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FEDERAL RESERVE BANK OF NEW YORK [ Circular No. 10631 April 5, 1993 "1 AUTOMATED CLEARING HOUSE ITEMS Changes in Operating Circular No. 10 To All Depository Institutions in the Second Federal Reserve District, and Others Concerned: Enclosed are copies of the First Supplement, a revised Appendix 1, and a new A ppendix 3, all effective A pril 1, 1993 , to this B ank’s Operating Circular No. 10, “Autom ated Clearing House Item s” . The changes reflected therein are intended to clarify the operating circular relating to security procedures and to the acknowledgm ents required by National Autom ated Clearing House Association (N ACH A) rules, and to set forth the agreements that are required for depository institutions in the Second Federal Reserve D istrict. A c k n o w le d g e m e n ts The NACHA rules have been am ended to require automated clearing houses to acknowledge receipt and lim ited processing of files. Paragraph 14A has been added to the operating circular to make clear that by acknowledging the receipt of ACH files, a Reserve Bank does not indicate that the items in the file have been accepted by the Reserve Bank and will not be rejected. S e c u rity P r o c e d u r e s Appendix 1, “ACH Security Procedures,” has been am ended to clarify when a Reserve Bank verifies file control information. Control totals will be verified when input files are issued by tape, diskette, paper and by electronic m eans when neither access controls nor encryption are employed. A g re e m e n ts Currently, institutions settling for ACH items through an account on this B ank’s books execute an agreem ent in the form o f either Exhibit I-A or I-B to the operating circular as indicated in paragraph 35 of the circular. The Reserve Banks have prepared a uniform ACH settlem ent agreem ent appendix that contains all the information and signatures necessary to cover settlement and delivery of ACH items through any Reserve Bank. The Federal Reserve Bank of New York will implement the new agreem ent in two steps. The first step is the addition of Appendix 3 to the circular for use by institutions that receive only Governm ent ACH items directly from this Bank. These items are governed by this B ank’s Operating C ircular No. 11. These institutions will be asked to execute a letter agreeing to the term s of this Appendix for settlement of these items. The second step will occur when this Bank begins processing com m ercial ACH items in connection with the consolidation of Reserve Bank ACH operations. At that time, this Bank will conform its ACH circular to the uniform Reserve Bank ACH circular and include the uniform ACH (OVER) settlement agreement appendix which will be executed by all institutions using the ACH service. Until then, depository institutions in this District that originate or receive ACH items through another Reserve Bank are required to do so under the settlement agreement issued by that Reserve Bank. This requirement is stated in the new paragraph 35A of the operating circular. Questions regarding these matters may be directed to Andrew Heikaus, Manager, Funds Transfer Department (Tel. No. 212-720-5561). E. G erald C o r r ig a n , President. Federal Reserve Bank of New York Appendix 3 to Operating Circular No. 10 Effective April 1, 1993 ACH SETTLEMENT AGREEMENT P rior to sen d in g A C H item s to, or r e c e iv in g A C H item s from , th is or an oth er R e se r v e B an k , a sen d in g or r e c e iv in g in stitu tio n m u st ex e c u te an a g r e e m en t w ith a R e se r v e B ank p rovid in g for settlem en t o f A C H item s b y d eb it or cred