[Federal Register Volume 83, Number 51 (Thursday, March 15, 2018)]
[Proposed Rules]
[Pages 11431-11443]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-04486]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 83, No. 51 / Thursday, March 15, 2018 /
Proposed Rules
[[Page 11431]]
FEDERAL RESERVE SYSTEM
12 CFR Part 210
[Regulation J; Docket No. R-1599]
RIN 7100 AE 98
Collection of Checks and Other Items by Federal Reserve Banks and
Funds Transfers Through Fedwire
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule and comment request.
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SUMMARY: The Board of Governors of the Federal Reserve System (Board)
is publishing for comment proposed amendments to Regulation J. The
proposed amendments are intended to clarify and simplify certain
provisions of Subpart A of Regulation J, remove obsolete provisions,
and align the rights and obligations of sending banks, paying banks,
and Federal Reserve Banks (Reserve Banks) with the Board's recent
amendments to Regulation CC, Availability of Funds and Collection of
Checks, to reflect the virtually all-electronic check collection and
return environment. The proposed rule would also amend subpart B of
Regulation J to clarify that terms used in financial messaging
standards, such as ISO 20022, do not confer legal status or
responsibilities.
DATES: Comments must be submitted by May 14, 2018.
ADDRESSES: You may submit comments, identified by Docket No. R-1599 and
RIN 7100-AE98, by any of the following methods:
Agency Website: http://www.federalreserve.gov. Follow the
instructions for submitting comments at https://www.federalreserve.gov/apps/foia/proposedregs.aspx
Email: [email protected]. Include docket
and RIN numbers in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Ann E. Misback, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551.
Instructions: All public comments will be made available on the
Board's website at https://www.federalreserve.gov/apps/foia/proposedregs.aspx as submitted, unless modified for technical reasons.
Accordingly, your comments will not be edited to remove any identifying
or contact information. Public comments may also be viewed
electronically or in paper form in Room 3515, 1801 K Street NW (between
18th and 19th Streets NW), Washington, DC 20006 between 9:00 a.m. and
5:00 p.m. on weekdays. For security reasons, the Board requires that
visitors make an appointment to inspect comments. You may do so by
calling (202) 452-3684. Upon arrival, visitors will be required to
present valid government-issued photo identification and to submit to
security screening in order to inspect and photocopy comments.
FOR FURTHER INFORMATION CONTACT: Clinton N. Chen, Senior Attorney (202/
452-3952), Legal Division; or Ian C.B. Spear, Manager (202-452-3959),
Division of Reserve Bank Operations and Payment Systems; for users of
Telecommunication Devices for the Deaf (TDD) only, contact 202-263-
4869; Board of Governors of the Federal Reserve System, 20th and C
Streets NW, Washington, DC 20551.
SUPPLEMENTARY INFORMATION:
I. Background
Subpart A of Regulation J governs the collection of checks and
other items by the Reserve Banks. This subpart includes the warranties
and indemnities that are given to the Reserve Banks by parties that
send items to the Reserve Banks for collection and return, as well as
the warranties and indemnities for which the Reserve Banks are
responsible in connection with the items they handle. Subpart A also
describes the methods by which the Reserve Banks may recover for losses
associated with their collection of items. Subpart A authorizes the
Reserve Banks to issue operating circulars governing the details of the
collection of checks and other items and provides that such operating
circulars have binding effect on all parties interested in an item
handled by a Reserve Bank. The Reserve Banks' Operating Circular No. 3,
``Collection of Cash Items and Returned Checks'' (OC 3),\1\ is the
operating circular that is most relevant to the Reserve Banks' check
collection activities. Subpart B of Regulation J provides rules to
govern funds transfers through the Reserve Banks' Fedwire Funds
Service. This service is also governed by the Reserve Banks' Operating
Circular No. 6, ``Funds Transfers through the Fedwire Funds Service''
(OC 6).\2\
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\1\ See, https://www.frbservices.org/assets/resources/rules-regulations/072315-operating-circular-3.pdf.
\2\ See, https://www.frbservices.org/assets/resources/rules-regulations/operating-circular-6-102917.pdf.
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II. Overview of Proposed Amendments
A. Alignment With Regulation CC Amendments Addressing Electronic Checks
In 2004, the Board amended Regulation J to cover electronic check
processing options that the Reserve Banks offered after the Check
Clearing for the 21st Century Act (Check 21 Act) took effect in October
2004.\3\ The Board's amendments to Regulation J at the time included
provisions to address the rights and obligations of banks and Reserve
Banks relating to electronic items handled by Reserve Banks.\4\
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\3\ The Board's Regulation CC implements the Expedited Funds
Availability Act of 1987 (EFA Act), 12 U.S.C. 4001 et seq.; and the
Check Clearing for the 21st Century Act of 2003 (Check 21 Act), 12
U.S.C. 5001 et seq. The Check 21 Act facilitated electronic
collection and return of checks by permitting banks to create a
paper ``substitute check'' from an electronic image and electronic
information derived from a paper check. The Check 21 Act authorized
banks to provide substitute checks to a bank or a customer that had
not agreed to electronic exchange. The Board implemented the Check
21 Act primarily in subpart D of Regulation CC.
\4\ At the time, the Board's Regulation CC presumed that banks
generally handled checks in paper form, and the Uniform Commercial
Code did not explicitly address electronic checks other than to say
the terms of electronic presentment may be governed by agreement
(U.C.C. 4-110).
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As a result of the 2004 amendments, Regulation J defines an
``electronic item'' as an electronic image of, and information
describing, an item that a Reserve Bank agrees to handle pursuant to an
operating circular.\5\ Regulation J also sets forth certain warranties
provided to the Reserve Banks by the sender of an electronic item and
certain
[[Page 11432]]
warranties provided by the Reserve Banks when sending or presenting an
electronic item.\6\ Specifically, Regulation J provides that for
electronic items, the sender and the Reserve Banks make warranties (1)
as set forth in the Uniform Commercial Code (U.C.C) and Regulation CC
as if the electronic item were subject to their terms; and (2) similar
to those made for substitute checks under the Check 21 Act (``Check-21-
like warranties'').\7\ Regulation J also currently provides similar
provisions related to checks that are returned as electronic items.\8\
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\5\ 12 CFR 210.2(i).
\6\ 12 CFR 210.5(a)(3)-(4) sets forth warranties provided by the
sender of an electronic item; 12 CFR 210.6(b)(2)-(3) sets forth
warranties provided by the Reserve Banks related to electronic
items.
\7\ That is, warranties that a bank will not be asked to pay an
item twice and that the electronic image and electronic information
are sufficient to create a substitute check.
\8\ 12 CFR 210.12(c)(3)-(4) sets forth warranties provided by
the sender of a returned check that is an electronic item; 12 CFR
210.12(e)(1)(ii)-(iii) sets forth warranties provided by the Reserve
Banks related to a returned check that is an electronic item.
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In 2017, the Board published a final rule amending Regulation CC to
reflect the virtually all-electronic check collection and return
environment.\9\ Among other things, the amendments created a regulatory
framework for the collection and return of electronic items (i.e.,
electronic images and electronic information derived from a paper item)
by defining the terms ``electronic check'' and ``electronic returned
check,'' creating Check-21-like warranties for electronic checks and
electronic returned checks, and applying existing paper-check
warranties to electronic checks and electronic returned checks.
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\9\ 82 FR 27552 (June 15, 2017).
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Accordingly, the Board is proposing amendments to align subpart A
of Regulation J with the Board's 2017 amendments to Regulation CC and
incorporate certain provisions by reference, thereby reducing the need
for duplication and improving consistency between the regulations.
Under the Board's proposal, the term ``electronic item'' would be
removed from Regulation J and ``check'' and ``returned check'' would be
defined to include an electronic check and electronic returned check as
defined in Sec. 229.2 of Regulation CC. The term ``item'' would also
be defined to include an electronic check as defined in Regulation CC.
The Board also proposes to eliminate duplicative provisions by removing
the Check-21-like warranties currently provided under Regulation J by
the sender and the Reserve Banks. Instead, Regulation J would provide
that the sender of an item (including an electronic check) and the
Reserve Banks would (as applicable and unless otherwise provided) make
all the warranties and indemnities set forth in and subject to the
terms of subparts C and D in Regulation CC. The Board proposes similar
amendments to the provisions of Regulation J that currently address
returning checks as electronic items.
B. Electronically Created Items
In the 2017 amendments to Regulation CC, the Board included certain
indemnities with respect to electronically-created items (ECIs), which
are check-like items created in electronic form that never existed in
paper form. ECIs can be difficult to distinguish from electronic images
of paper checks. As a practical matter, a bank receiving an ECI often
handles it as if it were derived from a paper check. However, because
there was no original paper check corresponding to the ECI, the
warranties, indemnities, and other provisions of Regulation CC would
not apply to those items. As the Board explained in the 2017 Regulation
CC amendments, the payee and the depositary bank are best positioned to
know whether an item is electronically created and to prevent the item
from entering the check-collection system. Therefore, to protect banks
that receive ECIs during the check collection process, the Board's
Regulation CC amendments provided indemnities that ultimately shift
liability for losses to the depositary bank because either the ECI (1)
is not derived from a paper check, (2) was unauthorized, or (3) was
transferred or presented for payment more than once.\10\ The proposed
amendments to incorporate Regulation CC's warranties and indemnities
into Regulation J by reference would include these ECI indemnities.
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\10\ 12 CFR 229.34(g) provides that ``each bank that transfers
or presents an electronically-created item and receives a settlement
or other consideration for it shall indemnify, as set forth in Sec.
229.34(i), each transferee bank, any subsequent collecting bank, the
paying bank, and any subsequent returning bank against losses that
result from the fact that--(1) The electronic image or electronic
information is not derived from a paper check; (2) The person on
whose account the electronically-created item is drawn did not
authorize the issuance of the item in the amount stated on the item
or to the payee stated on the item (for purposes of this paragraph
(g)(2), ``account'' includes an account as defined in section
229.2(a) as well as a credit or other arrangement that allows a
person to draw checks that are payable by, through, or at a bank);
or (3) A person receives a transfer, presentment, or return of, or
otherwise is charged for an electronically-created item such that
the person is asked to make payment based on an item or check it has
already paid.''
