Correspondent Banking Forum Regulatory Themes

Carolina Caballero Global Clearing Risk &

Regulatory Strategy Manager

2

Intraday Liquidity Management – New Basel Spotlight

Liquidity

Coverage Ratio

(LCR)

Net Stable

Funding Ratio

(NSFR)

Monitoring tool

for Intraday

Liquidity Mgmt

30 day funding ratio

Banks required to hold

high-liquid assets

amounts equal to or

greater than their net

cash over a 30 day

period

Intraday cash and

collateral sufficient to

survive net cash

outflows caused by

crisis events

Deadline: 2015

Relationship between

bank’s settlement

obligations (longer

term) and funding

Requires stable

funding available

amount to exceed

required amount over

a one-year period of

extended stress

Assesses value of all

asset types held

Deadline: 2018

Set of monitoring tools

intended for reporting

banks’ intraday liquidity

risk in normal and stress

conditions

Enable banking

supervisors to monitor

banks’ intraday liquidity

risk and its ability to meet

payment and settlement

obligations on a timely

basis

Deadline: 2015

(Coincide with LCR)

Basel Liquidity Risk Management Framework

End of Day

Basel Monitoring Indicators – How we got here

• Sept 2008 – Lehman Brothers filed for Chapter 11 bankruptcy

• Sept 2008 – Basel Committee on Banking Supervision (BCBS) published it Principles for Sound Liquidity Management and Supervision

• Principle 8: “A bank should actively manage its intraday liquidity positions and risks to meet payment and settlement obligations on a timely basis under both normal and stressed conditions and thus contribute to the smooth functioning of payment and settlement systems”

• July 2012 – BCBS released a consultation paper on Monitoring Indicators for Intraday Liquidity Management

• April 2013 – Monitoring tools for intraday liquidity management

• Jan 2015 – Implementation Date??

3

Intraday Liquidity Monitoring Objectives

4

Significance of New Rules

• Key objectives are:

– Promote further sound intraday liquidity management and complement the qualitative guidance of the Sound Principles to ensure that a bank can meet payment and settlement obligations on a timely basis under both normal and stressed conditions

– Enable banking supervisors to monitor Internationally active banks’ intraday liquidity risk and their ability to meet payment and settlement obligations on a timely basis under both normal and stressed conditions

– Intraday liquidity should lead to closer co-operation between banking supervisors and the overseers in the monitoring of banks’ payment behaviour

– Promotion of sound liquidity management practices for domestic banks. Prescriptive application of the tools will be at discretion of national supervisors

The Monitoring Tools

All Banks

1) Daily max intraday liquidity usage (Largest net negative position)

2) Available intraday liquidity at the start of the day

3) Total payments

4) Time Critical Obligations

Provide dimension on banks payments activity and intraday liquidity usage and availability in normal times

Correspondent Bank Service Providers

5) Value of payments made on behalf of correspondent banking customers

6) Intraday credit extended to correspondent banking customers.

Assess concentration in Bank’s correspondent activity and extent of exposure on intraday credit lines

Direct Participants

7) Intraday throughput – daily average across a bank’s settlement account with an average hourly view reported as a percentage of overall payments

Establish trend on Bank’s average payment settlement to identify any changes that might occur

5

Stress

Scenarios

(Guidance)

Own Financial Stress: a bank suffers or is perceived from suffering from a stress event

Counterparty Stress: Major Counterparty

A Customer Bank’s stress – Correspondent Bank

Market-wide credit or liquidity stress

Intraday Liquidity Reporting Challenges

6

RTGS

Participants

Interdependence

Correspondent

Banking Daily

Credit Facilities

Participants Time

Critical

Obligations

Central Bank

Reserve

Management

• Meaningful supervisor engagement has not yet occurred with industry focus to date primarily on LCR and NSFR

• Focus is on monitoring as opposed to controls with significant opportunity cost to creating required reporting infrastructure

• Data is backward looking and may not be timely in identifying stress points. Uncertainty remains as to how data will be applied by relevant supervisors

• Level of transactional detail required to facilitate reporting is more significant than other Basel liquidity requirements. Data collation efforts are very significant

• Visibility in correspondent banking space is an issue

• Internationally active banks need to tackle reporting requirements across currency, multiple clearing system and correspondent relationships (often for same currency) and across home and host regulators based on legal entity structure

• Risk of certain banks ‘gaming the system’ exists by delaying payments to improve intraday liquidity positions

