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FED ER AL RESERVE BANK
OF NEW YO R K
Circular No. 10834
February 13,1996
FEDWIRE THIRD-PARTY ACCESS POLICY
Foreign Service Provider Arrangements
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To All Depository Institutions, and Others
Concerned, in the Second Federal Reserve District:
Following is the text of a statement issued by the Board of Governors of the Federal Reserve
System:
T he Federal R eserve Board has announced that it has approved p o licy m od ification s to address
Fedw ire third-party a ccess arrangem ents in volvin g a service provider that is located ou tsid e the U nited
States.
T h ese ch an ges are effectiv e February 1 ,1 9 9 6 .
In general, foreign service provider arrangem ents w ou ld b e subject not o n ly to the con d itions
applicable to d o m estic service provider arrangem ents, but also several additional con d ition s related to
inform ation and exam ination a ccess. T h ese increm ental requirem ents are intended to ensure that the
Federal R eserv e’s oversight o f F edw ire is not dim inished or inappropriately lim ited by activity c o n
ducted outside the U nited States, and that the Federal R eserv e’s supervisory o b jectives are met.
Printed on the following pages is an excerpt from the Federal Register1containing the text of
the policy statement. Additional copies will be furnished upon request directed to the Circulars
Division of this Bank; if you wish to make such a request by FAX, our number is 212-720-6767.
Questions on this matter may be directed to Andrew Heikaus, Assistant Vice President, Electronic
Payments Function (Tel. No. 212-720-5561).
W il l ia m J. M c D o n o u g h ,
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President.
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1The U.S. Government Printing Office now makes the Federal Register available on the Internet; the reference address
is http://www.access.gpo.gov/
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Federal Register / Vol. 61, No. 20 / Tuesday, January 30, 1996 / Notices
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Federal Reserve Payment System Risk
Policy
Board of Governors of the
Federal Reserve System.
a c t io n : Policy statement.
AGENCY:
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The Board has approved
modifications to its Fedwire third-party
access policy that establish additional
requirements applicable to third-party
access arrangements involving a service
provider located outside the United
States (“foreign service provider”). On
August 9, 1995, the Board approved
certain interim modifications to its
Fedwire third-party access policy to
clarify its applicability and to reduce
the administrative burden of several
provisions. At that time, the Board
indicated the Federal Reserve Banks
would not approve any new third-party
access arrangements involving a foreign
service provider, pending a review of
the supervisory issues associated with
such arrangements. The Board has
completed its assessment and has
modified its policy to address the
conditions under which the Federal
Reserve would consider approving
foreign service provider arrangements.
The revised policy is intended to ensure
that the Federal Reserve’s oversight of
Fedwire is not dim inished or
inappropriately limited by the conduct
of activity outside the United States and
that the Federal Reserve’s supervisory
and examination objectives are met. In
addition, the policy provides important
safeguards to both depository
institutions participating in third-party
access arrangements and to the Reserve
Banks. Among other things, the policy
requires depository institutions to
impose prudent controls over Fedwire
funds transfers and Fedwire book-entry
securities transfers initiated, received,
or otherwise processed on their behalf
by a third-party service provider.
EFFECTIVE DATE: February 1, 1996.
SUMMARY:
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Federal Register / Vol. 61, No. 20 / Tuesday, January 30, 1996 / Notices
FOR FURTHER INFORMATION CONTACT: Jeff
S teh m , M anager (2 0 2 /4 5 2 -2 2 1 7 ) or Lisa
K. H o sk in s, Project L eader (2 0 2 /4 5 2 3 437), F ed w ir e S e c tio n , D iv is io n o f
R eserve B ank O p era tio n s an d P aym en t
S ystem s; or H ow ard A m er, A ssista n t
D irector (2 0 2 /4 5 2 -2 9 5 8 ), D iv is io n o f
B anking S u p e r v isio n an d R egulation; for
the h earin g im p a ired o n ly.
T e le c o m m u n ic a tio n s D e v ic e for th e
D eaf, D orothea T h o m p so n (2 0 2 /4 5 2 3544).
