RMAG SURVEY EXPOSURE LIMITS AND RISK MODELS NOVEMBER 10

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RMAG Survey Exposure Limits and Risk Models

November 10, 2016 Page 11

RMAG SURVEY EXPOSURE LIMITS AND RISK MODELS NOVEMBER 10

Risk Exposure Limits & Risk Models

ODFI Participant Survey

November 10, 2016

Survey Responses Due by Thursday December 15, 2016

BACKGROUND

The NACHA Risk Management Advisory Group (RMAG) is conducting a study of the methodologies used by Originating Depository Financial Institutions (ODFIs) to manage ACH risk in their client portfolios.

This survey gathers information from ODFIs on their current practices for setting exposure limits, performing credit reviews, and using other risk mitigation techniques. RMAG plays a vital role in working with NACHA staff and key industry stakeholders to produce sound business practices, rules recommendations, and industry education through sharing its findings with payments professionals across payments channels.

The survey should take no more than 25 minutes of your time to complete. All data collected through this survey will be anonymous and reported in aggregate. No individual responses will be attributed to a particular respondent.

The survey should be completed online at https://www.surveymonkey.com/r/9B3GG5S by Thursday December 15, 2016. For convenience, the survey questions are also provided within this document to assist respondents in gathering information from within their organizations.

Regional Payment Associations are encouraged to forward this invitation to complete this survey to their financial institution members that originate forward transactions on behalf of corporate account holders.

NACHA Staff Contacts

Administrative questions: Gitika Agrawal

E-mail: [email protected]

Questions: Peter Hohenstein, Senior Director ACH Network Administration

E-mail: [email protected]

Demographic Question

Financial Institution Information

Asset Size		less than $250 million
		$250 million - $999 million
		$1 billion - $100 billion
		greater than $100 billion

What areas of your organization provided input for the responses to this survey?

	Operations		Wholesale/Corporate Banking/Treasury Management
	Product Management		Customer Service
	Legal		Compliance
	Information Technology/Software		Retail/Online Banking
	Credit Policy or Credit Underwriting
	Other:

Section I –

Article Two of the NACHA Operating Rules state that:

“An ODFI must perform due diligence with respect to the Originator or Third-Party sufficient to form a reasonable belief that the Originator or Third-Party has the capacity to perform its obligations in conformance with these Rules.

In addition, the ODFI must:

assess the nature of the Originator’s or Third-Party Sender’s ACH activity and the risks it presents
establish, implement, and periodically review an exposure limit for the Originator or Third-Party; and
establish and implement procedures to:
1. monitor the Originators or Third-Party Sender’s origination and return activity across multiple Settlement Dates;
2. enforce restriction on the types of Entries that may be originated; and
3. enforce the exposure limit.”

The NACHA Risk Management Advisory Group requests your responses and comments on the following questions:

Credit Risk Management & Policy

Question 1. Does your organization’s Credit Policy, Credit Risk Policy, or Risk Management Policy specifically mention ACH?
	Yes
	No

Question 2. At what level does your organization manage ACH transaction risk for your clients?
	Client Relationship Level
	By Division or Line of Business within a Client Relationship
	Account Level
	Other
If you checked the box “Other” please specify:

Question 3. Does your organization include ACH exposure with other types of exposure for managing the relationship?
	Yes
	No
	Do Not Know

Question 4. Does your organization disclose the exposure limits to clients?
	Yes
	No
	Depends on the situation

Question 5. Does your organization manage, track, and/or report ACH exposure by industry classification or industry code?
	Yes
	No
	Other
If you checked the box “Other” please specify:

Question 6. Does your organization have different ACH credit underwriting criteria for clients based upon their industry classification or industry code?
	Yes
	No
	Other
If you checked the box “Other” please specify:

Question 7. What other criteria does your organization use in its ACH credit underwriting policy? (Check all that apply)
	Business segment the client is in (examples: small business, or money service business, or other)
	New client vs. existing client
	Length of time as a client
	New line of business or changed business model for an existing client
	Creditworthiness (as defined by your organization)
	Recent change in client financial condition (as defined by your organization)
	Originate for self vs. as a 3^rd Party Originator for others
	SEC Code
	Other
If you checked the box “Other” please specify:

Limits & Controls

Question 1. How does your organization establish ACH limits for your clients?
	File Limits (dollar limit per file per day)
	Exposure Limits (dollar exposure across a time period)
	Both File and Exposure Limits
	Neither File nor Exposure Limits
	Other
If you checked both file and exposure limits briefly explain circumstances for using one over the other?