While efforts to promote sound intraday liquidity practices across the industry should be

welcomed, there remain implementing challenges

Intraday Liquidity – Changing Landscape

7

RTGS

Participants

Interdependence

Correspondent

Banking Daily

Credit Facilities

Participants Time

Critical

Obligations

Central Bank

Reserve

Management

• DODD Frank and EMIR continue to mitigate counterparty and settlement risk on OTC derivatives by pushing settlement into clearing system but these times payments place additional strain on intraday liquidity

• Regulators are placing restrictions around co-mingling of collateral pools across different legal entities. Economies of scale are therefore lost and collateral becomes more expensive

• General pressure on banks net income lines are triggering banks to review collateral cost where there are massive differences across the industry in terms of efficiency management and potentially significant savings

• Momentum in discussions around intraday liquidity is causing Banks to re-think their internal transfer pricing policy where charge was not previously not passed back to the business

• Emerging currencies can often initially have heightened intraday liquidity constraints that need to be carefully managed

There are numerous factors outside of Basel Monitoring Tools that are changing the landscape

and increasing focus on Intraday Liquidity

Client Intraday Analysis: Practical Examples

Client A

Client B

• Payment flows are consistent and closely aligned throughout most of the day

• Account balance is large enough to cover spikes in the day

• Client ends the day with a positive account balance on par with the start of day balance

• No additional collateral pledging required with RTGS system

• Payment flows are inconsistent and

misaligned over the day

• Early inflows provide a positive balance but subsequent

outflows and spikes require liquidity utilization

• Client ends the day with a zero or positive balance

• Additional collateral pledging required with the RTGS

system due to large peak usage

$2B Peak

($800MM) Net

Account Balance

Liquidity required for

outgoing payments

$750MM

starting balance

EOD balance

on par with SOD

Closely aligned

payment flows

8

Implications for the Banking Industry

Banks looking to mitigate risk through active liquidity management

Catalysts to break down Business units silos and apply end to end Business Management principles to Intraday Liquidity

Optimize workflows and matching incoming and outgoing flows at a more granular and business level. Become more efficient and Rethink FIFO approach

Assess underlying costs and risk for intraday funding

Focus on transfer charges (within entity) and pledging costs

Reassess payments mandates considering:

– Transaction processing requirements (e.g. urgency)

– Flow volume impact on intraday

Challenges to develop in-house: tech spend, resource availability,

data and reporting complexity and deadline (Jan 2015)

Certain Correspondent Banks developing tools to meet reporting

requirements and provide reporting capabilities to clients

Technology Vendors also developing monitoring dashboards

Re-thinking

Intraday

Liquidity

Developing

Monitoring

Tools

Pricing

Liquidity

9

Where is Citi in terms of Intraday Liquidity Requirements?

10

• Investing in development of Intraday Liquidity Monitoring tools

– Monitoring capabilities available in USD, EUR, GBP and CHF

– Provide regulatory reporting capabilities to FI clients per BASEL requirements

• Continuing discussions with regulators to gain insight on interpretation of BASEL III guidance

• Working with Industry Groups to raise awareness on complexity of new requirements with Central Banks

This presentation does not constitute tax advice. It is for information purposes only.

11

• Basic Requirements:

– US financial institutions (USFIs) and foreign financial institutions (FFIs) may be required to:

• Identify and report directly or indirectly to the IRS with respect to:

accounts owned directly or indirectly by specified US persons, and

financial institutions that do not comply (or "participate") with FATCA (so-called "non-participating FFIs”)

– Withhold a 30% FATCA tax from certain U.S. source income when paid to:

• Non-participating FFIs (NPFFIs),

• Non-compliant passive non-financial foreign entities (NFFEs), and

• If the withholding agent is an FFI, recalcitrant accounts

FATCA Background

• The Foreign Account Tax Compliance Act (FATCA) is

– US tax legislation that aims to prevent or detect tax evasion by U.S. Persons who

• Hold bank deposits and/or securities in offshore accounts, or

• Own foreign investment entities (e.g., personal investment corporations and trusts)

• FATCA was enacted into law on 3/18/2010 as part of the HIRE ACT

• Added new Chapter 4 to the Internal Revenue Code

12

• 30 Percent FATCA Withholding

– Imposed on “withhold-able” payments, including:

• U.S. source income from securities

• Interest on bank deposit accounts maintained in the United States or in a foreign branch

of a U.S. bank

• Gross proceeds from the sale/redemption of U.S. securities (not until 2017)

– When made to FFIs or NFFEs unless:

• The FFI qualifies as a participating FFI, a registered deemed-compliant FFI, a certified

deemed-compliant FFI or an exempt beneficial owner

• The NFFE certifies that it has no substantial U.S. owners, certifies that it has substantial

U.S. owners and discloses their identity, or is classified as an excepted NFFE (excepted

from the ownership certifications because it presents a low risk of being used for tax

evasion)

Withholding as an Enforcement Tool

13

Gross Sales Proceeds paid

after 2016

$2000

FATCA Withholding tax

$600

Interest Income paid after

2014 to a new account

$100

FATCA Withholding tax

$30

Colombian

Bank

(FFI)

US Treasury

Securities

• Colombian Bank invests in US Treasury securities that generate US source interest income and

eventually gross proceeds from sale

• If Bank is a NPFFI a new 30% FATCA withholding tax will apply to periodic payments of interest

income, and if the bonds are sold after 2016, gross sale proceeds

Example: Impact if a Bank Does Not Comply with FATCA

14

• The term “foreign financial institution” includes investment entities and certain holding companies as well as

traditional financial institutions

• Any non-U.S. entity that falls into one of the following categories:

– Depositary banks

– Custodial banks or brokerage firms

– Insurance companies that issue policies having cash value or annuities

– Investment Entities, including

• Entities that conduct the following activities as a business on behalf of customers

Trading in financial assets

Portfolio management

Investing, administering, or managing money or financial assets

• Collective investment vehicles, mutual funds, hedge funds, and private equity funds

– Holding company or treasury center that

• Is part of an expanded affiliated group (EAG) that includes another FFI

• Is formed in connection with or availed of by certain investment entities

11

What is an FFI?

15

• To avoid 30 percent withholding under FATCA, a FFI must enter into agreement with IRS and meet the

following obligations:

– Comply with verification and due diligence procedures for payees and financial accounts

– Obtain information necessary to determine if each account is a U.S. account

– File annual reports with the IRS on U.S. accounts

– Withhold and pay the IRS 30 percent of withhold-able payments made to:

• Recalcitrant account holders, Non-compliant FFIs, and FFIs electing to be withheld upon

– Comply with IRS requests for additional information on U.S. accounts

– Obtain a waiver of foreign laws that would prevent reporting or disclosure (e.g., privacy or bank

secrecy laws) of U.S. persons or close any U.S. account failing to provide a required waiver.

• The IRS can terminate the FFI agreement for any performance failures.

• All FFIs in expanded affiliated group need to be compliant in order for any FFI in that expanded affiliated

group to be compliant.

What is Expected of an FFI?

16

• FFIs are required to register as Participating FFIs, Registered deemed-compliant FFIs or Limited FFIs

• Every FFI that is a member of an expanded affiliated group (EAG) must register with the IRS, unless an

exception applies

• A Limited FFI is an NPFFI that is a member of an EAG and is subject to FATCA withholding

• Once an FFI has registered, the IRS will approve its registration and issue a GIIN (Global Intermediary

Identification Number) to each Participating FFI and Registered deemed compliant FFI.

• The IRS registration web site will be primary means for FFIs to complete and maintain their FATCA

registrations, renew QI agreements and make periodic compliance certifications.

• The web site will be used for ongoing electronic communication between the IRS and FFIs

• A GIIN will be used as an identifying number in satisfying the FFI’s reporting obligations and identifying its

status to a withholding agent.

• The IRS will electronically post the first IRS list of Participating FFIs and registered deemed compliant FFIs

(including Model 1 FFIs) on June 2, 2014, and will update the list on a monthly basis.

IRS Registration of FFIs

17

Near term requirements

FATCA Compliance Tasks USFI FFI Due Dates1 Comments

Finalize FFI Registration 5/5/2014 For inclusion in first IRS list of FFIs to be released on

6/2/2014.

FFI Agreements Effective 6/30/2014 Or later date the FFI enters into an FFI agreement.

Grandfathered Obligations (those that produce/could produce U.S.

source income)

6/30/2014 Identify outstanding obligations

7/1/2014 Begin monitoring material modifications

New Account Due Diligence procedures in place 7/1/2014 or 1/1/2015 Applies to accounts opened by individuals after 6/30/2014

and entities after 12/31/2014.