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Currently, neither Regulation CC nor Regulation J explicitly
address the sending of ECIs to the Reserve Banks. However, the
definition of item in Regulation J as currently drafted does not
encompass ECIs and therefore does not allow for the handling of ECIs by
the Reserve Banks. Regulation J defines an item, in part, as ``an
instrument or a promise or order to pay money, whether negotiable or
not'' that meets several other requirements.\11\ The terms
``instrument,'' ``promise,'' and ``order'' are defined under the U.C.C.
as requiring a writing.\12\ Because they never existed in tangible form
and therefore do not qualify as writings, ECIs are not ``items'' as
currently defined in Regulation J. To provide greater clarity, the
Board proposes to amend the definition of ``item'' in subpart A of
Regulation J to explicitly state that the term does not include an ECI
as defined Regulation CC.
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\11\ 12 CFR 210.2(i).
\12\ Terms not otherwise defined in Regulation J or Regulation
CC have the meanings set forth in the U.C.C. Under the U.C.C.,
``instrument'' means a ``negotiable instrument'' which is defined in
part as ``unconditional promise or order to pay a fixed amount of
money.'' U.C.C. 3-104. ``Promise'' is defined as ``a written
undertaking to pay money signed by the person undertaking to pay.''
U.C.C. 3-103. ``Order'' is defined as ``a written instruction to pay
money signed by the person giving the instruction.'' U.C.C. 3-103.
``Writing'' and ``written'' are defined as including ``printing,
typewriting, or any other intentional reduction to tangible form.''
U.C.C. 1-201.
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Furthermore, because Regulation J is intended to provide rules for
the collection and return of items by the Reserve Banks, the Board is
proposing amendments to Regulation J that would allow the Reserve Banks
to require senders to provide warranties and indemnities that only
``items'' and any ``noncash items'' the Reserve Banks have agreed to
handle will be provided to the Reserve Banks. The Board's proposed
amendments would also permit the Reserve Banks to provide a subsequent
collecting bank and a paying bank the warranties and indemnities
provided by the sender. As with the amendments to Regulation CC, the
Board believes the proposed amendments will help to shift liability to
parties better positioned to know whether an item is electronically
created and to prevent the item from entering the check-collection
system.
The Board recognizes that the proposed amendments may affect the
creation and acceptance of ECIs. However, the Board's proposed
amendments would not prevent parties that desire to exchange ECIs from
doing so by agreement using direct exchange relationships or other
methods not involving the Reserve Banks. The Board believes such
arrangements are more
[[Page 11433]]
appropriate to ensure all parties knowingly accept any corresponding
risks arising from the fact that the ECI never existed in paper form
and therefore does not carry with it the warranties, indemnities, and
other provisions associated with a check. The Board requests comment on
possible implications that this clarification and change related to
ECIs in Regulation J may have on financial institutions or the industry
more broadly. The Board also requests comment on whether, and to what
extent, the Board should consider amending Regulation J as part of a
future rulemaking to permit the Reserve Banks to accept ECIs.
C. Settlement and Payment
Regulation J currently provides that settlement with a Reserve Bank
for cash items ``shall be made by debit to an account on the Reserve
Bank's books, cash, or other form of settlement'' to which the Reserve
Bank has agreed.\13\ With respect to noncash items, Regulation J
provides that a Reserve Bank may require settlement by cash, by a debit
to an account on a Reserve Bank's books or ``by any of the following
that is in a form acceptable to the collecting Reserve Bank: Bank
draft, transfer of funds or bank credit, or any other form of payment
authorized by State law.'' \14\ Regulation J also currently provides
that a Reserve Bank may require a nonbank payor to settle for items by
cash, or by ``any of the following that is in a form acceptable to the
Reserve Bank: Cashier's check, certified check, or other bank draft or
obligation.'' \15\ In order to facilitate the efficient collection of
items, the Reserve Banks' current practice is generally to settle for
items by debit to an account on the Reserve Bank's books. The use of
cash is rare, typically only done in emergency situations, and could be
covered by a provision allowing ``other form of settlement to which the
Reserve Bank agrees.'' The Board therefore proposes to revise certain
settlement provisions of Regulation J to remove references to cash and
other specified forms of settlement (e.g., cashier's checks or
certified checks) and instead state that the Reserve Banks may settle
by a debit to an account on the Reserve Bank's books, or another form
of settlement acceptable to the Reserve Banks. The Board requests
comment on possible implications that the proposed changes may have on
financial institutions with which the Reserve Banks settle for the
presentment of items.
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\13\ 12 CFR 210.9(b)(5).
\14\ 12 CFR 210.9(c).
\15\ 12 CFR 210.9(d).
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D. Legal Status of Terms Used in Financial Messaging Standards
Financial messaging standards provide a common format that allows
different financial institutions to communicate. Federal Reserve Banks
plan to migrate to the ISO 20022 financial messaging standard for the
Fedwire Funds Service. ISO 20022 is an international standard that
employs terminology that differs in key respects from that used in U.S.
funds-transfer law, including Regulation J. The Board proposes 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.
E. Additional Aspects of the Proposal
The Board also proposes several other amendments to Regulation J,
which include removal of obsolete material and corrections to include
certain provisions that were unintentionally omitted by previous
amendatory instructions to Regulation J.
F. Effective Date
The Board proposes an effective date of July 1, 2018, to align with
the effective date of the Board's amendments to subpart C of Regulation
CC.
III. Section-by-Section Analysis
The paragraph citations in this section are to the paragraphs of
the proposed rule unless otherwise stated. The Board requests comment
on all aspects of the proposed rule.
Subpart A--Collection of Checks and Other Items by Federal Reserve
Banks
Section 210.2 Definitions
1. Section 210.2(h)--Check
Regulation J currently includes the term ``check'' (a draft as
defined in the U.C.C. drawn on a bank and payable on demand). The Board
proposes to revise the definition of ``check'' to mean a ``check'' and
an ``electronic check'' as those terms are defined in Regulation CC.
This amendment will align the terminology in the two regulations.
Regulation J also includes the term ``check as defined in 12 CFR
229.2(k)'' (the Regulation CC definition of ``check''). This term is
used in Regulation J in those provisions that require specific
references to the Regulation CC definition of ``check.'' (See
Sec. Sec. 210.2(m), 210.7(b)(2), and Sec. 210.12(a)(2).) The Board
proposes to delete the definition of ``check as defined in 12 CFR
229.2(k)'' because it is no longer needed in light of the proposed
revision of the Regulation J definition of ``check'' to cross-reference
the Regulation CC definition. The Board proposes to revise the three
provisions where it is used by deleting the reference to ``check as
defined in 12 CFR 229.2(k),'' as described in more detail in the
corresponding section-by-section analysis.
2. Section 210.2(i)--Item
Regulation J uses the term ``item'' to refer to the instruments and
electronic images that the Reserve Banks handle. Regulation J uses the
term ``electronic item'' to refer to an electronic image of an item,
and information describing that item, that a Reserve Bank agrees to
handle as an item pursuant to an operating circular. To align the
terminology of Regulation J with Regulation CC, the Board proposes to
delete the definition of ``electronic item'' and revise the definition
of ``item'' in Sec. 210.2(i) to include a check, which, under the
proposed amendment discussed above would include both a check and an
electronic check as defined in Regulation CC. The Board also proposes
to add a clarifying statement that the term ``item'' does not include
an electronically-created item as defined in Sec. 229.2 of Regulation
CC (as discussed in detail above).
3. Section 210.2(m)--Returned Check
Current Sec. 210.2(m) defines a ``returned check'' as ``a cash
item or a check as defined in 12 CFR 229.2(k) returned by a paying
bank.'' To align the definition of ``returned check'' with ``check,''
the Board proposes to delete the reference to ``check as defined in 12
CFR 229.2(k)'' and instead refer to the definition of ``electronic
returned check'' in Regulation CC.
4. Section 210.2(n)--Sender
Current Sec. 210.2(n) defines sender by providing a set of
entities that sends an item to a Reserve Bank for forward collection.
The Board proposes to add ``member bank, as defined in section 1 of the
Federal Reserve Act'' in Sec. 210.2(n)(2) to include a bank or trust
company that is a member of one of the Federal Reserve Banks to ensure
inclusion of any member bank that does not fall under the existing
definition. The Board proposes to redesignate current Sec. Sec.
210.2(n)(2)-(6) to Sec. Sec. 210.2(n)(3)-(7) to accommodate the
insertion.
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5. Section 210.2(q)--Fedwire
Current Sec. 210.2(q) defines ``Fedwire'' as having the same
meaning set forth in Sec. 210.26(e). The Board proposes to amend this
definition to refer to both ``Fedwire Funds Service and Fedwire'' to
conform to the proposed amendment to Sec. 210.26(e).
Section 210.3 General Provisions
Section 210.3(a) provides general provisions concerning the
obligations of Reserve Banks and the role of operating circulars. For
reasons described above in connection with electronically-created
items, the Board proposes to add a sentence stating that the operating
circulars may require a sender to provide warranties and indemnities
that only items and any noncash items the Reserve Banks have agreed to
handle will be sent to the Reserve Banks. Additionally, in order to
allow the Reserve Banks to pass any such warranties and indemnities
forward, the Board proposes to authorize the Reserve Banks to provide
to a subsequent collecting bank and to the paying bank any warranties
and indemnities provided by the sender pursuant to this paragraph.
Section 210.4 Sending Items to Reserve Banks
Section 210.4(a) sets forth the rule for determining the Reserve
Bank to which an item should be sent. The Board proposes to clarify
this paragraph to provide that a sender's Administrate Reserve Bank may
direct a sender (other than a Reserve Bank) to send any item to a
specified Reserve Bank, whether or not the item is payable in the
Reserve Bank's district. This amendment reflects current practice in
the Reserve Banks' check service and is not expected or intended to
have a substantive affect. The Board is also proposing to capitalize
the term ``Administrative Reserve Bank'' wherever it appears to conform
to the defined term in Sec. 210.2(c).
