the system creates
inefficiencies in payment processes or
barriers to interoperability within the U.S.
dollar payment system. Also of relevance is
whether the private-sector arrangement
promotes payment system improvements and
innovations and the extent to which the
arrangement fosters competition in the
payment system (for example between
providers of payment services).
Æ Finally, the design and rules of the
private-sector arrangement, including rules
relating to the funding of and disbursements
from the joint account, should be consistent
with the intended use of the account, such
that a participant can only use the balances
for the intended purpose of settling payments
in the associated system.
4. The provision of the joint account
should not create undue credit, settlement, or
other risks to the Reserve Banks.
Æ The agent and the joint account holders
should demonstrate an ongoing ability to
meet all obligations under the joint account
agreement with the account-holding Reserve
Bank.
Æ The manner in which the joint account
will be used in support of the private-sector
arrangement and any anticipated use of
Reserve Bank services should be identified.
Æ Reserve Banks will not extend overnight
or intraday credit to a joint account. The
private-sector arrangement should structure
its use of the joint account and Reserve Bank
services in a manner that seeks to avoid
intraday overdrafts. The agent also should
demonstrate ways to monitor the joint
account on an ongoing basis to avoid
overdrafts and to promptly cover any
inadvertent overdrafts.
Æ Further, the agent should demonstrate
the ability to appropriately monitor
transactions into and out of the joint account.
5. The provision of a joint account should
not create undue risk to the overall payment
system.
Æ The private-sector arrangement should
not cause undue credit, settlement, or other
risks to the efficient operation of other
payment systems or the payment system as
a whole.
Æ The operational and financial interaction
with and use of other payment systems
should be identified.
Æ The extent to which the use of the joint
account may restrict a portion of funds from
being available to support liquidity needs of
depository institutions for other payment and
settlement activity will also be considered.
6. The provision of a joint account should
not adversely affect monetary policy
operations.
Æ Evaluation of the potential monetary
policy implications of the use of a joint
account will include whether the balance in
the joint account would be treated as reserves
(that is, treated as available to satisfy any
joint account holder’s reserve balance
requirements or as excess reserves), the
expected predictability and volatility of the
end-of-day joint account balances, and the
potential for the account agreement with the
account-holding Reserve Bank to impose
limitations on account volatility without
affecting the intended function of the
arrangement. This evaluation will occur
regardless of the current monetary policy
implementation framework in place.
By order of the Board of Governors of the
Federal Reserve System, August 9, 2017.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2017–18705 Filed 9–1–17; 8:45 am]
BILLING CODE P
mstockstill on DSK30JT082PROD with NOTICES
22 Nothing
in the Board’s guidelines should be
interpreted to relieve any participant in the privatesector arrangement from compliance with
obligations imposed by an institution’s supervisor,
including for example related to financial resources,
liquidity, participant default management, and
other aspects of risk management.
23 A federal banking agency would include the
Board; the Federal Deposit Insurance Corporation
(FDIC); and the Office of the Comptroller of the
Currency (OCC).
VerDate Sep<11>2014
17:43 Sep 01, 2017
Jkt 241001
FEDERAL TRADE COMMISSION
[File No. 162 3063]
TaxSlayer, LLC; Analysis To Aid Public
Comment
AGENCY:
PO 00000
Federal Trade Commission.
Frm 00051
Fmt 4703
Sfmt 4703
ACTION:
41959
Proposed consent agreement.
The consent agreement in this
matter settles alleged violations of the
Gramm-Leach-Bliley Act Privacy Rule,
and of the Gramm-Leach-Bliley Act
Safeguards Rule. The attached Analysis
To Aid Public Comment describes both
the allegations in the complaint and the
terms of the consent order—embodied
in the consent agreement—that would
settle these allegations.
DATES: Comments must be received on
or before September 29, 2017.
ADDRESSES: Interested parties may file a
comment online or on paper, by
following the instructions in the
Request for Comment part of the
SUPPLEMENTARY INFORMATION section
below. Write: ‘‘In the Matter of
TaxSlayer, LLC, File No. 1623063’’ on
your comment, and file your comment
online at https://
ftcpublic.commentworks.com/ftc/
taxslayerconsent by following the
instructions on the web-based form. If
you prefer to file your comment on
paper, write ‘‘In the Matter of TaxSlayer,
LLC, File No. 1623063’’ on your
comment and on the envelope, and mail
your comment to the following address:
Federal Trade Commission, Office of the
Secretary, 600 Pennsylvania Avenue
NW., Suite CC–5610 (Annex D),
Washington, DC 20580, or deliver your
comment to the following address:
Federal Trade Commission, Office of the
Secretary, Constitution Center, 400 7th
Street SW., 5th Floor, Suite 5610
(Annex D), Washington, DC 20024.
FOR FURTHER INFORMATION CONTACT:
Katherine McCarron (202–326–2333)
and Jacqueline Connor (202–326–2844),
Bureau of Consumer Protection, 600
Pennsylvania Avenue NW., Washington,
DC 20580.
SUPPLEMENTARY INFORMATION: Pursuant
to Section 6(f) of the Federal Trade
Commission Act, 15 U.S.C. 46(f), and
FTC Rule 2.34, 16 CFR 2.34, notice is
hereby given that the above-captioned
consent agreement containing a consent
order to cease and desist, having been
filed with and accepted, subject to final
approval, by the Commission, has been
placed on the public record for a period
of thirty (30) days. The following
Analysis To Aid Public Comment
describes the terms of the consent
agreement, and the allegations in the
complaint. An electronic copy of the
full text of the consent agreement
package can be obtained from the FTC
Home Page (for August 29, 2017), on the
World Wide Web, at https://
www.ftc.gov/news-events/commissionactions.
SUMMARY:
E:\FR\FM\05SEN1.SGM
05SEN1
]]>Agencies
[Federal Register Volume 82, Number 170 (Tuesday, September 5, 2017)]
[Notices]
[Pages 41951-41959]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-18705]
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
[Docket No. OP-1557]
Final Guidelines for Evaluating Joint Account Requests
SUMMARY: Under the Federal Reserve Act (FRA), the Federal Reserve Banks
(Reserve Banks) have the authority to open accounts for member banks
and other eligible depository institutions (collectively, depository
institutions). The Reserve Banks routinely open and maintain individual
Federal Reserve accounts for eligible institutions. Joint accounts--
those where the rights and liabilities are shared among multiple
depository institution account-holders--have not in the past been
available as a standard account option, but in limited cases the
Reserve Banks have opened such accounts for specific purposes. The
Board of Governors of the Federal Reserve System (Board) has approved
final guidelines for evaluating requests for joint accounts at Reserve
Banks intended to facilitate settlement between and among depository
institutions participating in private-sector payment systems (private-
sector arrangements). The guidelines broadly outline factors that will
be considered in evaluating such requests, but are not intended to
provide assurance that any specific arrangement would be granted a
joint account. Requests will be evaluated on a case-by-case basis, with
the type and extent of information necessary to evaluate a particular
request likely dependent on the complexity of the arrangement.
