Fedwire Funds Format Survey - Possible changes for Cover Payments and Business Remittance Information

Earlier this year, the Federal Reserve Banks conducted a survey to solicit feedback from Fedwire Funds Service participants and other interested parties on possible changes for cover payments and business remittance Information. The survey is now complete. The Federal Reserve Banks and The Clearing House Payments Company, operator of the Clearing House Interbank Payments System (CHIPS), intend to coordinate on the implementation of both of these initiatives.

Cover Payments

Cover payments are used in correspondent banking, usually to facilitate international transactions. They are payments made through a chain of correspondent banks to settle (“cover”) a credit transfer message that travels a more direct route to the ultimate beneficiary’s bank.  For more information about cover payments, please see Cover Payments

Business Remittance Information

Business remittance information provides details to explain the purpose of the payment, such as invoice details. This information makes it easier for beneficiaries to process incoming payments. For more information about remittance information, please see Business Remittance Information.

Message Format Survey Results

The following options were considered and presented to survey participants:
  Option A Option B
Description New format in support of single originator/single beneficiary cover payments

Two-phased format strategy:

Phase 1
Market practice solution in support of single originator/single beneficiary cover payments

Phase 2

New multi originator/multi beneficiary cover payments message with optional business remittance information message add-on
Implementation

November 2009

Phase 1 – By November 2009

Phase 2 – Approximately December 2010
Basic Features
  • New message (i.e., business function code) for cover payments that allows only a single originator and a single beneficiary to be included in the Fedwire leg of the cover payment.
  • U.S. dollar correspondent receiving a SWIFT cover payment message with multiple originators or multiple beneficiaries would need to create multiple Fedwire Funds Service messages, one for each of the underlying transactions, for settlement via the Fedwire Funds Service.
  • New message with new field tag names and edit rules may require changes to your applications.
  • No increase in message size.

Phase 1

  • Designate the optional "Transaction Type" data element in the existing customer transfer (CTR) message as a cover payment indicator.
  • Market participants would enter “COV” in this data element to denote a cover payment.
  • Market participants would be required to enter single originator and beneficiary details as per the normal edit rules for this message type, thus achieving compliance with the transparency principles for cover payments. Field tags to identify other parties in the transaction would also be available.
  • U.S. dollar correspondent receiving a SWIFT cover payment message with multiple originators or multiple beneficiaries would need to create multiple Fedwire Funds Service messages, one for each of the underlying transactions, for settlement via the Fedwire Funds Service.
  • No changes to existing messages (field tag names, edit rules, or message size) would be required by the Federal Reserve Banks for this phase.

Phase 2

  • New expanded 10,000 character message (i.e., business function code) for cover payments (similar to the SWIFT solution).
  • Supports cover payments for single or multiple underlying transactions with single or multiple underlying originators and/or beneficiaries.
  • New message with new field tag names and edit rules may require changes to your applications.
  • Increased message size may require changes to your applications and infrastructure

Optional
Business Remittance Information Add-on

 Not Available

A new message for business remittance information would not be available during Phase 1 for cover payments, but, if desired, would be available at the same time as Phase 2 for cover payments. If implemented, this message would have the following features:

New expanded character message (i.e., business function code) in support of business remittance payments (existing message size plus 9,000 characters) as described here.

  • Allows single remittance payments with multiple underlying invoices
  • Remittance information fields would be compatible with popular standards such as ISO 20022 and the STP 820.
  • New message with new field tag names and edit rules may require changes to your applications.
  • Increased message size may require changes to your applications and infrastructure.
Percentage of each customer group described in the first column that expressed a preference described in subsequent columns (percentage reflects only those respondents that provided an answer to the relevant question - blank responses removed from the calculation)
Respondent Category (count) Prefer Option A Prefer Option B Support the Remittance Info Option B add-on
All (366) 43% 57% 84%
Top 50 Fedwire Funds Customer (30) 26% 74% 85%
Process Cover Payments Today (104) 45% 55% 86%
Do not process cover payments today (160) 37% 63% 86%
SWIFT participant (71) 46% 54% 84%
FedLine Direct® Customer (95) 36% 64% 89%
FedLine Advantage® Customer - all (160) 45% 55% 82%
FedLine Advantage customer using Import / Export (130) 43% 57% 83%
Customer of a Bank (77) 43% 57% 86%
Expects multiple originator /beneficiary covers (35) 43% 57% 82%

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