it to an a c c o u n t on th e R e se r v e B a n k ’s b o o k s. I f th e in stitu tio n d e sir e s to u se its o w n a cco u n t on th is B a n k ’s b o o k s for settlem en t o f G o v ern m en t A C H item s, w h ich are g o v e r n e d b y ou r O p eratin g C ircu lar No. 1 1 , it sh ou ld e x e c u te an a g reem en t su b sta n tia lly in th e fo rm set forth in th e A C H P articip ation A g r e e m ent. I f th e in stitu tio n d e sir e s to u se a c o rresp o n d en t’s a cco u n t on th is B a n k ’s b o o k s for settlem en t o f item s, it sh ou ld ex e c u te , and h ave th e c o rresp o n d en t e x e cu te, an a g reem en t su b sta n tia lly in th e form set forth in th e A C H P articip ation A g reem en t. B y e x e c u tin g th is settlem en t agreem en t, the in stitu tio n (o r a corresp o n d en t a cco u n t holder, i f an y) a u th o rizes th is R e se r v e Bank: ( 1 ) to d eb it to its a cco u n t on th e settlem en t date th e am ou n t o f G o v ern m en t A C H d eb it item s sen t to the in stitu tio n b y a R e se r v e Bank; ( 2 ) to cred it to its a c c o u n t on th e settlem en t date th e am ou n t o f G o v ern m en t A C H cred it item s sen t to th e in stitu tion b y a R e se r v e Bank; and ( 3 ) to d eb it and cred it to its a cco u n t th e am ou n t o f o th er tran saction s (in c lu d in g fe e s , u n le ss o th e r w is e a g reed ) w ith resp ect to A C H item s and G o v ern m en t A C H item s as p rovid ed in th e R e se r v e B a n k ’s op eratin g circu lars e n titled “A C H Ite m s” and “F ed eral P aym en ts b y th e A C H M e th o d .” A n a c c o u n t h old er w h o s e a c c o u n t is u se d b y a sen d in g or r e c e iv in g in stitu tio n for settlem en t o f A C H item s d o e s n ot th ereb y b e c o m e a sen d er or r e c e iv in g bank as d e fin e d in A r tic le 4 A , or a party to an item . B y e x e c u tin g th is settlem en t ag reem en t, and in co n sid era tio n o f th e p r o c e s s in g and settlem en t b y R e se r v e B anks o f A C H ite m s sen t to and/or r e c e iv e d by th e in stitu tio n and o th er sen d in g and r e c e iv in g in stitu tio n s, th e in stitu tio n (and th e c o rresp o n d en t a c c o u n t holder, i f an y) a lso a g ree to th e a p p licab le R e se r v e B ank o p eratin g circulars g o v e r n in g A C H item s and to th e ap p lica b le A C H ru les, ea ch as a m en d ed from tim e to tim e, for the b en efit o f all p arties in terested in th e item s. [Enc. Cir. No. 10631] (OVER) T h is settlem en t a g reem en t su p ersed es all p rior in c o n siste n t settlem en t a g reem en ts w ith resp ect to A C H item s. T h e sen d in g or r e c e iv in g in stitu tio n (or its c o rresp o n d en t a c c o u n t holder, if an y) m ay term in ate th is settlem en t a g r e e m en t by w ritten n o tic e to th is B ank. T h e term in ation n o tic e is e ffe c tiv e o n ly for A C H item s to b e settled b y th is B ank on and after th e b an k in g day fo llo w in g th e b an k in g day o f receip t o f th e n o tic e b y th is B an k , or on and after a later date sp e c ifie d in th e n otice. T h is Bank m ay term in ate a settlem en t agreem en t by w ritten n o tic e to th e in stitu tio n (or th e corresp o n d en t a cco u n t holder, i f any). T h is term in ation n o tic e is e ffe c tiv e for A C H item s to b e settled by th is B ank on and after th e b an k in g day fo llo w in g the b an k in g day o f receip t b y th e in s ti tu tion o f th e n o tic e , or on and after a later date sp e c ifie d in th e n otice. E. G erald C orrigan , President. Federal Reserve Bank of