Foreign Bank International Cash Services Program
The Federal Reserve’s International Cash Services (“ICS”) program is comprised of the Extended Custodial Inventory (“ECI”) program, the Operating Circular No. 2 (“OC 2”) Letter Agreement program, and the Foreign Bank International Cash Services (“FBICS”) program. The FBICS program is designed to permit certain foreign banks that do not have a presence in the United States to open limited-purpose master accounts on the books of the Federal Reserve Bank of New York (“FRBNY”), and to use those accounts to access Federal Reserve Bank currency services in connection with their international banknote operations. In order to participate, foreign bank applicants must meet the FBICS program eligibility criteria, and must engage in wholesaling USD banknotes in a manner that meaningfully contributes to the global distribution of USD banknotes. Entities approved for participation in the FBICS program will receive access to the FRBNY’s international USD currency services, including the ability to place orders for USD banknotes from the FRBNY on a same-day basis, to have USD currency orders fulfilled solely with new USD banknotes (as opposed to previously circulated banknotes), and to receive expedited processing of large-denomination USD banknotes deposited with the FRBNY.
In those instances where the wholesale banknote business line of an applicant is not operated by the foreign bank itself, but rather by its non-bank parent or affiliate (such parent or affiliate, a “Wholesale Banknote Entity”), the Wholesale Banknote Entity must jointly apply to the FBICS program and both the foreign bank and the Wholesale Banknote Entity must meet the applicable elements of the FBICS program’s eligibility criteria outlined below. Foreign banks (and, if applicable, their Wholesale Banknote Entity affiliates) that believe they meet the eligibility criteria are welcome to apply for the program.
Participation in the FBICS program is administered by the FRBNY, subject to the approval of the Board of Governors of the Federal Reserve System. If approved for access to the program, the foreign bank would be permitted to open a limited-purpose master account on the FRBNY’s books solely for the purposes of (i) withdrawing and depositing USD banknotes in connection with its (or its Wholesale Banknote Entity affiliate’s) international USD banknote operations; and (ii) prefunding and defunding the account via the Fedwire® Funds Service in connection with such banknote activity.
In order to participate in the FBICS program, a foreign bank and, if applicable, its Wholesale Banknote Entity affiliate must meet the following eligibility criteria:
- The foreign bank or the Wholesale Banknote Entity (if any) must have at least one staff unit dedicated to buying and selling USD banknotes at a wholesale level from and to customers or counterparties that are financial institutions located in at least one jurisdiction other than the home jurisdiction of the applicant and, if applicable, co-applicant, including the use of wholesale banknote dealing or trading software and banknote inventory management software.1
- The foreign bank or the Wholesale Banknote Entity (if any) must staff, operate, and manage one or more banknote vault facilities, either directly or through an outsourced arrangement with a third party, and must have the ability to routinely arrange armored carrier and cross-border air, land or sea transport for physical banknote shipments to and from its banknote customers or counterparties.
- The foreign bank or the Wholesale Banknote Entity (if any) must demonstrate, in its responses to the FRBNY’s Business Case Assessment questionnaire, a substantial commitment to the wholesale banknote business and continued future involvement in the wholesale banknote market.
- The foreign bank must be chartered or licensed as a bank, and subject to the oversight of a bank supervisory authority, in a jurisdiction other than the United States or a U.S. territory, and must be operationally capable of funding, managing, and maintaining a USD-denominated account on the books of the FRBNY that will be debited and credited for banknote withdrawals and deposits.2
- The Wholesale Banknote Entity (if any) must demonstrate that it is registered or licensed with, and subject to the oversight of, a financial supervisory authority (e.g., a supervisor responsible for the oversight of non-bank money service businesses).
- Neither the foreign bank nor the Wholesale Banknote Entity (if any) can be a Financial Institution eligible to open a Master Account (each as defined in the Federal Reserve Banks’ Operating Circular No. 1) or to obtain Cash Services (as defined in the Federal Reserve Banks’ Operating Circular No. 2).3
- Both the foreign bank and the Wholesale Banknote Entity (if any) must be prepared to furnish an internal or external legal opinion regarding, among other matters, the power and authority to enter into binding and enforceable contracts with the FRBNY governing participation in the FBICS program and the account with the FRBNY, including that the applicable contract does not conflict with the laws of its home jurisdiction.
