NACHA Moves Back IAT Deadline to Allow More Time for Testing

NACHA, which late last week extended by six months the deadline for banks to start processing a new automated clearing house transaction type representing payments flowing into and out of the U.S., says it decided to grant the extension so that financial institutions and their vendors will have more time to test their systems. NACHA arrived at the new deadline, Sept. 18, 2009, after it surveyed financial institutions and processors in an effort to gauge readiness for the original March 20 deadline, says Jan Estep, president and chief operating officer at the Herndon, Va.-based rules-setting body for the ACH. NACHA is introducing a new transaction code, IAT, or International ACH Transaction, to account for the cross-border payment traffic. The new code will replace two existing NACHA codes for international payments, PBR for consumer payments and CBR for commercial transactions. According to NACHA, there were 300,357 PBR transactions in the second quarter, up 2.7% from the year-earlier period; CBR volume was 1,620, a 28.3% increase. Implementation of the new application requires system work by banks, particularly institutions that will be both originating and receiving the transactions. NACHA's survey indicated “the vast majority” of banks would have their code ready by March 20, says Estep, who at the end of the year will take over as chief executive of NACHA. “But as we dug deeper we found additional time would be required for testing,” she says. This time will be needed not just to test the systems, Estep says, but also to test policies and procedures related to the IAT. NACHA is requiring the new transaction code to more clearly identify payment traffic that must be reviewed against data compiled by the Office of Foreign Assets Control (OFAC), a U.S. Treasury Department agency that prohibits payments to certain foreign parties considered to be engaged in terrorism or criminal activity. The IAT is expected to improve this so-called OFAC screening by adding several fields of information for each transaction, including the names and addresses of the originating and receiving banks and the reason for the payment. Estep says many banks may have “multiple parties” involved in testing, including ACH operators, core processors, and ACH processors. Also, she says, NACHA concluded time had to be allowed for each bank to test polices and procedures surrounding the IAT so that the banks and their commercial customers understood the new application. “It's not just technology testing, but a test of procedures,” she says. “Do we understand what we're seeing, and how to communicate that downstream?” A recent Federal Reserve survey found most banks expect to be ready by March, but also found a significant minority struggling to meet the deadline; some 37% of regional banks, for example, told the Fed they were concerned about being ready on time (Digital Transactions News, July 28). NACHA, which announced the deadline extension in a July 31 operations bulletin, recommends that banks have production software in place by the original deadline, then use the remaining six months to run their tests and educate customers. The term of the extension, Estep says, was arrived at with consideration for the time likely needed for full testing by all institutions. There was some consideration, for example, of a three-month extension. “It is something of a judgment call,” she says. “We decided we should be more prudent and allow for a six-month extension.” Now that the new deadline is more than a year away, however, she says NACHA does not expect to move the date again. “The expectation is that everyone should be extremely ready,” by September 2009, she says.