SUPPLEMENTARY INFORMATION:
I. B a ck grou n d
F ed w ire is th e large v a lu e p a y m en t
and se c u r itie s se ttle m e n t m e c h a n ism
op erated b y th e F ed eral R eserve Banks.
F ed w ire p r o v id e s d e p o sito r y
in stitu tio n s w ith real-tim e gross
se ttlem en t in cen tral bank m o n e y o f
fu n d s transfers an d b ook -en try
se c u r itie s transfers m ad e for th eir o w n
a cco u n t or o n b e h a lf o f th eir cu sto m ers.
T y p ic a lly , ea ch d e p o sito r y in stitu tio n
that h o ld s an a c c o u n t at th e F ed eral
R eserve p r o c e sse s its o w n transfers an d
a c c e ss e s F ed w ire d irectly . In so m e
ca ses, h o w ev e r , a d e p o sito r y in stitu tio n
a c c e ss e s F ed w ire th rou gh a third-party
a c c e ss arrangem ent in w h ic h a se r v ic e
p rovider, a ctin g as agen t for a
d ep o sito ry in stitu tio n , in itia te s
p a y m en ts that are p o ste d to the
in s titu tio n ’s a c c o u n t at th e Federal
R eserve. T hird -p arty a c c e ss
arrangem ents are a form o f o u tso u r c in g .1
In July 1987, th e B oard a p p ro v ed a se t
o f c o n d itio n s u n d er w h ic h F ed w ire
third-party a c c e ss arran gem en ts c o u ld
be e sta b lish ed , as part o f its p a y m en t
sy s te m risk r e d u c tio n p o lic y (52 FR
2 9 2 5 5 , A u g u st 6, 1987). T h e Board
ap p roved m o d ific a tio n s to th e p o lic y in
A u gu st 1995 that cla r ifie d th e sc o p e and
a p p lica tio n o f th e p o lic y a n d red u ced
the ad m in istra tiv e b u rd en o f sev era l
p r o v isio n s (60 FR 4 2 4 1 8 , A u g u st 15,
1995). T h e sc o p e o f th e o rig in a l p o lic y
w a s s ile n t o n w h e th e r th e se r v ic e
p rovid er c o u ld be lo c a te d o u tsid e th e
U n ited S tates. S u c h arran gem en ts raise
certain su p e r v iso r y is su e s, su c h a s the
a b ility o f U .S . e x a m in e r s to a c c e ss
relevan t in form a tio n , c o n d u c t o n -site
r e v ie w s o f F ed w ire o p era tio n s, an d
e x ercise th eir en fo r c e m e n t au th ority. A s
a resu lt, in A u g u st th e B oard b road en ed
the sc o p e o f th e p o lic y to in c lu d e thirdparty a c c e ss arran gem en ts in v o lv in g an
o ffice o f th e p a rticip a n t lo c a te d o u tsid e
th e U n ite d S ta tes that a cts as a se r v ic e
p rovid er, but in d ic a te d that n e w thirdparty arrangem ents in v o lv in g a foreign
se r v ic e p rovid er w o u ld n ot b e a p p roved
b y th e R eserve B anks p e n d in g an
a sse ssm e n t o f th e relevan t su p erv iso ry
is su e s.2
II. P ro v isio n -b y -P ro v isio n A n a ly sis
T h e p o lic y e sta b lish e s c o n d itio n s that
a se n d in g or r e c e iv in g in stitu tio n (“th e
p a rticip a n t”) m u st m eet in order to
d esig n a te an oth er d ep o sito ry in stitu tio n
or oth er e n tity (“th e se r v ic e p ro v id er”)
to in itiate, receiv e, a n d /o r o th e r w ise
p r o c e ss F ed w ire fu n d s transfers or
F ed w ire b ook -en try secu r itie s transfers
that are p o ste d to the p a rticip a n t’s
reserve or clea r in g a c co u n t h e ld at th e
F ederal R eserve. T h e se c o n d itio n s
in c lu d e req u irem en ts that the
p articip an t have th e a b ility to retain
o p eration al co n tro l o f the c red it
granting p ro cess, m on itor transfer
a c tiv ity c o n d u c te d o n its behalf, and
rem ain r e sp o n sib le for m an agin g its
F ederal R eserve accou n t. In a d d itio n ,
th e p articip an t is e x p e c te d to c o m p ly
w ith a ll req u irem en ts related to F ed w ire
a c c e ss gen erally, su c h a s en cry p tio n
stan d ard s, a s w e ll a s a ll a p p lica b le state
a n d federal la w s a n d regu lation s. T h e
p o lic y also requires a p articip an t that
u se s an u n a ffilia ted se r v ic e p rovid er to
m ain tain ad eq u ate term in ation backup
arrangem ents s o that it ca n co n tin u e
F ed w ire o p era tio n s if the third-party
a c c e ss arrangem ent m u st be term inated.