Withhold on U.S. Source FDAP Income 7/1/2014 Begin withholding on new individual accounts and certain

pre-existing accounts for NPFFI2

Future requirements

FATCA Compliance Tasks USFI FFI Due Dates1 Comments

Due Diligence on prima facie FFIs among preexisting entity accounts4

12/31/2014 Documentation due date

1/1/2015 Begin withholding on NPFFIs2

Form 1042-S Reporting 3/15/2015 Applies to “withholdable “payments

U.S. Account Reporting3 3/15/2015 First reporting year for Form 8966 is 2014.

Due Diligence on high-value accounts among preexisting individual

accounts

6/30/2015 Documentation Due Date

7/1/2015 Begin withholding unless documented or excepted 5

Limited FFI Status (Impacts EAG compliance) Ends 12/31/2015

Due Diligence on all remaining preexisting accounts (other individual

accounts held by USFIs)

6/30/2016 Documentation due date

7/1/2016 Begin withholding unless documented as exempt or an

exception applies

Withhold on Gross Proceeds 1/1/2017 Begin withholding on sales/redemptions unless

documented as exempt or an exception applies

Withhold on Foreign Passthru Payments 1/1/2017 Or if later, the date final regulations defining covered

payments are published

1 Note: These dates are based on Notice 2013-43 and the final FATCA Regulations and as further amended by Announcement 2014-17 and Notice 2014-33.

2 Once a preexisting account is documented, it will be treated as having the FATCA status that is claimed from the time it is documented rather than starting at the end of the due diligence period. For preexisting entity accounts documented as NPFFIs, withholding must begin even if the due diligence period has not ended.

3 U.S. account reporting for USFIs is limited to reporting on Substantial U.S. Owners of Passive NFFEs and Specified U.S. Owners and Debt Holders of an Owner Documented FFI.

4 FFIs located in an IGA country are not required to perform due diligence to identify prima facie FFIs by 1/1/2015

5 FFIs located in an IGA country are not required to withhold on recalcitrant accounts

7

Key FATCA Due Dates

18

• Unless documentation sufficient to determine the FATCA status of the payee or account holder is

provided to the withholding agent, an entity will be presumed to be an NPFFI and subject to FATCA

withholding

• Applies to new accounts opened or obligations entered into after 12/31/2014

• This presumption is rebutted by providing documentation sufficient to establish that the payee or

account holder is FATCA compliant

• Key Differences between FATCA and prior law:

– FATCA requires increased due diligence on the claims made

– A withholding agent must treat the claim as invalid, if any information contained in the account opening file or other client files “conflicts” with the payee’s claimed FATCA status

– This includes a review of information or documentation collected in the performance of due diligence under Anti-money laundering (“AML”) and Know-your-customer (“KYC”) rules.

– A claim of foreign status will be treated as unreliable if there are certain types of “U.S. indicia” present, unless additional documentation sufficient to “cure” the U.S. indicia is obtained.

– This means that clients having U.S. indicia will be required to provide additional documentation to substantiate a claim of foreign status.

New Account Due Diligence

19

Definition of a US Person

• A Specified U.S. person is any U.S. person OTHER THAN:

– A publicly traded corporation or member of its expanded affiliated group;

– Organization exempt from tax under Section 501(a) or an individual retirement plan;

– The U.S., the District of Columbia, any state, any U.S. territory, any political subdivision the foregoing, or any wholly-owned agency or instrumentality thereof;

– Banks; REITS; RICs,

– Common trust fund or trust exempt from tax;

– A U.S. registered dealer in securities, commodities or derivatives; or

– A broker.

• Above list is similar to list of “exempt recipients” used to identify persons exempt from Form 1099 reporting,

except that certain private corporations are specified U.S. persons

. 20

• What Your Financial Institution Will Ask you

– What is your FATCA status?

– A multi-national corporation must determine the FATCA status for each entity in its expanded affiliated group.

– Establish FATCA status by providing appropriate documentation:

• U.S. Legal Entities – Form W-9

• Non-U.S. Legal Entities – Form W-8

• Request for additional documentation if US indicia are present

– Failure to provide appropriate documentation will result in 30% FATCA withholding and reporting

– You are obligated to inform your bank of any change in circumstances that affects your FATCA status within 30 days of the change.

• Impact on Transactional Documentation

– May need to update Legal Documents.

