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Fed - format for wire remittance data 4/10 AB The Fed is nearing a decision on how to incorporate remittance information into wire transfers. It has been considering since 2006 a format based on the well-entrenched EDI, but in the meantime a format known as ISO 20022 has gained prominence in the world’s payments systems. & though the Fed’s probable endorsement of the EDI-based format might seem out of step with the global payments industry, Fed executives characterized the choice as a small step on a path that could eventually lead to ISO 20022. ‘We’re taking baby steps right now, but it’s a big step forward for us,’ Susan Valentine, FRB NY, said at Swift Operations Forum Americas. Valentine stopped short of announcing that the Fed would promote the EDI-based remittance format - EDI X12 STP 820. But she did say that the Fed would not support ISO 20022, the only competing format, at least in the short term. & in the long term, ISO 20022-compatibility is the goal. ‘We’re not going to go off on our own path. The goal is convergence & interoperability.’ Bankers have long said that adding remittance data would make wire transfers more useful for B2B transactions because the information would tell recipients the payment’s purpose. FRB NY said that the Fed would formally announce its decision in the next few weeks. Valentine said would not say when remittance data features might be available, only that it would be ‘sooner rather than later.’ She did give a sense of the Fed’s timing in the context of ‘cover payments,’ which are used in international correspondent banking, where payments may pass through many hands before they settle. The cover payment is a nonpayment message sent by the originating bank to notify the ultimate beneficiary bank to expect a certain payment. Today, a cover payment in Fedwire can include only one payment instruction but by 2010 the central bank expects to expand that message field to accommodate multiple payment instructions. The Fed & the Clearinghouse Payments Co. LLC, the operators of the 2 US wire-transfer networks, announced their plans for a joint strategy to incorporate remittance data in 10/06. At the Sibos conference in Sydney & to AFP, they said the inclusion of invoice information was a service for which many corporate users would pay. It could let recipients process payments using automated systems & reduce the manual entry of data into their accounting systems. They originally had a 6-month target for deciding between the data formats, a deadline that was bumped back to 6/07, then delayed again. EDI is a long-established standard for large-scale corporate data sharing. The Clearinghouse introduced the STP 820 version in 11/04, including 10 data fields that are essential for payments, such as payment amount, customer’s name, business account number, & bank account number. ISO 20022, a dialect of extensible markup language, is considered more flexible & powerful, but it is largely untested in the market. European banks began transmitting cross-border ACH transactions in January using the XML format. One critical issue is that Fedwire lacks a data field big enough to hold a bulky XML message; The Clearinghouse & Swift can accommodate up to 9,000 characters of remittance data. Though ISO 20022 is technically mandated only for ACH transactions within Sepa as a practical matter, banks & corporations worldwide are considering the standard as a way to automate transactions not only between banks but between banks & their corporate clients, & for wires & ACH. In a series of more than 30 meetings during the last 2 years, the Fed & Clearinghouse have worked not only with the large domestic banks that are the main handlers of high-value wire transfers but with community banking groups & the vendors of bank-wire systems & large corporate computer installations —ERP systems — to devise a comprehensive wire-transfer strategy. Priscilla Holland, Nacha, said her organization is coordinating the development of a new group, the International Payments Framework, which would provide common worldwide standards for low-value bulk payments over the ACH, & based on ISO 20022. 15 banks & other groups have joined the initiative, & the group is to vote 4/18 whether to establish a formal organization. ‘Our goal is to have payments flowing by IVQ 2009.’