Federal Government Participation in the Automated Clearing House

DEPARTMENT OF THE TREASURY <SUBAGY>Bureau of the Fiscal Service</SUBAGY> <CFR>31 CFR Part 210</CFR> <DEPDOC>[Docket No. FISCAL-2024-0001]</DEPDOC> <RIN>RIN 1530-AA31</RIN> <SUBJECT>Federal Government Participation in the Automated Clearing House</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Bureau of the Fiscal Service, Department of the Treasury. <HD SOURCE="HED">ACTION:</HD> Notice of proposed rulemaking; request for comment. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Department of the Treasury, Bureau of the Fiscal Service (Fiscal Service) is proposing to amend its regulation governing the use of the Automated Clearing House (ACH) Network by Federal agencies. Our regulation incorporates, with some exceptions, updates to the Nacha Operating Rules and the Nacha Operating Guidelines (Operating Rules & Guidelines), which govern the use of the ACH Network by Federal agencies. This proposed rule addresses changes that Nacha has made since the publication of the 2021 Operating Rules & Guidelines, including Supplement #1-2021. These changes include amendments in the 2022, 2023, and 2024 Operating Rules & Guidelines, including supplements thereto, issued before the date of this notice. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments on the proposed rule must be received by October 8, 2024. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Comments on this rule, identified by docket number FISCAL-2024-0001, should be submitted through the Federal eRulemaking Portal at <E T="03">www.regulations.gov.</E> Follow the instructions on the website for submitting comments. <E T="03">Instructions:</E> All submissions received must include the agency name (Bureau of the Fiscal Service) and docket number FISCAL-2024-0001 for this rulemaking. In general, comments received will be published on <E T="03">Regulations.gov</E> without change, including any business or personal information provided. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not include any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. In accordance with the U.S. government's eRulemaking Initiative, the Fiscal Service publishes rulemaking information on <E T="03">www.regulations.gov.</E> <E T="03">Regulations.gov</E> offers the public the ability to comment on, search, and view publicly available rulemaking materials, including comments received on proposed rules. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Ian Macoy, Director of Settlement Services, at (202) 874-6835 or <E T="03">ian.macoy@fiscal.treasury.gov;</E> or Frank J. Supik, Supervisory Counsel, at <E T="03">frank.supik@fiscal.treasury.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">1. Background</HD> Title 31 CFR part 210 (part 210) governs the use of the ACH Network by Federal agencies. The ACH Network is a nationwide electronic fund transfer system that provides for the interbank clearing of electronic credit and debit transactions and for the exchange of payment-related information among participating financial institutions. The ACH Network facilitates payment transactions between several types of participants, including the: • Originator: An organization or individual that agrees to initiate an ACH entry according to an arrangement with a Receiver. • Originating Depository Financial Institution (ODFI): An institution that receives the payment instruction from the Originator and forwards the ACH entry to the ACH Operator. • ACH Operator: A central clearing facility that receives entries from ODFIs, distributes the entries to appropriate Receiving Depository Financial Institutions, and performs settlement functions for the financial institutions. • Receiving Depository Financial Institution (RDFI): An institution that receives entries from the ACH Operator and posts them to the accounts of its depositors (Receivers). • Receiver: An organization or consumer that has authorized an Originator to initiate an ACH entry to the Receiver's account with the RDFI. • Third-Party Service Provider: An entity other than the Originator, ODFI, or RDFI that performs any functions on behalf of the Originator, ODFI, or RDFI in connection with processing ACH entries. These functions may include, for example, creating ACH files on behalf of an Originator or ODFI, or acting as a sending point or receiving point on behalf of an ODFI or RDFI. Rights and obligations among participants in the ACH Network are governed by Nacha's Operating Rules & Guidelines. There is an industry consensus that the Operating Rules & Guidelines provide a uniform set of standards for ACH transactions and that these standards enable efficient transaction processing. Part 210 incorporates the Operating Rules & Guidelines by reference, with certain exceptions. From time to time, the Fiscal Service amends part 210 to address changes that Nacha