New Message Format for the Fedwire® Funds Service, 31391-31396 [2018-14351]

Download as PDF Federal Register / Vol. 83, No. 129 / Thursday, July 5, 2018 / Notices Board of Governors of the Federal Reserve System, June 29, 2018. Yao-Chin Chao, Assistant Secretary of the Board. [FR Doc. 2018–14431 Filed 7–3–18; 8:45 am] BILLING CODE P FEDERAL RESERVE SYSTEM [Docket Number OP–1613] New Message Format for the Fedwire® Funds Service Board of Governors of the Federal Reserve System. ACTION: Notice of proposed service enhancement; request for comment. AGENCY: The Board of Governors of the Federal Reserve System (Board) is requesting comment on a proposal to adopt the ISO® 20022 message format for the Fedwire® Funds Service. ISO 20022 is an international standard that would replace the Fedwire Funds Service’s current, proprietary message format. The migration to ISO 20022 would take place in three phases beginning in 2020 and ending in 2023. DATES: Comment due date: September 4, 2018. ADDRESSES: You may submit comments, identified by Docket No. OP–1613, by any of the following methods: • Agency Website: http:// www.federalreserve.gov. Follow the instructions for submitting comments at http://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm. • Email: regs.comments@ federalreserve.gov. Include the docket number in the subject line of the message. • Fax: (202) 452–3819 or (202) 452– 3102. • Mail: Address to Ann E. Misback, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. All public comments will be made available on the Board’s website at http://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for technical SUMMARY: reasons or to remove personal information at the commenter’s request. Accordingly, comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper in Room 3515, 1801 K Street NW (between 18th and 19th Streets NW), between 9:00 a.m. and 5:00 p.m. on weekdays. FOR FURTHER INFORMATION CONTACT: Evan Winerman, Counsel (202–872– 7578), Legal Division; or Melissa Leistra, Manager (202–530–6285), Renuka Lakshmanan, Senior Financial Services Analyst (202–475–6633), Division of Reserve Bank Operations and Payment Systems. For users of Telecommunications Device for the Deaf (TDD) only, contact (202–263–4869). SUPPLEMENTARY INFORMATION: I. Background The Fedwire Funds Service is a realtime gross settlement system owned and operated by the Federal Reserve Banks (Reserve Banks) that enables participants to make final payments using their balances held at Reserve Banks or intraday credit provided by the Reserve Banks. The Fedwire Funds Service and the CHIPS® funds-transfer system, which is owned and operated by The Clearing House Payments Company, L.L.C. (TCH), are the main large-value payment systems in the United States.1 A. Current Fedwire Funds Service Message Format The Fedwire Funds Service uses a proprietary message format that supports multiple types of communications. Specifically, Fedwire Funds Service participants can send ‘‘value’’ messages that order the movement of funds and ‘‘nonvalue’’ messages that do not result in the movement of funds but rather communicate information or requests to other participants.2 The Fedwire Funds Service also includes messages that enable Fedwire participants to request account balance information and the processing status of payment orders. 31391 Although the Fedwire Funds Service message format is proprietary, it can be mapped to—and is interoperable with— the CHIPS message format and the message type (MT) format of the SWIFT® messaging network.3 As a result, multi-step domestic and international funds transfers can involve payment orders sent over the Fedwire Funds Service, CHIPS, and the SWIFT Financial Message Service network. B. ISO 20022 The International Organization for Standardization (ISO) is an independent, non-governmental organization comprised of 161 national standards bodies. ISO ‘‘brings together experts to share knowledge and develop voluntary, consensus-based, market relevant International Standards that support innovation and provide solutions to global challenges.’’ 4 ISO publishes standards for a broad range of industries. The ISO 20022 standard includes a suite of messages for the financial industry, including messages for payments, securities, trade services, cards, and foreign exchange. ISO 20022 messages use extensible markup language (XML) syntax and have a common data dictionary that can support end-to-end payment message flow, including payment initiation (i.e., customer to bank messages), interbank settlement (i.e., bank to bank messages), and cash management (i.e., bank to customer messages). ISO 20022 messages include structured data elements that provide for potentially richer payment message data than the current Fedwire Funds Service message format. For example, ISO 20022 messages contain fields for three intermediary financial institutions while the current Fedwire Funds message format contains a field for only one intermediary financial institution. Similarly, ISO 20022 messages can include more structured and detailed information than the current Fedwire Funds message format (see example in Table 1). TABLE 1 amozie on DSK3GDR082PROD with NOTICES1 Current Fedwire Funds Service format ISO 20022 format Free-text lines for address information: Discrete fields for specific address information: 1 In 2017, the Fedwire Funds Service processed 152,649,633 payments with a total value of approximately $740 trillion and CHIPS processed 112,597,088 payments with a total value of approximately $393 trillion. 2 Value messages can be used for multiple types of funds transfers, e.g., ‘‘bank transfers’’ in which VerDate Sep<11>2014 16:43 Jul 03, 2018 Jkt 244001 the originator and beneficiary are both banks and ‘‘customer transfers’’ in which the originator and/ or beneficiary is not a bank. Nonvalue messages include, e.g., ‘‘requests for reversal’’ in which a Fedwire participant requests that another Fedwire participant send a funds transfer that would return the amount of a previously accepted payment order. PO 00000 Frm 00033 Fmt 4703 Sfmt 4703 3 SWIFT is a member-owned cooperative headquartered in Belgium that provides its users (including banking and securities organizations, market infrastructures, and corporate customers) a global service for financial messages, such as payments and securities transactions. 4 See https://www.iso.org/about-us.html. E:\FR\FM\05JYN1.SGM 05JYN1 31392 Federal Register / Vol. 83, No. 129 / Thursday, July 5, 2018 / Notices TABLE 1—Continued Current Fedwire Funds Service format ISO 20022 format Address Line 1 (up to 35 characters) Address Line 2 (up to 35 characters) Address Line 3 (up to 35 characters) Postal Address <PstlAdr>. <AdrTp> (4 characters). <Dept> (up to 70 characters). <SubDept> (up to 70 characters). <StrtNm> (up to 70 characters). <BldgNb> (up to 16 characters). <PstCd> (up to 16 characters). <TwnNm> (up to 35 characters). <CtrySubDvsn> (up to 35 characters). <Ctry> (2 characters). Table 2 shows how ISO 20022 messages correspond to messages in the current Fedwire Funds Service message format. The full catalogue of ISO 20022 messages is available on the ISO 200022 website.5 TABLE 2 Category Description Business application header .......... Processing information placed at the beginning of each message (e.g., sender, receiver, input message accountability data or output message accountability data). Used by Fedwire Funds Service participants to order the movement of funds. Value messages ............................ Nonvalue messages ...................... System messages .......................... Reporting messages ...................... Comparable message in current fedwire funds service format ISO 20022 Message Used by Fedwire Funds Service participants to request that a funds transfer be made, to refuse to honor those requests, or to share free- format information. Used to communicate about the processing status of messages submitted to the Fedwire Funds Service, to report about Fedwire Funds Service operations, or to request copies of current or prior-day messages. Used to request or report on transaction activity or account balance information. BusinessApplicationHeaderV01_ head.001.001.01. This information is contained in various data elements of the current format. Financial Institution To Financial Institution Customer Credit Transfer (pacs.008.001.0x). Financial Institution Credit Transfer (pacs.009.001.0x). Payment Return (pacs.004.001.0x). Customer Credit Transfer Initiation (pain.001.001.09). FIToFI Payment Cancellation Request (camt.056.001.07). FIToFI Payment Status Report (pacs.002.001.09). Note: This message will also be used for a Return Refusal, but there is currently no comparable message. Proprietary Format Investigation (camt.035.001.04). FIToFI Payment Status Report (pacs.002.001.09). Message Reject (admi.002.001.01). Customer transfers. System Event Notification (admi.004.001.02). Resend Request (admi.006.001.01). Account Reporting Request (camt.060.001.03). amozie on DSK3GDR082PROD with NOTICES1 Bank To Customer Account Report (camt.052.001.07). Bank transfers. Returns. Drawdown request. Return request. Drawdown refusal. Service message. Acknowledgment and reject notification. Error response to an account report request or retrieval request. Broadcast messages (i.e., open, close, extensions). Retrievals (current day or prior two business days). The following requests: D Account balance. D Endpoint totals. D Detailed summary. The following reports: D Account balance. D Endpoint totals. D Detailed summary. D Reconciliation gap report. D Funds subsidiary statement. 