T h e p o lic y a lso a d d resses certain
su p erv iso ry co n cern s, in c lu d in g
req u irem en ts for th e p articip an t to
ob tain an affirm ative w ritten sta tem en t
from its prim ary s u p e r v is o r s ) in d ica tin g
that it d o e s not ob ject to the
arrangem ent; th e e x iste n c e o f an
ad equate a u d it program for th e
p articip an t to r e v ie w th e arrangem ent
an d c o m p lia n c e w ith th e B oard’s p o licy ;
an d the req u irem en t that the serv ice
p rovid er be su b ject to ex a m in a tio n by
the appropriate federal d ep o sito ry
in stitu tio n regulatory agen cy(ies).
F in a lly , the p articip an t and the serv ice
p r o v id e r s ) m u st e x e c u te an agreem ent
w ith th e relevan t R eserve Bank(s)
in corp oratin g th e p o lic y ’s c o n d itio n s.
T he Board has m o d ifie d the p o lic y to
a d d ress th e c o n d itio n s that a p p ly to
F ed w ire third-party a c c e ss arrangem ents
in v o lv in g a se r v ic e p rovid er that is
2
The Reserve Banks have not approved any
1
Depository institutions use service providers to foreign service provider arrangements, although
perform a number of functions, including customer
several inquiries have been received during the last
accounting, check and automated clearing house
few years. In its August 1995 action, the Board
(ACH) processing, and the processing and/or
required that any existing arrangement involving a
transmission of large-value funds and securities
foreign office of a Fedwire participant acting as a
transfers. Depository institutions have increasingly
service provider be reported promptly to the
viewed outsourcing arrangements as one way to
participant’s Reserve Bank. No such arrangements
reduce operating costs.
have been reported.
lo c a te d o u tsid e th e U n ite d States. In
particular, foreign se r v ic e p rovid er
arrangem ents are e x p e c te d to c o m p ly
w ith th e sa m e req u irem en ts a s d o m estic
se r v ic e p ro v id er arrangem ents a s w e ll a s
m eet so m e a d d itio n a l c o n d itio n s w ith
regard to in form ation a n d ex a m in a tio n
a cc e ss. S u c h arran gem ents w ill a lso be
su b ject to r e v ie w a n d co n cu rren ce by
th e D irectors o f th e B oard ’s D iv is io n o f
R eserve Bank O p eration s an d P aym en t
S y ste m s a n d D iv is io n o f B anking
S u p e r v isio n a n d R egulation. T aken
together, th e se req u irem en ts are
in te n d e d to e n su re that th e F ederal
R eserv e’s o v ersig h t o f F ed w ire is not
d im in ish e d or in a p p ro p ria tely lim ite d
by th e c o n d u c t o f F ed w ire a ctiv ity
o u tsid e th e U n ite d S ta tes an d that
su p e r v iso r y o b je c tiv es ca n be m et.3 T h e
fo llo w in g d is c u ssio n id e n tifie s th ose
p r o v isio n s o f th e F ed w ire third-party
a c c e ss p o lic y that have b een rev ised a n d
d is c u sse s h o w a n d w h y th e y differ from
th e current p o lic y p ro v isio n s.