Impact on Your Relationship with Your Bank

21

FATCA Intergovernmental Agreements (IGAs)

• An IGA establishes a partnership between the US and a foreign country

– To improve international tax compliance

– To establish uniform reporting standards and an automatic information exchange

– To eliminate local legal obstacles to FATCA compliance, and

– To implement FATCA in a manner that will reduce compliance burdens and costs .

• IGAs modify the FATCA compliance obligations of financial institutions located in the IGA country from that otherwise required by the U.S. Treasury Regulations

– There are two primary types of IGAs: Model 1 and Model 2

– Both models suspend the requirement to withhold on or close recalcitrant accounts, provided that the information reporting requirements are met

– Under Model 1, FATCA information returns are to be filed with local tax authorities while under Model 2, these returns are to be filed directly with the IRS

– Allow reliance on self-certifications (IRS form or similar agreed upon form)

22

IGA Status Update

• As of May 19, 2014, 32 countries have signed an IGA

– 27 are Model 1 IGAs

– 5 are Model 2 IGAs

– Model 1 bilateral agreement published in July 2012 and Model II published in November 2012.

• 33 additional countries have reached an agreement in substance

– 31 are Model 1 IGAs and 2 are Model 2 IGAs

– On April 2, 2014, Treasury and IRS announced that it would treat IGAs as in effect in countries that have reached an agreement in substance on the terms of an IGA

• Provides FFIs in those countries with clarity on their FATCA status when they register with the IRS

and what they need to do to implement FATCA

– Until the country specific IGA is signed, the terms of the model agreement apply

– A country will be removed from this list if the IGA is not signed by 12/31/2014

• Updates to the lists of IGAs in effect are posted to the Treasury web site periodically at

http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA-Archive.aspx

• The text of the model agreements can be found at:

– http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA.aspx

10

23

Dodd-Frank 1073 - Disclaimer

The intent and goal of this presentation is to provide our customers with helpful information on the 2013

Final Rule amending Regulation E, implementing Section 1073 of the Dodd-Frank Wall Street and

Consumer Protection Act as published by the Consumer Financial Protection Bureau (“CFPB”) on April

30, 2013 (the “2013 Final Rule”). There are many parties involved in providing cross border remittance

services and these rules affect different parties differently.

In order to determine how the 2013 Final Rule will affect your organization and what will be required in

order to comply, please consult your respective legal counsel.

Material in this presentation is for reference purposes only and does not constitute legal, accounting,

investment, tax, or any other professional advice.

Table of Contents

1. Section 1073 of the Dodd-Frank Act 2

2. Latest changes to the Rule 7

3. Key considerations for non-US banks 15

1. Section 1073 of the Dodd-Frank Act

Background

The Remittance Transfer Final Rule, as issued by the Consumer Financial Protection Bureau (CFPB) on April 30, 2013,

takes effect on October 28, 2013

– The Remittance Transfer Rule was originally published on January 20, 2012 with an effective date of February 7, 2013

– In December 2012, the CFPB proposed new language to the Remittance Transfer Final Rule and delayed its effective

date

– The revised Remittance Transfer Final Rule (the “2013 Final Rule”) was formally amended and reissued in April 2013

Prior to the adoption of the Final Rule, consumer remittance transfers had a more modest degree of coverage under

Federal consumer protection regulations

The 2013 Final Rule implements new protections for consumers transferring funds electronically outside the US

– The rule requires consistent, reliable disclosures about the price, the amount of currency to be delivered to a designated

recipient, the exchange rate if applicable, and the date funds will be available

– Consumers must receive pricing information before payment

– Consumers are granted 30 minutes to cancel after payment is authorized

The Remittance Transfer Final Rule amends Regulation E, subpart B, implementing Section 1073 of the Dodd-

Frank Wall Street and Consumer Protection Act.

Delayed Effective Date

The 2013 Final Rule amends Regulation E, subpart B, implementing Section 1073 of the Dodd-Frank Wall Street

and Consumer Protection Act including establishing a new effective date of October 28, 2013.