DATES: September 5, 2017.
FOR FURTHER INFORMATION CONTACT: Susan V. Foley, Senior Associate
Director (202-452-3596), Kylie Stewart, Manager (202-245-4207), or Ian
C.B. Spear, Senior Financial Services Analyst (202-452-3959), Division
of Reserve Bank Operations and Payment Systems; Gavin Smith, Counsel
(202-452-3474), Legal Division; for users of Telecommunications Device
for the Deaf (TDD) only, contact 202-263-4869.
SUPPLEMENTARY INFORMATION:
[[Page 41952]]
I. Background
On December 22, 2016, the Board requested comment on proposed
guidelines for evaluating requests for joint accounts at Federal
Reserve Banks intended to facilitate settlement between depository
institutions participating in private-sector arrangements within the
U.S. payment system.\1\ The Reserve Banks routinely open and maintain
individual Federal Reserve accounts for depository institutions. Joint
accounts have not been available in the past as a standard account
option, but in limited cases the Reserve Banks have opened such
accounts for specific purposes.\2\ Currently, the Reserve Banks
maintain joint accounts to facilitate settlement between users of two
private-sector arrangements.\3\ Both of these joint accounts are long-
standing, with the more recent account being established approximately
15 years ago.
---------------------------------------------------------------------------
\1\ 81 FR 93923 (Dec. 22, 2016).
\2\ Section 13(1) of the FRA authorizes each Reserve Bank to
receive deposits from its member banks or other depository
institutions (12 U.S.C. 342). In addition, section 16(14) of the FRA
authorizes the Board to direct a Reserve Bank to exercise the
functions of a clearinghouse for depository institutions (12 U.S.C.
248-1).
\3\ The two joint accounts currently used to facilitate
settlement are operated by The Clearing House (TCH): One to
facilitate wholesale payments through the Clearing House Interbank
Payments System (CHIPS) and another to facilitate TCH's Universal
Payment Identification Code (UPIC) service for ACH payments.
CHIPS is a multilateral netting system that continuously settles
wholesale payments between two or more participating institutions.
TCH offers a UPIC service that enables its customer's end users
to provide payment instructions to third parties without disclosing
their bank account information and enables such end users to change
banking relationships without needing to notify each payor of the
change (the UPIC remains the same). The joint account for UPIC
transactions enables the settlement of ACH credit transactions using
UPICs when the transactions are sent by customers of the Reserve
Banks' FedACH service and destined for participants in TCH's UPIC
service.
---------------------------------------------------------------------------
For purposes of these guidelines, a joint account is an account at
a Reserve Bank where the rights and liabilities are shared among
multiple account-holders (joint account holders), that is, institutions
that are eligible to open an account with a Reserve Bank. The Board
contemplates that under these arrangements, the joint account holders
will authorize a single entity to serve as their ``agent'' in providing
instructions to the Reserve Bank at which the account would be held
(the account-holding Reserve Bank) with respect to the account. The
account-holding Reserve Bank would be authorized to act on any
instruction provided by the agent, consistent with the provisions of
the joint account agreement. The Board also contemplates private-sector
arrangements using joint accounts might also use an ``operator'' (which
could be the agent of the joint account or a separate entity) for the
running of the arrangement, which might include undertaking various
steps in the payment process such as initiation, clearing, settlement,
and reconciliation, or establishing rules and governance.
``Participants'' in the arrangement might include joint account
holders, as well as other depository institutions and nondepository
institutions that are directly part of the payment system established
by the private-sector arrangement.
In 2016, Board and Reserve Bank (collectively, Federal Reserve)
staff received a request from an organization to open a new joint
account for that organization's proposed real-time payment system.
Given the ongoing evolution of the U.S. payment system, the Board
believes that other potential providers may contemplate joint account
arrangements, or may reconsider their options for settlement
capabilities if they understand better the availability of joint
accounts at Reserve Banks.\4\
---------------------------------------------------------------------------
\4\ A Faster Payments Task Force (Task Force) was established in
2015 to help foster a desired outcome set forth as part of the
Federal Reserve's Strategies for Improving the U.S. Payment System
efforts for ``a ubiquitous, safe, faster electronic solution.'' The
Strategies for Improving the U.S. Payment System paper is available
at https://fedpaymentsimprovement.org/wp-content/uploads/strategies-improving-us-payment-system.pdf. The Task Force developed a process
to assess proposals for faster retail payment systems. As part of
the process, proposers were made aware that they could discuss
Reserve Bank services, such as settlement options, with Federal
Reserve representatives if they had an interest in using those
services to facilitate their proposed faster retail payment systems.
---------------------------------------------------------------------------
The Board therefore proposed to establish a set of guidelines that
would be considered in evaluating requests for joint accounts intended
to facilitate settlement between depository institutions participating
in private-sector arrangements. The Board proposed guidelines based on
the following six principles:
(1) As a necessary condition for evaluating a joint account
request, each joint account holder should meet all applicable legal
requirements to have a Federal Reserve account, and the Reserve Bank
will not have any obligation to any non-account holder with respect
to the funds in the account.
(2) The private-sector arrangement should demonstrate that it
has a sound legal and operational basis for its payment system,
including an effective legal framework for achieving settlement
finality.
(3) The design and rules of the private-sector arrangement
should be consistent with the Federal Reserve's policy objectives to
promote a safe, efficient, and accessible payment system for U.S.
dollar transactions and be consistent with the intended use of the
arrangement.
(4) The provision of the joint account should not create undue
credit, settlement, or other risks to the Reserve Banks.
(5) The provision of a joint account should not create undue
risk to the overall payment system.
(6) The provision of a joint account should not adversely affect
monetary policy operations.
The Board requested comment on all aspects of the proposed
guidelines, including whether the scope and application were
sufficiently clear and appropriate to achieve their intended purpose
and any other criteria or information that commenters believed may be
relevant to evaluate joint account requests. The Board further sought
comment specifically on the following:
What information, if any, about the establishment of an
individual joint account should be made public?
How, if at all, would the possibility (1) that the account
agreement with the account holding Reserve Bank may include limits on
balances, require information on projected balances or volatility of
balances, or restrict further joint accounts; or (2) that the joint
account may be closed if warranted affect interest in establishing a
joint account, or use of such an account once opened? Are there other
types of restrictions or conditions that, while equally effective in
attaining the same objectives, might be less burdensome if placed on
joint accounts once in use?
Are there additional criteria or information that may be
relevant to evaluate joint account requests for U.S. depository
institutions to provide services to foreign clearing and settlement
arrangements?
Should the Board or the Reserve Banks consider other steps
or actions to facilitate settlement in light of market participants'
efforts to develop faster retail payment solutions?
II. Summary of Comments and Analysis on the Proposed Guidelines
The Board received nine comments in response to its request.