A. Scope
Opening Paragraph (Unchanged)
The Board will allow third-party access
arrangements whereby a sending or receiving
institution ("the participant”) designates
another depository institution or other entity
("the service provider”) to initiate, receive,
and/or otherwise process Fedwire funds
transfers or book-entry securities transfers
that are posted to the participant’s reserve or
clearing account held at the Federal Reserve,
provided the following conditions are met:
Revised Footnote #1 to the Opening
Paragraph
This policy also applies to third-party
access arrangements in w h ic h an
organization, including an office of the
participant, located outside the United States
acts as service provider by initiating,
receiving, or otherwise processing Fedwire
transfers on behalf of the U.S. participant
("foreign service provider") .
Previous Footnote #1 to the Opening
Paragraph
This policy applies to third-party access
arrangements in which an office of the
participant located outside the United States
acts as service provider by initiating,
receiving, or otherwise processing Fedwire
transfers on behalf of the U.S. participant.
T h e Board, in a p p ro v in g th e A u gu st
1995 m o d ific a tio n s to th e p o lic y , stated
that n o n e w th ird-party a c c e ss
3 The four primary examination objectives with
regard to Fedwire are to 1) minimize systemic risk
from payment activities, 2) identify weaknesses in
payments operations that could jeopardize the
condition of the depository institution, 3) ensure
that proper records are available to assist law
enforcement authorities pursuing illegal payments
activities, and 4) minimize risk of loss to the
Federal Reserve from a depository institution’s
payment activities that may result if a depository
institution were to fall while in an overdraft
position at the Federal Reserve.
Federal Register / Vol. 61, No. 20 / Tuesday, January 30, 1996 / Notices
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arrangem ents in v o lv in g a foreign se r v ic e
p rovid er w o u ld be a p p ro v ed u n til an
a sse ssm e n t o f th e su p e r v iso r y is su e s
a sso cia ted w ith s u c h arrangem ents w a s
co m p le te d . A s a resu lt o f that
a sse ssm e n t, th e r e v ise d p o lic y a p p lie s to
a ll arrangem ents w h e r e th e se r v ic e
p rovid er is lo c a te d o u ts id e th e U n ite d
States. In a p p ly in g th e p o lic y to
arrangem ents in v o lv in g foreign se r v ic e
p rovid ers, h o w ev e r , th e Board
re c o g n iz e s that s u c h arrangem ents
s h o u ld be su b ject to c o n su lta tio n and
co o rd in a tio n w ith h o m e c o u n try
su p erv iso rs, o n -site ex a m in a tio n o f
foreign se r v ic e p ro v id ers, a n d th e
a v a ila b ility o f a n d a c c e s s to F ed w ire
records. T o a d d r e ss th e se is s u e s the
Board e x p e c ts th at s u c h arrangem ents
w ill c o m p ly w ith th e p o lic y c o n d itio n s
a p p lica b le to d o m e s tic se r v ic e p rovid er
arrangem ents an d , in a d d itio n , m eet the
a d d itio n a l req u irem en ts a p p lic a b le to
arrangem ents in v o lv in g a foreign se r v ic e
provider.
B. Audit Program
Revised Condition $ 10)
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The participant must have in place an
adequate audit program to review the
arrangement at least annually to confirm that
these requirements are being met. In
addition, in the case of an arrangement
involving a foreign service provider, both the
participant and the foreign service provider
must have in place an adequate audit
program that addresses Fedwire operations.
Audit reports in English must be made
available to the Federal Reserve and the
participant’s primary supervisor(s) in the
United States.
Previous Condition $ 10)
The participant must have in place an
adequate audit program to review the
arrangement at least annually to confirm that
these requirements are being met.