Question 2. How are your organization’s exposure limits set? Please check all that apply.
	Aggregated activity over multiple settlement dates
	Daily file origination
	Weekly file origination
	Monthly file origination
	Other
If you checked the box “Other” please specify

Question 3. How does your organization monitor exposure limits over multiple settlement dates?
	Activity released to the Network, but not yet settled
	Activity released to the Network and some portion of the activity still in your ACH transaction warehouse
	Other
If you checked the box “Other” please specify

Question 4. How often does your organization review established exposure limits? Check all that apply
	Quarterly
	Semi-annually
	Annually
	Ad hoc (exception) basis
	Other
If you checked the box “Other” please specify

Question 5. How does your organization establish exposure limits for Internal Originators? (i.e.: Card Services, Mortgage Loan, Auto Loan etc.)
	We do not establish exposure limits for Internal Originators
	We establish exposure limits high enough that their files will not suspend
	We establish limits, having previously monitored their origination volumes
	Other
If you checked the box “Other” please specify

Underwriting for Credit Origination

Question 1. What criteria are used by your organization to determine whether a credit origination client should be on prefund? Check all that apply
	Business segment the client is in (example: small business, or money service business, or other)
	New client vs. existing client
	Length of time as a client
	New line of business or changed business model for an existing client
	Creditworthiness (as defined by your organization)
	Recent change in client financial condition (as defined by your organization)
	Originate for self vs. as a 3^rd Party Originator for others
	SEC Code
	Other
If you checked the box “Other” please specify:

Question 2. Does your organization require credit underwriting for prefunded credit origination clients?
	Yes
	No
	Other
If you checked the box “Other” please specify:

Question 3. Does your organization establish an exposure limit for prefunded credit origination clients?
	Up to the Available balance is the limit (variable by day)
	Up to a defined percentage of the Available balance (example: 80%)
	Tiered based on other client criteria (fixed amount based on tier)
	Not defined on the system
	Business segment the client is in (see examples in question #1)
	Other
If you checked the box “Other” please specify:

Underwriting for Debit Origination

Question 1. Does your organization require credit underwriting for debit origination clients?

Yes

Question 2. What criteria are used by your organization to determine a debit origination client’s exposure limit? Check all that apply
	Business segment the client is in (example: small business, or money service business, or other)
	New client vs. existing client
	Length of time as a client
	New line of business or changed business model for an existing client
	Creditworthiness (as defined by your organization)
	Recent change in client financial condition (as defined by your organization)
	Originate for self vs. as a 3^rd Party Originator for others
	SEC Code
	Other
If you checked the box “Other” please specify:

Question 3. Under what circumstances, if any, does your organization permit prefund credit origination clients to originate debits?
	If they are a prefund client we don’t allow them to do debits
	We allow them to do debits and we use our normal underwriting processes
	We allow them to do debits but we do a “debit hold” procedure
	Other
If you checked the box “Other” please specify:

Question 4. Does your organization monitor the following for an Originator to ensure continued credit worthiness? Check all that apply
	Return rate - overall
	Return rate – invalid
	Return rate - unauthorized
	Over limit suspends (number of times in a time period)
	Dormancy – Inactive Status
	Other
If you checked the box “Other” please specify:

The next several questions are about a risk mitigation technique that is sometimes called either “deferred settlement”, “delayed settlement” or “debit hold” in which the ODFI credits the Originator of the debits, but “holds back the availability” for a defined time period to attempt to ensure that there will be sufficient funds available in the account to cover any returned items. This could also involve holding collateral in the form of either funds, or securities.

Question 5. Does your organization use “deferred settlement”, “delayed settlement” or “debit hold” for debit origination customers?
	Yes, all debit originators are placed on deferred settlement
	Yes, In certain circumstances some debit originators are placed on deferred settlement. Please comment below on the circumstances where your organization would use this technique
	No, our organization does not used deferred settlement

Question 6. What criteria are used to place a customer on this type of delayed settlement?
	Size of files
	Frequency of files
	Credit worthiness (as defined by your organization)
	Industry classification (High Risk as defined by your organization)
	Other
If you checked the box “Other” please specify:

Question 7. How long does your organization hold the client's funds when they are on deferred settlement?
	1-3 days
	4-5 days
	Greater than 5 days
	Other
If you checked the box “Other” please specify:

Question 8. Would your organization know if a credit pre-funded customer started to originate debits?
	Yes
	No
If yes: how would you know?

Question 9. What would happen to the files of a credit pre-fund customer if they originated debits?
	File would suspend
	File would process
	Other
If you checked the box “Other” please specify:

Balanced Files & Off-Us Settlement

Question 1. Does your organization allow Originators to provide balanced files?
	Yes, any customer may submit balanced files
	Only certain customers may submit balanced files. Please comment below on the circumstances where it would be allowed.
	No

Question 2. Does your organization allow Originators to use “off-us” accounts for settlement?
	Yes, any customer may use "off-us" accounts for settlement
	Only certain customers may use “off-us” accounts for settlement. Please comment below on the circumstances where it would be allowed.
	No
	No, but for balanced files our organization does not validate settlement transaction so it may be occurring.

Question 3. Does your organization allow an Originator to use an off-us account for the settlement of returns?
	Yes, any customer may use "off-us" accounts for settlement of returns
	Only certain customers may use "off-us" accounts for settlement of returns. Please comment below on the circumstances where it would be allowed.
	No

Section V – Other Comments

Question X. Does your organization have any suggestions for sound business practices, or additional NACHA Operating Rule requirements around mitigating risk related to origination of ACH transactions?

Please describe ______________

(YOUR LIBRARY NAME) SAMPLE SURVEY 5 PATRON SURVEY
0 TITLE LINE 7 TRAVELLER POLICY OFSTED SURVEY
1 SPECIAL REPORT 3 HONG KONG HOUSEHOLD SURVEY REPORT

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