Market Practice Guidelines for use of the expanded US wire formats (Fedwire CTP and CHIPS STP 820) 1 (Version 1.4, December 17, 2010)

Transcription

1 Market Practice Guidelines for use of the expanded US wire formats (Fedwire CTP and CHIPS STP 820) 1 (Version 1.4, December 17, 2010) Note: 1) Relevant regulations and any applicable legislation take precedence over the guidance notes issued by this body. These Guidelines represent an industry s best effort to assist peers in the interpretation and implementation of the relevant topic(s). The PMPG - or any of its Members - cannot be held responsible for any error in these Guidelines or any consequence thereof. 2) The following guidelines are work in progress and will be modified based on industry discussion and evolving regulatory guidelines. Updated versions will be posted to reflect the evolving discussions. 1 Introduction The Payments Market Practice Group (PMPG) is an independent body of payments subject matter experts from Asia Pacific, Europe and North America. The mission of the PMPG is to: take stock of payments market practices across regions, discuss, explain, and document market practice issues, including possible commercial impact, recommend market practices, covering end-to-end transactions, propose best practice, business responsibilities and rules, message flows, consistent implementation of ISO messaging standards and exception definitions, ensure publication of recommended best practices, recommend payments market practices in response to changing compliance requirements The PMPG provides a truly global forum to drive better market practices which, together with correct use of standards, will help in achieving full STP and improved customer service. This document has three main sections: Market Practice Guidelines: Describes the guidelines that the PMPG proposes to the global payments community. Frequently Asked Questions: Addresses specific questions that have been raised to the PMPG in relation to the subject that is addressed in the document. Observations and Recommendations: Comments on the general impact of the guidelines and areas of further discussion. 1 Whenever the expanded US wire format is referenced in this document, it should be read as Customer Transfer Plus (Fedwire CTP) or CHIPS 820.

2 The text starts by giving the background and contains a glossary at the end. The PMPG will regularly review these guidelines, using the frequently asked questions and community feedback as input. 2

3 2 Background In 2007 the Federal Reserve and The Clearing House conducted quantitative surveys followed by focus groups to study wire needs in the US corporate market place. The research shows that business and corporate customers have a clear need to receive additional structured remittance information that will allow them to apply a payment quickly, enabling an efficient posting and reconciliation process. The research supports the idea that, if the wire transfer process remains cumbersome, customers are unlikely to migrate US check volume to wire and may even move existing wire volume to other forms of payment. Wire transfer operators, banks and software vendors have an opportunity at this time to bring about change that will ensure that wires continue to remain relevant and deliver the most value to end users well into the future. Proposed changes include: Enhancing payment system operator, bank and software vendor capabilities to include remittance information with wire transfer payments. Supporting a common industry minimum remittance information standard that can be used by companies around the world to move remittance information with the payment (such as the EPN STP 820 and ISO 20022). Enabling bank cash management systems to integrate more effectively with accounts payable and accounts receivable systems to facilitate straightthrough-processing. In November 2011 the Fedwire System and CHIPS will introduce new enhanced messaging to meet this market requirement. The enhanced message will include all the necessary data elements to route and settle the payment plus a standard set of structured data elements designed to explain the purpose of the payment. The remittance information data elements have been explicitly selected so that they can be translated to or from a variety of popular remittance information formats including the EDI STP 820, the globally compatible XML ISO 20022, and certain proprietary / human readable formats. The enhanced message can carry details for as many invoices as will fit in 9,000 characters of space dedicated to remittance information. It is expected that this will support approximately 25 to 30 invoices in a single wire transfer payment. In addition a Payment Notification process can be supported that allows a downstream party in the chain to offer an notification receipt to the named notification contact specified in this field. This change in message size in the USD clearing system poses a challenge for the international payments community. The current message standard for customer transfer is the MT 103. While the community has decided on an enhanced messaging standard under the ISO umbrella a migration date to this new standard has not been agreed yet. In the spirit of coexistence, a market practice needs to be agreed to facilitate the introduction of the new wire format and to reduce the impact on the international payments community. 3

4 The significance of the USD in the international payments arenas makes the introduction of a new USD wire format an important topic for the PMPG to address and to guide its introduction into the global payments environment. While the US market prefers to send remittance information with the payment (e.g. Checks with Correspondence, ACH CTX, CHIPS STP 820 and Fedwire CTP) a different approach is being taken in Europe. Industry efforts are on the way to create an EU wide e-invoicing scheme via a central repository and only requires banks to transport a unique invoice reference in the payment instruction. The beneficiary (creditor) will then need to re-associate the payment with the invoice information. Although both approaches are different, they underscore the need of the corporate market to receive structured remittance data in order to support STP in their own back-offices. Ongoing involvement by the PMPG in the topic of end to end STP will remain important to ensure both approaches can be interoperable. 4