5 See https://www.iso20022.org/full_ catalogue.page. VerDate Sep<11>2014 16:43 Jul 03, 2018 Jkt 244001 PO 00000 Frm 00034 Fmt 4703 Sfmt 4703 E:\FR\FM\05JYN1.SGM 05JYN1 Federal Register / Vol. 83, No. 129 / Thursday, July 5, 2018 / Notices II. Payments Industry Efforts Related to ISO 20022 amozie on DSK3GDR082PROD with NOTICES1 In late 2012, the Federal Reserve Bank of New York and other key entities involved in the U.S. payments industry formed a ‘‘Stakeholder Group’’ to assess the merits of adopting the ISO 20022 standard in the U.S.6 The Stakeholder Group engaged an independent external consultant to evaluate the business case for adopting ISO 20022. The consultant identified certain strategic reasons to consider adopting ISO 20022 in the U.S. for cross-border wire and Automated Clearing House (ACH) payments and then, if appropriate, for domestic wire and ACH payments. For example, the consultant emphasized that adopting ISO 20022 in lieu of proprietary standards would improve interoperability between domestic and global payment systems.7 In accordance with the findings of the Stakeholder Group, the Federal Reserve recommended in its 2015 Strategies for Improving the Payment System paper that the U.S. payments industry ‘‘[d]evelop an implementation strategy for the application of the ISO 20022 standard to U.S. payment transactions.’’ 8 Since 2015, the Reserve Banks have worked with TCH on plans to adopt ISO 20022 for the Fedwire Funds Service and CHIPS. While the Reserve Banks and TCH decided independently to pursue implementation of ISO 20022, they intend to align ISO 20022 implementation for the Fedwire Funds Service and CHIPS to the extent possible.9 The Reserve Banks and TCH have indicated that aligning ISO 20022 implementation for their respective wire transfer systems would create efficiencies that would benefit their 6 The other members of the Stakeholder Group are the Federal Reserve Bank of Atlanta; TCH; NACHA—The Electronic Payments Association, which develops the rules that govern the Automated Clearing House network; and Accredited Standards Committee X9–Financial Industry Standards, Inc., which has been accredited by the U.S. national standards body (the American National Standards Institute) to develop financial standards. 7 See Appendix 7 of the Federal Reserve’s Strategies for Improving the Payment System (Jan. 26, 2015), https://fedpaymentsimprovement.org/wpcontent/uploads/strategies-improving-us-paymentsystem.pdf, for a fuller discussion of the consultant’s findings. 8 Id. at 19–20. Strategies for Improving the Payment System made a number of other recommendations intended to improve, inter alia, the speed, efficiency, and security of payments. 9 See ‘‘Deep Dive into the ISO 20022 Implementation Strategy for U.S. High-Value Payment Systems’’, Sibos Community Session (Oct. 18, 2017), slide 7 https:// fedpaymentsimprovement.org/wp-content/uploads/ 101817-iso20022-deep-dive.pdf. VerDate Sep<11>2014 16:43 Jul 03, 2018 Jkt 244001 common customers.10 The Reserve Banks’ specific proposed timeline for adopting ISO 20022 for the Fedwire Funds Service is discussed in greater detail below. The Reserve Banks have also engaged in extensive public outreach regarding ISO 20022. For example, the Reserve Banks and TCH conducted a survey in 2015 of over 2,300 Fedwire Funds Service customers, Fedwire and CHIPS advisory group banks, vendors, and industry groups on the potential scope, approach, and timing of ISO 20022 implementation.11 The Reserve Banks have also presented at industry conferences, published webinars, and established websites to educate market participants about ISO 20022 and to solicit direct informal feedback on plans to implement ISO 20022.12 Finally, the Reserve Banks have established advisory groups that include banks, software vendors, and other stakeholders to provide input on how to implement ISO 20022 for the Fedwire Funds Service. SWIFT has initiated a study to consider the migration of cross-border traffic in its proprietary MT format to ISO 20022.13 The SWIFT study includes a community consultation to help determine the timing and practicalities of migration.14 SWIFT has indicated that the ‘‘consultation will run until early June, with results analysed over the following months and a final report produced before the end of 2018. The report will draw on the feedback from the consultation to propose a detailed roadmap for’’ migrating cross-border MT traffic to ISO 20022.15 Similarly, many foreign wire transfer systems, including those for currencies of key U.S. trading partners, have adopted ISO 20022 (e.g., China, India, Japan, Switzerland) or have announced 10 Id. 11 See https://fedpaymentsimprovement.org/wpcontent/uploads/iso20022_adoption_ considerations_survey.pdf. 12 See ‘‘Fedwire Funds Service ISO 20022 Implementation Center,’’ https:// www.frbservices.org/resources/financial-services/ wires/iso-20022-implementation-center.html, which includes information on the Reserve Banks’ proposal to implement ISO 20022 for the Fedwire Funds Service. See also ‘‘The Fed’s Resource Center for Adoption of ISO 20022 Payment Messages,’’ https://fedpaymentsimprovement.org/paymentsefficiency/iso-20022/, which includes links to presentations and webinars concerning plans to adopt ISO 20022 for wire transfers and ACH payments. The Reserve Banks will host additional webinars and in-person workshops throughout the first half of 2018. The Reserve Banks will also continue to work with NACHA to educate ACH participants about ISO 20022. 13 See https://www.swift.com/news-events/news/ iso-20022-migration_the-time-is-now. 14 Id. 15 Id. PO 00000 Frm 00035 Fmt 4703 Sfmt 4703 31393 plans to adopt ISO 20022 (e.g., Canada, European Union, Hong Kong, United Kingdom).16 III. Potential Benefits of Adopting ISO 20022 for the Fedwire Funds Service The Board believes that adopting ISO 20022 for the Fedwire Funds Service could be beneficial for a number of reasons. As described above, the ISO 20022 message format would allow Fedwire Funds Service participants to include richer and more structured data in their messages—for example, increased character lengths for name data elements and discrete elements for address information, including a country code. This data could help banks and other entities meet evolving requirements to screen payments for sanctions and anti-money laundering purposes. Adopting ISO 20022 messages could also improve domestic and cross-border interoperability between the Fedwire Funds Service and other payment or messaging systems. As noted above, TCH has announced plans to adopt ISO 20022 messages for the CHIPS system and SWIFT has initiated a study to consider the migration of cross-border MT traffic to ISO 20022. Similarly, as noted above, many foreign wire transfer systems, including those for currencies of key U.S. trading partners, have adopted or have announced plans to adopt ISO 20022. Adopting ISO 20022 as a common, global standard could reduce operating costs for banks and their customers by reducing the need to map payment information from one message format to another. This could improve the efficiency of end-to-end processing of multi-leg domestic and international funds transfers. Relatedly, adopting ISO 20022 as a common, global standard could allow banks to provide useful services to their customers. For example, ISO 20022 would support a structured format for including extended remittance information (ERI) in business-tobusiness payment messages.17 While the current proprietary message formats for the Fedwire Funds Service and CHIPS support ERI, usage of ERI by depository institutions and their customers has been limited. Widespread adoption of 16 For further discussion of payment systems that have adopted ISO 20022 or have announced plans to adopt ISO 20022, see section 7.3 of SWIFT’s ISO 20022 consultation paper, https://www.swift.com/ resource/iso-20022-migration-study. 