Comments were submitted by depository institutions, depository
institution trade associations, a national payments association,
service providers and payment system operators, and an individual. All
nine commenters supported establishment of the guidelines. No commenter
expressed opposition to any of the six proposed principles or the
guidelines more broadly. Five commenters requested that the Board
clarify certain aspects or
[[Page 41953]]
consider additional elements as part of the final guidelines.
Each of the proposed principles, the comments received, and the
Board's final guidelines are described in additional detail below.
Throughout the final guidelines, the Board has made changes to clarify
the application of the final six principles and more specifically
identify the parties to a private-sector arrangement for which
individual principles and evaluation factors are relevant.
1. Each joint account holder must meet all applicable legal
requirements to have a Federal Reserve account, and the Reserve Bank
will not have any obligation to any non-account holder with respect to
the balance in and operation of the account.
Unless otherwise specified by statute, only those entities that are
member banks or other depository institutions are legally able to
obtain Federal Reserve accounts and payment services.\5\ Therefore,
under the first proposed principle, only an institution eligible to
have a Federal Reserve account under the applicable federal statute and
Federal Reserve rules, policies, and procedures is able to be a joint
account holder. Consistent with Federal Reserve policies and
procedures, under the first proposed principle the account-holding
Reserve Bank must approve all joint account holders that are part of a
proposed private-sector arrangement.\6\ The Board also explained that,
consistent with the limits on the Reserve Banks' deposit-taking
authority, an account-holding Reserve Bank's obligation with respect to
any funds in a joint account will be limited to the joint account
holders, and non-account holders will not have any rights against the
Reserve Bank with respect to those funds.
---------------------------------------------------------------------------
\5\ Section 13(1) of the FRA permits Reserve Banks to receive
deposits from member banks or other depository institutions. 12
U.S.C. 342. Section 19(b)(1)(A) of the FRA includes as depository
institutions any federally insured bank, mutual savings bank,
savings bank, savings association, or credit union, as well as any
of those entities that are eligible to make application to become a
federally insured institution. 12 U.S.C. 461(b). In addition, there
are certain statutory provisions allowing Reserve Banks to act as a
depository or fiscal agent for the Treasury and certain government-
sponsored entities (See i.e. 12 U.S.C. 391, 393-95, 1823, 1435) as
well as for certain international organizations (See i.e. 22 U.S.C.
285d, 286d, 290o-3, 290i-5, 290l-3). In addition, Reserve Banks are
authorized to offer deposit accounts to designated financial market
utilities (12 U.S.C. 5465), Edge and Agreement corporations (12
U.S.C. 601-604a, 611-631), branches or agencies of foreign banks (12
U.S.C. 347d), and foreign banks and foreign states (12 U.S.C. 358).
\6\ Under the first proposed principle, the designated agent or
operator of the private-sector arrangement would not need to be a
depository institution.
---------------------------------------------------------------------------
Three commenters addressed the first proposed principle and
supported the proposed principle as consistent with existing account
policies regarding Federal Reserve accounts. Two of the three
commenters further stated that the first proposed principle would
ensure the integrity of the payment system. None of the three
commenters proposed changes to the first proposed principle or its
considerations.
In the final guidelines, the Board has adopted the first principle
as proposed with minor technical changes for clarity. As proposed, only
an institution eligible to have a Federal Reserve account under
applicable federal statute and Federal Reserve rules, policies, and
procedures is able to be a joint account holder. Some institutions may
be eligible for a Federal Reserve account but may present atypical risk
profiles, such as uninsured institutions. In these cases, a heightened
analysis of that institution's participation as a joint account holder
may be performed under one or more of the other guidelines. The final
guidelines now provide further clarification that under the first
principle, the designated agent or operator of the private-sector
arrangement would not need to be eligible for a Federal Reserve
account, assuming it is not a joint account holder.\7\ In the final
guidelines, the first principle also clarifies that no party other than
an account holder shall have a claim against the account-holding
Reserve Bank in connection with operation of the joint account,
including any decision related to opening or refusing to open the
account.
---------------------------------------------------------------------------
\7\ The designated agent would need to enter into an agreement
with the account-holding Reserve Bank.
---------------------------------------------------------------------------
2. The private-sector arrangement should demonstrate that it has a
well-founded, clear, transparent, and enforceable legal basis in all
aspects of its proposed arrangement.\8\
---------------------------------------------------------------------------
\8\ As described below, in the final guidelines the Board has
clarified certain aspects of the second proposed principle.
Significant changes from the proposed language are indicated in
italics: The private-sector arrangement should demonstrate that it
has a well-founded, clear, transparent, and enforceable legal basis
in all aspects of its proposed arrangement (the second principle as
proposed read ``The private-sector arrangement must demonstrate that
it has a sound legal and operational basis for its payment system,
including an effective legal framework for achieving settlement
finality'').
---------------------------------------------------------------------------
Under the second proposed principle, the Board proposed that a
private-sector arrangement seeking a joint account should have a sound
legal and operational basis for its payment system, including an
effective legal framework for achieving settlement finality. The Board
explained that under the second proposed principle, requestors of a
joint account would be expected to provide supporting legal analysis as
well as the system's rules, agreements, and other governing
documents.\9\ The Board also proposed that the private-sector
arrangement should have established appropriate compliance procedures
and have policies and procedures to minimize disruption to its system
when one of its participants, the agent, or the operator fails, when
fraudulent activity occurs, or in the event of operational failures.
Evaluation under the second proposed principle would further consider
the applicable supervisory framework for all parties to the private-
sector arrangement, with the expectation that the agent and operator
should be subject to the examination authority of a federal or state
supervisory agency.
---------------------------------------------------------------------------
\9\ For example, the Board explained that requestors would be
expected to analyze the application of laws and regulations, such as
U.C.C. 4A, the Electronic Funds Transfer Act, U.S. sanction
programs, Bank Secrecy Act and anti-money-laundering requirements or
regulations, and other relevant laws and regulations. In addition,
the arrangement would be expected to analyze significant matters
that may pose legal risks, such as the attachment risk related to
the funds in the joint account and the impact of participant
insolvency on the account.
---------------------------------------------------------------------------
Three commenters addressed the second proposed principle. All three
commenters were generally supportive, stating that the expectations
described under the second proposed principle reduce risks to
participants and the broader payment system. Only one of the
commenters, a payment system operator, suggested modifications.
Specifically, the commenter suggested that joint account requests only
be approved if the agent and operator are subject to federal
examination authority, in particular the Federal Financial Institutions
Examination Council's significant service provider or technology
service provider programs.\10\
---------------------------------------------------------------------------
\10\ The significant service provider program was formerly known
as the Multi-Regional Data Processing Servicers program.