T h e rev ised c o n d itio n req u ires that
the F ed w ire a u d it program o f both the
p articip an t an d th e foreign se r v ic e
p rovid er be an a ccep ta b le m ea n s to
r ev ie w an d a s s e s s e ffe c tiv e ly , at lea st o n
an a n n u al b a sis, th e s u ffic ie n c y o f
internal a n d data se c u r ity co n tro ls,
cred it granting p r o c e sse s, o p eration al
p ro ced u res an d c o n tin g e n c y
arrangem ents, a n d c o m p lia n c e w ith
a p p lica b le U .S. la w s an d regu lation s.
T h is requirem en t is in te n d e d to
m ain tain U .S. ex a m in e r s’ a b ilitie s to
su p erv ise e ffe c tiv e ly th e F ed w ire
fu n ctio n and to en su re that it is
m anaged in a safe a n d so u n d m anner.
C. Examination of the Arrangement
R evised Condition $11)
In the case of a service provider located
within the United States, the service provider
must be subject to examination by the
appropriate federal depository institution
regulatory agency(ies). [Footnote: The U.S.
federal depository institution regulatory
agency(ies) m ust be able to examine any
aspects o f the service provider as m a y be
necessary to assess the adequacy o f the
operations and financial condition o f the
service provider.]
In the case of a service provider located
outside the United States, the service
provider must be subject to the supervision
of a home country bank supervisor. In its
review of a proposed foreign service provider
arrangement, the Federal Reserve will
consider the extent to which the service
provider’s home country supervisor 1)
oversees banks on a consolidated basis, 2) is
familiar with supervising payment systems
activities, 3) is willing to examine the
Fedwire operations at the service provider,
and 4) has demonstrated a willingness to
work closely with U.S. banking authorities in
addressing supervisory problems. In
addition, the home country supervisor, the
participant, and the service provider must
agree to permit the participant’s primary
supervisor (s) to conduct on-site reviews of
the Fedwire operations at the foreign service
provider. [Footnote: If a participant proposes
to conduct its Fedwire processing at a foreign
site outside the hom e country o f the service
provider, both the home country and host
country supervisors would need to perm it the
participan t’ prim ary supervisor(s) to review
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the Fedwire operations.] The participant and
the service provider must agree to make all
policies, procedures, and other
documentation relating to Fedwire
operations, including those related to
internal controls and data security
requirements, available to the Federal
Reserve and the participant’s primary
supervisor^) in English.
Previous Condition $11)
The service provider must be subject to
examination by the appropriate federal
depository institution regulatory agency (ies).
[Footnote: The U.S. federal depository
institution regulatory agency (ies) m ust be
able to examine any aspects o f the service
provider as m ay be necessary to assess the
adequacy o f the operations and financial
condition o f the service provider.]
T he re v ise d c o n d itio n p r o v id es the
o p p o rtu n ity for the F ederal R eserve an d
th e p a rticip a n t’s prim ary su p ervisor(s)
to 1) a ss e ss the risk s a sso c ia te d w ith the
third-party a c c e ss arrangem ent in the
c o n te x t o f the se r v ic e p ro v id er’s h om e
c o u n try ’s bank su p e r v isio n program, 2)
d eterm in e if it w o u ld be reason ab le for
th e p a rticip a n t’s prim ary s u p e r v iso r s)
to d e p en d , to so m e ex ten t, o n th e hom e
co u n try su p erv iso r to e x a m in e the
F ed w ire op eration at th e serv ice
provid er, and 3) en su re that the
p a rticip a n t’s prim ary su p erv iso r^ ) has
a c c e ss to relevant F ed w ire records.
T h ese c o n d itio n s are in ten d ed to
m ain tain U .S . ex a m in e r s’ a b ility to
su p er v ise e ffe c tiv e ly th e F ed w ire
fu n c tio n an d to en su re that it is
m anaged in a safe an d so u n d m anner.
3037
In r e v ie w in g th e arrangem ent in the
c o n te x t o f th e fo reig n se r v ic e p rovid er’s
h o m e c o u n try su p e r v isio n program , the
F ederal R eserve w o u ld ca refu lly
c o n sid e r e a ch o f th e four criteria
c o n ta in e d in th is p o rtio n o f the
m o d ifie d p o lic y . T h e F ed eral R eserve,
h o w ev er, w ill n o t grant ap p roval to
o u tso u rce F ed w ire a b sen t an affirm ative
im p le m e n tin g a g reem en t w ith the h om e
co u n try su p erv iso r.
