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Fed360

Highlights from the Fall 2018 Progress Report to improve the U.S. payment system

The Federal Reserve continues to generate momentum toward the desired outcomes outlined in the Strategies for Improving the U.S. Payment System (Off-site) paper released in 2015. If you have kept up with the efforts, you know the Next Steps in the Payments Improvement Journey (Off-site) paper highlighted multiple milestones achieved over the past three years. The Fall 2018 Progress Report (Off-site) released on October 11 provides the latest efforts toward the desired outcomes and presents next steps and ongoing work that will contribute to making payments faster, more secure and more efficient.

The Federal Reserve conducted more than 100 presentations this year at domestic and international conferences to keep stakeholders informed about the progress of ongoing payment improvement initiatives and to solicit their input and participation. Additionally, the Fed hosted the inaugural FedPayments Improvement Community Forum on October 3-4, 2018, to provide a rich engagement opportunity for stakeholders. It drew more than 300 Community members to engage in dialogue about current efforts and opportunities to improve the U.S. payment system.

Other initiatives highlighted in the Fall 2018 Progress Report include:

  • Reached a major milestone in the Fed’s Settlement and Service Provider Assessment with the release of a Federal Register Notice seeking public comment. The notice outlines potential actions that the Federal Reserve could take to promote ubiquitous, safe and efficient faster payments by facilitating real-time interbank settlement
  • Sought industry input on the Fed’s next steps in advancing payments security, including work efforts to improve understanding of Automated Clearing House (ACH) and wire fraud incidents by creating and publishing ACH and wire fraud definitions
  • Facilitated the Business Payments Coalition's efforts to identify, design and adopt an e-Invoice interoperability framework for the U.S. market
  • Conducted a series of in-person road shows in support of the proposed Fedwire® Funds Service migration to the ISO® 20022 messaging format standard
  • Supported the Governance Framework Formation Team (GFFT) in previewing the U.S. Faster Payments Council (FPC) at the FedPayments Improvement Community Forum, including an overview by GFFT members of the FPC's vision, mission, structure and priority focus areas

Momentum continues to be strong across the payments industry. To stay informed and ensure that you receive updates and information as it becomes available, please join the FedPayments Improvement Community (Off-site).

Action Item:

Please review the Fall 2018 Progress Report (Off-site) for a full listing of accomplishments and next steps.

Note

“ISO” is a registered service mark of the International Organization for Standardization.
  • FedPaymentsImprovement.org (Off-site)
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    Atlanta Fed changes Discount Window hours

    On October 1, 2018, the Federal Reserve Bank of Atlanta announced a change to the Discount Window (Off-site) hours for Sixth District financial institutions. Currently, the hours are 8:30 a.m. to 7 p.m. ET. Effective October 31, 2018, the new hours will be 8:30 a.m. until the close of Fedwire® (6:30 p.m. ET)1.

    Footnote

    1The Reserve Banks may decide, in their sole discretion, to open or close the Fedwire Services at an earlier time, or extend the Fedwire Services, to facilitate special market needs.

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    Update: New automated loan deposit collateral report submission requirements

    As initially announced in November 2017, the Federal Reserve plans to implement new requirements for submitting Automated Loan Deposit (ALD) collateral reports affecting select institutions for Discount Window lending and Payment System Risk purposes. “In-scope” institutions will be required to submit both their current ALD collateral report as well as the new ALD collateral report with the additional required fields beginning in May 2019. The new ALD collateral reports will then be used to assign collateral values, which are targeted to take effect in 2020. This article provides more details for complying with these requirements.

    What is happening?

    The Federal Reserve is now accepting new ALD collateral reports with the additional loan fields that certain “in-scope” institutions must begin submitting in May 2019. The Federal Reserve will begin incorporating additional loan fields in ALD collateral reports submitted by select depository institutions to be used to calculate margins and internal fair market value estimates for loan collateral pledged to the Federal Reserve.

    To facilitate this effort, certain “in-scope” institutions will be required to provide additional loan fields in a new format in their ALD collateral reports. A detailed list of the additional loan fields, along with definitions, can be found in the ALD Collateral Requirements Definitions (Off-site). Institutions that have developed the new ALD collateral reports can now submit these files to the Federal Reserve to ensure that they are compliant with Federal Reserve System requirements. The Federal Reserve is making this option available to “in-scope” institutions in order to provide assistance in developing a working collateral report prior to the May 2019 deadline. 

    Does my institution need to take action?