17 Extended remittance information generally refers to details in the payment message regarding the purpose of a business-to-business payment. For example, a business that sends a payment to a vendor could include details regarding the invoices against which the vendor should apply the payment. E:\FR\FM\05JYN1.SGM 05JYN1 31394 Federal Register / Vol. 83, No. 129 / Thursday, July 5, 2018 / Notices ISO 20022 would create a common, global format for ERI that could encourage depository institutions and their customers to invest in the changes needed to support the end-to-end flow of ERI for business-to-business payments. IV. Proposed Timeline for Adopting ISO 20022 for the Fedwire Funds Service The Reserve Banks would transition from the current Fedwire Funds Service message format to ISO 20022 in three phases. Phase 1: ISO 20022 Preparation (Target Implementation Date of November 23, 2020) In phase 1, the Reserve Banks would make a number of changes to the current Fedwire Funds Service message format to address existing interoperability gaps with SWIFT’s proprietary MT format. The Reserve Banks would also eliminate the free-text format option for the originator and beneficiary fields in customer transfer messages and instead require Fedwire Funds Service participants to use a structured format for these fields; SWIFT is making a similar change to its MT format in November 2020.18 Although the Reserve Banks would need to make most of the changes in phase 1 even if the Reserve Banks were not planning to adopt ISO 20022, all of the changes in this phase would simplify the Fedwire Funds Service’s migration to ISO 20022 messages. Phase 2: ISO 20022 ‘‘like-for-like’’ Implementation (Target Implementation Period From March 2022 to August 2023) In phase 2, the Reserve Banks would migrate Fedwire Funds Service participants in waves to send and receive ISO 20022 messages that have elements and character lengths that are comparable to the current Fedwire Funds Service message format. Table 2, supra, shows how ISO 20022 messages correspond to messages in the current Fedwire Funds Service message format. While the syntax for the phase 2 likefor-like ISO 20022 messages would be XML, the content of the messages would be limited to data elements and character lengths comparable to those that are supported in the current Fedwire Funds Service message format. For example, like-for-like ISO 20022 messages in phase 2 could include only one field for an intermediary financial institution (similar to the current Fedwire Funds Service message format) even though ISO 20022 messages can generally accommodate up to three such fields. Similarly, while ISO 20022 messages can support structured data elements for address information (see Table I, supra), like-for-like ISO 20022 messages in phase 2 would (similar to the current Fedwire Funds Service message format) be limited to three lines of 35 characters each for free-text address information. Because the Reserve Banks would transition Fedwire Funds Service participants to ISO 20022 in waves, the Fedwire Funds Service would translate the current message format to ISO 20022 and vice versa when necessary to accommodate Fedwire senders and receivers that are not using the same format. At the end of phase 2, the Fedwire Funds Service would move into a stability period lasting at least three months (from August 2023 to November 2023) in which all Fedwire Funds participants would send and receive ISO 20022 like-for-like messages. During the stability period, the Reserve Banks would retain the current, proprietary Fedwire Funds Service format as a fallback option in case one or more participants encounter issues and the Reserve Banks determine that such participants need to revert back to the proprietary format. The Reserve Banks would also use phase 2 to prepare for full implementation of ISO 20022 in phase 3. Specifically, the Reserve Banks would require Fedwire Funds Service participants to test their ability to receive full ISO 20022 messages. Phase 3: ISO Enhancements (Target Implementation Date of November 2023) In phase 3, the Reserve Banks would fully implement ISO 20022 by enabling Fedwire Funds Service participants to send ISO 20022 messages that contain enhanced data as noted in Table 3. Although it would be optional for participants to send the enhanced data, all participants would need to be capable of receiving enhanced data.19 Participants would also need to determine, consistent with any legal obligations, how to handle enhanced data that they receive—for example, whether (and how) to provide enhanced data to the next receiving bank in the funds transfer or to the beneficiary (if the Fedwire Funds Service participant is the beneficiary’s bank). TABLE 3 amozie on DSK3GDR082PROD with NOTICES1 ISO 20022 Enhancements 1. New data elements for additional persons or entities identified in payment messages: 20 D initiating party D two additional previous instructing agents D two additional intermediary agents D ultimate debtor D ultimate creditor 2. New purpose code data element to help explain the business purpose of the funds transfer. 3. New data element that participants can use to determine how they handle or process a message (e.g., SWIFT global payments innovation service level). 4. New data element to provide information about a bilateral processing agreement. 5. Longer character lengths for certain fields (e.g., Name can be up to 140 characters). 6. Structured postal address data elements, including a country code. 7. Contact details for certain persons/entities in the funds transfer. 18 See https://www.swift.com/news-events/news/ payments-standards-changes-for-2020-and-whyyou-should-act-now. 19 As noted above, the Reserve Banks would require Fedwire Funds Service participants to test VerDate Sep<11>2014 16:43 Jul 03, 2018 Jkt 244001 their ability to receive full ISO 20022 messages during phase 2. 20 ISO 20022 employs terminology that differs in key respects from that used in U.S. funds-transfer law, including subpart B of the Board’s Regulation J (12 CFR 210), which governs funds transfers PO 00000 Frm 00036 Fmt 4703 Sfmt 4703 through the Fedwire Funds Service. The Board has proposed an amendment to subpart B of Regulation J that would clarify that terms used in financial messaging standards, such as ISO 20022, do not confer or connote legal status or responsibilities. See 83 FR 11431 (Mar. 15, 2018). E:\FR\FM\05JYN1.SGM 05JYN1 Federal Register / Vol. 83, No. 129 / Thursday, July 5, 2018 / Notices 31395 TABLE 3—Continued 8. New regulatory reporting data elements to provide regulatory information (e.g., OFAC license) related to customer transfers. 9. New tax component to provide remittance information related to tax payments. The target implementation date for phase 3 could be delayed if SWIFT has not yet implemented a solution for its network to support ISO 20022 messages that contain enhanced data. amozie on DSK3GDR082PROD with NOTICES1 V. Fedwire Funds Service Message Format Documentation and Testing The Reserve Banks are using a restricted page on the MyStandards web-based application as a tool to store and share documentation related to the ISO 20022 project with authorized Fedwire Funds Service participants and software vendors.21 In March 2018, the Reserve Banks published the final message format documents for phase 1, which would provide the industry over two years to prepare for the proposed phase 1 target implementation date in November 2020. The Reserve Banks also published draft message format documents for phases 2 and 3 in March 2018 and will publish the final documents for these phases by the end of June 2018; this would provide the industry nearly four years to prepare for the proposed phase 2 migration (which is targeted to begin in March 2022) and over five years to prepare for the proposed phase 3 target implementation date in November 2023. The Reserve Banks plan to provide nine months for testing the phase 1 changes in their Depository Institution Testing (DIT) environment prior to the proposed implementation date in November 2020.22 Similarly, the Reserve Banks plan to provide at least one year for testing the phase 2 and phase 3 changes in their DIT environment. The Reserve Banks plan to publish a final testing plan by the end of 2018. VI. Impact on Fedwire Funds Service Participants and Service Providers The Board believes that the impact of ISO 20022 implementation on Fedwire Funds Service participants would vary depending on how each participant accesses the Fedwire Funds Service. Certain Fedwire Funds Service participants or service providers develop their own software (or rely on software from vendors) to access the Fedwire Funds Service. These 21 For more information on MyStandards, see https://www.swift.com/our-solutions/complianceand-shared-services/mystandards. 