- Both the foreign bank and the Wholesale Banknote Entity (if any) must be prepared to comply with all terms of the FRBNY’s standard FBICS contract, including requirements to (i) report data on a monthly basis concerning total purchases and sales of USD banknotes, aggregated by country or origin or destination; and (ii) provide annual management assertions and a combination of internal and external auditor attestations and periodic agreed-upon procedures reviews, in each case regarding their compliance with U.S. economic sanctions and anti-money laundering requirements in connection with its reportable USD banknote activity.
- Neither the foreign bank nor Wholesale Banknote Entity (if any) can be headquartered, licensed or chartered in, or operate any branches or offices located in, (i) jurisdictions subject to comprehensive geographic sanctions programs administered by the U.S. Treasury Department’s Office of Foreign Assets Control, or (ii) jurisdictions publicly identified by the Financial Action Task Force as having strategic AML/CFT deficiencies.
- Both the foreign bank and the Wholesale Banknote Entity (if any) must receive a favorable assessment from the FRBNY’s compliance and credit risk management areas, which will be based on the applicant’s or co-applicant’s responses to a Compliance and Financial Risk Assessment questionnaire to be completed after the New York Fed has determined that other eligibility requirements (detailed in items 1-9 above) have been met. This assessment will require the submission of a report prepared by an external audit, consulting or accounting firm regarding the current state of the applicant’s or co-applicant’s internal economic sanctions and anti-money laundering programs.
A foreign bank (and if applicable its Wholesale Banknote Entity affiliate) that believes it meets the eligibility requirements above is welcome to apply to the FBICS program. The application process is divided into two phases. Submission of the application described below does not ensure that an application to participate in the FBICS program will be approved.
Phase I – Business Case Assessment
During phase I of the application process, applicants must demonstrate a sufficiently compelling business case for potential participation in the FBICS program. As part of this initial business case assessment phase, applicants are required to complete and submit a questionnaire designed to assist the FRBNY in assessing their business activities and reviewing whether the applicants meet the eligibility criteria described above. The FRBNY will review the responses to determine if the applicant’s organizational commitment to the wholesale banknote business, operational sophistication, and capacity for growth generally align with the objectives of the FBICS program. If the FRBNY determines that the applicant could be appropriate for the FBICS program, the applicant will advance to the compliance and financial risk assessment phase of the selection process.
Phase II – Compliance and Financial Risk Assessment
During the second phase of the application process, FRBNY will conduct an assessment of the compliance and financial risk of an applicant. As part of the compliance and financial risk assessment phase, applicants are required to complete a detailed know-your-customer (“KYC”) questionnaire and submit certain documents related to its internal policies and procedures, including: (i) policies and procedures related to its anti-money laundering (“AML”) compliance and sanctions screening, customer due diligence and risk assessment, and suspicious activity monitoring; (ii) staff training programs related to such policies and procedures; (iii) template banknote customer or counterparty contracts; and (iv) subject to any local law or reasonable internal policy limitations, internal reports related to its compliance program. Additionally, FRBNY will perform due diligence on the ultimate parent of the applicant (if not already a co-applicant). Finally, FRBNY may solicit information from applicants’ home country supervisors, to ascertain if they are or have been subject to any enforcement actions relevant to their banknote business or AML/sanctions compliance programs.
In addition to the diligence performed by the FRBNY, applicants will be required to engage an external audit firm (satisfactory to the FRBNY) to assess the participant’s AML and sanctions compliance programs with respect to banknote operations. This assessment must be based on standards prescribed by the FRBNY that are designed to account for risks specific to the wholesale banknote business.
Financial Risk Assessment
The financial risk component of the compliance and financial risk assessment phase requires applicants to complete a questionnaire and submit certain financial documents, including recent audited financial statements, so that the FRBNY can assess the applicant’s overall financial health and potential future financial risk posed to the FRBNY.