    The following “in-scope” institutions are required to begin submitting the additional loan fields beginning in May 2019 and should be in the process of developing newly formatted ALD collateral reports. These institutions can submit their new collateral reports as soon as they are complete:

    • All depository institutions that are underneath a bank holding company (including a financial holding company) or an intermediate holding company with greater than $50 billion in total consolidated assets, which is defined as the average over the last four calendar quarters
    • All foreign banking organizations
    • All other domestic institutions with greater than $50 billion in total consolidated assets, which is defined as the average over the last four calendar quarters

    Action Item:

    Institutions that met the “in-scope” definition as of November 28, 2017, have already been contacted to ensure awareness of the new requirements. If your institution becomes “in-scope,” the Federal Reserve will contact you at that time to inform you of the need to comply with the new requirements. However, your institution may voluntarily participate in the new ALD collateral reporting requirements at any time. Please contact your local Discount Window collateral staff (Off-site) in order to pursue this option.

    Institutions that are not required to submit additional loan fields and do not voluntarily participate do not need to take any action and should continue to submit their ALD collateral reports in the current format.

    Questions regarding the new ALD collateral report submission requirements can be sent to SYS.ALD.Info@bos.frb.org. Institutions may also contact their Federal Reserve Banks’ Discount Window collateral staff (Off-site) with other inquiries.

    When are the new ALD collateral reports required to be submitted?

    Beginning in May 2019, “in-scope” depository institutions must begin submitting both their existing ALD collateral report as well as the new ALD collateral report with the additional loan fields each month. The existing ALD collateral report will be used for valuation and margining purposes, while the new ALD collateral report with the additional loan fields will be used to test and calibrate the new margins and internal fair market value estimates. Once this change is completed, the new ALD collateral reports will then be used to assign collateral values. While this change is targeted for year-end 2020, the exact date it takes effect will be announced in a subsequent communication. The dual loan file submission process is expected to last approximately 18 months, after which only the new ALD collateral report with the additional fields will need to be submitted. The new ALD collateral report submission requirements can be viewed on the New ALD Collateral Requirements (Off-site) page of the Discount Window website.

    As was previously communicated, beginning in May 2019, the existing ALD collateral report and the new ALD collateral report must have the same “as-of” date. As such, beginning in May 2019, the existing ALD collateral report and the new ALD collateral report with the additional loan fields should contain the same set of pledged loans.

    What can I expect once my institution sends in a new ALD collateral report?

    Once your institution submits a new ALD collateral report, your local Reserve Bank will contact you if revisions need to be made (i.e., if formatting errors are present) or if there are questions regarding the loan fields that are provided. Additionally, your local Reserve Bank may also contact you to plan and perform validation work on the data within the new ALD collateral report (i.e., request for certain pledged loan documentation).

    What happens if my institution doesn’t provide the required loan fields?

    During the dual loan file submission period (beginning in May 2019), no collateral value adjustments will be applied for missing loan fields. However, once the newly formatted ALD collateral reports are used to assign collateral values (targeted for year-end 2020), collateral valuation adjustments may be applied to pledged loans that are missing required loan fields. These adjustments may include the following:

    • Application of a default value to a missing loan field (default values are designed to be fair, non-penalizing values based upon the data provided by other “in-scope” institutions)
    • Assignment of zero collateral value to the impacted loans
    • Other collateral value adjustments as deemed warranted

    How will collateral values be affected for institutions that are not required to comply with the new ALD collateral reporting requirements?

    At this time, collateral values for institutions that are not required to comply with the new ALD reporting requirements will be unaffected. However, upon the implementation of the new internal models at a later date, the Federal Reserve will utilize the same internal model to derive values for all loan collateral pledged by any institution. Institutions that are not required to comply with the new ALD collateral reporting requirements will receive default values for non-required loan fields based on the new data provided by the “in-scope” institutions. These default values are designed to be fair, non-penalizing values and will be used in conjunction with the loan fields that are currently reported to the Federal Reserve to assign margins and internal fair market value estimates for pledged loans. This process will take effect once the testing and calibration of margins and internal fair market value estimates are complete.

    Where can I get more information?

    Please review the related announcement on the Discount Window & Payment System Risk (Off-site) website or contact your Reserve Bank’s Discount Window collateral staff (Off-site) for additional information. Questions regarding the new ALD collateral report requirements can also be sent to SYS.ALD.Info@bos.frb.org.   

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    Fed360

    FedACH® Services schedule for remaining 2018 holidays

    In 2019, FedACH® Services holiday notifications will no longer be shared via email and will transition to the Fed360SM publication. We encourage you to subscribe to Fed360 by the end of 2018 to continue receiving these updates. Please visit the E-Alert Notification Subscription page for instructions on how to subscribe.

