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Nacha is delaying the implementation of a new code for international ACH transactions for six months, to give banks & businesses time to install & test needed systems. Some large ACH originators have been working on these projects for months, but observers said the scope of the change involved in the IAT code may have come as a surprise to some small receiving banks, which typically have not been affected by Nacha rule changes. In an operations bulletin last week, Nacha said the IAT code would not take effect until September of next year. The Herndon, Va., trade group had set a 3/09 effective date when it announced plans for the code a year ago, after approval by its voting membership. Janet Estep, Nacha, said its board approved the delay after an industry survey conducted by her group concluded that many banks would need more time. ‘The vast majority said they would be ready by 3/09,’ but as the group looked more deeply at bankers’ plans, ‘we felt that many were not planning enough time for endpoint testing & complete process & policy documentation.’ Unlike other ACH rule changes in recent years, which generally have involved only a company’s payment systems, implementing the IAT standard entry class code is required to comply with Treasury’s OFAC rules to fight terrorist finance & money laundering. The code requires companies to change their business processes, including those for documenting transactions & verifying compliance. ‘Some parties may have viewed it as a simple SEC code change - once the software is in, the chips work,’ Estep said, but the IAT code involves more than just installing new technology. Nacha is urging the industry to try to have their IAT policies & systems in place by March anyway, so market participants could use the extra 6 months ‘for process documentation, testing with the ACH operators, & customer education, training & testing.’ Cary Whaley, ICBA, said the delay did not surprise him. ‘IAT is an unprecedented transaction. This is not a small-scale rules change. It is a total reworking not only of the international ACH rules, but of ACH rules in general.’ Though some community banks might view the IAT code as a regulatory burden without commensurate benefits, Whaley said it presents an opportunity that community banks should explore as their small-business customers conduct more business internationally. ‘This IAT affords a 2-way money movement alternative to wire transfer or a third-party solution such as PayPal,’ he said. ‘There are certainly compliance burdens in IAT, but there is an advantage to being able to move money internationally for a community bank.’ Aite warned that nearly a quarter of respondents to its survey expressed some concern about meeting the March deadline. Nancy Atkinson, Aite, said that the biggest issue was educating small institutions, which are predominately receivers of ACH transactions, about their responsibility to comply with OFAC rules. ‘Small banks don’t understand the impact on them,’ Atkinson said. ‘They are used to rule changes barely impacting them.’ The IAT code is different, because it requires receiving banks to perform OFAC checking. & even though ACH vendors are planning to incorporate the appropriate code in the next release of their software, & third-party service providers may perform the OFAC checks for their customers, banks ‘need to update their policies & procedures,’ to document that they are in compliance. ‘Otherwise, they’ll end up in trouble with OFAC.’ From the time the rule change was announced, payment executives had voiced concern about the complexity & expense of the change. Peter Hohenstein, BofA, said it expects to be ready by March, but the additional time will let the Charlotte company work with its corporate clients to prepare. One key issue will be ‘dealing with clients who will have to make changes in their software.’ Companies with employees in other countries ‘may be used to sending PPDs for direct deposit of payroll who now will need to do IATs.’ Those corporate clients may not be on the same schedule as their banks & may not be aware of the need to upgrade their systems. ‘Anytime you become dependent on customers making changes, it lengthens the time frame.’ With the delay, ‘I think people across the industry are breathing a sigh of relief.’