Section 210.5 Sender's Agreement; Recovery by Reserve Bank
1. Section 210.5(a)--Sender's Agreement
Current Sec. 210.5(a) lists the warranties, authorizations, and
agreements made by a sender. The first two paragraphs (current
Sec. Sec. 210.5(a)(1) and (2)) apply to all items and require the
sender to authorize the Reserve Banks to handle the item sent and
warrant that the sender is entitled to enforce the item, that the item
has not been altered, and that the item bears the indorsements applied
by all prior parties. The Board is not proposing to revise these
paragraphs. Current Sec. Sec. 210.5(a)(3) and (4) set out warranties
for electronic items and electronic items that are not representations
of substitute checks, respectively. These warranties are now specified
in Regulation CC, and the Board proposes to revise Regulation J
accordingly. Proposed Sec. 210.5(a)(3) would require the sender to
make all applicable warranties and indemnities set forth in Regulation
CC and the U.C.C. The proposal would retain the existing requirement
that the sender make all warranties set forth in and subject to the
terms of U.C.C. 4-207 for an electronic check as if it were an item
subject to the U.C.C. These proposed changes would streamline
Regulation J, align Sec. 210.5(a) with the Regulation CC provisions
that set out warranties and indemnities for electronic checks, and
ensure a seamless chain of warranties for the items handled by the
Reserve Banks.
The Board also proposes to require a sender to make any warranties
or indemnities regarding the sending of items that the Reserve Banks
include in an operating circular issued in accordance with Sec.
210.3(a) to ensure that only items and any noncash items the Reserve
Banks have agreed to handle will be sent to the Reserve Banks (proposed
Sec. 210.5(a)(4)). Finally, the Board proposes to add a reference to
``indemnities'' to the introductory text of Sec. 210.5(a) to reflect
that the sender would provide indemnities pursuant to proposed
Sec. Sec. 210.5(a)(3) and (4).
2. Section 210.5(a)(5)--Sender's Liability to Reserve Bank
Current Sec. 210.5(a)(5) sets out the sender's liability to
Reserve Banks. The Board proposes to make a number of amendments to
this subsection that align this paragraph to changes elsewhere in the
proposed rule.
Current Sec. 210.5(a)(5)(i)(C) states that the sender agrees to
indemnify the Reserve Bank for any loss or expense resulting from
``[a]ny warranty or indemnity made by the Reserve Bank under Sec.
210.6(b), part 229 of this chapter, or the U.C.C.'' The Board proposes
to amend this provision to provide that the sender will also indemnify
a Reserve Bank for any loss or expense sustained resulting from any
warranties and indemnities regarding the sending of ``items'' required
by the Reserve Bank in an operating circular issued pursuant to
proposed Sec. 210.3(a).
Current Sec. 210.5(a)(5)(ii) specifies conditions and limitations
to a sender's liability for warranties and indemnities that a Reserve
Bank makes for a substitute check, a paper or electronic representation
thereof, or any other electronic item. The Board proposes to delete the
term ``electronic item'' in current Sec. 210.5(a)(5)(ii) and replace
it with ``electronic check.''
Current Sec. 210.5(a)(5)(ii)(A) provides that a sender of an
original check is not liable for any amount that the Reserve Bank pays
under subpart D of Regulation CC for a subsequently created substitute
check or under Sec. 210.6(b)(3) for an electronic item, absent the
sender's agreement to the contrary. The Board proposes to delete the
reference to current Sec. 210.6(b)(3), which lists warranties and an
indemnity for an electronic item that is not a representation of a
substitute check, and replace it with a reference to Sec. 229.34 of
this chapter with respect to an electronic check, consistent with other
proposed amendments to Sec. 210.6(b) described below.
Current Sec. 210.5(a)(5)(ii)(B) provides that nothing in
Regulation J alters the liability structure that applies to substitute
checks and paper or electronic representations of substitute checks
under subpart D of Regulation CC. The Board proposes to add that this
subpart also does not alter the liability of a sender of an electronic
check under Sec. 229.34, consistent with the other proposed revisions
to Regulation J.
Current Sec. 210.5(a)(5)(ii)(C) provides that a sender of an
electronic item that is not a representations of a substitute check is
not liable for any related warranties or indemnities that a Reserve
Bank pays that are attributable to the Reserve Bank's own lack of good
faith or failure to exercise ordinary care. The Board proposes to
broaden this provision by applying the limitation on liability to all
senders for any amount that the Reserve Bank pays that is attributable
to the Reserve Bank's own lack of good faith or failure to exercise
ordinary care under Regulation J or Regulation CC. The Board proposes
to redesignate this section as Sec. 210.5(a)(5)(iii) and make
conforming changes to cross-references.
3. Section 210.5(c) & (d)--Recovery by Reserve Bank and Methods of
Recovery
Section 210.5(c) sets out the procedures by which a Reserve Bank
may recover against a sender if certain actions or proceedings related
to the sender's actions are brought against (or defense is tendered to)
a Reserve Bank. A portion of this section was inadvertently dropped
from the Code of Federal Regulations. The Board proposes to reinstate
the dropped language, which provides that, upon entry of a final
judgment or decree, a Reserve Bank may recover from the
[[Page 11435]]
sender the amount of attorneys' fees and other expenses of litigation
incurred, as well as any amount the Reserve Bank is required to pay
because of the judgment or decree or the tender of defense, with
interest. In addition, the Board proposes to correct cross-references
to this provision in Sec. 210.5(d).
4. Section 210.5(e)--Security Interest
Current Sec. 210.5(e) provides that when a sender sends an item to
a Reserve Bank, the sender and any prior collecting bank grant to the
sender's Administrative Reserve Bank a security interest in all of
their respective assets in the possession of, or held for the account
of, any Reserve Bank to secure their respective obligations due or to
become due to the Administrative Reserve Bank under this subpart or
subpart C of part 229 of this chapter (Regulation CC). The Board
proposes to amend this subsection to reference subpart D of Regulation
CC in addition to subpart C, as senders may have obligations to Reserve
Banks under that subpart as well.
Section 210.6 Status, Warranties, and Liability of Reserve Bank
1. Section 210.6(a)(2)--Limitations on Reserve Bank Liability
Section 210.6(a)(2) limits a Reserve Bank's liability with respect
to an item to three instances: (1) The Reserve Bank's own lack of good
faith or failure to exercise ordinary care, (2) as provided in this
section of Regulation J, and (3) as provided in subparts C and D of
Regulation CC. The Board proposes to expand this list to provide that a
Reserve Bank may be liable under any warranties and indemnities
provided in an operating circular issued in accordance with Sec.
210.3(a) regarding the sending of items.
2. Section 210.6(b)--Warranties and Liability
Section 210.6(b) sets forth the warranties and indemnities made by
a Reserve Bank when it presents or sends an item. In alignment with the
Board's proposed amendments to the sender's warranties in Sec.
210.5(a), the Board proposes to replace current Sec. Sec. 210.6(b)(2)
and (3), which provide warranties and indemnities for electronic items
and electronic items that are not representations of substitute checks,
respectively. Those warranties are now covered by Regulation CC. The
Board also proposes to make a conforming amendment to Sec.
210.6(b)(1)(iii) to eliminate the unnecessary reference to ``paper or
electronic form.''
The Board proposes a new Sec. 210.6(b)(2) to provide that a
Reserve Bank would make any warranties or indemnities regarding the
sending of items as set forth in an operating circular issued pursuant
to proposed Sec. 210.3(a). This language corresponds to the similar
proposed provision for sender liability in Sec. 210.5(a)(4).
The Board proposes a new Sec. 210.6(b)(3) to provide that the
Reserve Bank makes to a subsequent collecting bank and to the paying
bank all the warranties and indemnities set forth in subparts C and D
for Regulation CC. Proposed Sec. 210.6(b)(3) would retain the existing
application of U.C.C. 4-207 warranties to electronic items (now called
electronic checks).
In Sec. 210.6(b)(4), the Board proposes to retain the existing
Reserve Bank indemnity for substitute checks created from electronic
checks, which is in current Sec. 210.6(b)(3)(ii). This provision
provides an indemnity chain for substitute check indemnity claims under
Regulation CC, enabling receiving banks (and, in turn, Reserve Banks)
to pass the loss on such claims to the bank whose choice to handle an
item electronically necessitated the later creation of a substitute
check.
3. Section 210.6(c)--Limitation on Liability
The limitations on Reserve Bank liability are set forth in proposed
(and current) Sec. 210.6(a)(2). The Board is proposing to delete this
subsection as it is redundant and to redesignate current subsection (d)
as subsection (c).
Section 210.7 Presenting Items for Payment
Section 210.7(b) provides the places of presentment for a Reserve
Bank or subsequent collecting bank. Current Sec. 210.7(b)(2) states
``In the case of a check as defined in 12 CFR 229.2(k), in accordance
with 12 CFR 229.36.'' In alignment with the Board's proposed deletion
of the defined term ``check as defined in 12 CFR 229.2(k),'' the Board
proposes to delete the use of that term in Sec. 210.7(b)(2), as it is
no longer needed, and make other minor edits. As a result, proposed
Sec. 210.7(b)(2) would state ``In accordance with Sec. 229.36 of this
chapter (Regulation CC).''
Section 210.9 Settlement and Payment
1. Section 210.9(b)(5), (c), & (d)--Manner of Settlement, Noncash
Items, & Nonbank Payor
Current Sec. 210.9(b)(5) requires that settlement for cash items
with a Reserve Bank be made by debit to an account on the Reserve
Bank's books, cash, or other form of settlement to which the Reserve
Bank agrees. As discussed in the overview section, the use of cash as a
means of settlement is quite rare and generally used only in
emergencies. Accordingly, the Board proposes to amend this provision by
removing the reference to cash as a means of settlement. A Reserve Bank
could continue to accept cash or other forms of settlement by agreement
in special situations. The Board also proposes to make conforming
amendments to Sec. Sec. 210.9(c) and (d), as well as to remove the
references to other rarely-used forms of settlement (cashier's checks,
certified checks, or other bank drafts or obligations). The Board is
also proposing to correct cross-references and to capitalize the term
``Administrative Reserve Bank'' wherever it appears to conform to the
defined term in Sec. 210.2(c).