---------------------------------------------------------------------------
In considering the appropriate level of supervision for an
arrangement whose participants use a joint account at a Reserve Bank,
the Board seeks to reduce risks for the Reserve Banks and the payment
system as a whole while at the same time avoiding posing unwarranted
access barriers. However, the Board does agree that, at some point in
the maturity of a private-sector arrangement, federal supervision or
examination may be important. For example, a successful private-sector
arrangement is likely to grow over time
[[Page 41954]]
in terms of number of participants and geographic reach (interstate or
international), which may pose increasing risks to the overall payment
system in light of the potential to operate on a 24/7/365 basis. The
Board sees benefit in uniform supervision and examination authority for
private-sector arrangements that have reached this point of maturity.
Therefore, the Board has added to the provision that the private-
sector arrangement be subject to federal or state supervision an
expectation that the payment system established by a private-sector
arrangement (including the operator) is also subject to the
jurisdiction of a federal banking agency with the authority to examine
or inspect the private-sector arrangement and take supervisory actions
against the arrangement or its participants.\11\ This means for a
payment system established by a private-sector arrangement and
supervised by a state regulatory body, a federal banking agency need
not be engaging in active supervision or examination, but should have
the authority to do so when the risk, scope, and operations call for
such supervision or examination. For example, under the Bank Service
Company Act, federal banking agencies have the authority to examine
third-party service providers that perform services for depository
institutions that the depository institution could otherwise do itself.
---------------------------------------------------------------------------
\11\ A federal banking agency would include the Board; the
Federal Deposit Insurance Corporation (FDIC); and the Office of the
Comptroller of the Currency (OCC).
---------------------------------------------------------------------------
The Board also believes that consideration of those supervisory
factors, as well as consideration of issues related to the operational
soundness of the private-sector arrangement, would be more
appropriately addressed under the final guidelines' third principle as
part of considering the Federal Reserve's objectives to promote a safe,
efficient, and accessible payment system for U.S. dollar transactions.
In the final guidelines, the Board has therefore identified those
elements as considerations under principle three.
Finally, as part of the final guidelines, and as indicated above,
the Board has clarified the phrase ``sound legal basis'' in the second
principle to mean a well-founded, clear, transparent, and enforceable
legal basis in all aspects of the proposed arrangement. The Board has
also made other minor technical changes for clarity.
3. The design and rules of a private-sector arrangement should be
consistent with the Federal Reserve's policy objectives to promote a
safe, efficient, and accessible payment system for U.S. dollar
transactions.
As explained under the third proposed principle, a private-sector
arrangement using a joint account to facilitate settlement would be
expected to manage risks consistent with Part I of the Board's Policy
on Payment System Risk (PSR Policy), even if the private-sector
arrangement is not otherwise subject to the PSR Policy. Also of
relevance was (1) whether the system is widely available for use by its
intended end users and is designed to minimize the risk of disruption
(rejection or delay of payments) to end users and (2) whether the
system creates undue inefficiencies in the payment process or undue
barriers to interoperability within the U.S. dollar payment system. The
Board also explained that evaluation of a joint account request would
assess whether the private-sector arrangement promotes payment system
improvements and innovations and the extent to which the arrangement
fosters competition in the payment system. The design and rules of the
private-sector arrangement, including rules relating to the funding of
and disbursements from the joint account, should also be consistent
with the intended use of the account. For example, the rules should not
provide an incentive for a participant that is not a joint account
holder and not eligible for its own individual Federal Reserve account
to use its participation in the arrangement, including the funding of
its obligations under the arrangement through a joint account holder,
to inappropriately take advantage of the credit-risk-free nature of the
joint account for purposes other than settling payments through the
arrangement.
The Board did not receive any comments suggesting modifications
under the third proposed principle but did receive one comment from a
national payments association related to principle five that the Board
believes has implications for principle three. The commenter suggested
that it would be relevant for the Board to consider the extent to which
a private-sector arrangement facilitates payments as part of a
transparent payment system, noting that less transparent mechanisms
could reduce effective risk management of participants by providing
inadequate visibility for all parties to sufficiently monitor and
manage risks, which may affect the payment system more broadly. The
Board believes that effective risk management will be adequately
considered in the final guidelines but agrees that promoting
transparency in the overall payment system is also an important policy
objective. Therefore the final guidelines include under the third
principle a consideration of the extent to which a private-sector
arrangement promotes transparency for end users and the public more
broadly (for example by making operating rules, rulemaking processes,
list of participants, or certain network statistics publicly
available).
As described in the discussions regarding the Board's second and
fourth proposed principles, the Board believes, based on the comments
received, that several considerations proposed under those principles
would be more appropriately evaluated as part of principle three,
specifically factors related to supervision, operational soundness
(such as policies and procedures to minimize disruption when one of its
participants, the agent, or the operator fails or in the event of
operational failures), and financial soundness of the operator (such as
financial statements and cash flow projections). The third principle of
the final guidelines also provides greater clarity on the consideration
of the Board's PSR Policy, specifically that a private-sector
arrangement would be expected to comply with the general policy
expectations for payment systems outlined within Part I of the PSR
Policy at a minimum, even if it is not otherwise subject to the policy,
in addition to any supervisory obligations.\12\
---------------------------------------------------------------------------
\12\ Those expectations are identified in Part I, section C of
the PSR Policy, ``General policy expectations for other payment
systems within the scope of the policy'' (as amended effective
September 23, 2016). The PSR Policy is available at https://www.federalreserve.gov/paymentsystems/files/psr_policy.pdf.
---------------------------------------------------------------------------
The Board has also clarified that as part of the third principle,
the arrangement's rules should sufficiently address the
responsibilities and liabilities of the participants, agent, and
operator in cases of operational disruption, or erroneous or fraudulent
conduct. Lastly, the final guidelines provide additional clarity
related to consideration under the third principle of the extent to
which the design and rules of the arrangement are consistent with the
intended use of the arrangement.
4. Provision of a joint account should not create undue credit,
settlement, or other risks to the Reserve Banks.
The Board in its proposal explained under the fourth proposed
principle that granting a request for a joint account should not create
undue risks to a Reserve Bank. For instance, the Board proposed that an
operator for an arrangement must be financially sound and that the
agent should demonstrate
[[Page 41955]]
an ongoing ability to meet all obligations under the joint account
agreement with the account-holding Reserve Bank. Evaluation under this
proposed principle would consider the manner in which the joint account
will be used, including any anticipated use of Reserve Bank services
and methods in place by the private-sector arrangement to avoid
overnight and intraday overdrafts, which would not be permitted in a
joint account. Under the fourth proposed principle, the agent would
also need to demonstrate that it has ways to monitor the joint account
and transactions into and out of the account, including the ability to
avoid overdrafts and promptly cover any inadvertent overdrafts.