New York First Supplement to Operating Circular No. 10 Effective April 1, 1993 AUTOMATED CLEARING HOUSE ITEMS To All Depository Institutions in the Second Federal Reserve District, and Others Concerned: E ffe c tiv e A p ril 1, 1 9 9 3 , th is B a n k ’s O p eratin g C ircular No. 1 0 is a m en d ed as follow s: 1. Paragraph 4 is am en d ed b y ad d in g th e fo llo w in g at th e end: “A p p e n d ix 3 — A C H S ettlem en t A g r e e m e n t.” 2. Paragraph 1 4 A is ad d ed fo llo w in g paragraph 1 4 , to read as follow s: 14A . W e se n d an a c k n o w le d g e m e n t to an A C H a s s o c ia tio n that w e h a v e re c e iv e d A C H f ile s b y e le c tr o n ic tr a n sm iss io n an d h a v e p e r fo r m e d lim ite d p r o c e s s in g o f th e f ile s , a s p r o v id e d in a p p lic a b le A C H ru le s. A n a c k n o w le d g e m e n t d o e s n o t m e a n that w e h a v e a c c e p te d , a n d w ill n o t r e je c t, th e ite m s c o n ta in e d in th e file s . T h e A C H a ss o c ia tio n is r e s p o n s ib le fo r v e r if y in g th e in fo r m a tio n in th e a c k n o w l e d g e m e n t a n d n o tif y in g u s im m e d ia te ly o f an y d isc r e p a n c y , an d for n o tify in g u s p r o m p tly o f n o n r e c e ip t o f an a c k n o w le d g e m e n t. ( S e e P aragraph 4 5 .) 3. Paragraph 3 5 is a m en d ed , and paragraph 3 5 A is ad d ed , to read as fo l low s: 35. P rio r to se n d in g an ite m to o r r e c e iv in g an ite m fro m th is B an k th r o u g h an A C H , a s e n d in g o r r e c e iv in g in stitu tio n (a n d an a c c o u n t h old er, i f th e se n d in g o r r e c e iv in g in stitu tio n d e s ir e s to u s e tha t o th e r in stitu tio n ’s a c c o u n t fo r se ttle m e n t o f ite m s ) m u st e x e c u te a se ttle m e n t a g r e e m e n t w ith th is B a n k in th e fo r m o f E x h ib it I -A o r I-B to th is C ircu la r. A n a g r e e m e n t fo r se ttle m e n t o f ite m s e x e c u te d b y a s e n d in g o r r e c e iv in g in stitu tio n (a n d an a c c o u n t h o ld er, i f a n y ) an d in e f fe c t o n A u g u s t 1, 1 9 8 1 , is c o n s id e r e d to c o m p ly w ith th is p a ragrap h u p o n th e se n d in g or r e c e ip t b y th e in stitu tio n o f ite m s o n o r a fte r that d a te , u n le s s th e se n d in g o r r e c e iv in g in stitu tio n c e a s e s to b e a m e m b e r o f an A C H a ss o c ia tio n . T h is se ttle m e n t a g r e e m e n t a p p lie s to a ll ite m s se n t b y th e se n d in g in stitu tio n to th is B a n k th r o u g h an A C H . A n a c c o u n t h o ld e r w h o s e a c c o u n t is u s e d b y a se n d in g or r e c e iv in g in stitu tio n for se ttle m e n t d o e s n o t th e r e b y b e c o m e a se n d e r or r e c e iv in g b a n k as d e fin e d in A r tic le 4 A , o r a p a rty to an ite m . [Enc. Cir. No. 10631] (OVER) 35A . P rio r to se n d in g an ite m to o r r e c e iv in g an ite m fro m a R e s e r v e B an k o th e r than th e F e d e r a l R e s e r v e B a n k o f N e w Y ork, a se n d in g or r e c e iv in g in s titu tio n (a n d an a c c o u n t h o ld er, i f th e s e n d in g o r r e c e iv in g in stitu tio n d e s ir e s to u se that o th e r in stitu tio n ’s a c c o u n t fo r s e ttle m e n t o f ite m s ) m u st e x e c u te a se ttle m e n t a g r e e m e n t w ith that o th e r R e s e r v e B a n k . 