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F E D E R A L R E S E R V E BA N K O F N EW Y O R K 1“ Circular No. 8 1 4 0 T L June 29, 1977 J A D D IT IO N TO R EG U LA TIO N J W ire Transfer of Funds Between Member Banks (Effective September 1, 1977) To A ll Member Banks, and Others Concerned, in the Second Federal Reserve D istrict: Following is the text of a statement issued June 16 by the Board of Governors of the Federal Reserve System: The Board of Governors of the Federal Reserve System today amended its Regulation J— which cur rently deals with check collection — by adding a new section concerning the wire transfer of funds between member banks. The new part of Regulation J is designated Subpart B. It codifies rules and procedures evolved by the Federal Reserve System since it began wire transfer of funds in 1915, and puts the rules into regulatory form. The existing Regulation J rules for check collection remain unchanged, and become Subpart A of the Regulation. The wire transfer service of the Federal Reserve utilizes the System’s computerized communications network linking the Board and all Federal Reserve Banks and their offices, to allow member banks to trans fer funds almost instantly from their reserve balances to the reserve accounts of other member banks, for their own account or for a customer. The most frequent use of this service is the transfer of excess reserves of member banks to banks needing additional reserves, and the transfer of funds for corporations. The use of wire transfer has risen during the past 10 years from $6.6 trillion in 1967 to $35 trillion in 1976. The greatly increased use of the System’s wire transfer services led the Board to conclude that it should put rules now contained in Reserve Bank operating circulars into regulatory form clarifying the duties and responsibilities of participants using the System’s wire transfer facilities. Subpart B covers only wire transfer of funds, and does not touch on other electronic payments such as those processed through automated clearing houses (where payments instructions recorded on magnetic tape, rather than on checks, are cleared) or point-of-sale transactions (in which electronic means are used for ver ification of checks, or to charge customers’ bank accounts for their purchases of goods or services). The wire transfer rules adopted by the Board are a revision from proposed wire transfer rules the Board published in November 1973 and republished in revised form in January 1976. The rules adopted today re flect Board consideration of hundreds of comments received on its proposals. A third subpart to Regulation J is in preparation. It would deal with the processing of payments re corded on magnetic tape using Federal Reserve facilities. The Board included such draft rules in its January 1976 proposal concerning electronic payments. Printed on the reverse side of this circular is an excerpt from the Federal Register of June 23, 1977, containing the text of an explanatory notice issued by the Board of Governors regarding the amendment to Regulation J. In addition, enclosed is a copy of the amendment, effective Sep tember 1, 1977, which also has been reprinted from the Federal Register of June 23, 1977. Ques tions thereon may be directed to our Collection Department (Tel. No. 212-791-5079). P aul A. V olcker , President. ( over ) Title 12— Banks and Banking CHAPTER II— FEDERAL RESERVE SYSTEM SUBCHAPTER A— BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM [Reg. J; Docket No. R^-0013| PART 210— COLLECTION OF CH ECKS AND OTHER ITEMS BY FEDERAL RESERVE BANKS Wire Transfers of Funds AGENCY: Federal Reserve System. ACTION: Final rule. SUMMARY: This regulation is neces sary to set forth the duties and liabilities of those parties transferring funds over the Federal Reserve Communications System for what have become known as “ wire transfers of funds.” EFFECTIVE DATE: September 1, 1977. FOR FURTHER INFORMATION. CON TACT: Allen L. Raiken, Assistant General Counsel, Legal Division, Board of Gov ernors of the Federal Reserve System, Washington, DC. 20551 <202-4523625). SUPPLEMENTARY INFORMATION: The Board of Governors of the Federal Reserve System has adopted Subpart B of Regulation J <12 CFR Part 210). This subpart is necessary to define the rights and responsibilities of member banks us ing the Federal Reserve Communica tions System for what have become known as “ware transfers of funds.” The subpart, as it pertains to wire transfers, is in substantially the same form as pro posed in January 1976 it should put rules now contained in Reserve Bank operating circulars into regulatory form clarifying the duties and responsibilities of participants using the System’s wire transfer facilities. Subpart B covers only wire transfer of funds, and does not touch on other electronic payments such as those proc essed through