As mandated under Section 1073 of the Dodd-Frank Act, the Consumer Financial Protection Bureau (“CFPB”) originally

issued the 2012 Final Rule and published it in the Federal Register on February 7, 2012

Per the timeline below, the 2012 Final Rule went through several revisions thereafter and has now been revised as

published on April 30, 2013 by the CFPB (the “2013 Final Rule”)

Prior to the adoption of the 2013 Final Rule, most remittance transactions generally were not covered by federal consumer

protection regulations

The 2013 Final Rule implements new protections for consumers transferring funds outside the US

– The rule requires individual remitters to be provided with up-front disclosures about the price, the amount of currency to

be delivered to a designated recipient and the date funds will be available

– Consumers must receive pricing information before payment

– Consumers generally have 30 minutes to cancel after payment is authorized

* Represents five years after the enactment of the Dodd-Frank Act; Can be extended by CFPB.

2013

2012

February 7, 2012

2012 Final Rule

published in the

Federal Register

August 20, 2012

Modification of the

2012 Final Rule

published in the

Federal Register

December 31, 2012

Proposed changes

published by CFPB in the

Fed. Register, potentially

delaying effective date

September 26, 2012

Publication of Safe

Harbor Countries

January 29, 2013

Temporary delay in the

effective date published

in the Federal Register

April 30, 2013

CFPB publishes the

revised Final Rule

TBD, 2013

CFPB to publish the

revised Final Rule in the

Federal Register

October 28, 2013

Effective Date

of the 2013 Final

Rule

July 21, 2015*

Temporary

Exception to

expire

Dodd-Frank Section 1073 - Summary

Section 1073 of the Dodd-Frank Act significantly increases the mandatory disclosure requirements and therefore

the risk associated with providing consumer-initiated cross border remittances.

**

*

Scope

Exclusions

Disclosure

Requirements

Remittance Transfers: electronic transfer of funds initiated by an individual and sent by a remittance

transfer provider (RTP) to any person (including business) in a foreign (non-US) country

RTP: Any person that provides remittance transfers for a consumer in the normal course of

business1, regardless of whether the consumer holds an account with such person

Small value transfers of $15 or less

Purchases and sales of securities or commodities

Paper-based transactions

Disclosures must be provided at time of request and prior to payment

A “temporary exception” is available to “insured deposit taking institutions” permitting a

“reasonably accurate estimate” in lieu of disclosure of the exact amount Expires July 2015

Possible extension to July 2020

What it is

The Remittance Transfer Final Rule implementing the requirements under Section 1073 of the

Dodd-Frank Act introduces, amongst others, new protections for consumers transferring funds

electronically outside the United States, requiring consistent and reliable disclosures about the

fees involved, the amount of the currency to be delivered to a designated recipient, FX rate (if

applicable), and the date funds will be available—all of which must be provided prior to making the

payment.

1. The CFPB has granted a safe harbor to RTPs transacting less than 100 cross-border consumer remittances annually.

Disclosure Challenges

Disclosure requirements impose various challenges on the remitting banks, requiring accurate and timely

information from their intermediaries and even from beneficiary banks in some cases.

**

*

* Disclosure of certain Other Fees is optional

** Disclosure of Other Taxes is optional

2. Latest changes to the Rule

Delayed Effective Date: Considerations

Growing market demand for “end-state” solutions

– Enables RTPs management to dimension and plan for long-term embedded costs

– Greater confidence that the rules governing the implementation of DF1073 have stabilized

Market demand for fully implemented, fully-tested solutions well in advance of the effective date

– Enables RTPs to leverage expertise of DF1073 compliance support specialists

– Enables RTPs management to redeploy resources to other high priority projects

Increased focus on support processes, especially those related to investigations

– Completion of internal process planning

– Heightened emphasis on correspondents’ Service / Investigations team and global processes

The delayed effective date, combined with the elimination of certain disclosure requirements, provides additional

time to RTPs, correspondents and vendors to implement efficient, automated solutions to comply with DF1073.

Other Fees Clarification

The Disclosure of Beneficiary Bank Fees impacting the amount of the transfer is generally no longer required but

optional

The 2013 Final Rule makes optional, in most circumstances, the requirement to disclose fees

imposed by the designated recipient’s institution applied to the designated recipient’s account

provided that the sender is notified that additional fees may apply

Alternatively, a Remittance Transfer Provider may choose to disclose the amount of such fees as an

estimate

The 2013 Final Rule retains the requirement to disclose fees imposed directed by the RTP and fees

imposed by third parties (i.e., intermediary banks) involved in the remittance

RTP Correspondent Intermediary1

Designated

Beneficiary’s Bank

Acct

Fees/Taxes ? Lifting Fees Lifting Fees RTP

Fees/Taxes

Covered Third Party

Fees

Non-Covered Third

Party Fees

Covered RTP

Fees

Beneficiary Bank

Senders

Remitting Bank

Tax Disclosure Clarification

The Disclosure of Foreign Taxes impacting the amount of the transfer is generally no longer required but optional