2. Section 210.9(e)--Handling of Payment
Current Sec. 210.9(e) states that a Reserve Bank may handle a bank
draft or other form of payment it receives in payment of a cash item as
a cash item and that a Reserve Bank may handle a bank draft or other
form of payment it receives in payment of a noncash item as either a
cash item or a noncash item. The Board proposes to delete this section
as it is now obsolete.
3. Section 210.9(f)--Liability of Reserve Bank
Current Sec. 210.9(f) states that a Reserve Bank that acts in good
faith and exercises ordinary care shall not be liable for the
nonpayment of, or failure to realize upon, any bank draft or other form
of payment that it accepts pursuant to Sec. 210.9(b)-(d). The Board
proposes to renumber this subsection as Sec. 210.9(e) and to replace
the reference to ``bank draft or other form of payment'' with ``any
non-cash form of payment'' to conform to the proposed changes to the
other provisions of this section.
Section 210.10 Time Schedule and Availability of Credits for Cash Items
and Returned Checks
Section 210.10(a) states that each Reserve Bank shall ``include in
its operating circulars'' its time schedules for availability of cash
items and returned checks and, correspondingly, when credits can be
counted toward reserve balance requirements for purposes of Regulation
D (12 CFR part 204). The Reserve Banks' practice is to publish the time
schedules on the Federal Reserve website for financial services.
Accordingly, the Board proposes to amend this section to delete
[[Page 11436]]
the requirement that time schedules be included in the operating
circulars and, instead, require only that the time schedules be
published.
Section 210.11 Availability of Proceeds of Noncash Items; Time Schedule
1. Section 210.11(b)--Time Schedule
Section 210.11(b) states that a Reserve Bank may give credit for
the proceeds of a noncash item subject to payment in actually and
finally collected funds in accordance with a time schedule included in
its operating circulars. To conform to amendments made in proposed
Sec. 210.10, the Board proposes to delete the reference to operating
circulars and require only that the time schedule be published.
2. Section 210.11(c)--Handling of Payment
Current Sec. 210.11(c) prohibits a Reserve Bank from providing
credit for a bank draft or other form of payment for a noncash item
until it receives payment in actually and finally collected funds. The
Board proposes to delete this subsection, as actually and finally
collected funds are already required by Sec. 210.11(a).
Section 210.12 Return of Cash Items and Handling of Returned Checks
Section 210.12 sets out the provisions governing the handling of
returned checks. It is the counterpart to Sec. Sec. 210.5 and 210.6,
which govern the handling of items for forward collection.
1. Section 210.12(a)--Return of Items
Current Sec. 210.12(a)(2) sets out the procedures by which a
paying bank may return checks not handled by Reserve Banks and
references ``check as defined in Sec. 229.2(k) of this chapter
(Regulation CC).'' In alignment with the Board's proposal to delete the
defined term ``check as defined in Sec. 229.2(k)'' in Sec. 210.2(h),
the Board proposes to delete the use of this term in this section, as
it is no longer needed, and to use the term ``check'' instead.
2. Section 210.12(c)--Paying Bank's and Returning Bank's Agreement
Current Sec. 210.12(c) provides the warranties, authorizations,
and agreements related to returned checks made by paying banks and
returning banks. The Board proposes amendments to this section that are
parallel to the proposed amendments for forward-collection items with
respect to the liability of the sender (Sec. 210.5(a)(3)) and the
Reserve Banks (Sec. 210.6(b)(2)). Specifically, the Board proposes to
replace current Sec. Sec. 210.12(c)(3) and (4), which provide
warranties for all returned checks that are electronic items and
warranties for returned checks that are electronic items that are not
representations of substitute checks, respectively, with a provision
that requires the paying bank or returning bank to make all the
warranties and indemnities as set forth in Regulation CC, as applicable
(proposed Sec. 210.12(c)(3)).
Current Sec. 210.12(c)(5) sets out the conditions under which a
paying bank or returning bank is liable to a Reserve Bank. The Board
proposes to redesignate this paragraph as Sec. 210.12(c)(4) and amend
the paragraph to correspond with the proposed amendments to the section
on sender's liability to a Reserve Bank (Sec. 210.5(a)(4)). These
proposed amendments are intended to create consistent liability
provisions for senders, paying banks, and returning banks.
3. Section 210.12(d)--Liability Under Other Law
Current Sec. 210.12(d) is titled ``Preservation of other
warranties and indemnities.'' The Board proposes to change the title of
this section to ``Returning bank's or paying bank's liability under
other law'' to mirror the heading for the corresponding section for
senders (Sec. 210.5(b)).
4. Section 210.12(e)--Warranties by and Liability of Reserve Bank
Current Sec. 210.12(e) sets forth a Reserve Bank's liability when
it handles a returned check, including warranties and liabilities. The
Board proposes to amend this section to correspond to the amendments
proposed in Sec. 210.6(b) related to the warranties and liabilities
that are made by Reserve Banks when presenting or sending an item.
5. Section 210.12(f) & (g)--Recovery by Reserve Bank & Method of
Recovery
Section 210.12(f) parallels Sec. 210.5(c) and sets out the
procedures by which a Reserve Bank may recover against a paying bank or
returning bank if certain actions or proceedings related to the paying
bank's or returning bank's actions are brought against (or defense is
tendered to) a Reserve Bank. A portion of this section was
inadvertently dropped from the Code of Federal Regulations. The Board
proposes to reinstate the dropped language, which provides that, upon
entry of a final judgment or decree, a Reserve Bank may recover from
the paying bank or returning bank the amount of attorneys' fees and
other expenses of litigation incurred, as well as any amount the
Reserve Bank is required to pay because of the judgment or decree or
the tender of defense, with interest. In addition, the Board proposes
to correct cross-references and make organizational changes in Sec.
210.12(g).
Subpart B--Funds Transfers Through Fedwire
Section 210.25 Authority, Purpose, and Scope
Section 210.25 sets out the authority, purpose, and scope for
subpart B of Regulation J, which governs Fedwire funds transfers. The
Board proposes to add a new Sec. 210.25(e) to clarify that financial
messaging standards (e.g., ISO 20022), including the financial
messaging components, elements, technical documentation, tags, and
terminology used to implement those standards, do not confer or connote
legal status or responsibilities. The proposed amendment would specify
that Regulation J, Article 4A of the U.C.C., and the operating
circulars of the Reserve Banks govern the rights and obligations of
parties to the Fedwire Funds Service and supersede any inconsistency
between a financial messaging standard adopted by the Fedwire Funds
Service. Additionally, the Board proposes to add in the commentary
examples of inconsistent terminology between the ISO 20022 financial
messaging standard and U.S. funds transfer law.
Section 210.26 Definitions
Section 210.2(e) defines the term ``Fedwire'' to mean the funds-
transfer system owned and operated by the Federal Reserve Banks that is
used primarily for the transmission and settlement of payment orders
governed by Subpart B. The Board is proposing to amend this definition
so that it applies to the official title of the service, ``Fedwire
Funds Service,'' as well as the shorthand term ``Fedwire.'' The Board
also proposes to change references to ``Fedwire'' to ``Fedwire Funds
Service'' in Sec. Sec. 210.9(b)(4)(i), 210.25(a) and (b)(3), and
210.29(b).
Section 210.32 Federal Reserve Bank Liability; Payment of Interest
Current Sec. 210.32 sets out provisions that govern Federal
Reserve Bank liability and payment of interest. Section 210.32(b)
provides that compensation that is paid by Federal Reserve Banks in the
form of interest shall be calculated in accordance with section 4A-506
of Article 4A. Under section 4A-506(a), the amount of interest may be
determined by agreement between the sender and
[[Page 11437]]
receiving bank or by funds-transfer system rule. If there is no such
agreement, under section 4A-506(b), the amount of interest is based on
the federal funds rate. The current commentary to Sec. 210.32(b)
states that ``Interest would be calculated in accordance with the
procedures specified in section 4A-506(b).'' The Board proposes to
delete this statement and rearrange the commentary to clarify that
interest can be calculated in accordance with both section 4A-506(a)
and (b).
IV. Competitive Impact Analysis
The Board conducts a competitive impact analysis when it considers
an operational or legal change, if that change would have a direct and
material adverse effect on the ability of other service providers to
compete with the Federal Reserve in providing similar services due to
legal differences or due to the Federal Reserve's dominant market
position deriving from such legal differences. All operational or legal
changes having a substantial effect on payments-system participants
will be subject to a competitive-impact analysis, even if competitive
effects are not apparent on the face of the proposal. If such legal
differences exist, the Board will assess whether the same objectives
could be achieved by a modified proposal with lesser competitive impact
or, if not, whether the benefits of the proposal (such as contributing
to payments-system efficiency or integrity or other Board objectives)
outweigh the materially adverse effect on competition.\16\
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\16\ Federal Reserve Regulatory Service, 7-145.2.
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The Board does not believe that the amendments to Regulation J will
have a direct and material adverse effect on the ability of other
service providers to compete effectively with the Reserve Banks in
providing similar services due to legal differences. The amendments
would align the provisions in Regulation J governing Reserve Bank
services to the generally applicable provisions in Regulation CC. The
proposed amendment would not affect the competitive position of
private-sector presenting banks vis-[agrave]-vis the Reserve Banks.
V. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. 3506; 5 CFR part 1320 Appendix A.1), the Board may not conduct
or sponsor, and a respondent is not required to respond to, an
information collection unless it displays a valid Office of Management
and Budget (OMB) control number. The Board reviewed the proposed rule
under the authority delegated to the Board by the OMB and determined
that it contains no collections of information under the PRA.\17\
Accordingly, there is no paperwork burden associated with the rule.