automated clearing houses (where payments instructions recorded on magnetic tape, rather than on checks, are cleared) or point-of-sale transactions (in which electronic means are used for verification of checks, or to charge customers’ bank accounts for their purchases of goods or services). The wire transfer rules adopted by the Board are a revision from proposed wire transfer rules the Board published in November 1973 and republished in re vised form in January 1976. The rules adopted today reflect Board considera tion of hundreds of comments received on its proposals. C omments S uggesting A lternative L anguage and S tandards Many alternatives were presented by the respondents during the last comment period that were not adopted. The most common comments wrere as follows: A third subpart to Regulation J is in preparation. It would deal with the proc essing of payments recorded on mag netic tape using Federal Reserve facili ties. The Board included such draft rules in its January 1976 proposal concerning electronic payments. 1. Some commented that the stand ards of Federal Reserve liability are in definite, in that key provisions such as Federal Reseive liability for delay, pro visions for revocation, etc., used such terms as “ reasonable” time. The Board adopted standards such as “ reasonable” The Board’s order in this matter is because sucn provisions as are found in attached. many areas of Articles 3 and 4 of the R esponsibilities U nder the R egulation Uniform Commercial Code, dealing with checks. Inasmuch as the wire transfer of The regulation uses terminology used funds and the collection of checks are in the November 1973 Regulation J pro analogous to each other, it was believed posal (see 38 FR 32952) inasmuch as the these general standards of duty, which party initiating the transfer of funds is are similar to those adopted by. member the “ transferor,” and the party receiving banks, were appropriate. those funds is the “ transferee.” The Jan 2. Some commented that the Federal uary 1976 proposal deemed such parties the “ originator” and the “ recipient,” but Reserve should accept a stricter stand the duties and liabilities of the trans ard of care, i.e., rather than the proposed feror and transferee are substantially duty of reasonable care to the transferor the same as the duties and liabilities of alone, the Federal Reserve should be ab the originator and recipient. Both a solutely liable to all parties for amounts transferor and transferee are defined as including proximate damages to benefi a member bank or other institution au ciaries and transferees. Some respond thorized by that Federal Reserve Bank ents have proposed that the Federal Re to participate in such transfers. The serve Banks act as guarantors of the transferor sends a transfer item to the wire transfer system and assume liabil Federal Reserve office with which it ities inconsistent with the standard of maintains an account. Under special ar responsibility assumed in other pay rangement, a transferor may, by tele ments mechanism functions. Liability to phone, request the Reserve Bank w'ith the initiator, the transferor, is viewed as which it maintains an account to trans the proper role for the Reserve Banks. fer funds. By sending the item to the 3. Some commented that the operating Federal Reserve the transferor author circulars of the Reserve Banks should izes the Federal Reserve to debit the be issued for comment. Reserve Banks transferor’s account and have the Fed will distribute operating circulars in ad eral Reserve handle and act upon the vance of its effective date. Operating cir item in accordance with the subpart. culars are continual offers on the part The transferee agrees to accept the of Reserve Banks, however, and not credit and to promptly pass on funds to regulations subject to public comment. its customer, the beneficiary. The trans feree may use the funds upon final pay C hanges in the A dopted V ersion ment, which is defined generally as the V ersus the P roposed time that the Federal Reserve sends the item or advice of credit as may be appro A number of technical changes have priate. The Federal Reseive is responsi been made in the adopted version versus ble for sending advices or statements to the version proposed in January 1976. the transferor and the transferee, in or These changes result from the fact that der to assist those parties in maintaining provisions relating to ACH transactions accurate records regarding wire transfer have been deleted, however, and are not transactions. Under Subpart B as adopt due to changes in the rights and respon ed, the Federal Reserve is required to ex sibilities of the parties involved in the ercise good faith and ordinary care. transfer of funds. FEDERAL REGISTER, VOL. 42, NO. 121— THURSDAY, JUNE 23, 1977
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