FedMSB Submits Comments on Payment Account Proposal
The Federal Money Services Business Association (FedMSB) has recently submitted a detailed comment package to the Federal Reserve in response to the Request for Information regarding a proposed "Payment Account" meant for clearing and settlement purposes. This submission illustrates the Fed's acknowledgment of the need for innovative access models while highlighting the significant obstacles faced by Money Services Businesses (MSBs).
Understanding the Need for New Access Models
FedMSB applauded the Federal Reserve for its initiative to evolve the payment systems. However, it raised concerns about the persistent barriers that MSBs encounter in gaining direct access to Federal Reserve services. As expressed by Van Young, President of FedMSB, "While the Fed deserves credit for recognizing that payments innovation requires new access models, a narrower door is not the same as broader access. MSBs, which cater to millions of consumers and handle significant payment volumes, remain marginally connected to critical settlement pathways. This dependency on indirect access exposes them to risks that can affect their operations."
For MSBs, this situation is precarious. They often depend on other financial institutions for settlement—a model that could lead to interruptions if those institutions decide to limit their services, a trend known as "de-risking." This results in unpredictable payment flows and puts undue pressure on MSBs and their clients. Young added, "Indirect access can work until it fails, leading to operational and liquidity risks that can escalate rapidly."
A Comprehensive Solution from FedMSB
FedMSB's comment goes beyond mere critique, offering a structured framework aimed at enhancing the resilience of the payment system without modifying existing legal eligibility standards. This framework includes:
- Agreements-ready safeguards for compliance with anti-money laundering (AML), bank secrecy act (BSA), counter-terrorist financing (CFT), cybersecurity risks, and operational resilience.
- An escalation and remediation framework for addressing significant control deficiencies.
- A standardized set of controls, metrics, and reporting templates designed to enhance transparency and supervisory efficacy throughout indirect settlement setups.
Through these recommended tools, FedMSB seeks to support the Federal Reserve's supervisory goals while minimizing the review burden on institutions, ensuring a framework that is clearer, accountable, and robust.
Importance of Addressing Payment System Access
This ongoing discussion is timely, as the Federal Reserve's focus on the Payment Account initiative highlights the importance of instant payments and real-time settlement in current financial stability dialogues. With the rapid evolution of payment systems, FedMSB warns that unresolved issues regarding access could lead to increased systemic stress during market upheavals.
Young remarked, "The infrastructure that supports our payments is now a front-and-center topic. It is crucial to address who is allowed to connect, how connections are forged, and the stipulations surrounding these connections for maintaining continuity and competitive integrity within the system."
About FedMSB
The Federal Money Services Business Association (FedMSB) is a national nonprofit trade association that represents MSBs across the country. Established under IRC § 501(c)(6), FedMSB plays a pivotal role in shaping standards and fostering collaboration within the non-bank financial services sector. Its commitment to policy engagement, industry certification, and educational resources helps strengthen regulatory frameworks while supporting technical innovation aimed at fostering a reliable financial ecosystem.
For more information about FedMSB and its activities, please visit www.FedMSB.org.
Contact:
Ms. Jennifer Wynn
Federal Money Services Business Association
Phone: 212-951-1168
Frequently Asked Questions
What is the main purpose of FedMSB's comments on the Payment Account proposal?
FedMSB aims to highlight gaps in access for MSBs while proposing solutions that could enhance payment systems resilience.
How does indirect access impact Money Services Businesses?
MSBs relying on indirect access face operational risks and potential service interruptions, particularly in a de-risking environment.
What frameworks has FedMSB suggested for improving payment systems?
They recommend safeguards for compliance, a remediation framework for deficiencies, and standardized reporting templates to foster transparency.
Why is the discussion around payment access timely?
The Federal Reserve's initiative highlights the critical nature of payment systems as financial technology continues to evolve rapidly.
Who can benefit from the proposed framework by FedMSB?
MSBs and other related financial entities could benefit by having a clearer, more defensible operational framework in place.