22 For more information on the DIT environment, see https://www.frbservices.org/financial-services/ wires/testing/di-testing.html. VerDate Sep<11>2014 16:43 Jul 03, 2018 Jkt 244001 institutions include (1) Fedwire Funds Service participants and service providers that access the Fedwire Funds Service via the FedLine Direct® solution and (2) Fedwire Funds Service participants that use the import/export feature of FedPayments® ManagerFunds over the FedLine Advantage® solution. FedLine Direct access to the Fedwire Funds Service is an unattended, IP-based computer interface. It is typically used by participants conducting larger volumes of funds transfers. FedPayments Manager is a web-based application that midsize and smaller participants typically use to create, send, and receive payment orders and nonvalue messages. The import functionality built into FedPayments Manager enables participants to upload payment files from separate payment applications (e.g., those that interface with customerfacing systems) so the participants do not have to enter the messages one by one into the application. Similarly, the export functionality allows participants to download files from FedPayments Manager into other applications (e.g., so payments can post to customer accounts in their deposit systems). The Board believes that participants and service providers accessing the service through FedLine Direct or using the import/ export feature of FedPayments Manager would need to make significant changes to their payment applications or processes to be able to send and receive messages (or import and export files) in the revised proprietary format in phase 1 and in the new ISO 20022 format in phases 2 and phase 3. Other Fedwire Funds Service participants access the Fedwire Funds Service manually through FedPayments Manager-Funds.23 These participants would need to become familiar with the terminology used in, and information required by, the ISO 20022 format and the updated appearance of the graphical user interface in FedPayments Manager. The Reserve Banks would make the necessary changes to FedPayments Manager, however, and would provide training regarding the updates. Finally, some Fedwire Funds Service participants access the Fedwire Funds Service through an offline, telephonethese Fedwire Funds Service participants enter messages individually into FedPayments Manager-Funds over the FedLine Advantage solution through a graphical user interface. PO 00000 23 Specifically, Frm 00037 Fmt 4703 Sfmt 4703 based service that requires a Reserve Bank employee to enter payment order information into a Reserve Bank application. The Board does not believe that these participants’ current processes for submitting payment orders would materially change, though the participants would need to become familiar with the terminology used in, and information required by, the ISO 20022 format so they could provide it to the Reserve Bank employees. VII. Request for Comment The Board requests comment on this proposal to replace the current Fedwire Funds Service message format with ISO 20022. A. Potential Benefits and Drawbacks of Adopting ISO 20022 1. Would adopting ISO 20022 for the Fedwire Funds Service produce the benefits discussed above? 2. Would adopting ISO 20022 for the Fedwire Funds Service produce any other benefits? 3. What drawbacks (if any) would adopting ISO 20022 for the Fedwire Funds Service entail and how might they be addressed? B. Proposed Timeline for Adopting ISO 20022 1. Is the timeline that the Reserve Banks have proposed for adopting ISO 20022 for the Fedwire Funds Service (including the proposed timeframes for publishing final message format documents and testing changes in the Reserve Banks’ DIT environment) reasonable? If not, how much time would Fedwire Funds Service participants and service providers (including software vendors) need to adjust their applications and processes for each phase? 2. Should the Reserve Banks delay the implementation date for phase 3 of the proposal if SWIFT has not yet implemented a solution on its network to support ISO 20022 for cross-border messages? 3. Would the proposal to migrate to ISO 20022 in phases mitigate any risks associated with implementing ISO 20022? C. Impact on Fedwire Funds Service Participants and Service Providers 1. How does your institution access the Fedwire Funds Service? If your institution accesses the Fedwire Funds E:\FR\FM\05JYN1.SGM 05JYN1 31396 Federal Register / Vol. 83, No. 129 / Thursday, July 5, 2018 / Notices Service via the FedLine Direct solution or uses the import/export feature of FedPayments Manager-Funds over the FedLine Advantage solution, do you develop your own software or rely on a software vendor? 2. What costs would your institution incur if the Reserve Banks adopt ISO 20022 for the Fedwire Funds Service? If possible, please provide dollar estimates or ranges. 3. Would the benefits of adopting ISO 20022 for the Fedwire Funds Service outweigh any associated costs for your institution? VIII. Competitive Impact Analysis The Board conducts a competitive impact analysis when it considers a rule or policy change that may have a substantial effect on payment system participants. Specifically, the Board determines whether there would be a direct or material adverse effect on the ability of other service providers to compete with the Federal Reserve due to differing legal powers or due to the Federal Reserve’s dominant market position deriving from such legal differences.24 The Board does not believe that the proposal to adopt ISO 20022 for the Fedwire Funds Service would have an adverse impact on other service providers. As described above, the current, proprietary message format for the Fedwire Funds Service is interoperable with the proprietary message format for the CHIPS system. As further described above, the Reserve Banks have worked with TCH on plans to align ISO 20022 implementation for the Fedwire Funds Service and CHIPS where possible; the Reserve Banks and TCH have indicated that such coordination will benefit their common customers. If the Reserve Banks and TCH each adopt ISO 20022 for the Fedwire Funds Service and CHIPS, respectively, the message formats for the two systems will remain interoperable. By order of the Board of Governors of the Federal Reserve System, June 28, 2018. Michele Taylor Fennell, Assistant Secretary of the Board. amozie on DSK3GDR082PROD with NOTICES1 BILLING CODE P The Federal Reserve in the Payments System (issued 1984; revised 1990), Federal Reserve Regulatory Service 9–1558, http:// www.federalreserve.gov/paymentsystems/pfs_ frpaysys.htm. VerDate Sep<11>2014 16:43 Jul 03, 2018 Jkt 244001 DEPARTMENT OF DEFENSE Formations of, Acquisitions by, and Mergers of Bank Holding Companies GENERAL SERVICES ADMINISTRATION The companies listed in this notice have applied to the Board for approval, pursuant to the Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.) (BHC Act), Regulation Y (12 CFR part 225), and all other applicable statutes and regulations to become a bank holding company and/or to acquire the assets or the ownership of, control of, or the power to vote shares of a bank or bank holding company and all of the banks and nonbanking companies owned by the bank holding company, including the companies listed below. The applications listed below, as well as other related filings required by the Board, are available for immediate inspection at the Federal Reserve Bank indicated. The applications will also be available for inspection at the offices of the Board of Governors. Interested persons may express their views in writing on the standards enumerated in the BHC Act (12 U.S.C. 1842(c)). If the proposal also involves the acquisition of a nonbanking company, the review also includes whether the acquisition of the nonbanking company complies with the standards in section 4 of the BHC Act (12 U.S.C. 1843). Unless otherwise noted, nonbanking activities will be conducted throughout the United States. Unless otherwise noted, comments regarding each of these applications must be received at the Reserve Bank indicated or the offices of the Board of Governors not later than July 26, 2018. A. Federal Reserve Bank of Dallas (Robert L. Triplett III, Senior Vice President) 2200 North Pearl Street, Dallas, Texas 75201–2272: 1. Independent Bank Group, Inc., McKinney, Texas; to acquire Guaranty Bancorp, and thereby indirectly acquire Guaranty Bank and Trust Company, both of Denver, Colorado. 2. VBT Financial Corporation, San Antonio, Texas; to become a bank holding company by acquiring Vantage Bank Texas, San Antonio, Texas. NATIONAL AERONAUTICS AND SPACE ADMINISTRATION Board of Governors of the Federal Reserve System, June 29, 2018. Yao-Chin Chao, Assistant Secretary of the Board. [FR Doc. 2018–14351 Filed 7–3–18; 8:45 am] 24 See FEDERAL RESERVE SYSTEM [FR Doc. 2018–14432 Filed 7–3–18; 8:45 am] BILLING CODE P PO 00000 Frm 00038 Fmt 4703 Sfmt 4703 [OMB Control No. 9000–0062; Docket No. 2018–0003; Sequence No. 5] Submission for OMB Review; Material and Workmanship Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA). ACTION: Notice of request for public comments regarding an extension to an existing OMB clearance. AGENCY: Under the provisions of the Paperwork Reduction Act, the Regulatory Secretariat Division will be submitting to the Office of Management and Budget (OMB) a request to review and approve an extension of a previously approved information collection requirement concerning material and workmanship. DATES: Submit comments on or before August 6, 2018. ADDRESSES: Submit comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden to: Office of Information and Regulatory Affairs of OMB, Attention: Desk Officer for GSA, Room 10236, NEOB, Washington, DC 20503. Additionally submit a copy to GSA by any of the following methods: • Regulations.gov: http:// www.regulations.gov. Submit comments via the Federal eRulemaking portal by searching the OMB Control number 9000–0062. Select the link ‘‘Comment Now’’ that corresponds with ‘‘Information Collection 9000–0062, Material and Workmanship’’. Follow the instructions provided on the screen. Please include your name, company name (if any), and ‘‘Information Collection 9000–0062, Material and Workmanship’’ on your attached document. • Mail: General Services Administration, Regulatory Secretariat Division (MVCB), 1800 F Street NW, Washington, DC 20405. ATTN: Ms. Mandell/IC 9000–0062, Material and Workmanship. 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Agencies