4. A p p e n d ix 1 has b een am en d ed , and a n ew A p p e n d ix 3 has b een ad d e d , e ffe c tiv e A p ril 1, 1 9 9 3 . E. 2 G erald C orrigan , President. Federal Reserve Bank of New York Appendix 1 to Operating Circular No. 10 Effective April 1, 1993 ACH SECURITY PROCEDURES General T h e fo llo w in g se c u r ity p roced u res are o ffered b y the F ederal R eserv e B anks to ea ch sen d in g in stitu tio n that is au th o rized to sen d A C H item s to a R e se r v e B ank for th e p u rp ose o f v e r ify in g th e au th en ticity o f th e so u rce o f the A C H item s and that are o ffered b y th is Bank to an autom ated c lea r in g h o u se ( “A C H ”) for th e sa m e p urpose. T h e se c u r ity p roced u res are n ot u sed to d etect an error in th e tra n sm issio n or th e co n ten t o f A C H item s. Level One Security Procedure T h e L ev el O n e S e c u r ity P roced u re is availab le to any in stitu tio n that is su e s or r e c e iv e s A C H item s b y m ea n s o f an e n cry p ted le a se d or dial up c o m m u n i c a tio n s lin e b e tw e e n its co m p u ter and a R e se r v e B a n k ’s co m p u ter u tiliz in g a h ard w are/softw are sy s te m c e r tifie d by the R e serv e B ank. T h e L ev el O n e S e c u r ity P roced u re is incorp orated in th e hardw are and so ftw a re a sso c ia te d w ith the com puter. In g en era l, th e p roced u re in c lu d e s a c c e s s con trols su ch as id en tifica tio n c o d e s and c o n fid e n tia l p a ssw o rd s that allo w a c u sto m e r to a c c e s s a R e se r v e B a n k ’s sy s te m , and a lso en cry p tio n o f A C H item s d u rin g th e tra n sm issio n p ro cess. T h e p roced u re is m ore s p e c ific a lly d e scrib ed in th e C om p u ter In terface P ro to co l S p e c ific a tio n s ( “C IP S ”) and the F ed lin e U sers G u id e w h ic h are availab le from ea ch R e se r v e B ank. Level Two Security Procedure T h e L ev el T w o S e c u r ity P roced u re is availab le to any in stitu tio n that is su e s A C H item s to a R e se r v e B ank via m a g n e tic tape, d isk ette, or by e lec tro n ic trans m issio n that d o e s n ot in c lu d e b o th en cry p tio n and a c c e s s con trols. It is a lso u sed w h en an in stitu tio n that n o rm a lly is su e s A C H item s under th e L ev el O n e S e cu rity P roced u re d e fin e d ab o v e is u nable to d o so b e c a u se o f an eq u ip m en t or co m m u n ic a tio n s failu re or o th er c irc u m sta n ces. [Enc. Cir. No. 10631] (OVER) In the c a se o f ele c tr o n ic tra n sm issio n o f A C H item s, th e L evel T w o S e c u rity P roced u re is in corp orated in the tra n sm issio n p r o c e ss and, in g en era l, in c lu d e s eith er a c c e s s c o n tro ls or en cryp tion . W h en A C H item s are sen t by m a g n etic tape, d isk ette, or e lec tro n ic tran sm ission that d o e s not in clu d e eith er e n cry p tio n or a c c e s s c o n tr o ls, th e L evel T w o S e c u r ity P roced u re in c lu d e s a pro ced u re w h ereb y the sen d in g in stitu tion or its agen t p rovid es file con trol in for m ation — i.e., file ID , d eb it and credit d ollar am ou n ts, and en try/ad d en d a cou n t — to a R e se r v e B ank and th en th e R eserv e B ank com p a res that in form ation a g ain st the file ( s ) it a ctu a lly rece iv e s. T h e con trol in form ation m ay be p rovid ed by: (a ) v o ic e r e s p o n s e i f th e v o ic e r e s p o n s e s y s te m c o n ta in s an a c c e s s se c u r ity featu re; or (b ) a te le p h o n e c a ll u sin g c o d e w o r d s ; or ( c ) a tra n sm itta l r e g is te r o r a te le p h o n e c a ll. W h e n th e c o n tr o l in fo r m a tio n is p ro v id e d b y th is m e a n s , it w ill b e v e r ifie d b y a c a ll b a c k fro m th e R e s e r v e B an k . E. G erald C orrigan , President.
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