T h e F ed eral R eserve m ay a lso d is c u ss
oth er su p e r v iso r y is su e s, s u c h a s hom e
co u n try la w s a n d r e g u la tio n s that m ay
lim it e x a m in a tio n a c c e ss, w ith th e
p articu lar h o m e c o u n try su p erv iso r
prior to a p p ro v in g an arrangem ent
in v o lv in g a foreign se r v ic e provider.
W ith regard to p r o p o sa ls to ou tso u rce
F ed w ire p r o c e ssin g to an u n a ffilia ted
foreign se r v ic e p rovid er, a n d in
particular to a n o rg a n iza tio n that is not
a d ep o sito r y in stitu tio n , th e F ederal
R eserve w o u ld d is c u s s w ith th e h o m e
co u n try su p e r v iso r is s u e s related to the
le v e l o f s u p e r v isio n a n d e x a m in a tio n o f
th e p r o p o sed se r v ic e p rovid er a n d other
is s u e s that c o u ld a ffect the risk s
a sso c ia te d w ith s u c h an arrangem ent.
D. Review and Approval o f Proposed
Arrangements
R evised Condition (Closing Paragraph)
The participant’s Federal Reserve Bank is
responsible for approving each proposed
Fedwire third-party access arrangement. The
Directors of the Board’s Division of Reserve
Bank Operations and Payment Systems and
Division of Banking Supervision and
Regulation must concur with a proposed
arrangement (1) in which the participant is
not affiliated through at least 80 percent
common ownership with the service provider
and where the participant is owned by one
of the 50 largest bank holding companies
(based on consolidated assets), or (2) in
which the service provider is located outside
the United States. Approval of a foreign
service provider arrangement would be
contingent on a review of both the
participant’s and the foreign service
provider’s Fedwire policies, procedures, and
operations, which would be conducted by
the Federal Reserve prior to the
commencement of operations.
Previous Condition (Closing Paragraph)
The Federal Reserve Bank is responsible
for approving each proposed Fedwire thirdparty access arrangement. In a proposed
arrangement in which the participant is not
affiliated through at least 80 percent common
ownership with the service provider and
where the participant is owned by one of the
50 largest bank holding companies (based on
consolidated assets), the Directors of the
Division of Reserve Bank Operations and
Payment Systems and the Division of
Banking Supervision and Regulation must
concur with the arrangement.
T h e rev ise d c o n d itio n r e c o g n iz e s the
p o ten tia l risk s a sso c ia ted w ith
3038
Federal Register / Vol. 61, No. 20 / Tuesday, January 30, 1996 / Notices
established transfer limit is not
permitted without first obtaining the
participant’s approval. In book-entry
securities transfer line-of-credit
arrangements, the service provider must
have procedures in place and the
operational ability to provide the
participant with timely notification of
an incoming transfer that exceeds the
applicable limit and must act upon the
participant’s instructions to accept or
reverse the transfer accordingly.
3. Transfers will be posted to the
participant’s reserve or clearing account
held at the Federal Reserve, and the
participant will remain responsible for
managing its Federal Reserve account,
with respect to both its intraday and
overnight positions. The participant
must be able to monitor transfer activity
conducted on its behalf.
4. The participant’s board of directors
III. Effective Date
must approve the role and
V. Policy Statement
The revised Fedwire third-party
responsibilities of a service providers)
access policy becomes effective
The Board has amended its “Federal
that is not affiliated with the participant
February 1, 1996.
