Nacha, the electronic payments association, is delaying the implementation of a new code for international automated clearing house transactions for six months, to give banks and businesses time to install and 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 issued last week, Nacha said the IAT code would not take effect until September of next year. The Herndon, Va., trade group had set a March 2009 effective date when it announced plans for the code a year ago, after approval by its voting membership.
Janet O. Estep, Nacha's president and chief operating officer, said in an interview Friday that 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 March 2009," Ms. Estep said, but as the group looked more deeply at bankers' plans, "we felt that many were not planning enough time for endpoint testing and complete process and 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 the Treasury Department's Office of Foreign Assets Control rules to fight terrorist finance and money laundering. The code also requires companies to change their business processes, including those for documenting transactions and verifying compliance.
"Some parties may have viewed it as a simple SEC code change — once the software is in, the chips work," Ms. 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 and systems in place by March anyway, so market participants could use the extra six months "for additional process documentation, testing with the ACH operators, and customer education, training, and testing."
Cary Whaley, the associate director of payments policy at the Independent Community Bankers of America, said the delay did not surprise him.
"IAT is an unprecedented transaction," he said. "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, Mr. Whaley said it also presents an opportunity that community banks should explore as their small-business customers conduct more business internationally.
"This IAT affords a two-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 Group LLC warned in a report last week that nearly a quarter of respondents to its survey expressed some concern about meeting the March deadline.
Nancy Atkinson, a senior analyst at the Boston research firm, said in an interview Friday 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," Ms. 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, she said. And even though ACH vendors are planning to incorporate the appropriate code in the next release of their software, and third-party service providers may perform the OFAC checks for their customers, banks "also need to update their policies and 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 and expense of the change.
Peter Hohenstein, a senior vice president in Bank of America Corp.'s global product solutions unit, 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," Mr. Hohenstein said. For instance, 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 and may not be aware of the need to upgrade their systems, he said. "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," Mr. Hohenstein said.