periodically makes to the Operating Rules & Guidelines or to revise the regulation as otherwise appropriate. Given their coverage across the payment system and to promote consistent application to all ACH Network participants, the federal government generally adopts changes to the Operating Rules & Guidelines unless the changes address enforcement and compliance of the Operating Rules & Guidelines, would adversely impact government operations, or are irrelevant to Federal agency participation in the ACH Network. Currently, part 210 incorporates the 2021 Operating Rules & Guidelines, including Supplement #1-2021, subject to certain exceptions. Nacha has adopted several changes since the publication of the 2021 Operating Rules & Guidelines, including Supplement #1-2021, as reflected in the 2024 Operating Rules & Guidelines and supplements thereto. <SU>1</SU> <FTREF/> We are proposing to incorporate all of these changes in part 210. <FTNT> <SU>1</SU>  The 2024 Operating Rules & Guidelines also incorporates changes that Nacha previously adopted and incorporated into the 2022 and 2023 Operating Rules & Guidelines. This proposal also highlights applicable changes to the Operating Rules & Guidelines that were incorporated into prior versions of the Nacha Operating Rules & Guidelines. </FTNT> We are requesting public comment on all the proposed amendments to part 210, including with respect to changes that would be incorporated by reference. <HD SOURCE="HD1">2. Summary of Proposed Rule Changes</HD> Since the publication of the 2021 Operating Rules & Guidelines, including Supplement #1-2021, Nacha has published three versions of the Operating Rules & Guidelines: the 2022 Operating Rules & Guidelines, the 2023 Operating Rules & Guidelines, and the 2024 Operating Rules & Guidelines, including Supplement #1-2024. Below, we outline the major changes that were included in these updates. <HD SOURCE="HD2">(a) 2022 Operating Rules & Guidelines Changes</HD> The 2022 Operating Rules & Guidelines implemented several changes to the Operating Rules & Guidelines, some of which Nacha had previously adopted with a delayed implementation date and were addressed in a prior Fiscal Service rulemaking. <SU>2</SU> <FTREF/> The 2022 Operating Rules & Guidelines also clarified the rules regarding third-party senders in the ACH Network. <FTNT> <SU>2</SU>   <E T="03">See</E> 87 FR 42 (Jan. 3, 2022); 31 CFR part 210. Updates to the Operating Rules & Guidelines that were reflected in previous Fiscal Service rulemakings are not discussed in this proposal, even if the implementation date of the updates occurred after adoption of current part 210. </FTNT> Nacha first defined “nested” third-party senders and addressed the roles and responsibilities applicable to ODFIs working with them. Nacha defined a Nested Third-Party Sender (Nested TPS) as a Third-Party Sender (TPS) that has an agreement with another TPS to act on behalf of an Originator and does not have a direct agreement with the ODFI. Nacha requires ODFIs' origination agreements with TPSs to address Nested TPSs, and to update their TPS obligations and warranties to cover Nested TPSs. Moreover, ODFIs must identify all TPSs that have Nested TPS relationships in Nacha's Risk Management Portal and must provide Nacha with the Nested TPS relationships for any of their TPSs upon request. The 2022 Operating Rules & Guidelines provides timeframes for compliance and establishes requirements for updating information that has changed. Additionally, the Third-Party Senders and Risk Assessments rule requires that a TPS, whether or not it is a Nested TPS, conduct a Risk Assessment. Under that rule, a TPS must implement, or have implemented, a risk management program based on its risk assessment. The rule states that the obligation for the TPS to perform a risk assessment, as with the required rules compliance audit, cannot be passed on to another party. Each TPS must conduct or have conducted its own risk assessment. The Fiscal Service proposes to adopt these rule changes, in order to maintain consistency with other ACH Network participants and facilitate uniform processing of transactions. <HD SOURCE="HD2">(b) 2023 Operating Rules & Guidelines Changes</HD> The 2023 Operating Rules & Guidelines implement several additional changes beyond those in the 2022 Operating Rules & Guidelines, some of which were previously adopted by Fiscal Service. <SU>3</SU> <FTREF/> Additional changes include, but are not limited to, implementing parts of the TPS rule discussed above and adopting “Phase 1” of Nacha's Micro-Entry Rule. <FTNT> <SU>3</SU>   <E T="03">See</E> 87 FR 42 (Jan. 3, 2022); 31 CFR part 210. </FTNT> Phase 1 of the Micro-Entry Rule defined “Micro-Entries” as a type of payment in the Operating Rules & Guidelines ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 35k characters. 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