Reserve System Policy Statement on
through at least 80 percent common
Payments System Risk” under the
ownership. In line of credit
IV. Competitive Impact Analysis
heading “I. Federal Reserve Policy” by
arrangements, the participant’s board of
The Board assesses the competitive
replacing “G. Fedwire Third-party
directors must approve the intraday
impact of changes that may have a
Access Policy” with the following:
overdraft limit for the activity to be
substantial effect on payment system
processed by the service provider and
G. Fedwire Third Party Access Policy
participants. In particular, the Board
the credit limits for any inter-affiliate
assesses whether a proposed change
The Board will allow third-party
funds transfers.2
would have a direct and material
access arrangements whereby a sending
5. The Board expects all participants
adverse effect on the ability of other
or receiving institution (“the
to ensure that their Fedwire operations
service providers to compete effectively participant”) designates another
could be resumed in a reasonable period
with the Federal Reserve Banks in
depository institution or other entity
of time in the event of an operating
providing similar services and whether
(“the service provider”) to initiate,
outage, consistent with the requirement
such effects are due to legal differences
receive, and/or otherwise process
to maintain adequate contingency
or due to a dominant market position
Fedwire funds transfers or book-entry
backup capabilities as set forth in the
deriving from such legal differences.
securities transfers that are posted to the interagency policy (FFIEC SP-5, July
The Federal Reserve Banks’ Fedwire
participant’s reserve or clearing account 1989). A participant is not relieved of
funds transfer and book-entry securities held at the Federal Reserve, provided
such responsibility because it contracts
transfer services provide real-time gross the following conditions are m et:1
with a service provider.
settlement in central bank money. While
1. The participant retains operational
6. In cases where the service provider
these services cannot be duplicated by
control of the credit-granting process by is not affiliated with the participant
private-sector service providers, banks
(1) individually authorizing each funds
through at least 80 percent common
can make large-dollar funds transfers
or securities transfer, or (2) establishing ownership, the participant must be able
through other systems, such as CHIPS,
individual customer transfer limits and
to continue Fedwire operations if the
or through correspondent book
a transfer limit for the participant’s own participant is unable to continue its
transfers, although these transactions
activity, within which the service
service provider arrangement (e.g., in
have attributes that differ from Fedwire
provider can act. The transfer limit
the event the Reserve Bank or the
transfers. Similarly, there are privatecould be a combination of the account
participant’s primary supervisor
sector securities clearing and/or
balance and established credit limits.
terminates the service provider
settlement systems, such as the
For the purposes of this policy, these
arrangement).
Government Securities Clearing
arrangements are called “line-of-credit
7. The participant must certify that
Corporation and the Participants Trust
arrangements.”
the arrangement is consistent with
Company, that facilitate primary and
2. In funds transfer line-of-credit
secondary market trades of U.S.
arrangements, the service provider must corporate separateness and does not
violate branching restrictions.
Treasury and agency securities. Other
have procedures in place and the
transactions involving U.S. government operational ability to ensure that a funds
2 In cases where a U.S. branch of a foreign bank
securities may be cleared and settled on transfer that would exceed the
wishes to be a participant In an arrangement subject
the books of banks to the extent that the
to this policy, and its board of directors has a more
counterparties are customers of the
1
This policy also applies to third-party access limited role In the bank’s management than a U.S.
board, the role and responsibilities of the service
arrangements in which an organization, Including
same bank.
provider should be reviewed by senior management
an office of the participant, located outside the
The Board’s third-party access policy
at the foreign bank’s head office that exercises
United States acts as service provider by initiating,
places conditions on arrangements in
receiving, or otherwise processing Fedwire transfers authority over the foreign bank equivalent to the
which a Fedwire participant may
authority exercised by a board of directors over a
on behalf of the U.S. participant (“foreign service
U.S. depository institution.
provider”).
contract w ith another organization to
outsourcing Fedwire operations to a
foreign service provider and the need
for Board staff review and concurrence
with such arrangements. Arrangements
involving a foreign service provider
warrant careful consideration in order to
determine whether the proposed
arrangement poses any undue risks and
whether adequate supervisory oversight
can be maintained. An infrastructure
review is appropriate to confirm
compliance with the Fedwire thirdparty access policy and other relevant
policies and regulations. The
infrastructure review also would permit
the Federal Reserve to assess the
adequacy of system integrity, controls
and contingency arrangements, and
would allow it to determine first hand
whether information access issues pose
unacceptable risks.