5 3 Market Practice Guidelines (MPG) to handle the expanded US wire formats internationally MPG Expanded US Wire #1: Business Principles The new US wire format does not alter or increase the number of parties in the payment chain. The incremental data that can be transmitted in the payment order are remittance details that relate to the commercial relationship between ordering party (debtor) and beneficiary (creditor). Remittance data is not germane to the interbank payments process and should be considered as supplementary information. The sending bank in the US will have the obligation to ensure that the parties to the payment get passed to the next bank in the chain. Remittance data should not crowed out payment data. The new US wire format has two components: Payment data determining the transfer of funds in the banking chain Remittance data determining the application of the funds between ordering party and beneficiary. Or in other words: Expanded US wire format = MT103 + Remittance data Note: The remittance data does not have to travel with the payments data through the interbank chain as it does not include any incremental parties from a payment chain perspective. FINCEN has released a new Q&A document ( which states that limited interoperability between systems may prevent a bank from choosing to include certain supplementary information in a payment order. MPG Expanded US Wire #2: Splitting of payment instruction and remittance data The current MT 103 format supports only 4 lines of 35 characters to carry remittance information in field 70. Therefore the 9,000 characters of remittance data that can be included in the new US wire instruction poses a problem for the interbank payments process. Unless agreed otherwise on a bilateral basis, the US correspondent needs to map the expanded US wire format into the MT 103. If mapping is not possible, the US corresponded needs to split the remittance data from the payment order. Note: On a bilateral basis (via a MUG) the use of the MT 103 Remit (Field 77T in the MT 103) can be used to ensure that the entire expanded remittance information can be transported in the payment instruction. To support the identification of structured remittance information, different code words should be used to indicate the format of the remittance data to the beneficiary institution. MPG Expanded US Wire #3: Access to remittance data by Beneficiary US Correspondent should provide the beneficiary with access to the remittance info through other channels 5

6 Web Industry portal MPG Expanded US Wire #4: Use of unique remittance identifier To allow the beneficiary to tie the payment order to the remittance info, a URI (Universal Resource Identifier) should be included in the payment order if the remittance info is split from the payment order. (P & R) Corporate Customer Ordering Customers Bank (P & R) (P & R) Receivers Correspondent (P, URI) Look-Up via URI P=Payment Order R=Remittance Data URI=Universal Resource Identifier Statement, URI Beneficiary s Bank Beneficiary To indicate to the beneficiary that additional remittance details are available, field 70 should be used to communicate the location and a reference to retrieve the remittance details. If the US correspondent bank needs to split the remittance information from the payment order, the beneficiary should be advised in field 70 that remittance information is available and how to obtain it. The use of plain text in the first line of field 70 will make it easier for the beneficiary to understand that more details are available. The second line should include a reference that indicates where the additional information can be found. The URI could be a SWIFT code, a URL or any other electronic address. The reference number should be a unique identifier that the beneficiary can use to retrieve the information. :70:Remittance Details Available At URI Reference Number As the reference to the remittance information is contained in field 70 the responsibility to request the additional remittance information will be with the beneficiary. MPG Expanded US Wire #5: Mapping of CTP to MX The CTP should be mapped to pacs.008 once a community/market has converted to ISO Note: The use of pacs.008 requires the implementation of the ISO Payments Clearing and Settlement business process as outlined in: 6

7 MPG Expanded US Wire #6: Character Set Compatibility: The character set supported by the new US wire format differs from the character set supported in field 77T (z-character set) or in field 70 (x-character set). Unless bilaterally agreed otherwise, the sending US institution should use the following convention to map the un-supported characters: Character Name Coding Vertical Bar??5A $ Dollar??5B \ Reverse solidus (backslash)??e0 ~ Tilde??A1 ^ Circumflex??5F ` Grave accent??79 [ Left square bracket??ad ] Right square bracket??bd Quotation Mark??7F } Right curly At sign??7c _ Underscore??6D & Ampersand??50 Apostrophe??7D % Percent??6C ; Semicolon??5E = Equal??7E < Less-than sign??4c > Greater-than sign??6e * Asterisk??5C # Number Sign??7B! Exclamation mark??4f Note: Many different versions of EBCDIC translation table exist depending on hardware platform and region. The conventions used have been recommended by SWIFT as compatible with the SWIFT Network. MPG Expanded US Wire #7: Mapping of end to end transaction identifier The expanded US wire format also supports the inclusion of a separate end to end transaction identifier. This identifier should map to field 70 and use the /ROC/ codeword MPG Expanded US Wire #8: Creditor Reference Mapping If the Ordering Customer has provided a Creditor Reference according to the ISO Structured Creditor Reference specification, it should be included in tag {8400}Primary Remittance Document Information in the CTP messages as follows: Tag 01 in field {8400} should carry the codeword CINV 7