[Federal Register Volume 83, Number 129 (Thursday, July 5, 2018)]
[Notices]
[Pages 31391-31396]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14351]


-----------------------------------------------------------------------

FEDERAL RESERVE SYSTEM

[Docket Number OP-1613]


New Message Format for the Fedwire[supreg] Funds Service

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Notice of proposed service enhancement; request for comment.

-----------------------------------------------------------------------

SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
is requesting comment on a proposal to adopt the ISO[supreg] 20022 
message format for the Fedwire[supreg] Funds Service. ISO 20022 is an 
international standard that would replace the Fedwire Funds Service's 
current, proprietary message format. The migration to ISO 20022 would 
take place in three phases beginning in 2020 and ending in 2023.

DATES: Comment due date: September 4, 2018.

ADDRESSES: You may submit comments, identified by Docket No. OP-1613, 
by any of the following methods:
     Agency Website: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Email: [email protected]. Include the 
docket number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Address to Ann E. Misback, Secretary, Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue NW, Washington, DC 20551.
    All public comments will be made available on the Board's website 
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons or to remove personal 
information at the commenter's request. Accordingly, comments will not 
be edited to remove any identifying or contact information. Public 
comments may also be viewed electronically or in paper in Room 3515, 
1801 K Street NW (between 18th and 19th Streets NW), between 9:00 a.m. 
and 5:00 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Evan Winerman, Counsel (202-872-7578), 
Legal Division; or Melissa Leistra, Manager (202-530-6285), Renuka 
Lakshmanan, Senior Financial Services Analyst (202-475-6633), Division 
of Reserve Bank Operations and Payment Systems. For users of 
Telecommunications Device for the Deaf (TDD) only, contact (202-263-
4869).

SUPPLEMENTARY INFORMATION:

I. Background

    The Fedwire Funds Service is a real-time gross settlement system 
owned and operated by the Federal Reserve Banks (Reserve Banks) that 
enables participants to make final payments using their balances held 
at Reserve Banks or intraday credit provided by the Reserve Banks. The 
Fedwire Funds Service and the CHIPS[supreg] funds-transfer system, 
which is owned and operated by The Clearing House Payments Company, 
L.L.C. (TCH), are the main large-value payment systems in the United 
States.\1\
---------------------------------------------------------------------------

    \1\ In 2017, the Fedwire Funds Service processed 152,649,633 
payments with a total value of approximately $740 trillion and CHIPS 
processed 112,597,088 payments with a total value of approximately 
$393 trillion.
---------------------------------------------------------------------------

A. Current Fedwire Funds Service Message Format

    The Fedwire Funds Service uses a proprietary message format that 
supports multiple types of communications. Specifically, Fedwire Funds 
Service participants can send ``value'' messages that order the 
movement of funds and ``nonvalue'' messages that do not result in the 
movement of funds but rather communicate information or requests to 
other participants.\2\ The Fedwire Funds Service also includes messages 
that enable Fedwire participants to request account balance information 
and the processing status of payment orders.
---------------------------------------------------------------------------

    \2\ Value messages can be used for multiple types of funds 
transfers, e.g., ``bank transfers'' in which the originator and 
beneficiary are both banks and ``customer transfers'' in which the 
originator and/or beneficiary is not a bank. Nonvalue messages 
include, e.g., ``requests for reversal'' in which a Fedwire 
participant requests that another Fedwire participant send a funds 
transfer that would return the amount of a previously accepted 
payment order.
---------------------------------------------------------------------------

    Although the Fedwire Funds Service message format is proprietary, 
it can be mapped to--and is interoperable with--the CHIPS message 
format and the message type (MT) format of the SWIFT[supreg] messaging 
network.\3\ As a result, multi-step domestic and international funds 
transfers can involve payment orders sent over the Fedwire Funds 
Service, CHIPS, and the SWIFT Financial Message Service network.
---------------------------------------------------------------------------

    \3\ SWIFT is a member-owned cooperative headquartered in Belgium 
that provides its users (including banking and securities 
organizations, market infrastructures, and corporate customers) a 
global service for financial messages, such as payments and 
securities transactions.
---------------------------------------------------------------------------

B. ISO 20022

    The International Organization for Standardization (ISO) is an 
independent, non-governmental organization comprised of 161 national 
standards bodies. ISO ``brings together experts to share knowledge and 
develop voluntary, consensus-based, market relevant International 
Standards that support innovation and provide solutions to global 
challenges.'' \4\ ISO publishes standards for a broad range of 
industries.
---------------------------------------------------------------------------

    \4\ See https://www.iso.org/about-us.html.
---------------------------------------------------------------------------

    The ISO 20022 standard includes a suite of messages for the 
financial industry, including messages for payments, securities, trade 
services, cards, and foreign exchange. ISO 20022 messages use 
extensible markup language (XML) syntax and have a common data 
dictionary that can support end-to-end payment message flow, including 
payment initiation (i.e., customer to bank messages), interbank 
settlement (i.e., bank to bank messages), and cash management (i.e., 
bank to customer messages).
    ISO 20022 messages include structured data elements that provide 
for potentially richer payment message data than the current Fedwire 
Funds Service message format. For example, ISO 20022 messages contain 
fields for three intermediary financial institutions while the current 
Fedwire Funds message format contains a field for only one intermediary 
financial institution. Similarly, ISO 20022 messages can include more 
structured and detailed information than the current Fedwire Funds 
message format (see example in Table 1).

                                 Table 1
------------------------------------------------------------------------
  Current Fedwire Funds Service format           ISO 20022 format
------------------------------------------------------------------------
Free-text lines for address              Discrete fields for specific
 information:                             address information:

[[Page 31392]]

 
    Address Line 1 (up to 35                Postal Address .
     characters)                          (4 characters).
    Address Line 2 (up to 35              (up to 70 characters).
     characters).                         (up to 70
    Address Line 3 (up to 35              characters).
     characters).                         (up to 70 characters).
                                          (up to 16 characters).
                                          (up to 16 characters).
                                          (up to 35 characters).
                                          (up to 35
                                          characters).
                                          (2 characters).
------------------------------------------------------------------------

    Table 2 shows how ISO 20022 messages correspond to messages in the 
current Fedwire Funds Service message format. The full catalogue of ISO 
20022 messages is available on the ISO 200022 website.\5\
---------------------------------------------------------------------------

    \5\ See https://www.iso20022.org/full_catalogue.page.