    FedACH Services will close for the following holidays:

    • Veterans Day at 3 a.m. ET on Saturday, November 10, 2018, and will resume processing at 5:30 p.m. ET on Monday, November 12, 2018, with the third file delivery beginning at 8:15 p.m. ET
    • Thanksgiving Day at 11:30 p.m. ET on Wednesday, November 21, 2018, and will resume processing at 5:30 p.m. ET on Thursday, November 22, 2018, with the third file delivery beginning at 8:15 p.m. ET
    • Christmas Day at 11:30 p.m. ET on Monday, December 24, 2018, and will resume processing at 5:30 p.m. ET on Tuesday, December 25, 2018, with the third file delivery beginning at 8:15 p.m. ET
    • New Year's Day at 11:30 p.m. ET on Monday, December 31, 2018, and will resume processing at 5:30 p.m. ET on Tuesday, January 1, 2019, with the third file delivery beginning at 8:15 p.m. ET

    Please direct any questions or concerns to FedACH and Check Services Customer Support at (877) 372-2457.

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    Fed360

    Electronically process your organization’s audit confirmation requests using Confirmation.com

    As a reminder, the Federal Reserve Banks use Confirmation.com (Off-site), a service by Capital Confirmation, Inc., to facilitate the electronic processing of audit confirmation requests for:

    • Fedwire® Securities Service account holdings information
    • Account Balance
    • Capital Stock
    • Pledged collateral holdings for Treasury Tax & Loan (TT&L)
    • 31CFR Part 202
    • 31CFR Part 225
    • Discount Window loan or collateral information 

    Confirmation.com is the preferred processing method for audit confirmation requests for all Federal Reserve Bank business lines. However, please note that the Federal Reserve Banks of Dallas, New York, Richmond and St. Louis will not accept requests for Discount Window loan or collateral information through Confirmation.com.

    Prepare accordingly

    Before the Federal Reserve Banks can respond to a confirmation request from your institution’s audit firm through Confirmation.com, you must have an Authorization to Release Information to Accounting Firms (PDF) form on file. The release form must be signed by an individual on your institution’s Official Authorization List (OAL) and only needs to be submitted once rather than submitting a separate authorization letter for each paper audit confirmation request.

    Submission process

    While our preferred method to process account confirmations is electronically through Confirmation.com, which is an online, paperless process with a faster turnaround time, as an alternative you may submit a request manually by completing the standard Audit Confirmation Request Form (PDF). This form must be submitted according to the instructions provided for your respective local district. Requests received by other means will be returned for resubmission via the standard form. Please communicate this information to your designated audit firm to ensure efficient audit confirmation processing.

    For questions regarding audit confirmation requests, please contact your local Account Confirmation Request Contact.

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    Fed Facts: Five tips for National Cyber Security Awareness Month

    Quantum computing, big data, blockchain, fintech, cloud computing and the internet of things (IoT) are all buzzwords across the financial services sector. While these technologies are exciting, security measures must adapt and evolve to keep up with the inevitable challenges that emerge as bad actors change their methods of compromising digital infrastructures. The Federal Reserve knows it’s important to understand the implications of these new technologies and continues to stress the importance of cybersecurity in maintaining the resiliency of Federal Reserve Financial Services.

    In honor of National Cyber Security Awareness Month, we want to highlight a few cybersecurity tips from the U.S. Department of Homeland Security (DHS) that could help your organization reduce risk. For more information, please visit the Stop.Think.Connect.TM Campaign (Off-site) page.

    1. Keep a clean machine: Regularly scan your personal and office devices for viruses and spyware and keep your software up to date.
    2. Avoid oversharing online: Remember your organization’s security standards and be careful what you say, especially in public settings.
    3. Protect your password: Always opt to enable stronger authentication when available, especially for accounts with sensitive information, including your email, medical files or bank accounts.
    4. Stay protected while connected: Before you connect to any public wireless hotspot, be sure to confirm the name of the network and login procedures with appropriate staff to ensure that the network is legitimate.
    5. Play hard to get with strangers: Cyber criminals will often offer a financial reward, threaten you if you don’t engage or claim that someone is in need of help. Don’t fall for it!

    When it comes to security, communication and collaboration among stakeholders are critical toward progress. Cybersecurity will continue to be a focus for the Federal Reserve as the industry moves forward with emerging technologies. We encourage your organization to work with your technical and executive staff to regularly review your security posture and determine any potential gaps. Stay tuned to Fed360SM for more risk management articles in the future.

    “Stop. Think. Connect” is a trademark of the Department of Homeland Security.

    SOURCE:

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