One commenter, a depository institution, addressed the fourth
proposed principle. The commenter suggested that evaluation under the
principle should consider the contingency processing capabilities of
owners, participants and operators of a private-sector arrangement. The
Board agrees that contingency processing capabilities will be important
when evaluating joint account requests and believes that such
considerations are already accounted for under several of the
principles, including consideration of the private-sector arrangement's
ability to minimize disruption to its system and to meet the
requirements of the PSR Policy (principle three), the agent's ability
to monitor transactions originated and received by the account
(principle four), and whether the arrangement poses undue risk to the
overall payment system (principle five). As those considerations are
included in the final guidelines, the Board does not intend to include
a separate contingency assessment as part of principle four.
The same commenter asked that the guidelines set forth a clearly
defined review process for assessing the financial soundness of
operators. The Board agrees that providing further information may be
helpful to requestors and the final guidelines clarify that it will
likely be necessary to review (among other things) the financial
statements of operators, as well as cash flow projections (including
capital and operating expenses). The Board also believes that those
financial soundness factors would be more appropriately addressed under
the final guidelines' third principle when considering the Federal
Reserve's objectives to promote a safe, efficient, and accessible
payment system for U.S. dollar transactions. In the final guidelines,
the Board has therefore identified those elements as considerations
under principle three. The Board does not believe, however, it would be
appropriate to create a standardized review process for assessing the
financial soundness of every operator, or to establish expectations
that only certain information related to the financial condition of the
operator will be relevant as part of assessing a joint account request.
Ultimately, the specific considerations necessary to determine whether
an operator is financially sound will vary depending on the nature of
the private-sector arrangement and the individual entity.
The final guidelines no longer discuss an assessment of the
financial soundness of each participant under principle four (absent a
potential for further analysis of any atypical risk presented by a
potential joint account holder, as discussed under the first
guideline). The Board believes that the Reserve Banks already apply
appropriate controls to account holders as necessary to mitigate risks
that may result from financially unsound institutions. Moreover, the
financial soundness of participating depository institutions is already
considered by a depository institution's supervisor. In light of these
various factors, the Board does not believe it is necessary to assess
each individual joint account holder's financial soundness as part of
evaluating a request.
Lastly, the explanatory paragraphs to the final guidelines provide
that the account agreement with the account-holding Reserve Bank at the
time of account opening, or any time thereafter, may include
obligations relating to, or conditions or limitations on, use of the
joint account as necessary to limit any operational, credit, legal, or
reputational risks posed to the Reserve Banks.
5. Provision of a joint account should not create undue risk to the
overall payment system.
Under the fifth proposed principle, a private-sector arrangement
should not cause undue credit, settlement, or other risks to the
efficient operation of other payment systems or the payment system as a
whole. In evaluating a joint account request under this proposed
principle, the Board proposed that the operational and financial
interaction with, and use of, other payment systems would be relevant,
as would the extent to which use of the joint account may restrict a
portion of funds from being available to support intraday liquidity
needs of depository institutions for other payment and settlement
activity.
Three commenters addressed the fifth proposed principle. While all
three commenters were generally supportive, two of the commenters
suggested modifications to the proposed principle and its
considerations. As discussed above, the Board received one comment from
a national payments association under principle five that the Board
believed was relevant for evaluation under principle three. One
depository institution commenter suggested that the principle should
include an assessment of individual joint account holders' liquidity
needs to ensure that the private-sector arrangement does not negatively
impact the ability to meet further obligations. The Board does not
believe, however, that it would be appropriate to assess the liquidity
needs of each individual account holder in considering a joint account
request. Joint account holders should be effectively managing their
unique liquidity needs, which may change over time. Institutions
participating in private-sector arrangements should ensure liquidity
management is appropriately robust and quantitative in light of the
nature of the arrangement, particularly where its objective is to
facilitate faster payments. Moreover, the liquidity of participating
depository institutions will likely already be considered by a
depository institution's supervisor. However, the Board agrees that
issues of liquidity will be a critical consideration in evaluating
joint account requests and believes that the overall impact of the
private-sector arrangement on liquidity should already be adequately
assessed as part of the fifth principle, which includes consideration
of the extent to which the use of the joint account may restrict a
portion of funds from being available to support liquidity needs of
depository institutions for other payment and settlement activity.
In addition, the explanatory paragraphs of the final guidelines
provide that the account agreement with the account-holding Reserve
Bank at the time of account opening or any time thereafter may include
obligations relating to, and conditions or limitations on, use of the
joint account to limit risks to financial stability and the
implementation of monetary policy (see principle six), as well as other
risks that may arise.
6. Provision of a joint account should not adversely affect
monetary policy operations.
Finally, the provision of a joint account could have important
implications for monetary policy implementation, particularly if the
end-of-day balances in a joint account or joint accounts in the
aggregate fluctuate to the extent that they materially affect the
demand for or supply of reserve
[[Page 41956]]
balances.\13\ Such fluctuations would be a concern in a monetary policy
framework that relies on controlling the supply of reserves and in
which reserve balances are relatively scarce. Under the sixth proposed
principle, a joint account would not be opened if it would adversely
affect the conduct of monetary policy. The Board explained that
evaluation of the potential monetary policy implications would include
whether the balance in the joint account would be treated as reserves
(that is, would either be available to satisfy any joint account
holder's reserve balance requirement or be treated as excess reserves),
the expected predictability and volatility of the aggregate end-of-day
balance of the joint account, and the potential for a Reserve Bank to
impose limitations on account volatility without affecting the intended
function of the arrangement. The Board further identified several areas
where it may be necessary for the account agreement with the account-
holding Reserve Bank to include limits or controls, such as limiting
account volatility and account size or requiring a private-sector
arrangement to provide information related to such issues.\14\ The
Board requested comment on (1) how, if at all, the possibility of such
limits affected interest in establishing a joint account or use of such
an account once opened and (2) whether commenters believed other types
of restrictions or conditions might be less burdensome, while being
equally effective in attaining the same objectives.
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\13\ End-of-day balances refers to the balances in joint
accounts at the time the Federal Reserve's accounting system closes
for a given day.
\14\ An information requirement might include a notice period
within which the agent must notify the Reserve Bank of shifts in
account balances greater than a designated threshold. The Board
further explained that if other potential conditions discussed above
are ineffective at mitigating the risks identified or if the
obligations, limits or controls are breached, the account agreement
with the account-holding Reserve Bank might be restricted further or
the joint account may be closed if warranted.
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Four commenters addressed these issues. One commenter suggested
that the Board treat balances held in a joint account as reserves. The
treatment of joint account balances, however, will depend on the nature
of the private-sector arrangement, including the rights and obligations
of the parties involved. Determining whether balances held in a joint
account qualify as reserves therefore will be assessed for each request
individually. Moreover, the determination of whether balances in joint
accounts are treated as reserves will not affect the potential need to
predict and limit the volatility in the joint accounts. If joint
account balances are determined to be reserve balances, then these
balances will affect the demand for such balances, which is closely
monitored and supplied by the Federal Reserve in a scarce reserve
regime. Likewise, if joint account balances are not treated as
reserves, they are a factor affecting the supply of reserve balances,
meaning, all else equal, movements in joint account balances have
similarly sized but opposite effects on the supply of reserve balances,
which the Federal Reserve will need to offset to provide the
appropriate level of reserves in a scarce reserve regime.