                                                     Table 2
----------------------------------------------------------------------------------------------------------------
                                                                                          Comparable message in
               Category                      Description           ISO 20022 Message      current fedwire funds
                                                                                              service format
----------------------------------------------------------------------------------------------------------------
Business application header..........  Processing information   BusinessApplicationHead  This information is
                                        placed at the            erV01_head.001.001.01.   contained in various
                                        beginning of each                                 data elements of the
                                        message (e.g., sender,                            current format.
                                        receiver, input
                                        message accountability
                                        data or output message
                                        accountability data).
Value messages.......................  Used by Fedwire Funds    Financial Institution    Customer transfers.
                                        Service participants     To Financial
                                        to order the movement    Institution Customer
                                        of funds.                Credit Transfer
                                                                 (pacs.008.001.0x).
                                                                Financial Institution    Bank transfers.
                                                                 Credit Transfer
                                                                 (pacs.009.001.0x).
                                                                Payment Return           Returns.
                                                                 (pacs.004.001.0x).
Nonvalue messages....................  Used by Fedwire Funds    Customer Credit          Drawdown request.
                                        Service participants     Transfer Initiation     .......................
                                        to request that a        (pain.001.001.09).      Return request.
                                        funds transfer be       FIToFI Payment           .......................
                                        made, to refuse to       Cancellation Request    Drawdown refusal.
                                        honor those requests,    (camt.056.001.07).
                                        or to share free-       FIToFI Payment Status
                                        format information.      Report
                                                                 (pacs.002.001.09).
                                                                Note: This message will
                                                                 also be used for a
                                                                 Return Refusal, but
                                                                 there is currently no
                                                                 comparable message.
                                                                Proprietary Format       Service message.
                                                                 Investigation
                                                                 (camt.035.001.04).
System messages......................  Used to communicate      FIToFI Payment Status    Acknowledgment and
                                        about the processing     Report                   reject notification.
                                        status of messages       (pacs.002.001.09).      Error response to an
                                        submitted to the        Message Reject            account report request
                                        Fedwire Funds Service,   (admi.002.001.01).       or retrieval request.
                                        to report about         .......................  Broadcast messages
                                        Fedwire Funds Service   System Event              (i.e., open, close,
                                        operations, or to        Notification             extensions).
                                        request copies of        (admi.004.001.02).      Retrievals (current day
                                        current or prior-day    Resend Request            or prior two business
                                        messages.                (admi.006.001.01).       days).
Reporting messages...................  Used to request or       Account Reporting        The following requests:
                                        report on transaction    Request                 [ssquf] Account
                                        activity or account      (camt.060.001.03).       balance.
                                        balance information.                             [ssquf] Endpoint
                                                                                          totals.
                                                                                         [ssquf] Detailed
                                                                                          summary.
                                                                Bank To Customer         The following reports:
                                                                 Account Report          [ssquf] Account
                                                                 (camt.052.001.07).       balance.
                                                                                         [ssquf] Endpoint
                                                                                          totals.
                                                                                         [ssquf] Detailed
                                                                                          summary.
                                                                                         [ssquf] Reconciliation
                                                                                          gap report.
                                                                                         [ssquf] Funds
                                                                                          subsidiary statement.
----------------------------------------------------------------------------------------------------------------


[[Page 31393]]

II. Payments Industry Efforts Related to ISO 20022

    In late 2012, the Federal Reserve Bank of New York and other key 
entities involved in the U.S. payments industry formed a ``Stakeholder 
Group'' to assess the merits of adopting the ISO 20022 standard in the 
U.S.\6\ The Stakeholder Group engaged an independent external 
consultant to evaluate the business case for adopting ISO 20022. The 
consultant identified certain strategic reasons to consider adopting 
ISO 20022 in the U.S. for cross-border wire and Automated Clearing 
House (ACH) payments and then, if appropriate, for domestic wire and 
ACH payments. For example, the consultant emphasized that adopting ISO 
20022 in lieu of proprietary standards would improve interoperability 
between domestic and global payment systems.\7\ In accordance with the 
findings of the Stakeholder Group, the Federal Reserve recommended in 
its 2015 Strategies for Improving the Payment System paper that the 
U.S. payments industry ``[d]evelop an implementation strategy for the 
application of the ISO 20022 standard to U.S. payment transactions.'' 
\8\
---------------------------------------------------------------------------

    \6\ The other members of the Stakeholder Group are the Federal 
Reserve Bank of Atlanta; TCH; NACHA--The Electronic Payments 
Association, which develops the rules that govern the Automated 
Clearing House network; and Accredited Standards Committee X9-
Financial Industry Standards, Inc., which has been accredited by the 
U.S. national standards body (the American National Standards 
Institute) to develop financial standards.
    \7\ See Appendix 7 of the Federal Reserve's Strategies for 
Improving the Payment System (Jan. 26, 2015), https://fedpaymentsimprovement.org/wp-content/uploads/strategies-improving-us-payment-system.pdf, for a fuller discussion of the consultant's 
findings.
    \8\ Id. at 19-20. Strategies for Improving the Payment System 
made a number of other recommendations intended to improve, inter 
alia, the speed, efficiency, and security of payments.
---------------------------------------------------------------------------

    Since 2015, the Reserve Banks have worked with TCH on plans to 
adopt ISO 20022 for the Fedwire Funds Service and CHIPS. While the 
Reserve Banks and TCH decided independently to pursue implementation of 
ISO 20022, they intend to align ISO 20022 implementation for the 
Fedwire Funds Service and CHIPS to the extent possible.\9\ The Reserve 
Banks and TCH have indicated that aligning ISO 20022 implementation for 
their respective wire transfer systems would create efficiencies that 
would benefit their common customers.\10\ The Reserve Banks' specific 
proposed timeline for adopting ISO 20022 for the Fedwire Funds Service 
is discussed in greater detail below.
---------------------------------------------------------------------------

    \9\ See ``Deep Dive into the ISO 20022 Implementation Strategy 
for U.S. High-Value Payment Systems'', Sibos Community Session (Oct. 
18, 2017), slide 7 https://fedpaymentsimprovement.org/wp-content/uploads/101817-iso20022-deep-dive.pdf.
    \10\ Id.
---------------------------------------------------------------------------

    The Reserve Banks have also engaged in extensive public outreach 
regarding ISO 20022. For example, the Reserve Banks and TCH conducted a 
survey in 2015 of over 2,300 Fedwire Funds Service customers, Fedwire 
and CHIPS advisory group banks, vendors, and industry groups on the 
potential scope, approach, and timing of ISO 20022 implementation.\11\ 
The Reserve Banks have also presented at industry conferences, 
published webinars, and established websites to educate market 
participants about ISO 20022 and to solicit direct informal feedback on 
plans to implement ISO 20022.\12\ Finally, the Reserve Banks have 
established advisory groups that include banks, software vendors, and 
other stakeholders to provide input on how to implement ISO 20022 for 
the Fedwire Funds Service.
---------------------------------------------------------------------------

    \11\ See https://fedpaymentsimprovement.org/wp-content/uploads/iso20022_adoption_considerations_survey.pdf.
    \12\ See ``Fedwire Funds Service ISO 20022 Implementation 
Center,'' https://www.frbservices.org/resources/financial-services/wires/iso-20022-implementation-center.html, which includes 
information on the Reserve Banks' proposal to implement ISO 20022 
for the Fedwire Funds Service. See also ``The Fed's Resource Center 
for Adoption of ISO 20022 Payment Messages,'' https://fedpaymentsimprovement.org/payments-efficiency/iso-20022/, which 
includes links to presentations and webinars concerning plans to 
adopt ISO 20022 for wire transfers and ACH payments. The Reserve 
Banks will host additional webinars and in-person workshops 
throughout the first half of 2018. The Reserve Banks will also 
continue to work with NACHA to educate ACH participants about ISO 
20022.
---------------------------------------------------------------------------

    SWIFT has initiated a study to consider the migration of cross-
border traffic in its proprietary MT format to ISO 20022.\13\ The SWIFT 
study includes a community consultation to help determine the timing 
and practicalities of migration.\14\ SWIFT has indicated that the 
``consultation will run until early June, with results analysed over 
the following months and a final report produced before the end of 
2018. The report will draw on the feedback from the consultation to 
propose a detailed roadmap for'' migrating cross-border MT traffic to 
ISO 20022.\15\
---------------------------------------------------------------------------

    \13\ See https://www.swift.com/news-events/news/iso-20022-migration_the-time-is-now.
    \14\ Id.
    \15\ Id.
---------------------------------------------------------------------------

    Similarly, many foreign wire transfer systems, including those for 
currencies of key U.S. trading partners, have adopted ISO 20022 (e.g., 
China, India, Japan, Switzerland) or have announced plans to adopt ISO 
20022 (e.g., Canada, European Union, Hong Kong, United Kingdom).\16\
---------------------------------------------------------------------------

