Sibos 2012 - Dodd-Frank Section 1073 is arguably one of the biggest changes to cross-border payments globally in recent years. This session described the pros and cons of open loop, closed loop and hybrid approaches; and discussed whether the new requirement is likely to be adopted by corporates, and in other countries.

1. © 2012 Earthport Plc. All Rights Reserved.
Because there’s a better way.

2. Transparency in cross-border “An invasion of armies can
payments & the impact of Dodd- be resisted, but not an
idea whose time has
Frank Section 1073 come.”
Victor Hugo
J. Christopher Ward, PNC Bank
Executive Vice President, Head of Product Management,
Treasury Management
Neil Burton, Earthport
Director, Product Strategy
Sibos, Osaka, Japan
29.10.2012
© 2012 Earthport Plc. All Rights Reserved. Because there’s a better way.

3. Session Synopsis
Dodd-Frank Section 1073 is arguably one of the biggest changes to cross-border
payments globally in recent years.
It requires banks providing cross-border payments services to US consumers to
commit to all fees, funds delivery date and more, upfront.
This session will describe the pros and cons of open loop, closed loop and hybrid
approaches; and discuss whether the new requirement is likely to be adopted by
corporates, and in other countries.
© 2012 All Rights Reserved. Because there’s a better way.

4. Agenda
1. Overview of Dodd-Frank Section 1073
2. Key requirements
3. Range of approaches
4. Questions
© 2012 All Rights Reserved. Because there’s a better way.

5. Regulations
Major U.S. Financial Legislation: Pages in the
Federal Register
Federal Reserve (1913)
Glass-Steagall (1993)
Interstate Banking Efficiency (1994)
Sarbanes-Oxley (2002)
Gramm-Leach-Bliley (1999)
Other Acts, Combined
Dodd-Frank (2010)
0 200 400 600 800 1000
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6. Dodd Frank 1073 - Background
• Dodd Frank 1073 (DFS1073) seeks to protect consumers sending Electronic
Fund Transfer (EFT) payments across borders
• Imposed by Congress Summer 2010; statute finalized by CFPB and entered into
the Federal Register 7 Feb 2012
• The Final Rule takes effect February 7, 2013
• Echoes many of the transparency requirements imposed by the EC Payment
Services Directive (PSD) in 2009; however
• Unlike the PSD, DFS1073 is unique in shifting liability to the remitting bank regarding the
accuracy of the payment; and in doing so removes primacy of the account number for
settlement of disputes.
© 2012 All Rights Reserved. Because there’s a better way.

7. Dodd Frank 1073 - Requirements
• Full fee disclosure at the time of origination – including taxes imposed at
beneficiary
• Guarantee of amount of final funds delivered
• Guarantee on when funds will be received
• Right to cancel a transaction up to 30 minutes after submission
• 180 days of rolling liability for disputed transactions
• estimates initially acceptable; certainty required by Jul 2015
© 2012 All Rights Reserved. Because there’s a better way.

8. Dodd Frank Section 1073 – issues and changes
• As a result of market feedback, CFPB has
• excluded organisations which transact fewer than 100 cross-border consumer payments
p.a., up from the initial 25
• published ‘safe harbour’ list of countries for which estimates are acceptable:
• Aruba
• Brazil
• China
• Ethiopia
• Libya
• Establishment of tax deductions on payout remains a major challenge:
• Only a few countries publish reliable data
• Industry bodies have carried out feasibility studies for other countries
• May lead to development of a universal tax utility for all banks to tap into
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9. Different approaches
Different options for approaching DFS1073:
1. Exit consumer originated cross-border payments business
2. Adapt ‘open loop’ wire (correspondent banking) model
Rationalize entry channels, currencies, countries
3. Adopt a closed loop solution
4. Outsource via Agent Agreement
5. Adopt Hybrid/‘Global ACH’ service
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10. SWIFT is working with the industry to identify and
shape potential solution(s)
• Enables the unambiguous identification of transactions requiring
compliance
• A CR for SR 2013 was submitted to PMWG proposing an update to the
Codeword User Handbook to include the use of a codeword “CCT” (‘Consumer
‘CCT’
in 26T
Credit Transfer’)
Industry Liaison
• in field 26T of the relevant MT messages
• Market Practice Guidelines around usage • Cash & Trade
are being discussed by the PMPG Subcommittee of the
SWIFT U.S. NMG
• Federal Reserve
• SWIFTRemit provides full transparency on Board
amounts, fees, charges; delivery timeline, • The Clearing House
SWIFTRemit
supports cancellation and return process; • BAFT-IFSA
allows account validation and transaction status • Payments Market
Practice Group
(PMPG)
• Payments
Maintenance Working
Group (PMWG)
Source: SWIFT
Because there’s a better way.

11. How Hybrid/’Global ACH’ works
Channels Segregated Accounts
Phone
Branch Online
FI:
NO: EUR UK:
NOK GBP
US: SG:
Funding in SGD SGD SGD
Funding in USD
US: US:
USD USD
Payment Instructions
ZA: PL:
ZAR PLN
JP: PH:
JPY AU: PHP
FX No FX AUD
process process
© 2012 All Rights Reserved. Because there’s a better way.

12. Hybrid/Global ACH
DFS1073 Requirement Hybrid/Global ACH Comment
Full fee disclosure at the point of • Fixed end-to-end fee per transaction All fees are known upfront
origination. • FX rate ‘fixed on send’ Domestic payments schemes do not
support per transaction bene
deduct/lifting fees
Guarantee on final principal settled. 100% predictability for all fees other than FX rates are set upfront
taxes: Any fees imposed by local service
• No beneficiary landing fee. providers are known upfront and hence
• No ‘incoming credit’ posting fee. absorbed by global service provider
Guarantee on when funds will be 100% predictability of value date Domestic payments schemes have
delivered. known and predictable clearing cycles;
hence time/date of payment is known
upfront
30 min cancellation right from Service enhancement ; generic warehousing
origination requirement which can be achieved either via
ODFI or global ACH partner.
180 days rolling liability ODFI responsibility
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13. Impact on non-US FIs
Ability to deliver transparent services to US FIs
Though DFS1073 applies only to consumer-initiated transactions, the fee and FX
rate transparency and transaction predictability is expected to impact other
segments, especially SME.
Regulators in several other countries are observing the effects of the PSD and
DFS1073. Greater transparency seems inevitable.
© 2012 All Rights Reserved. Because there’s a better way.

14. Questions?
• Will regulation be relaxed?
• Will repudiation liabilities force prices higher?
• Will major players exit?
• Will estimates result in better service levels?
© 2012 All Rights Reserved. Because there’s a better way.

15. Because there’s a better way.