None of the commenters opposed the principle or objected to the
potential imposition of limits or controls. One commenter stated that
institutions would be able to adequately adjust to any necessary limits
or controls placed on the account. Two commenters suggested that any
limits or controls be identified prior to opening a joint account, or
be included in the account agreement with the account-holding Reserve
Bank to provide clarity and certainty to private-sector arrangements.
While the Board agrees that providing certainty would be beneficial to
private-sector arrangements, limits or controls placed on joint
accounts to mitigate monetary policy implications will necessarily
depend on the framework in which the Federal Reserve is conducting
monetary policy. Under a monetary policy framework where the policy
rate is targeted by tightly managing the supply of reserves balances,
the magnitude and predictability of daily changes in joint account
balances would become important for monetary policy operations, and
therefore it may be necessary to limit the volatility or size of a
joint account or require advance notice of significant daily changes.
However, under a monetary policy framework where the supply of reserve
balances far exceeds the demand for reserve balances, joint account
balances are likely to have a negligible effect on monetary policy
operations, and such controls may not be necessary. The Board does not
believe it would be possible to identify the exact limitations and
controls that will be needed in all future policy frameworks.
As explained previously, the explanatory paragraphs of the final
guidelines provide that the account agreement with the account-holding
Reserve Bank at the time of account opening or any time thereafter may
include obligations relating to, or conditions or limitations on, use
of the joint account to limit risks to financial stability and the
implementation of monetary policy, as well as other risks that may
arise. Accordingly, the final guidelines have been modified to include
only the evaluation considerations under principle six. Finally, the
Board has made minor technical changes under principle six for clarity.
7. Responses to Additional Questions Posed by the Board.
In response to the Board's request for comment on any other
criteria or information that commenters believed may be relevant to
evaluate a joint account request, one national payments association
commenter suggested that the final guidelines include separate elements
to evaluate a designated agent or operator of a joint account.\15\ The
Board agrees that evaluation of the agent and operator is important.
The Board does not believe, however, that it would be appropriate to
establish separate, distinct criteria to evaluate the agent and
operator apart from the private-sector arrangement, because the roles
(and corresponding risks) of an agent or operator may vary depending on
the specific design of a private-sector arrangement. Evaluating a
private-sector arrangement's joint account request will necessarily
consider the agent and operator, and the Board believes that both
entities will be appropriately evaluated as part of that process under
the final guidelines. For example, the risks posed to the participants
of the private-sector arrangement will be necessarily considered in
determining whether the private-sector arrangement has a sound legal
and operational basis under principles two and three respectively, and
the risks posed to the payment system as a whole would be considered
under principle five.
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\15\ The commenter suggested that such separate criteria
include, among other things, an appropriate risk assessment
addressing the risks posed to the participants of the private-sector
arrangement, the safety and integrity of the particular payment
system established by the private-sector arrangement, and risks
posed to the payment system as a whole, and an assessment of the
agent's or operator's compliance with legal requirements and
regulatory oversight.
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Three commenters supported making some level of information public
about joint accounts established under the final guidelines. Two
commenters noted that certain information should not be made public.
One payment system operator commenter stated that confidential
information (such as functional, technical, or operational details)
should not be made public as it may result in risk or harm to the
private-sector arrangement or its participants. Another commenter, a
depository institution trade association, stated that
[[Page 41957]]
unsuccessful joint account applications should not be made public.
In considering these comments, the Board believes that public
announcement of joint accounts could be interpreted by some as an
endorsement by the Federal Reserve of the private-sector arrangement or
of its safety and soundness. The Board believes it is necessary to
avoid any appearance of endorsing a private entity or arrangement using
a joint account. The Board also believes that making the disapproval of
a joint account arrangement public could result in competitive harm to
the entities involved. Therefore, the Board has determined that neither
it nor the Reserve Banks intend to announce the opening of individual
joint accounts or the corresponding individual private-sector
arrangements. The Board believes that the private-sector arrangement
will provide sufficient transparency to participants and end users
about the method of settlement, including the use of a joint account.
This approach is generally consistent with the treatment of other
Federal Reserve accounts, for which neither the Board nor the Reserve
Banks publish information upon account openings, with limited
exceptions.\16\
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\16\ For example, the Board's H2 release publishes actions of
the Board and the Reserve Banks, including authorizations to
establish accounts for designated financial market utilities in
accordance with the Dodd-Frank Act.
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Consistent with the foregoing, the Board has clarified in the final
guidelines that establishment of a joint account by the Reserve Banks
is not intended as an endorsement or approval by the Federal Reserve of
the payment system established by the private-sector arrangement and
does not relieve any party to the private-sector arrangement or end
user from conducting its own diligence on the arrangement generally,
the associated risks of using the system established by the
arrangement, or the acceptability of such risks.
Commenters were generally silent as to additional criteria or
information that may be relevant to evaluating joint account requests
for U.S. depository institutions to provide services to foreign
clearing and settlement arrangements. The final guidelines will
generally apply in the event that a request is received related to a
foreign clearing or settlement arrangement, but the level of scrutiny
and information necessary may vary from domestic arrangements.\17\
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\17\ Like domestic arrangements, requests will be evaluated on a
case-by-case basis; the considerations and information to evaluate a
particular request will likely be based on the complexity of the
arrangement and other factors. For example, in considering a request
related to a foreign clearing or settlement arrangement, the
relevant supervisory and examination framework under principle three
may be whether the payment system established by the private-sector
arrangement is subject to a level of supervision and examination
commensurate with those of domestic arrangements.
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Finally, the Board requested comment on other steps or actions the
Federal Reserve should consider to facilitate settlement in light of
market participants' efforts to develop faster retail payment
solutions. One commenter, a payment system operator, suggested that the
Board coordinate with the Office of the Comptroller of the Currency's
initiative on evaluating national bank charter applications from
financial technology companies that engage in the business of banking.
The Board does collaborate with other federal banking agencies on
efforts to improve the payment system. Another depository institution
trade association commenter recommended that the Federal Reserve
continue to foster collaboration among a wide range of payments
stakeholders across a broad range of issues in the same model as the
Faster Payments Task Force to facilitate payment system improvements.
The Board agrees that a collaborative approach has been productive and
believes that it will continue to be valuable as the Federal Reserve
and industry work to achieve the desired outcomes set forth in the
Strategies for Improving the U.S. Payment System paper.
Another payment service provider commenter suggested that the final
guidelines be applied using a risk-based approach to evaluating joint
account requests so that smaller private-sector arrangements or new
entrants are evaluated in light of their specific volumes and risks.
The Board does not believe that it would be prudent to evaluate smaller
arrangements or new entrants under less-stringent criteria; an
evaluation under the final guidelines should necessarily consider the
specific risks posed by each private-sector arrangement. In certain
instances, that may mean a smaller private-sector arrangement presents
less risk by nature of its size. In other instances, a smaller private-
sector arrangement may present significant risks in spite of its size.