In most cases, the 2013 Final Rule makes optional the requirement to disclose taxes collected by a

“person” other than the Remittance Transfer Provider provided that the sender is notified that

additional taxes may apply

Alternatively, a remittance transfer provider may choose to disclose the amount of such taxes as an

estimate

The 2013 Final Rule retains the requirement to disclose taxes imposed directly by the RTP

Liability Clarification

Originally, the 2012 Final Rule stated that “Where the error is the result of the sender providing insufficient or

incorrect information, § 1005.33(c)(2)(ii) specifies the two remedies available: The provider must either refund

the funds provided by the sender in connection with the remittance transfer (or the amount appropriate to

correct the error) or resend the transfer at no cost to the sender, except that the provider may collect third

party fees imposed for resending the transfer”

Under the 2013 Final Rule, an error assertion would not result in an error where the provider can demonstrate

that

– the sender provided the incorrect account number OR recipient institution identifier which results

in the transfer being deposited into an incorrect account, AND

– the sender received appropriate notice that the sender could lose the transfer amount,

Note: The provider would be required to attempt to recover the funds but generally would not be liable for

the funds if those efforts were unsuccessful

If the sender provides the incorrect name and address of the beneficiary bank which in turn results in the funds

being remitted to the incorrect account, that may still constitute an error and the provider may still be liable for

the misdirected funds.

While RTPs will still be expected to attempt to recover funds lost due to remitters providing incorrect information,

they generally will not be liable for the funds if those efforts are unsuccessful.

3. Key considerations for non-US banks

Dodd-Frank 1073 Implications to non-US Banks (1 of 3)

Impact on non-US Bank as a beneficiary bank receiving consumer payments initiated from a US-based account

If a non-U.S. bank is simply a beneficiary bank that may receive “Dodd-Frank 1073” wires, it is likely to be

approached by a number of institutions for information about their charging practices.

– This information will be used to provide the required disclosure of bank chain fees to senders of cross-

border wires in the U.S.

– Providing such information is not required from a regulatory perspective but would be helpful to the

inquiring institutions.

– Such inquiries may come directly from banks in the U.S. as well as indirectly from foreign banks

providing nostro services to U.S.-based remitting institutions.

Increased number and scope of investigations

Dodd-Frank 1073 Implications to non-US Banks (2 of 3)

Impact on non-US Bank as a nostro provides to a U.S.-based remitting institution

The U.S.-based remitting institutions may process “Dodd-Frank 1073” transactions not only from their USD

accounts, but also directly from their foreign currency nostros

– Example:

- a customer of Bank A in the U.S. requests a wire of GBP10,000 to a beneficiary holding an account with Bank

B in GB

- Bank A debits customer’s account for USD15,000 and sends SWIFT MT103 to Bank C (its GBP nostro

provider) instructing a wire of GBP10,000 to a beneficiary holding acct with Bank B.

If a non-U.S. bank provides local currency nostro services to U.S.-regulated institutions, it may also be

approached by such institutions for information about their charging practices.

– While providing such information is not required from a regulatory perspective, the bank’s nostro clients

will be subject to the new regulation and the nostro provider’s supportiveness in this context is likely to

have relationship implications.

Additionally, U.S.-based nostro holders may ask the non-U.S. nostro providers for a full suit of tools and

services to enable them to process consumer-initiated wires in compliance with Dodd-Frank Section 1073.

Such requests may require the ability to reliably provide:

- local fees

- potential tools to avoid fees (e.g. “guaranteed OUR”)

- timing of funds availability to ultimate beneficiaries

- support with investigations and error resolutions

- updated contracts

Dodd-Frank 1073 Implications to non-US Banks (3 of 3)

Industry Standards

In order to support global recognition of wires subject to the new Dodd-Frank Section 1073 regulation a

number of communication/messaging standards are being introduced:

– Fedwire (field 6500)/CHIPS (field 650)

- /CTO/ - DF1073 code word for charge code OUR payments

- /CTS/ - DF1073 code word for charge code SHA payments

- /CTB/ - DF1073 code word for charge code BEN payments

– SWIFT

- CCT in 26T (to be confirmed)

Thank you

40

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