initiate, receive, or otherwise process
Fedwire transfers. The Board has
revised the policy to establish
additional conditions applicable to
depository institutions wishing to
access Fedwire through a foreign service
provider to ensure that the Federal
Reserve’s oversight of Fedwire is not
diminished or inappropriately limited
by the conduct of activity outside the
United States and that the Federal
Reserve’s supervisory and examination
objectives are met. Other large-dollar
systems can and do place restrictions on
the ability of participants to outsource
their operations to foreign service
providers. The Board’s policy, as
revised, does not adversely affect the
ability of depository institutions or
service providers to compete with the
Federal Reserve Banks to provide funds
transfer or securities transfer services.
Federal Register / Vol. 61, No. 20 / Tuesday, January 30, 1996 / Notices
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8. The participant must certify that
the specifics of the arrangement will
allow the participant to comply with all
applicable state and federal laws and
regulations governing the participant,
including, for example, retaining and
making accessible records in accordance
with the regulations adopted under the
Bank Secrecy Act.
9. The participant’s primary
supervisor (s) must affirmatively state in
writing that it does not object to the
arrangement.
10. The participant must have in
place an adequate audit program to
review the arrangement at least annually
to confirm that these requirements are
being met. In addition, in the case of an
arrangement involving a foreign service
provider, both the participant and the
foreign service provider must have in
place an adequate audit program that
addresses Fedwire operations. Audit
reports in English must be made
available to the Federal Reserve and the
participant’s primary supervisor(s) in
the United States.
11. In the case of a service provider
located within the United States, the
service provider must be subject to
examination by the appropriate federal
depository institution regulatory
agency (ies).3
In the case of a service provider
located outside the United States, the
service provider must be subject to the
supervision of a home country bank
supervisor. In its review of a proposed
foreign service provider arrangement,
the Federal Reserve will consider the
extent to which the service provider’s
home country supervisor (1) oversees
banks on a consolidated basis, (2) is
familiar with supervising payment
systems activities, (3) is willing to
examine the Fedwire operations at the
service provider, and (4) has
demonstrated a willingness to work
closely with U.S. banking authorities in
addressing supervisory problems. In
addition, the home country supervisor,
the participant, and the service provider
must agree to permit the participant’s
primary supervisor^) to conduct on site
reviews of the Fedwire operations at the
foreign service provider.4 The
participant and the service provider
must agree to make all policies,
procedures, and other documentation
3The U.S. federal depository institution
regulatory agency(ies) must be able to examine any
aspects of the service provider as may be necessary
to assess the adequacy of the operations and
financial condition of the service provider.
4 If a participant proposes to conduct its Fedwire
processing at a foreign site outside the home
country of the service provider, both the home
country and host country supervisors would need
to permit the participant’s primary supervisor^) to
review the Fedwire operations.
relating to Fedwire operations,
including those related to internal
controls and data security requirements,
available to the Federal Reserve and the
participant’s primary supervisor^) in
English.
12.
The participant and the service
providers) must execute an agreement
with the relevant Reserve Bank(s)
incorporating these conditions.
The participant’s Federal Reserve
Bank is responsible for approving each
proposed Fedwire third party access
arrangement. The Directors of the
Board’s Division of Reserve Bank
Operations and Payment Systems and
Division of Banking Supervision and
Regulation must concur with a proposed
arrangement (1) in which the participant
is not affiliated through at least 80
percent common ownership with the
service provider and where the
participant is owned by one of the 50
largest bank holding companies (based
on consolidated assets), or (2) in which
the service provider is located outside
the United States. Approval of a foreign
service provider arrangement would be
conditioned on satisfactory findings of a
review of both the participant’s and the
foreign service provider’s Fedwire
policies, procedures, and operations,
which would be conducted by the
Federal Reserve prior to the
commencement of operations.
By order of the Board of Governors of the
Federal Reserve System, January 24, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-1652 Filed 1-29-96; 8:45 am]
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