    \16\ For further discussion of payment systems that have adopted 
ISO 20022 or have announced plans to adopt ISO 20022, see section 
7.3 of SWIFT's ISO 20022 consultation paper, https://www.swift.com/resource/iso-20022-migration-study.
---------------------------------------------------------------------------

III. Potential Benefits of Adopting ISO 20022 for the Fedwire Funds 
Service

    The Board believes that adopting ISO 20022 for the Fedwire Funds 
Service could be beneficial for a number of reasons. As described 
above, the ISO 20022 message format would allow Fedwire Funds Service 
participants to include richer and more structured data in their 
messages--for example, increased character lengths for name data 
elements and discrete elements for address information, including a 
country code. This data could help banks and other entities meet 
evolving requirements to screen payments for sanctions and anti-money 
laundering purposes.
    Adopting ISO 20022 messages could also improve domestic and cross-
border interoperability between the Fedwire Funds Service and other 
payment or messaging systems. As noted above, TCH has announced plans 
to adopt ISO 20022 messages for the CHIPS system and SWIFT has 
initiated a study to consider the migration of cross-border MT traffic 
to ISO 20022. Similarly, as noted above, many foreign wire transfer 
systems, including those for currencies of key U.S. trading partners, 
have adopted or have announced plans to adopt ISO 20022. Adopting ISO 
20022 as a common, global standard could reduce operating costs for 
banks and their customers by reducing the need to map payment 
information from one message format to another. This could improve the 
efficiency of end-to-end processing of multi-leg domestic and 
international funds transfers.
    Relatedly, adopting ISO 20022 as a common, global standard could 
allow banks to provide useful services to their customers. For example, 
ISO 20022 would support a structured format for including extended 
remittance information (ERI) in business-to-business payment 
messages.\17\ While the current proprietary message formats for the 
Fedwire Funds Service and CHIPS support ERI, usage of ERI by depository 
institutions and their customers has been limited. Widespread adoption 
of

[[Page 31394]]

ISO 20022 would create a common, global format for ERI that could 
encourage depository institutions and their customers to invest in the 
changes needed to support the end-to-end flow of ERI for business-to-
business payments.
---------------------------------------------------------------------------

    \17\ Extended remittance information generally refers to details 
in the payment message regarding the purpose of a business-to-
business payment. For example, a business that sends a payment to a 
vendor could include details regarding the invoices against which 
the vendor should apply the payment.
---------------------------------------------------------------------------

IV. Proposed Timeline for Adopting ISO 20022 for the Fedwire Funds 
Service

    The Reserve Banks would transition from the current Fedwire Funds 
Service message format to ISO 20022 in three phases.

Phase 1: ISO 20022 Preparation (Target Implementation Date of November 
23, 2020)

    In phase 1, the Reserve Banks would make a number of changes to the 
current Fedwire Funds Service message format to address existing 
interoperability gaps with SWIFT's proprietary MT format. The Reserve 
Banks would also eliminate the free-text format option for the 
originator and beneficiary fields in customer transfer messages and 
instead require Fedwire Funds Service participants to use a structured 
format for these fields; SWIFT is making a similar change to its MT 
format in November 2020.\18\
---------------------------------------------------------------------------

    \18\ See https://www.swift.com/news-events/news/payments-standards-changes-for-2020-and-why-you-should-act-now.
---------------------------------------------------------------------------

    Although the Reserve Banks would need to make most of the changes 
in phase 1 even if the Reserve Banks were not planning to adopt ISO 
20022, all of the changes in this phase would simplify the Fedwire 
Funds Service's migration to ISO 20022 messages.

Phase 2: ISO 20022 ``like-for-like'' Implementation (Target 
Implementation Period From March 2022 to August 2023)

    In phase 2, the Reserve Banks would migrate Fedwire Funds Service 
participants in waves to send and receive ISO 20022 messages that have 
elements and character lengths that are comparable to the current 
Fedwire Funds Service message format. Table 2, supra, shows how ISO 
20022 messages correspond to messages in the current Fedwire Funds 
Service message format.
    While the syntax for the phase 2 like-for-like ISO 20022 messages 
would be XML, the content of the messages would be limited to data 
elements and character lengths comparable to those that are supported 
in the current Fedwire Funds Service message format. For example, like-
for-like ISO 20022 messages in phase 2 could include only one field for 
an intermediary financial institution (similar to the current Fedwire 
Funds Service message format) even though ISO 20022 messages can 
generally accommodate up to three such fields. Similarly, while ISO 
20022 messages can support structured data elements for address 
information (see Table I, supra), like-for-like ISO 20022 messages in 
phase 2 would (similar to the current Fedwire Funds Service message 
format) be limited to three lines of 35 characters each for free-text 
address information.
    Because the Reserve Banks would transition Fedwire Funds Service 
participants to ISO 20022 in waves, the Fedwire Funds Service would 
translate the current message format to ISO 20022 and vice versa when 
necessary to accommodate Fedwire senders and receivers that are not 
using the same format. At the end of phase 2, the Fedwire Funds Service 
would move into a stability period lasting at least three months (from 
August 2023 to November 2023) in which all Fedwire Funds participants 
would send and receive ISO 20022 like-for-like messages. During the 
stability period, the Reserve Banks would retain the current, 
proprietary Fedwire Funds Service format as a fallback option in case 
one or more participants encounter issues and the Reserve Banks 
determine that such participants need to revert back to the proprietary 
format.
    The Reserve Banks would also use phase 2 to prepare for full 
implementation of ISO 20022 in phase 3. Specifically, the Reserve Banks 
would require Fedwire Funds Service participants to test their ability 
to receive full ISO 20022 messages.

Phase 3: ISO Enhancements (Target Implementation Date of November 2023)

    In phase 3, the Reserve Banks would fully implement ISO 20022 by 
enabling Fedwire Funds Service participants to send ISO 20022 messages 
that contain enhanced data as noted in Table 3. Although it would be 
optional for participants to send the enhanced data, all participants 
would need to be capable of receiving enhanced data.\19\ Participants 
would also need to determine, consistent with any legal obligations, 
how to handle enhanced data that they receive--for example, whether 
(and how) to provide enhanced data to the next receiving bank in the 
funds transfer or to the beneficiary (if the Fedwire Funds Service 
participant is the beneficiary's bank).
---------------------------------------------------------------------------

    \19\ As noted above, the Reserve Banks would require Fedwire 
Funds Service participants to test their ability to receive full ISO 
20022 messages during phase 2.
    \20\ ISO 20022 employs terminology that differs in key respects 
from that used in U.S. funds-transfer law, including subpart B of 
the Board's Regulation J (12 CFR 210), which governs funds transfers 
through the Fedwire Funds Service. The Board has proposed an 
amendment to subpart B of Regulation J that would clarify that terms 
used in financial messaging standards, such as ISO 20022, do not 
confer or connote legal status or responsibilities. See 83 FR 11431 
(Mar. 15, 2018).

                                 Table 3
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
                         ISO 20022 Enhancements
------------------------------------------------------------------------
1. New data elements for additional persons or entities identified in
 payment messages: \20\
    [ssquf] initiating party
    [ssquf] two additional previous instructing agents
    [ssquf] two additional intermediary agents
    [ssquf] ultimate debtor
    [ssquf] ultimate creditor
2. New purpose code data element to help explain the business purpose of
 the funds transfer.
3. New data element that participants can use to determine how they
 handle or process a message (e.g., SWIFT global payments innovation
 service level).
4. New data element to provide information about a bilateral processing
 agreement.
5. Longer character lengths for certain fields (e.g., Name can be up to
 140 characters).
6. Structured postal address data elements, including a country code.
7. Contact details for certain persons/entities in the funds transfer.

