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Sound Business Practices for the ODFIs of Third-Party Senders: Part 1

(Part 2)

Third-Party Senders are an important part of the ACH Network, providing a range of services to Originators and ODFIs. This is the first of two articles in which Nacha’s Risk Management Advisory Group (RMAG) provides advice on sound business practices surrounding Third-Party Senders.

RMAG recommends these sound business practices for ODFIs of Third-Party Senders:

  1. Understand your institution’s policies and procedures for originating ACH entries for Third-Party Senders. This will likely require the education and training of sales officers, operations officers, credit officers, and others throughout your organization.
  2. “Know Your Customer” (KYC) and “Know Your Customer’s Customer” (KYCC) principles are crucial for the ODFI. Due diligence and underwriting requirements for Third-Party Senders may require additional approvals before onboarding them as a client.
  3. Review the Third-Party Sender’s Nacha Rules Compliance Audit and Risk Assessment before onboarding as a new client.
  4. Establish and monitor return activity at the Third-Party Sender level and the underlying Originator level. Be familiar with the ODFI Return Rate Reporting rules (Nacha Operating Rules, Subsection 2.17.2).
  5. Ensure that your institution’s agreement with the Third-Party Sender is robust and includes defining the liabilities of each party under the Nacha Operating Rules. For example, confirming the types of businesses for which the Third-Party Sender processes transactions. This is to ensure the Third-Party Sender is not processing for clients defined by your institution as restricted or prohibited businesses.
  6. Ensure the Third-Party Sender is registered by your institution with Nacha as required in the Nacha Operating Rules, Subsection 2.17.3, Third-Party Sender Registration.

As one respondent to an RMAG survey noted: “Know your Originators’ patterns and practices. Monitor on a regular basis and not just when something goes wrong.”

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.