Overview
A type of Third-Party Service Provider that acts as an intermediary on behalf of an Originator or another Third-Party Sender in transmitting entries between an Originator and the ODFI when there is not an origination agreement directly between the Originator and the ODFI. In these cases, there is no origination agreement between the ODFI and Originator.
Third Party Sender
The code that identifies a Non-Monetary Entry that is used by an ACH Operator to provide accounting information regarding an Entry to Participating DFIs in machine-readable format. This is an optional service provided by ACH Operators and must be requested by a DFI desiring this service.
ADV :Automated Accounting Advice
Occurs when a party to a transaction cannot provide the necessary funds, as contracted, in order for settlement to occur in the Originator’s account at the ODFI.
Credit Risk
Occurs when the movement of fraudulent or illegal payment transactions from one payments channel to another (e.g., check payments to ACH) is met with inconsistent risk management practices and lack of information sharing across payment channels about fraud.
Cross-Channel Risk
What are the 5 types of risk inherent to the ACH Network?
Credit, Operational, Fraud, Compliance, Systemic
General Manufacturing Company is a locally owned business with a long history in the area. They have an account with Dynamic Bank and use ACH Origination to pay their employees as well as their business partners for supplies and services. What participant is General Manufacturing Company in the regards to the transaction flow?
Originator
The code that identifies a Non-Monetary Entry initiated by a Participating DFI to an agency of the Federal Government of the United States on behalf, and at the request, of an account holder at the Participating DFI to enroll in a service that will enable Entries to such Person’s account at the Participating DFI.
ENR: Automated Enrollment Entry
Occurs when a party to a transaction fails to comply, either knowingly or inadvertently with Network rules and policies, regulations and applicable U.S. and state law.
Compliance Risk
Specific to the ACH Network, defined as a situation in which an Originator, Third-Party Sender or Third-Party Service Provider transmits ACH files directly to an ACH Operator using the ODFI’s routing number and settlement account.
Direct Access Risk
Contingency plans help mitigate this type of risk
Operational
Name two banking industry conventions responsible for the efficient evolution of automated check processing.
Routing number policy adopted by the American Bankers Association (ABA) in 1911; and
National standard for imprinting checks with machine-readable numbers and characters in magnetic ink (Magnetic Ink Character Recognition or MICR) in 1956
A single-entry ACH debit transacaion initiated by an Originator to collect a paper check that has been processed through the check collection system and returned because of insufficient or uncollected funds.
RCK: Re-presented Check Entries
Occurs when a payment transaction is initiated or altered by any party to the transaction (i.e., employees, interlopers, or organizations) in an attempt to misdirect or misappropriate funds with fraudulent intent.
Fraud Risk
Occurs when negative publicity regarding an institution’s business practices leads to a loss of revenue or litigation.
Reputation Risk
What are some sources of operational risk?
Hardware failure, software failure, telecommunications or power failure, human error or staffing problems, and the risk of disaster, such as explosion, fire, flood, or earthquake
Who are the two ACH Operators?
Electronic Payments Network (EPN) and Federal Reserve Bank (FRB)
Debit entries initiated at an “electronic terminal” to transfer funds from a Consumer Account of the Receiver to pay an obligation incurred in a point of-sale transaction, or to effect a point-of-sale terminal cash withdrawal. Entries are originated in a nonshared environment and are used for entries such as grocery, gasoline and other retail payments.
POS: Point-of-Sale Entries
Occurs when a transaction is altered or delayed due to an unintentional error. Examples include clerical error or hardware and/or software failure.
Operational Risk
Associated with the financial institution’s mission and future business plans. This risk category includes plans for entering new business lines, expanding exisDng services through mergers and acquisitions, and enhancing infrastructure.
Strategic Risk
What is some criteria should credit limits for ACH Origination be based upon?
Credit Rating, industry conditions, volume, type of transactions
Can debits be sent via RTP?
No, only credits are available on the RTP system
This transaction set is used for processing lockbox payments
ASC X12 823 – Lockbox
Occurs when a funds transfer system participant is unable to settle its commitments causing other participants to fail.
Systemic Risk
Controlling this type of risk is accomplished by establishing a credit monitoring system by which corporate customers can be evaluated.
Credit(Exposure) Risk
Involves the possibility that earnings or capital will be negatively affected by an institution’s inability to meet its obligations when they come due
Liquidity Risk