For these reasons, evaluation under the final guidelines will consider
the specific risks posed by a joint account request, regardless of
size.
One commenter, a depository institution, asked the Federal Reserve
to study how new payment methods have affected the payment system. Two
other commenters recommended that the Board strive to balance burdens
imposed by the final guidelines against the importance of payment
system developments. The Board agrees that ensuring balanced guidelines
is important to further the Federal Reserve's objectives of a safe,
efficient, and accessible payment system, while avoiding undue burdens
that lead to unintended consequences. The Board also agrees that
monitoring existing and emerging payment methods provides useful
information for achieving those objectives, and Federal Reserve staff
will continuously consider developments in the payment system and any
corresponding implications.\18\
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\18\ Including, for example, as part of the Federal Reserve
Payments Study and through the Reserve Banks' payment research
groups. https://www.federalreserve.gov/paymentsystems/payres_about.htm.
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II. Final Guidelines for Evaluating Joint Account Requests
The Board of Governors of the Federal Reserve System (Board) has
adopted six principles and corresponding considerations (collectively,
the guidelines) to be used in evaluating requests to the Federal
Reserve Banks (Reserve Banks) for joint accounts intended to facilitate
settlement between and among member banks and other eligible depository
institutions (collectively depository institutions) participating in
private-sector payment systems (private-sector arrangements).
For purposes of these guidelines, a joint account is an account at
a Reserve Bank where the rights and liabilities are shared among
multiple account holders (joint account holders), that is, institutions
that are eligible to open an account with a Reserve Bank. The Board
contemplates that under these arrangements, the joint account holders
will authorize a single entity to serve as their ``agent'' in providing
instructions to the Reserve Bank at which the account would be held
(the account-holding Reserve Bank) with respect to the account. The
account-holding Reserve Bank would be authorized to act on any
instruction provided by the agent, consistent with the provisions of
the joint account agreement. The Board also contemplates that private-
sector arrangements using joint accounts might also use an ``operator''
(which could be the agent of the joint account or a separate entity)
for running the arrangement, which may include undertaking various
steps in the payments process such as initiation, clearing, settlement,
and reconciliation, or establishing rules and governance.
``Participants'' in the arrangement might
[[Page 41958]]
include joint account holders, as well as other depository institutions
and nondepository institutions that are directly part of the payment
system established by the private-sector arrangement.
The guidelines broadly outline considerations necessary for
evaluating requests, but are not intended to provide assurance that any
specific arrangement would be granted a joint account. Every request
will be evaluated on a case-by-case basis, with the type and extent of
information necessary to evaluate a particular request likely dependent
on the complexity of the arrangement. The guidelines apply to both
domestic private-sector arrangements and foreign clearing or settlement
arrangements. In the event that a request is received related to a
foreign clearing or settlement arrangement, the level of scrutiny and
information necessary may vary from domestic arrangements.
In addition to the evaluation under the guidelines, the account
agreement with the account-holding Reserve Bank may include (at the
time of account opening or any time thereafter) obligations relating
to, or conditions or limitations on, use of the joint account as
necessary to limit operational, credit, legal, or reputational risks
posed to the Reserve Banks. The account agreement may also impose
obligations relating to, or conditions or limitations on, use of the
joint account to limit risks to financial stability and the
implementation of monetary policy, as well as other risks that may
arise. Obligations, limitations or conditions to limit risks to
financial stability, the implementation of monetary policy, or other
risks that may arise would be used only as deemed necessary and may
include, for example, limits on the level or volatility of account
balances and requirements for information on projected balances or
volatility of balances. An information requirement might include a
notice period within which the agent must notify the account-holding
Reserve Bank of shifts in the end-of-day account balances greater than
a designated threshold. If the obligations, limitations, or controls
are ineffective at mitigating the risks identified or if the
obligations, limitations, or controls are breached, the account
agreement with the account-holding Reserve Bank might be restricted
further or the joint account may be closed if warranted.
Establishment of a joint account by the Reserve Banks under these
guidelines does not relieve any participant in the private-sector
arrangement or any end user from conducting its own diligence on the
arrangement generally, on any associated risks of using the payment
system established by the private-sector arrangement, or on the
acceptability of such risks. Establishment of a joint account by the
Reserve Banks under these guidelines is not an endorsement or approval
by the Board or Reserve Banks (collectively the Federal Reserve) of the
payment system established by the private-sector arrangement. Moreover,
nothing in the Board's guidelines relieves any institution from
compliance with obligations imposed by an institution's supervisor.
The following will be used in evaluating requests to the Reserve
Banks for joint accounts intended to facilitate settlement between
depository institutions participating in private-sector arrangements:
1. Each joint account holder must meet all applicable legal
requirements to have a Federal Reserve account, and the Reserve Bank
will not have any obligation to any non-account holder with respect
to the balance in and operation of the account.
[cir] Only an institution that is eligible to have a Federal
Reserve account under applicable federal statute and Federal Reserve
rules, policies, and procedures is able to be a joint account
holder. Unless otherwise specified by statute, only those entities
that are member banks or meet the definition of a depository
institution under section 19(b) of the Federal Reserve Act are
legally able to obtain Federal Reserve accounts and payment
services.\19\
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\19\ There are certain statutory provisions allowing Reserve
Banks to act as a depository and fiscal agent for the Treasury and
certain government-sponsored entities (See i.e. 12 U.S.C. 391, 393-
95, 1823, 1435) as well as for certain international organizations
(See i.e. 22 U.S.C. 285d, 286d, 290o-3, 290i-5, 290l-3). In
addition, Reserve Banks are authorized to offer deposit accounts to
designated financial market utilities (12 U.S.C. 5465), Edge and
Agreement corporations (12 U.S.C. 601-604a, 611-631), branches or
agencies of foreign banks (12 U.S.C. 347d), and foreign banks and
foreign states (12 U.S.C. 358).
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[cir] As part of evaluating any joint account requests, and
consistent with Federal Reserve policies and procedures, the
account-holding Reserve Bank must approve all joint account holders
that are part of a proposed private-sector arrangement. Some
institutions may be eligible for a Federal Reserve account but may
present atypical risk profiles, such as uninsured institutions. In
these cases, a heightened analysis of that institution's
participation as a joint account holder may be performed under one
or more of the other guidelines.
[cir] The designated agent or operator of the private-sector
arrangement would not need to be a depository institution, assuming
it is not a joint account holder.
[cir] Consistent with the Reserve Banks' deposit-taking
authority, a Reserve Bank's obligation with respect to any balance
in a joint account will be owed solely to the joint account holders,
and no non-account holders may have any rights against the Reserve
Bank with respect to the balance. No party other than an account
holder shall have a claim against the account-holding Reserve Bank
in connection with the operation of the joint account, including any
decision related to opening or refusing to open the account.