[[Page 31395]]

 
8. New regulatory reporting data elements to provide regulatory
 information (e.g., OFAC license) related to customer transfers.
9. New tax component to provide remittance information related to tax
 payments.
------------------------------------------------------------------------

    The target implementation date for phase 3 could be delayed if 
SWIFT has not yet implemented a solution for its network to support ISO 
20022 messages that contain enhanced data.

V. Fedwire Funds Service Message Format Documentation and Testing

    The Reserve Banks are using a restricted page on the MyStandards 
web-based application as a tool to store and share documentation 
related to the ISO 20022 project with authorized Fedwire Funds Service 
participants and software vendors.\21\ In March 2018, the Reserve Banks 
published the final message format documents for phase 1, which would 
provide the industry over two years to prepare for the proposed phase 1 
target implementation date in November 2020. The Reserve Banks also 
published draft message format documents for phases 2 and 3 in March 
2018 and will publish the final documents for these phases by the end 
of June 2018; this would provide the industry nearly four years to 
prepare for the proposed phase 2 migration (which is targeted to begin 
in March 2022) and over five years to prepare for the proposed phase 3 
target implementation date in November 2023.
---------------------------------------------------------------------------

    \21\ For more information on MyStandards, see https://www.swift.com/our-solutions/compliance-and-shared-services/mystandards.
---------------------------------------------------------------------------

    The Reserve Banks plan to provide nine months for testing the phase 
1 changes in their Depository Institution Testing (DIT) environment 
prior to the proposed implementation date in November 2020.\22\ 
Similarly, the Reserve Banks plan to provide at least one year for 
testing the phase 2 and phase 3 changes in their DIT environment. The 
Reserve Banks plan to publish a final testing plan by the end of 2018.
---------------------------------------------------------------------------

    \22\ For more information on the DIT environment, see https://www.frbservices.org/financial-services/wires/testing/di-testing.html.
---------------------------------------------------------------------------

VI. Impact on Fedwire Funds Service Participants and Service Providers

    The Board believes that the impact of ISO 20022 implementation on 
Fedwire Funds Service participants would vary depending on how each 
participant accesses the Fedwire Funds Service. Certain Fedwire Funds 
Service participants or service providers develop their own software 
(or rely on software from vendors) to access the Fedwire Funds Service. 
These institutions include (1) Fedwire Funds Service participants and 
service providers that access the Fedwire Funds Service via the FedLine 
Direct[supreg] solution and (2) Fedwire Funds Service participants that 
use the import/export feature of FedPayments[supreg] Manager-Funds over 
the FedLine Advantage[supreg] solution. FedLine Direct access to the 
Fedwire Funds Service is an unattended, IP-based computer interface. It 
is typically used by participants conducting larger volumes of funds 
transfers. FedPayments Manager is a web-based application that midsize 
and smaller participants typically use to create, send, and receive 
payment orders and nonvalue messages. The import functionality built 
into FedPayments Manager enables participants to upload payment files 
from separate payment applications (e.g., those that interface with 
customer-facing systems) so the participants do not have to enter the 
messages one by one into the application. Similarly, the export 
functionality allows participants to download files from FedPayments 
Manager into other applications (e.g., so payments can post to customer 
accounts in their deposit systems). The Board believes that 
participants and service providers accessing the service through 
FedLine Direct or using the import/export feature of FedPayments 
Manager would need to make significant changes to their payment 
applications or processes to be able to send and receive messages (or 
import and export files) in the revised proprietary format in phase 1 
and in the new ISO 20022 format in phases 2 and phase 3.
    Other Fedwire Funds Service participants access the Fedwire Funds 
Service manually through FedPayments Manager-Funds.\23\ These 
participants would need to become familiar with the terminology used 
in, and information required by, the ISO 20022 format and the updated 
appearance of the graphical user interface in FedPayments Manager. The 
Reserve Banks would make the necessary changes to FedPayments Manager, 
however, and would provide training regarding the updates.
---------------------------------------------------------------------------

    \23\ Specifically, these Fedwire Funds Service participants 
enter messages individually into FedPayments Manager-Funds over the 
FedLine Advantage solution through a graphical user interface.
---------------------------------------------------------------------------

    Finally, some Fedwire Funds Service participants access the Fedwire 
Funds Service through an offline, telephone-based service that requires 
a Reserve Bank employee to enter payment order information into a 
Reserve Bank application. The Board does not believe that these 
participants' current processes for submitting payment orders would 
materially change, though the participants would need to become 
familiar with the terminology used in, and information required by, the 
ISO 20022 format so they could provide it to the Reserve Bank 
employees.

VII. Request for Comment

    The Board requests comment on this proposal to replace the current 
Fedwire Funds Service message format with ISO 20022.

A. Potential Benefits and Drawbacks of Adopting ISO 20022

    1. Would adopting ISO 20022 for the Fedwire Funds Service produce 
the benefits discussed above?
    2. Would adopting ISO 20022 for the Fedwire Funds Service produce 
any other benefits?
    3. What drawbacks (if any) would adopting ISO 20022 for the Fedwire 
Funds Service entail and how might they be addressed?

B. Proposed Timeline for Adopting ISO 20022

    1. Is the timeline that the Reserve Banks have proposed for 
adopting ISO 20022 for the Fedwire Funds Service (including the 
proposed timeframes for publishing final message format documents and 
testing changes in the Reserve Banks' DIT environment) reasonable? If 
not, how much time would Fedwire Funds Service participants and service 
providers (including software vendors) need to adjust their 
applications and processes for each phase?
    2. Should the Reserve Banks delay the implementation date for phase 
3 of the proposal if SWIFT has not yet implemented a solution on its 
network to support ISO 20022 for cross-border messages?
    3. Would the proposal to migrate to ISO 20022 in phases mitigate 
any risks associated with implementing ISO 20022?

C. Impact on Fedwire Funds Service Participants and Service Providers

    1. How does your institution access the Fedwire Funds Service? If 
your institution accesses the Fedwire Funds

[[Page 31396]]

Service via the FedLine Direct solution or uses the import/export 
feature of FedPayments Manager-Funds over the FedLine Advantage 
solution, do you develop your own software or rely on a software 
vendor?
    2. What costs would your institution incur if the Reserve Banks 
adopt ISO 20022 for the Fedwire Funds Service? If possible, please 
provide dollar estimates or ranges.
    3. Would the benefits of adopting ISO 20022 for the Fedwire Funds 
Service outweigh any associated costs for your institution?

VIII. Competitive Impact Analysis

    The Board conducts a competitive impact analysis when it considers 
a rule or policy change that may have a substantial effect on payment 
system participants. Specifically, the Board determines whether there 
would be a direct or material adverse effect on the ability of other 
service providers to compete with the Federal Reserve due to differing 
legal powers or due to the Federal Reserve's dominant market position 
deriving from such legal differences.\24\
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    \24\ See The Federal Reserve in the Payments System (issued 
1984; revised 1990), Federal Reserve Regulatory Service 9-1558, 
http://www.federalreserve.gov/paymentsystems/pfs_frpaysys.htm.
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    The Board does not believe that the proposal to adopt ISO 20022 for 
the Fedwire Funds Service would have an adverse impact on other service 
providers. As described above, the current, proprietary message format 
for the Fedwire Funds Service is interoperable with the proprietary 
message format for the CHIPS system. As further described above, the 
Reserve Banks have worked with TCH on plans to align ISO 20022 
implementation for the Fedwire Funds Service and CHIPS where possible; 
the Reserve Banks and TCH have indicated that such coordination will 
benefit their common customers. If the Reserve Banks and TCH each adopt 
ISO 20022 for the Fedwire Funds Service and CHIPS, respectively, the 
message formats for the two systems will remain interoperable.

    By order of the Board of Governors of the Federal Reserve 
System, June 28, 2018.
Michele Taylor Fennell,
Assistant Secretary of the Board.
[FR Doc. 2018-14351 Filed 7-3-18; 8:45 am]
 BILLING CODE P