May 19, 2020

RMAG Sound Business Practices for Risk & Exposure Management


Peter Hohenstein

Peter Hohenstein

Senior Director, ACH Network Administration

Part 1 of 4 (Part 2, Part 3, Part 4

Earlier this year, the Nacha Risk Management Advisory Group (RMAG) met to expand upon a previous RMAG initiative on the topic of risk and exposure management. This is the first in a series of articles in which RMAG provides sound business practices on various risk management topics based on its experience and expertise.

The following are the recommended sound business practices for Credit Risk Management & Policy:

  • Make sure your policies address ACH risk: Depending on how your financial institution has structured its policies, this may be in your overall credit policy, credit risk policy, risk management policy, or in a specific ACH or ACH Risk Policy.
  • Manage risk at the client relationship level: It is important to know your overall exposure risk at the client relationship level. Your management team may also want to review some clients at a more detailed level, such as by subsidiary corporation, division, or line of business within the overall client relationship.
  • Have procedures in place for what to do when exposure limits are approached or breached: These procedures should spell out clear “chain of command” responsibilities such as who should be contacted for review and/or approval when exposure limits are approached or breached. This should also include “who is the backup” when the primary contact is unable to be reached.
  • Manage ACH exposure in coordination with other credit exposures: To have overall insight into the client, your financial institution should manage the ACH exposure in coordination with all other credit exposures to the client
  • Understand the key criteria for managing risk, and which ones are most important to your organization: The credit risk appetite of each financial institution is somewhat different and therefore the criteria that your financial institution uses to manage risk as part of your credit underwriting process may be different. Among the key criteria are the following:
    • Creditworthiness (as defined by your organization)
    • New client vs. existing client
    • Length of time the client has been with your financial institution
    • Self-Origination vs. being a Third-Party Originator
    • Business segment or line of business
    • Recent change in the client’s financial condition (as defined by your organization)

Please continue to follow for additional articles from the Nacha RMAG on sound business practices in risk and exposure management.

The member-only Risk Management Advisory Group (RMAG) works with industry stakeholders and key Nacha staff to continually assess risks faced by Network participants. The group makes recommendations to Nacha about risk education, tools and resources, risk mitigation policies and potential rule changes. Learn more.