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\17\ See 44 U.S.C. 3502(3).
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VI. Regulatory Flexibility Act
The Regulatory Flexibility Act (the ``RFA'') (5 U.S.C. 601 et seq.)
requires agencies either to provide an initial regulatory flexibility
analysis with a proposed rule or to certify that the proposed rule will
not have a significant economic impact on a substantial number of small
entities. In accordance with section 3(a) of the RFA, the Board has
reviewed the proposed regulation. In this case, the proposed rule would
apply to all depository institutions. This Initial Regulatory
Flexibility Analysis has been prepared in accordance with 5 U.S.C. 603
in order for the Board to solicit comment on the effect of the proposal
on small entities. The Board will, if necessary, conduct a final
regulatory flexibility analysis after consideration of comments
received during the public comment period.
1. Statement of the Need for, Objectives of, and Legal Basis for, the
Proposed Rule
The Board is proposing the foregoing amendments to Regulation J
pursuant to its authority under the Federal Reserve Act, the EFA Act;
the Check 21 Act, and other laws. The proposal clarifies and simplifies
certain provisions of Subpart A of Regulation J, removes obsolete
provisions, and aligns the rights and obligations of sending banks,
paying banks, and Reserve Banks with the Board's recent amendments to
Regulation CC to reflect the virtually all-electronic check collection
and return environment. The proposed rule would also amend subpart B of
Regulation J to clarify the legal status of terms in financial
messaging standards.
2. Small Entities Affected by the Proposed Rule
The proposed rule would apply to all depository institutions
regardless of their size.\18\ Pursuant to regulations issued by the
Small Business Administration (13 CFR 121.201), a ``small banking
organization'' includes a depository institution with $550 million or
less in total assets. Based on call report data as of June 2017, there
are approximately 9,918 of depository institutions that have total
domestic assets of $550 million or less and thus are considered small
entities for purposes of the RFA.
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\18\ The proposed rule would not impose costs on any small
entities other than depository institutions.
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3. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
The Board's proposed rule generally does not have any projected
reporting, recordkeeping or other compliance requirements, as the
proposed amendments to Regulation J align the rights and obligations of
sending banks, paying banks, and Federal Reserve Banks (Reserve Banks)
with the Board's recent amendments to Regulation CC. The proposed
warranties and indemnities are similar to the warranties and
indemnities that apply to paper and electronic checks under existing
Regulation J and other law. The proposed amendments do not require any
bank to change the form in which it submits checks, nor do they require
any bank to submit reports, maintain records, or provide notices or
disclosures.
With respect to ECIs, the Board recognizes that the proposed
amendments that would allow the Reserve Banks to require senders to
provide certain warranties and indemnities may affect the creation and
acceptance of ECIs by small entities. However, the Board's proposed
amendments would not prevent small entities that desire to exchange
ECIs from doing so by agreement using direct exchange relationships or
other methods not involving the Reserve Banks. The Board believes the
proposed amendments will help to shift liability to parties better
positioned to know whether an item is electronically created and that
can either prevent the item from entering the check-collection system
or assume the risk of sending it forward.
Furthermore, the Board does not expect the Board's proposed
amendments to remove references to cash and other specified forms of
settlement to burden small entities, as the use of cash as settlement
is rare and typically only done in emergency situations. The Board's
proposed amendment would allow use of cash as settlement in emergency
situations by continuing to permit other forms of settlement to which
the Reserve Banks agree.
4. Identification of Duplicative, Overlapping, or Conflicting Federal
Rules
The Board notes that subparts C and D of Regulation CC overlap with
the proposed rule with respect to checks collected or returned through
the
[[Page 11438]]
Reserve Banks. The Board's intent in proposing the amendments is, in
part, to align Regulation J with Regulation CC and incorporate certain
provisions by reference, thereby reducing the need for duplication and
improving consistency between the regulations. The provisions of
Regulation J would supersede any inconsistent provisions of Regulation
CC, but only to the extent of the inconsistency.\19\ The Board knows of
no other duplicative, overlapping, to conflicting Federal rules related
to this proposal.
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\19\ See 12 CFR 210.3(f).
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5. Significant Alternatives to the Proposed Rule
The Board welcomes comment on the impact of the proposed rule on
small entities and any approaches, other than the proposed amendments,
that would reduce the burden on all entities.
List of Subjects in 12 CFR Part 210
Banks, Banking, Federal Reserve System.
Authority and Issuance
For the reasons set forth in the preamble, the Board proposes to
amend 12 CFR part 210 as follows:
PART 210--COLLECTION OF CHECKS AND OTHER ITEMS BY FEDERAL RESERVE
BANKS AND FUNDS TRANSFERS THROUGH FEDWIRE (REGULATION J)--[AMENDED]
0
1. The authority citation for part 210 is revised to read as follows:
Authority: 12 U.S.C. 248 (i), (j), and (o); 12 U.S.C. 342; 12
U.S.C. 360; 12 U.S.C. 464; 12 U.S.C. 4001-4010; 12 U.S.C. 5001-5018.
PART 210--[AMENDED]
0
2. In part 210, revise all references to ``article 4A'' to read
``Article 4A''.
Subpart A--Collection of Checks and Other Items by Federal Reserve
Banks
0
3. In Sec. 210.2, revise paragraphs (h), (i), (m), (n), (q), and
(s)(1) to read as follows:
Sec. 210.2 Definitions.
* * * * *
(h) Check means a check or an electronic check, as those terms are
defined in Sec. 229.2 of this chapter (Regulation CC).
(i) Item.
(1) Item means--
(i) An instrument or a promise or order to pay money, whether
negotiable or not, that is--
(A) Payable in a Federal Reserve District \1\ (District);
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\1\ For purposes of this subpart, the Virgin Islands and Puerto
Rico are deemed to be in the Second District, and Guam, American
Samoa, and the Northern Mariana Islands in the Twelfth District.
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(B) Sent by a sender to a Reserve Bank for handling under this
subpart; and
(C) Collectible in funds acceptable to the Reserve Bank of the
District in which the instrument is payable; or
(ii) A check.
(2) Unless otherwise indicated, item includes both a cash and a
noncash item, and includes a returned check sent by a paying or
returning bank. Item does not include a check that cannot be collected
at par, or a payment order as defined in Sec. 210.26(i) and handled
under subpart B of this part. The term also does not include an
electronically-created item as defined in Sec. 229.2 of this chapter
(Regulation CC).
* * * * *
(m) Returned check means a cash item returned by a paying bank,
including an electronic returned check as defined in Sec. 229.2 of
this chapter (Regulation CC) and a notice of nonpayment in lieu of a
returned check, whether or not a Reserve Bank handled the check for
collection.
(n) Sender means any of the following entities that sends an item
to a Reserve Bank for forward collection--
(1) A depository institution, as defined in section 19(b) of the
Federal Reserve Act (12 U.S.C. 461(b));
(2) A member bank, as defined in section 1 of the Federal Reserve
Act (12 U.S.C. 221);
(3) A clearing institution, defined as--
(i) An institution that is not a depository institution but that
maintains with a Reserve Bank the balance referred to in the first
paragraph of section 13 of the Federal Reserve Act (12 U.S.C. 342); or
(ii) A corporation that maintains an account with a Reserve Bank in
conformity with Sec. 211.4 of this chapter (Regulation K);
(4) Another Reserve Bank;
(5) An international organization for which a Reserve Bank is
empowered to act as depositary or fiscal agent and maintains an
account;
(6) A foreign correspondent, defined as any of the following
entities for which a Reserve Bank maintains an account: A foreign bank
or banker, a foreign state as defined in section 25(b) of the Federal
Reserve Act (12 U.S.C. 632), or a foreign correspondent or agency
referred to in section 14(e) of that act (12 U.S.C. 358); or
(7) A branch or agency of a foreign bank maintaining reserves under
section 7 of the International Banking Act of 1978 (12 U.S.C. 347d,
3105).
* * * * *
(q) Fedwire Funds Service and Fedwire have the same meaning as that
set forth in Sec. 210.26(e).
* * * * *
(s) * * *
(1) The terms not defined herein have the meanings set forth in
Sec. 229.2 of this chapter applicable to subpart C or subpart D of
part 229 of this chapter (Regulation CC), as appropriate; and
* * * * *
0
4. In Sec. 210.3, revise paragraph (a) to read as follows:
Sec. 210.3 General provisions.
(a) General. Each Reserve Bank shall receive and handle items in
accordance with this subpart, and shall issue operating circulars
governing the details of its handling of items and other matters deemed
appropriate by the Reserve Bank. The circulars may, among other things,
classify cash items and noncash items, require separate sorts and
letters, provide different closing times for the receipt of different
classes or types of items, provide for instructions by an
Administrative Reserve Bank to other Reserve Banks, set forth terms of
services, and establish procedures for adjustments on a Reserve Bank's
books, including amounts, waiver of expenses, and payment of
compensation. As deemed appropriate by the Reserve Bank, the circulars
may also require the sender to provide warranties and indemnities that
only items and any noncash items the Reserve Banks have agreed to
handle will be sent to the Reserve Banks. The Reserve Banks may provide
to a subsequent collecting bank and to the paying bank any warranties
and indemnities provided by the sender pursuant to this paragraph.
* * * * *
0
5. In Sec. 210.4, revise paragraphs (a), (b)(1)(ii), (b)(1)(iii), and
(b)(3) to read as follows:
Sec. 210.4 Sending items to Reserve Banks.
(a) Sending of items. A sender's Administrative Reserve Bank may
direct a sender other than a Reserve Bank to send any item to a
specified Reserve Bank, whether or not the item is payable in the
Reserve Bank's district.