2. The private-sector arrangement should demonstrate that it has
a well-founded, clear, transparent, and enforceable legal basis in
all aspects of its proposed arrangement.
[cir] Requestors of a joint account should provide supporting
legal analysis as well as the system's rules, agreements, and other
governing documents. The legal analysis should consider the
application of applicable laws and regulations, such as U.C.C. 4A,
the Electronic Funds Transfer Act, U.S. sanction programs, Bank
Secrecy Act and anti-money-laundering requirements or regulations,
and other relevant laws and regulations; the attachment risk related
to the account; and how the operation of the account would be
affected by a participant's insolvency.
3. The design and rules of the private-sector arrangement should
be consistent with the Federal Reserve's policy objectives to
promote a safe, efficient, and accessible payment system for U.S.
dollar transactions.
[cir] In addition to any party's supervisory obligations, a
private-sector arrangement that uses a joint account approved under
these guidelines will be expected to manage risks consistent with
the general policy expectations for payment systems outlined within
Part I of the Board's Federal Reserve Policy on Payment System Risk
(PSR Policy) at a minimum.\20\ These policy expectations apply even
if the private-sector arrangement is not otherwise subject to the
PSR Policy.\21\ Thus, before authorizing the establishment of a
joint account, the private-sector arrangement would be expected to
demonstrate that it has a general risk-management framework
appropriate for the risks the system poses to the operator, agent,
participants, the Reserve Bank granting the joint account, and other
relevant parties and payment systems.
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\20\ As of the date of publication of the final guidelines,
those expectations are identified in Part I, section C of the PSR
Policy, ``General policy expectations for other payment systems
within the scope of the policy'' (as amended effective September 23,
2016). The PSR Policy is available at https://www.federalreserve.gov/paymentsystems/files/psr_policy.pdf.
\21\ The Board's PSR Policy sets forth standards regarding the
management of risks that financial market infrastructures (FMIs)
present to the financial system when an FMI expects to settle a
daily aggregate gross value of $5 billion on a given day and when
providing accounts and services to FMIs. Generally, FMIs are
multilateral systems among participating financial institutions,
including the system operator, used for the purposes of clearing,
settling, or recording payments, securities, or other financial
transactions. For the purposes of a system that uses a joint account
to facilitate settlement, the standards would be applicable
regardless of the daily aggregate gross value in a given day.
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[cir] The private-sector arrangement should have policies and
procedures to minimize disruption to its system when one of its
participants, the agent, or the operator fails or in the event of
operational failures. The arrangement's rules should also
sufficiently
[[Page 41959]]
address the responsibilities and liabilities of the participants,
agent, and operator in cases of operational disruption, or erroneous
or fraudulent conduct.
[cir] Requests for joint accounts involving a financially
unsound operator would not be approved. Evaluation may include,
among other things, reviewing financial statements of the operator,
as well as cash flow projections (including capital and operating
expenses).
[cir] Evaluation under this principle will take into account the
applicable supervisory framework for the private-sector
arrangement.\22\ The payment system established by a private-sector
arrangement (including the operator) should be subject to federal or
state supervision and should also be subject to the jurisdiction of
a federal banking agency with the authority to examine or inspect
the private-sector arrangement and take supervisory actions against
the arrangement or its participants.\23\ This means for a payment
system established by a private-sector arrangement and supervised by
a state regulatory body, a federal banking agency need not be
engaging in active supervision or examination, but should have the
authority to do so when the risk, scope, and operations call for
such supervision or examination. For example, under the Bank Service
Company Act, federal banking agencies have the authority to examine
third-party service providers that perform services for depository
institutions that the depository institution could otherwise do
itself.
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\22\ Nothing in the Board's guidelines should be interpreted to
relieve any participant in the private-sector arrangement from
compliance with obligations imposed by an institution's supervisor,
including for example related to financial resources, liquidity,
participant default management, and other aspects of risk
management.
\23\ A federal banking agency would include the Board; the
Federal Deposit Insurance Corporation (FDIC); and the Office of the
Comptroller of the Currency (OCC).
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[cir] An evaluation under this principle would assess whether
the system is widely available for use by its intended end users, is
designed to minimize the risk of disruption (rejection or delay of
payments) to end users, and promotes transparency for end users and
the public more broadly (for example, by making its operating rules,
rulemaking processes, list of participants, or certain network
statistics publicly available). Evaluation under this guideline
would also assess whether the system creates inefficiencies in
payment processes or barriers to interoperability within the U.S.
dollar payment system. Also of relevance is whether the private-
sector arrangement promotes payment system improvements and
innovations and the extent to which the arrangement fosters
competition in the payment system (for example between providers of
payment services).
[cir] Finally, the design and rules of the private-sector
arrangement, including rules relating to the funding of and
disbursements from the joint account, should be consistent with the
intended use of the account, such that a participant can only use
the balances for the intended purpose of settling payments in the
associated system.
4. The provision of the joint account should not create undue
credit, settlement, or other risks to the Reserve Banks.
[cir] The agent and the joint account holders should demonstrate
an ongoing ability to meet all obligations under the joint account
agreement with the account-holding Reserve Bank.
[cir] The manner in which the joint account will be used in
support of the private-sector arrangement and any anticipated use of
Reserve Bank services should be identified.
[cir] Reserve Banks will not extend overnight or intraday credit
to a joint account. The private-sector arrangement should structure
its use of the joint account and Reserve Bank services in a manner
that seeks to avoid intraday overdrafts. The agent also should
demonstrate ways to monitor the joint account on an ongoing basis to
avoid overdrafts and to promptly cover any inadvertent overdrafts.
[cir] Further, the agent should demonstrate the ability to
appropriately monitor transactions into and out of the joint
account.
5. The provision of a joint account should not create undue risk
to the overall payment system.
[cir] The private-sector arrangement should not cause undue
credit, settlement, or other risks to the efficient operation of
other payment systems or the payment system as a whole.
[cir] The operational and financial interaction with and use of
other payment systems should be identified.
[cir] The extent to which the use of the joint account may
restrict a portion of funds from being available to support
liquidity needs of depository institutions for other payment and
settlement activity will also be considered.
6. The provision of a joint account should not adversely affect
monetary policy operations.
[cir] Evaluation of the potential monetary policy implications
of the use of a joint account will include whether the balance in
the joint account would be treated as reserves (that is, treated as
available to satisfy any joint account holder's reserve balance
requirements or as excess reserves), the expected predictability and
volatility of the end-of-day joint account balances, and the
potential for the account agreement with the account-holding Reserve
Bank to impose limitations on account volatility without affecting
the intended function of the arrangement. This evaluation will occur
regardless of the current monetary policy implementation framework
in place.
By order of the Board of Governors of the Federal Reserve
System, August 9, 2017.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2017-18705 Filed 9-1-17; 8:45 am]
BILLING CODE P