Final Approval and Onboarding
If the FRBNY is satisfied with its review of an application, then the FRBNY will seek approval from the Board of Governors of the Federal Reserve System to open an account for, and enter into the program’s standard agreements with, the foreign bank and, if applicable, its affiliate. If approved, participants will then be required to enter an International Currency Services Agreement and Account Agreement with the FRBNY. These agreements govern the terms of the accounts and services provided by the FRBNY to FBICS participants, and are standard for all FBICS participants.4 In addition, participants will be required to enter into certain Federal Reserve System standard agreements governing their access to the Fedwire Funds Service, use of a FedLine® electronic access application, and, if they desire to settle their activity in a third party’s master account, the settlement of financial services activity. Following execution of these agreements, the FRBNY’s receipt of certain ancillary documents, and the FRBNY’s assigning the participant a unique four-digit endpoint identifier to be used for processing its currency activity, FRBNY will establish an account on its books in the name of the foreign bank and the participant may begin to deposit and withdraw USD banknotes.
FRBNY Master Account Requirements and Electronic Communication Channel Access
As noted above, foreign banks that are approved to participate in the FBICS program will be granted a limited-purpose master account on the books of the FRBNY. Use of the FRBNY master account pursuant to the FBICS program will be strictly limited to (i) withdrawing and depositing USD banknotes in connection with the foreign bank’s or the Wholesale Banknote Entity’s international USD banknote operations; and (ii) prefunding and defunding the account in connection with such banknote activity. FBICS participants will be required to maintain a minimum balance, set by the FRBNY, in their FRBNY master accounts at all times.
FBICS participants will be required to prefund all orders for USD banknotes from the FRBNY before custody of banknotes is transferred from the FRBNY to the agent (i.e., an armored carrier or cash-in-transit company) of the FBICS program participant. Participants may choose to settle their banknote activity either directly in their own master accounts or in the master account of another depository institution.5 Regardless of the method in which FBICS participants settle their banknote activity, participants must have the ability to transfer funds into and out of their accounts, and therefore generally will be required to request access to the Fedwire Funds Service. The Fedwire Funds Service may be accessed by the foreign bank directly or indirectly through a third party service provider6 designated by the foreign bank, and such access may be achieved either through one of the Federal Reserve’s electronic communication channels or through the Federal Reserve’s offline access procedures. Institutions that desire to access the Fedwire Funds Service through an electronic connection (either directly or through a third party service provider) from outside the United States will be required to submit certain documents and enter into certain related agreements with the FRBNY. FBICS participants must also obtain electronic access to a FedLine application in order to submit required monthly banknote data to the FRBNY.7
If you have any questions regarding the FBICS program, including about the eligibility criteria or the application process, please feel free to reach out to the Global Currency Services team at the FRBNY at 201-531-3577 or NY.Cash.International@ny.frb.org.
1For purposes of this specific requirement, “financial institution” means a bank, credit union, savings and loan association, money services business (such as a foreign exchange dealer, money transmitter or check casher), casino, exchange house (such as a casa de cambio or hawala), or any other organization chartered under the banking laws of any jurisdiction or subject to the supervision of any bank supervisory authority, in each case that is not owned or affiliated with the applicant or, if applicable, the co-applicant.
2This requirement correlates to the Federal Reserve Banks’ statutory authority to maintain “banking accounts” for, and provide related financial services to, “foreign banks” (see Sections 14(e) and 14(g) of the Federal Reserve Act).
3Entities eligible for domestic financial services from the Federal Reserve Banks (“FRBs”), either because they are chartered in the U.S. or have a U.S. branch or agency, are required to obtain Cash Services (as defined in the FRBs’ Operating Circular No. 2) from the FRBs in the same manner as any other institution that is similarly eligible.
4In those cases where the wholesale banknote business is operated by a Wholesale Banknote Entity affiliate, both the foreign bank and the Wholesale Banknote Entity will be required to enter into the International Currency Services Agreement with the FRBNY, and the foreign bank, as FRBNY’s account holder, will be required to execute the Account Agreement.
5In order to settle activity in another institution’s master account, that institution must consent to have their master account used for such activity, and the FBICS participant and the other institution must execute and deliver to the FRBNY certain standard agreements.
6Subject to submitting any documents required by the FRBNY, a foreign bank may authorize its Wholesale Banknote Entity as a third party service provider for purposes of accessing the Fedwire Funds Service.
7Any access to a FedLine application from outside the United States will be subject to the FRBNY’s standard diligence and documentation related to foreign electronic access.