(b) * * *
(1) * * *
(ii) The initial sender's Administrative Reserve Bank (which is
deemed to have accepted deposit of the item from the initial sender);
(iii) The Reserve Bank that receives the item from the initial
sender (if
[[Page 11439]]
different from the initial sender's Administrative Reserve Bank); and
* * * * *
(3) The identity and order of the parties under paragraph (b)(1) of
this section determine the relationships and the rights and liabilities
of the parties under this subpart, part 229 of this chapter (Regulation
CC), section 13(1) and section 16(13) of the Federal Reserve Act, and
the Uniform Commercial Code. An initial sender's Administrative Reserve
Bank that is deemed to accept an item for deposit or handle an item is
also deemed to be a sender with respect to that item. The Reserve Banks
that are deemed to handle an item are deemed to be agents or subagents
of the owner of the item, as provided in Sec. 210.6(a).
* * * * *
0
6. In Sec. 210.5, revise paragraphs (a), (c), (d), and (e) to read as
follows:
Sec. 210.5 Sender's agreement; recovery by Reserve Bank.
(a) Sender's agreement. The warranties, indemnities,
authorizations, and agreements made pursuant to this paragraph may not
be disclaimed and are made whether or not the item bears an indorsement
of the sender. By sending an item to a Reserve Bank, the sender does
all of the following.
(1) Authorization to handle item. The sender authorizes the
sender's Administrative Reserve Bank and any other Reserve Bank or
collecting bank to which the item is sent to handle the item (and
authorizes any Reserve Bank that handles settlement for the item to
make accounting entries), subject to this subpart and to the Reserve
Banks' operating circulars, and warrants its authority to give this
authorization.
(2) Warranties for all items. The sender warrants to each Reserve
Bank handling the item that--
(i) The sender is a person entitled to enforce the item or
authorized to obtain payment of the item on behalf of a person entitled
to enforce the item;
(ii) The item has not been altered; and
(iii) The item bears all indorsements applied by parties that
previously handled the item for forward collection or return.
(3) Warranties and indemnities as set forth in Regulation CC and
U.C.C. As applicable and unless otherwise provided, the sender of an
item makes to each Reserve Bank that handles the item all the
warranties and indemnities set forth in and subject to the terms of
subparts C and D of part 229 of this chapter (Regulation CC) and
Article 4 of the U.C.C. The sender makes all the warranties set forth
in and subject to the terms of 4-207 of the U.C.C. for an electronic
check as if it were an item subject to the U.C.C.
(4) Warranties and indemnities as set forth in Reserve Bank
Operating Circulars. The sender makes any warranties and indemnities
regarding the sending of items as set forth in an operating circular
issued in accordance with Sec. 210.3(a).
(5) Sender's liability to Reserve Bank.
(i) Except as provided in paragraph (a)(5)(ii) and (iii) of this
section, the sender agrees to indemnify each Reserve Bank for any loss
or expense sustained (including attorneys' fees and expenses of
litigation) resulting from--
(A) The sender's lack of authority to make the warranty in
paragraph (a)(1) of this section;
(B) Any action taken by the Reserve Bank within the scope of its
authority in handling the item; or
(C) Any warranty or indemnity made by the Reserve Bank under Sec.
210.6(b), part 229 of this chapter, the U.C.C., or, regarding the
sending of items, an operating circular issued in accordance with Sec.
210.3(a).
(ii) A sender's liability for warranties and indemnities that the
Reserve Bank makes for a substitute check, a paper or electronic
representation thereof, or for an electronic check is subject to the
following conditions and limitations--
(A) A sender of an original check shall not be liable under
paragraph (a)(5)(i) of this section for any amount that the Reserve
Bank pays under subpart D of part 229 of this chapter, or under Sec.
229.34 of this chapter with respect to an electronic check, absent the
sender's agreement to the contrary; and
(B) Nothing in this subpart alters the liability of a sender of a
substitute check or paper or electronic representation of a substitute
check under subpart D of part 229 of this chapter, or a sender of an
electronic check under Sec. 229.34 of this chapter.
(iii) A sender shall not be liable for any amount that the Reserve
Bank pays under this subpart or part 229 of this chapter that is
attributable to the Reserve Bank's own lack of good faith or failure to
exercise ordinary care.
* * * * *
(c) Recovery by Reserve Bank.
(1) A Reserve Bank that has handled an item may recover as provided
in paragraph (c)(2) if an action or proceeding is brought against (or
if defense is tendered to) the Reserve Bank based on--
(i) The alleged failure of the sender to have the authority to make
the warranty and agreement in paragraph (a)(1) of this section;
(ii) Any action by the Reserve Bank within the scope of its
authority in handling the item; or
(iii) Any warranty or indemnity made by the Reserve Bank under
Sec. 210.6(b), part 229 of this chapter, or the U.C.C.
(2) Upon entry of a final judgment or decree in an action or
proceeding described in paragraph (c)(1), a Reserve Bank may recover
from the sender the amount of attorneys' fees and other expenses of
litigation incurred, as well as any amount the Reserve Bank is required
to pay because of the judgment or decree or the tender of defense,
together with interest thereon.
(d) Methods of recovery.
(1) The Reserve Bank may recover the amount stated in paragraph (c)
of this section by charging any account on its books that is maintained
or used by the sender (or by charging a Reserve Bank sender), if--
(i) The Reserve Bank made seasonable written demand on the sender
to assume defense of the action or proceeding; and
(ii) The sender has not made any other arrangement for payment that
is acceptable to the Reserve Bank.
(2) The Reserve Bank is not responsible for defending the action or
proceeding before using this method of recovery. A Reserve Bank that
has been charged under this paragraph (d) may recover from its sender
in the manner and under the circumstances set forth in this paragraph
(d).
(3) A Reserve Bank's failure to avail itself of the remedy provided
in this paragraph (d) does not prejudice its enforcement in any other
manner of the indemnity agreement referred to in paragraph (a)(5) of
this section.
(e) Security interest. When a sender sends an item to a Reserve
Bank, the sender and any prior collecting bank grant to the sender's
Administrative Reserve Bank a security interest in all of their
respective assets in the possession of, or held for the account of, any
Reserve Bank to secure their respective obligations due or to become
due to the Administrative Reserve Bank under this subpart or subpart C
or D of part 229 of this chapter (Regulation CC). The security interest
attaches when a warranty is breached or any other obligation to the
Reserve Bank is incurred. If the Reserve Bank, in its sole discretion,
deems itself insecure and gives notice thereof to the sender or prior
collecting bank, or if the sender or prior collecting bank suspends
payments or is closed, the Reserve Bank may take any action authorized
by law to recover the amount of an obligation, including, but not
limited to, the exercise of rights of set off, the realization on any
available collateral,
[[Page 11440]]
and any other rights it may have as a creditor under applicable law.
0
7. Amend Sec. 210.6 by:
0
a. Revising paragraphs (a)(2)(iii), (b), and (c);
0
b. Adding paragraph (a)(2)(iv); and
0
c. Removing paragraph (d).
The revisions and additions read as follows:
Sec. 210.6 Status, warranties, and liability of Reserve Bank.
(a) * * *
(2) * * *
(iii) As provided in an operating circular issued in accordance
with Sec. 210.3(a) regarding the sending of items; and
(iv) As provided in subparts C and D of part 229 of this chapter
(Regulation CC).
* * * * *
(b) Warranties and liability. The following provisions apply when a
Reserve Bank presents or sends an item.
(1) Warranties for all items. The Reserve Bank warrants to a
subsequent collecting bank and to the paying bank and any other payor
that--
(i) The Reserve Bank is a person entitled to enforce the item (or
is authorized to obtain payment of the item on behalf of a person that
is either entitled to enforce the item or authorized to obtain payment
on behalf of a person entitled to enforce the item);
(ii) The item has not been altered; and
(iii) The item bears all indorsements applied by parties that
previously handled the item for forward collection or return.
(2) Warranties and indemnities as set forth in Reserve Bank
Operating Circulars. The Reserve makes any warranties and indemnities
regarding the sending of items as set forth in an operating circular
issued in accordance with Sec. 210.3(a).
(3) Warranties and indemnities as set forth in Regulation CC and
U.C.C. As applicable and unless otherwise provided, the Reserve Bank
makes to a subsequent collecting bank and to the paying bank all the
warranties and indemnities set forth in and subject to the terms of
subparts C and D of part 229 of this chapter (Regulation CC) and
Article 4 of the U.C.C. The Reserve Bank makes all the warranties set
forth in and subject to the terms of 4-207 of the U.C.C. for an
electronic check as if it were an item subject to the U.C.C.
(4) Indemnity for substitute check created from an electronic
check.
(i) Except as provided in paragraph (b)(4)(ii) of this section, the
Reserve Bank shall indemnify the bank to which it transfers or presents
an electronic check (the recipient bank) for the amount of any losses
that the recipient bank incurs under subpart D of part 229 of this
chapter (Regulation CC) for an indemnity that the recipient bank was
required to make under subpart D of part 229 of this chapter in
connection with a substitute check later created from the electronic
check.
(ii) The Reserve Bank shall not be liable under paragraph (b)(4)(i)
of this section for any amount that the recipient bank pays under
subpart D of part 229 of this chapter that is attributable to the lack
of good faith or failure to exercise ordinary care of the recipient
bank or a person that handled the item, in any form, after the
recipient bank.
(c) Time for commencing action against Reserve Bank.
(1) A claim against a Reserve Bank for lack of good faith or
failure to exercise ordinary care shall be barred unless the action on
the claim is commenced within two years after the claim accrues. Such a
claim accrues on the date when a Reserve Bank's alleged failure to
exercise ordinary care or to act in good faith first results in damages
to the claimant.
(2) A claim that arises under paragraph (b)(3) of this section
shall be barred unless the action on the claim is commenced within one
year after the claim accrues. Such a claim accrues as of the date on
which the claimant first learns, or by which the claimant reasonably
should have learned, of the facts and circumstances giving rise to the
claim.
(3) This paragraph (d) does not alter the time limit for claims
under Sec. 229.38(g) of this chapter (which include claims for breach
of warranty under Sec. 229.34 of this chapter) or subpart D of part
229 of this chapter.
0
8. In Sec. 210.7, revise paragraphs (a)(1) and (b)(2) to read as
follows:
Sec. 210.7 Presenting items for payment.
