In 2024, growing interest in real-time payments and increasing adoption of FedNow® and RTP® , along with other industry developments, will affect the entire payments industry. From rules and regulatory compliance to risk management and opportunities for innovation and education, the year ahead will be a year of accelerated change.
With this in mind, I sat down with the following five NEACH team members to discuss what members should keep top of mind this year:
- Sean Carter, AAP, NCP, President & CEO
- Mark Dixon, AAP, APRP, NCP, Vice President, Education
- Elyssa Morgan, AAP, Vice President, Membership
- Mary Mumper-Morrison, AAP, APRP, CAMS, Director, Education
- Rayleen M. Pirnie, BCJ, AAP, CERP, Director, Risk & Fraud
Highlights from part one of our discussion, which focuses on compliance and regulatory oversight, are below. In part two, we will take a closer look at innovation and education.
COMPLIANCE
Early in 2023, Nacha released a new Risk Management Framework with the idea that business as usual with ODFI warranties and liabilities isn't enough to protect receivers. Nacha then released a sizeable Request for Comment on numerous ACH Rule changes and a few questions. We typically go into a new year with a slate of upcoming Rule changes, but so far, there's been silence. What are your expectations, and what are the industry's expectations of new Rules?
Carter: The industry should prepare for a ballot to be released within the first or second quarter. The big questions are: When will the rules be implemented, and what does the final text look like?
Mumper-Morrison: There is a recognition that all payments' parties have a role in preventing fraud and the potential recovery of funds. Other than objections to the proposed timelines, we heard member feedback that some of the Rules, particularly RDFI credit monitoring and the expansion of commercially reasonable fraud monitoring to all parties, did not provide enough guidance to DFIs and that there was a lack of clarity as to the Rules impact to an entity that misses a fraudulent transaction and allows it to slip through.
Pirnie: At least some of these new ACH Rules are in response to successful lawsuits against the RDFI, given institutions' existing obligations under KYC and AML. I think it's a good time for all ACH DFIs to take a closer look at how they are balancing legal requirements with ACH Rules.
Though those Rules have yet to ballot, we saw a lot of compliance developments in 2023, and it never seems to get easier. What should FIs watch for in 2024? Also, what do you think had the greatest impact in 2023?
Mumper-Morrison: Fraud, credit-push fraud specifically, had a significant impact in 2023 and will continue to have an impact into 2024. Nacha voting members will soon be voting on a slew of potential new Rules that attack credit-push fraud, and there have been rumblings from certain members of Congress and the CFPB on whether these transactions are indeed "authorized."
Carter: Very true, and FIs dealing with third parties will need to continue absorbing the most recent third-party management guidance that came out in June 2023. The election year may move or resolve the cannabis issue and where Congress goes next on artificial intelligence (AI). What happens in the digital asset environment will also be interesting.
Dixon: To Sean's first point, the world of open banking and FinTech partnerships is getting more heavily scrutinized. The new interagency guidance on third-party management addresses some of this. I expect we will see more, such as the definition of a third-party receiver coming from Nacha. Financial services continue to evolve with exciting new opportunities, and the convergence of technology and banking is catching up from a government oversight perspective.
Pirnie: That convergence of technology and banking is impacting a lot of compliance issues. For instance, as payments move faster, often through non-traditional channels, and third parties such as crypto mixers are involved in transactions, institutions need to be super-aware of their role in the transactions. They need to ensure all parties are compliant with not only existing compliance obligations but "interpretations" that are often issued long before laws change that ultimately will assign oversight or requirements. Because regulators are often slow to respond at the federal level to control payments-related risks, states sometimes jump in with state-level laws to fill gaps or exceed what federal laws intend to do. FIs must be proactive, monitoring potential future changes and be ready to adapt quickly.
REGULATORY OVERSIGHT
With increased activity from CFPB and even the implementation of Dodd-Frank 1071 for small businesses, we can expect hyper-vigilance around economic impacts on consumers but also potential challenges. I think Congress is going to question the role of regulators in banking. Also, what is Congress going to do with crypto? What do you see as must-watch initiatives from a regulatory perspective?
Mumper-Morrison: Unsurprisingly, FIs should keep an eye on the CFPB in 2024, as they've indicated a number of hot topics on their plate (and those hot topics could go cold depending on what happens in the 2024 elections). Some examples other than Reg E, 1033 on Personal Data Rights/Consumer Data, the Larger Participant Rule, and the "Junk" Fees NSF/OD NPRM.
Carter: FIs agreeing to make consumers whole when deceived into making a transfer is a big step. The details of how or to what extent that happens are the pieces that will get the attention of the CFPB. We also will need to keep looking at digital assets, as well as watching how the self-regulation of Zelle by the larger FIs goes in the area of P2P fraud. Fortunately, there is always the ability to comment on potential rules, and FIs must ensure they have a voice directly and through the trade groups representing them.
Dixon: I agree that we are going to continue to see a focus on transparency and control. This means there are more requirements imposed for FIs to pass this information and control on to the end user, even when they may be relying on a third party to accomplish this. One of the areas concerning FIs is how they control third parties that they don't deal with directly. For example, a consumer links their account information into a mobile wallet, but then, the FI is expected to manage that control and safeguarding.
Pirnie: In addition to all of the aforementioned issues, FIs will contend with the Anti-Money Laundering Act (AMLA) of 2020 this year. Considering FinCEN's slow and confusing start to addressing only one of the AMLA's 12 parts, it's going to be a challenge. Some regulations may offer a barrage of new interpretations, one regulator at a time, on existing legal requirements, and then, toss in your state laws where applicable, plus your consumer account holders' state laws if the consumer protection law of their state prevails, and you're left with a confusing mix of regulations to balance.
A CALL TO ACTION
Based on today's discussion, financial institutions should expect a number of potential changes, including new rules to ballot, regulatory initiatives with a heightened focus on transparency and digital assets, and increased activity for CFPB. To prepare for how these changes may impact individual institutions, consider joining NEACH U's School of Compliance. Or, to stay abreast of the latest developments, watch for upcoming webinars via NEACH's online learning.
And watch for part two of our discussion for NEACH leaderships' thoughts on risk and innovation.
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AUTHOR: Joe Casali, AAP, NCP
Executive Vice President
As the EVP of Payments Innovation for NEACH, Joe focuses on exploring innovative solutions and technologies that will help position members for success, both now and in the future. Connect with Joe to read more of his blogs, articles, and posts.
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