8 Tag 03 in field {8400} should carry the structured creditor reference, which starts with the pre-fix RF. In the MT 103 the creditor reference should be mapped into field 70 as the first element. 8

9 4 Frequently Asked Questions Q1: How does the Fed Travel Rule apply to the new CTP format? A: FINCEN has released a new Q&A document, which states that limited interoperability between systems may prevent a bank from choosing to include certain supplementary information in a payment order. Q2: If my customer requires access to the additional remittance details how can my customer retrieve it? A: The US correspondent should indicate in field 70 whether additional remittance data is available and how to obtain access to it. :70 Remittance Details Available At Traditional investigation processes can also be used to retrieve the remittance details from the US correspondent. Q6: The CTP, MT 103 Remit, and pacs.008 contain incremental data that has previously not been part of a Funds Transfer message. Will the remittance data need to be screened against sanction lists? A: Each institution should ensure that they are compliant with their respective local regulations and policies. If these require that any data elements relating to a payment instruction should be screened against sanction lists then this will apply to the remittance information well. The ordering banks in the US should strongly consider the use of structured remittance data and avoid the use of unstructured data for cross border payments. Q7: The MT 103 Remit (field 77T) allows the use of certain code words to indicate the presence of structured or unstructured remittance information. How should these code words be used in the context of the new US wire format? A: If the extended remittance detail is received in ANSI format via CHIPS or Fedwire then the remittance details should be mapped into field 77T using the existing ANSI codeword. If the structured option is used for extended character remittance details contained in a Fedwire or CHIPS message it should be mapped into the ISO structure and placed into field 77T using the new IXML codeword. The remittance details referenced in a Fedwire CTP message in field {8250} or the CHIPS tag [825] (Related Remittance Information) should be mapped into the ISO structure and placed into field 77T using the new IXML codeword. 9

10 All other unstructured remittance detail, including general XML, should be placed into field 77T using the NARR codeword. 10

11 5 Observations and Recommendations The PMPG is not a regulatory body and cannot enforce any of the guidelines. It can only point out practices, which, when followed properly, are beneficial to the payments community. Above and beyond the guidelines stated above, a few additional suggestions can be made to the community: 1. Although MPG Expanded US Wire #2 advocates the splitting of remittance data from the payment, in cases where banks receive a lot of payments with extended remittance data, they should decide whether or not it is better to join the MT 103 MUG and to ask their main US correspondents to send them the remittance data in field 77T. 2. The challenges to accommodate the new CTP format in the MT environment highlight the challenges during the coexistence period. While the eventual target message type pacs.008 exists, its adoption remains a long term goal. Other industry initiatives or markets will further explore use of the new MX messages and request support in local or global markets. 11

12 6 GLOSSARY Definitions BAFT-IFSA: BAFT-IFSA is the global financial services association formed by the merger of the Bankers Association for Finance and Trade (BAFT) and the International Financial Services Association (IFSA). Creditor Reference: A company issuing invoices (creditor) adds a unique reference for each invoice. The customer (debtor) making the payment uses the same reference with the payment to be transferred to the Creditor. The payment is reconciled with the invoice carrying the same reference. The RF Creditor Reference has the following structure: RFnn cccc cccc, where RF is an identifier for RF Creditor Reference; nn are two check digits calculated using algorithm ISO/IEC 7064 (the same algorithm as the one that is used for IBAN-formatted account numbers); cccc cccc constitute a maximum of 21 characters of proprietary creditor reference information. Numeric characters are recommended because they make the key-in process more user-friendly. CTP: Customer Transfer Plus: Name of the new message that the Fedwire system will introduce in November 2011 STP 820: Expanded format CHIPS message that was introduced a few years ago. Regulatory Screening: For the purposes of this document, any activity of a financial institution to scan the parties and the remittance details, as well as the sender to receiver information in a payment transaction, against a set of sanction lists provided by law enforcement and regulatory agencies in relevant jurisdictions, and determine if the requested payment instruction can be executed or not. x-character set: The x-character set is based on the set of characters that can be transported over telex. The y-character set is equivalent to the EDIFACT level A character set. z-character set: The z-character set is a combination of the x- and y-character set, and #. This document and other information are available on the PMPG website: 12