(a) * * *
(1) A Reserve Bank or a subsequent collecting bank may present an
item for payment or send the item for presentment and payment; and
* * * * *
(b) * * *
(2) In accordance with Sec. 229.36 of this chapter (Regulation
CC);
* * * * *
0
9. Amend Sec. 210.9 by:
0
a. Revising paragraphs (b)(2)(i), (b)(3)(i)(A), (b)(3)(i)(B), (b)(4)
through (b)(6), paragraphs (c) through (e); and
0
b. Removing paragraph (f).
The revisions read as follows:
Sec. 210.9 Settlement and payment.
* * * * *
(b) * * *
(2) * * *
(i) On the day a paying bank receives a cash item from a Reserve
Bank, it shall settle for the item so that the proceeds of the
settlement are available to its Administrative Reserve Bank, or return
the item, by the latest of--
(A) The next clock hour or clock half-hour that is at least one
half-hour after the paying bank receives the item;
(B) 8:30 a.m. eastern time; or
(C) Such later time as provided in the Reserve Banks' operating
circulars.
* * * * *
(3) * * *
(i) * * *
(A) On that day, settle for the item so that the proceeds of the
settlement are available to its Administrative Reserve Bank, or return
the item, by the latest of the next clock hour or clock half-hour that
is at least one half-hour after it ordinarily would have received the
item, 8:30 a.m. eastern time, or such later time as provided in the
Reserve Banks' operating circulars; or
(B) On the next day that is a banking day for both the paying bank
and the Reserve Bank, settle for the item so that the proceeds of the
settlement are available to its Administrative Reserve Bank by 8:30
a.m. eastern time on that day or such later time as provided in the
Reserve Banks' operating circulars; and compensate the Reserve Bank for
the value of the float associated with the item in accordance with
procedures provided in the Reserve Bank's operating circular.
* * * * *
(4) Reserve Bank closed. If a paying bank receives a cash item from
a Reserve Bank on a banking day that is not a banking day for the
Reserve Bank, the paying bank shall--
(i) Settle for the item so that the proceeds of the settlement are
available to its Administrative Reserve Bank by the close of Fedwire on
the Reserve Bank's next banking day, or return the item by midnight of
the day it receives the item (if the paying bank fails to settle for or
return a cash item in accordance with this paragraph (b)(4)(i), it
shall become accountable for the amount of the item as of the close of
its banking day on the day it receives the item); and
(ii) Settle for the item so that the proceeds of the settlement are
available to its Administrative Reserve Bank by 8:30 a.m. eastern time
on the Reserve Bank's next banking day or such later time as provided
in the Reserve Bank's operating circular, or return the item by
midnight of the day it receives the item. If the paying bank fails to
settle for or
[[Page 11441]]
return a cash item in accordance with this paragraph (b)(4)(ii), it
shall be subject to any applicable overdraft charges. Settlement under
this paragraph (b)(4)(ii) satisfies the settlement requirements of
paragraph (b)(4)(i) of this section.
(5) Manner of settlement. Settlement with a Reserve Bank under
paragraphs (b)(1) through (4) of this section shall be made by debit to
an account on the Reserve Bank's books or other form of settlement to
which the Reserve Bank agrees, except that the Reserve Bank may, in its
discretion, obtain settlement by charging the paying bank's account. A
paying bank may not set off against the amount of a settlement under
this section the amount of a claim with respect to another cash item,
cash letter, or other claim under Sec. 229.34 of this chapter
(Regulation CC) or other law.
(6) Notice in lieu of return. If a cash item is unavailable for
return, the paying bank may send a notice in lieu of return as provided
in Sec. 229.31(f) of this chapter (Regulation CC).
(c) Noncash items. A Reserve Bank may require the paying or
collecting bank to which it has presented or sent a noncash item to pay
for the item by a debit to an account maintained or used by the paying
or collecting bank on the Reserve Bank's books or by any other form of
settlement acceptable to the Reserve Bank.
(d) Nonbank payor. A Reserve Bank may require a nonbank payor to
which it has presented an item to pay for it by debit to an account on
the Reserve Bank's books or other form of settlement acceptable to the
Reserve Bank.
(e) Liability of Reserve Bank. Except as set forth in 12 CFR
229.35(b), a Reserve Bank shall not be liable for the failure of a
collecting bank, paying bank, or nonbank payor to pay for an item, or
for any loss resulting from the Reserve Bank's acceptance of any form
of payment other than cash authorized in paragraphs (b), (c), and (d)
of this section. A Reserve Bank that acts in good faith and exercises
ordinary care shall not be liable for the nonpayment of, or failure to
realize upon, any non-cash form of payment that it accepts under
paragraphs (b), (c), and (d) of this section.
0
10. In Sec. 210.10, revise paragraph (a) to read as follows:
Sec. 210.10 Time schedule and availability of credits for cash items
and returned checks.
(a) Each Reserve Bank shall publish a time schedule indicating when
the amount of any cash item or returned check received by it is counted
toward the balance maintained to satisfy a reserve balance requirement
for purposes of part 204 of this chapter (Regulation D) and becomes
available for use by the sender or paying or returning bank. The
Reserve Bank that holds the settlement account shall give either
immediate or deferred credit to a sender, a paying bank, or a returning
bank (other than a foreign correspondent) in accordance with the time
schedule of the receiving Reserve Bank. A Reserve Bank ordinarily gives
credit to a foreign correspondent only when the Reserve Bank receives
payment of the item in actually and finally collected funds, but, in
its discretion, a Reserve Bank may give immediate or deferred credit in
accordance with its time schedule.
* * * * *
0
11. Amend Sec. 210.11 by:
0
a. Revising paragraph (b) and;
0
b. Removing paragraph (c).
The revision reads as follows:
Sec. 210.11 Availability of proceeds of noncash items; time
schedule.
* * * * *
(b) Time schedule. A Reserve Bank may give credit for the proceeds
of a noncash item subject to payment in actually and finally collected
funds in accordance with a published time schedule. The time schedule
shall indicate when the proceeds of the noncash item will be counted
toward the balance maintained to satisfy a reserve balance requirement
for purposes of part 204 of this chapter (Regulation D) and become
available for use by the sender. A Reserve Bank may, however, refuse at
any time to permit the use of credit given by it for a noncash item for
which the Reserve Bank has not yet received payment in actually and
finally collected funds.
0
12. In Sec. 210.12, revise paragraphs (a) and (c) through (g) to read
as follows:
Sec. 210.12 Return of cash items and handling of returned checks.
(a) Return of items--
(1) Return of cash items handled by Reserve Banks. A paying bank
that receives a cash item from a Reserve Bank, other than for immediate
payment over the counter, and that settles for the item as provided in
Sec. 210.9(b), may, before it has finally paid the item, return the
item to any Reserve Bank (unless its Administrative Reserve Bank
directs it to return the item to a specific Reserve Bank) in accordance
with subpart C of part 229 of this chapter (Regulation CC), the Uniform
Commercial Code, and the Reserve Banks' operating circulars. A paying
bank that receives a cash item from a Reserve Bank also may return the
item prior to settlement, in accordance with Sec. 210.9(b) of this
subpart and the Reserve Banks' operating circulars. The rules or
practices of a clearinghouse through which the item was presented, or a
special collection agreement under which the item was presented, may
not extend these return times, but may provide for a shorter return
time.
(2) Return of checks not handled by Reserve Banks. A paying bank
that receives a check, other than from a Reserve Bank, and that
determines not to pay the check, may send the returned check to any
Reserve Bank (unless its Administrative Reserve Bank directs it to send
the returned check to a specific Reserve Bank) in accordance with
subpart C of part 229 of this chapter (Regulation CC), the Uniform
Commercial Code, and the Reserve Banks' operating circulars. A
returning bank may send a returned check to any Reserve Bank (unless
its Administrative Reserve Bank directs it to send the returned check
to a specific Reserve Bank) in accordance with subpart C of part 229 of
this chapter (Regulation CC), the Uniform Commercial Code, and the
Reserve Banks' operating circulars.
* * * * *
(c) Paying bank's and returning bank's agreement. The warranties,
indemnities, authorizations, and agreements made pursuant to this
paragraph may not be disclaimed and are made whether or not the
returned check bears an indorsement of the paying bank or returning
bank. By sending a returned check to a Reserve Bank, the paying bank or
returning bank does all of the following.
(1) Authorization to handled returned check. The paying bank or
returning bank authorizes the paying bank's or returning bank's
Administrative Reserve Bank, and any other Reserve Bank or returning
bank to which the returned check is sent, to handle the returned check
(and authorizes any Reserve Bank that handles settlement for the
returned check to make accounting entries) subject to this subpart and
to the Reserve Banks' operating circulars.
(2) Warranties for all returned checks. The paying bank or
returning bank warrants to each Reserve Bank handling a returned check
that the returned check bears all indorsements applied by parties that
previously handled the returned check for forward collection or return.
(3) Warranties and indemnities as set forth in Regulation CC. As
applicable and unless otherwise provided, a paying bank or returning
bank makes to each Reserve Bank that handles the returned check all the
warranties and indemnities set forth in and subject to the terms of
subparts C and D of part 229 of this chapter (Regulation CC).
[[Page 11442]]
(4) Paying bank or returning bank's liability to Reserve Bank.
(i) Except as provided in paragraph (c)(4)(ii) and (iii) of this
section, a paying bank or returning bank agrees to indemnify each
Reserve Bank for any loss or expense (including attorneys' fees and
expenses of litigation) resulting from--
(A) The paying or returning bank's lack of authority to give the
authorization in paragraph (c)(1) of this section;
(B) Any action taken by a Reserve Bank within the scope of its
authority in handling the returned check; or
(C) Any warranty or indemnity made by the Reserve Bank under
paragraph (e) of this section or part 229 of this chapter.
(ii) A paying bank's or returning bank's liability for warranties
and indemnities that a Reserve Bank makes for a returned check that is
a substitute check, a paper or electronic representation thereof, or an
electronic returned check is subject to the following conditions and
limitations--
(A) A paying bank or returning bank that sent an original returned
check shall not be liable for any amount that a Reserve Bank pays under
subpart D of part 229 of this chapter, or under Sec. 229.34 of this
chapter with respect to an electronic returned check, absent the paying
bank's or returning bank's agreement to the contrary;
(B) Nothing in this subpart alters the liability under subpart D of
part 229 of this chapter of a paying bank or returning bank that sent a
substitute check or a paper or electronic representation of a
substitute check or under Sec. 229.34 of this chapter of a paying bank
or returning bank that sent an electronic returned check; and
(iii) A paying bank or returning bank shall not be liable for any
amount that the Reserve Bank pays under this subpart or part 229 of
this chapter that is attributable to the Reserve Bank's own lack of
good faith or failure to exercise ordinary care.
(d) Paying bank or returning bank's liability under other law.
Nothing in paragraph (c) of this section limits any warranty or
indemnity by a returning bank or paying bank (or a person that handled
an item prior to that bank) arising under state law or regulation (such
as the U.C.C.), other federal law or regulation (such as part 229 of
this chapter), or an agreement with a Reserve Bank.
(e) Warranties by and liability of Reserve Bank.
(1) The following provisions apply when a Reserve Bank handles a
returned check under this subpart.
(i) Warranties for all items. The Reserve Bank warrants to the bank
to which it sends the returned check that the returned check bears all
indorsements applied by parties that previously handled the returned
check for forward collection or return.
(ii) Warranties and indemnities as set forth in Regulation CC. As
applicable and unless otherwise provided, the Reserve Bank makes to the
bank to which it sends the returned check all the warranties and
indemnities set forth in and subject to the terms of subparts C and D
of part 229 of this chapter (Regulation CC).
(2) Indemnity for substitute check created from electronic returned
check.
(i) Except as provided in paragraph (e)(2)(ii) of this section, the
Reserve Bank shall indemnify the bank to which it transfers or presents
and electronic returned check (the recipient bank) for the amount of
any losses that the recipient bank incurs under subpart D of part 229
of this chapter (Regulation CC) for an indemnity that the recipient
bank was required to make under subpart D of part 229 of this chapter
in connection with a substitute check later created from the electronic
returned check.
(ii) The Reserve Bank shall not be liable under paragraph (e)(2)(i)
of this section for any amount that the recipient bank pays under
subpart D of part 229 of this chapter that is attributable to the lack
of good faith or failure to exercise ordinary care of the recipient
bank or a person that handled the item, in any form, after the
recipient bank.
(3) A Reserve Bank shall not have or assume any other liability to
any person except--
(i) For the Reserve Bank's own lack of good faith or failure to
exercise ordinary care;
(ii) As provided in this paragraph (e); and
(iii) As provided in subparts C and D of part 229 of this chapter
(Regulation CC).
(f) Recovery by Reserve Bank.
(1) A Reserve Bank that has handled a returned check may recover as
provided in paragraph (f)(2) if an action or proceeding is brought
against (or if defense is tendered to) the Reserve Bank based on--
(i) The alleged failure of the paying bank or returning bank to
have the authority to give the authorization in paragraph (c)(1) of
this section;
(ii) Any action by the Reserve Bank within the scope of its
authority in handling the returned check; or
(iii) Any warranty or indemnity made by the Reserve Bank under
paragraph (e) of this section or part 229 of this chapter,
(2) Upon entry of a final judgment or decree in an action or
proceeding described in paragraph (f)(1), a Reserve Bank may recover
from the paying bank or returning bank the amount of attorneys' fees
and other expenses of litigation incurred, as well as any amount the
Reserve Bank is required to pay because of the judgment or decree or
the tender of defense, together with interest thereon.
(g) Methods of recovery.
(1) The Reserve Bank may recover the amount stated in paragraph (f)
of this section by charging any account on its books that is maintained
or used by the paying bank or returning bank (or by charging another
returning Reserve Bank), if--
(i) The Reserve Bank made seasonable written demand on the paying
bank or returning bank to assume defense of the action or proceeding;
and
(ii) The paying bank or returning bank has not made any other
arrangement for payment that is acceptable to the Reserve Bank.
(2) The Reserve Bank is not responsible for defending the action or
proceeding before using this method of recovery. A Reserve Bank that
has been charged under this paragraph (g) may recover from the paying
or returning bank in the manner and under the circumstances set forth
in this paragraph (g).
(3) A Reserve Bank's failure to avail itself of the remedy provided
in this paragraph (g) does not prejudice its enforcement in any other
manner of the indemnity agreement referred to in paragraph (c)(4) of
this section.
* * * * *
0
13. Amend Sec. 210.25 by:
0
a. Revising the introductory text of paragraph (b)(2); and
0
b. Adding paragraph (e).
The revisions and additions read as follows:
Subpart B--Funds Transfers Through Fedwire
Sec. 210.25 Authority, purpose, and scope.
* * * * *
(b) * * *
(2) Except as otherwise provided in paragraphs (b)(3) and (b)(4) of
this section, including Article 4A as incorporated herein, and
operating circulars of the Reserve Banks issued in accordance with
paragraph (c) of this section, this subpart governs the rights and
obligations of:
* * * * *
(e) Financial Messaging Standards. Financial messaging standards
(e.g., ISO
[[Page 11443]]
20022), including the financial messaging components, elements,
technical documentation, tags, and terminology used to implement those
standards, do not confer or connote legal status or responsibilities.
This subpart, including Article 4A as incorporated herein, and the
operating circulars of the Reserve Banks issued in accordance with
paragraph (c) of this section govern the rights and obligations of
parties to funds transfers sent through the Fedwire Funds Service as
provided in paragraph (b) of this section. To the extent there is any
inconsistency between a financial messaging standard adopted by the
Fedwire Funds Service and this subpart, this subpart shall prevail.
0
14. In Sec. 210.26, revise paragraph (e) to read as follows:
Sec. 210.26 Definitions.
* * * * *
(e) Fedwire Funds Service and Fedwire means the funds-transfer
system owned and operated by the Federal Reserve Banks that is used
primarily for the transmission and settlement of payment orders
governed by this subpart. Fedwire does not include the system for
making automated clearing house transfers.
* * * * *
Sec. Sec. 210.9, 210.25, and 210.29 [Amended]
0
15. In addition to the amendments set forth above, in 12 CFR part 210,
remove the words ``Fedwire'' and add, in their place, the words ``the
Fedwire Funds Service'' in the following places:
(a) Section 210.9(b)(4)(i)(A);
(b) Sections 210.25(a), (b)(3); and
(c) Section 210.29(b).
Appendix A to subpart B of part 210 [Amended]
0
16. In Appendix A to subpart B of part 210:
(a) Under ``Section 210.25--Authority, Purpose, and Scope'', add
paragraph (e).
(b) Under ``Section 210.32--Federal Reserve Bank Liability; Payment
of Interest'', revise paragraph (b).
The additions and revisions read as follows:
Appendix A to Subpart B of Part 210--Commentary
* * * * *
Section 210.25--Authority, Purpose, and Scope
* * * * *
(e) Financial messaging standards. This paragraph makes clear
that financial messaging standards, including the financial
messaging components, elements, technical documentation, tags, and
terminology used to implement those standards, do not confer or
connote legal status or responsibilities. Instead, subpart B of
Regulation J and Federal Reserve Bank operating circulars govern the
rights and obligations of parties to funds transfers sent through
the Fedwire Funds Service as provided in section 210.25(b). Thus, to
the extent there is any inconsistency between a financial messaging
standard adopted by the Fedwire Funds Service and subpart B of
Regulation J, subpart B of Regulation J, including Article 4A as
adopted in its appendix, will prevail. In the ISO 20022 financial
messaging standard, for example, the term agent is used to refer to
a variety of bank parties to a funds transfer (e.g., debtor agent,
creditor agent, intermediary agent). Notwithstanding use of that
term in the standard and in message tags, such banks are not the
agents of any party to a funds transfer and owe no duty to any other
party to such a funds transfer except as provided in subpart B of
Regulation J (including Article 4A) or by express agreement. The ISO
20022 financial messaging standard also permits information to be
carried in a funds-transfer message regarding persons that are not
parties to that funds transfer (e.g., ultimate debtor, ultimate
creditor, initiating party) for regulatory, compliance, remittance,
or other purposes. An ``ultimate debtor'' is not an ``originator''
as defined in Article 4A. The relationship between the ultimate
debtor and the originator (what the ISO 20022 standard calls the
``debtor'') is determined by law other than Article 4A.
* * * * *
Section 210.32--Federal Reserve Bank Liability; Payment of
Interest
* * * * *
(b) Payment of interest. (1) Under article 4A, a Federal Reserve
Bank may be required to pay compensation in the form of interest to
another party in connection with its handling of a funds transfer.
For example, payment of compensation in the form of interest is
required in certain situations pursuant to sections 4A-204 (relating
to refund of payment and duty of customer to report with respect to
unauthorized payment order), 4A-209 (relating to acceptance of
payment order), 4A-210 (relating to rejection of payment order), 4A-
304 (relating to duty of sender to report erroneously executed
payment order), 4A-305 (relating to liability for late or improper
execution or failure to execute a payment order), 4A-402 (relating
to obligation of sender to pay receiving bank), and 4A-404 (relating
to obligation of beneficiary's bank to pay and give notice to
beneficiary).
(2) Section 210.32(b) requires Federal Reserve Banks to provide
compensation through an explicit interest payment. Under section 4A-
506(a), the amount of such interest may be determined by agreement
between the sender and receiving bank or by funds-transfer system
rule. If there is no such agreement, under section 4A-506(b), the
amount of interest is based on the federal funds rate.
Similarly, compensation in the form of explicit interest will be
paid to government senders, receiving banks, or beneficiaries
described in Sec. 210.25(d) if they are entitled to interest under
this subpart. A Federal Reserve Bank may also, in its discretion,
pay explicit interest directly to a remote party to a Fedwire funds
transfer that is entitled to interest, rather than providing
compensation to its direct sender or receiving bank.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, February 28, 2018.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2018-04486 Filed 3-14-18; 8:45 am]
BILLING CODE 6210-01-P