Regulatory Update – Deposits

2. Regulatory Update – Deposits Sam Teague Teague Consulting Group

3. Overview • Regulation CC – Proposed Changes • Regulation E – Remittance Transfers • ACH – Proposed Changes • FinCEN – CDD Proposal • IRS Issues • Miscellaneous

4. Regulation CC Proposed Changes

5. Regulation CC – Proposed Changes Dates • 3/25/11 – Proposed Rule • 6/3/11 – Comments Due • 1/8/13 – CFPB’s Semiannual Regulatory Agenda • Final Rule is expected by August 2013.

6. Regulation CC – Proposed Changes • Eliminate References To “Non-Local” Checks • Dodd-Frank Act Provisions • §1086(e) – $100 next-day availability is now $200 • §1086(f) – CPI adjustments every 5 years • Next-day availability amount (currently $200) • Cash withdrawal amount ($400 rule) • New account exception (currently $5,000) • Large item exception (currently $5,000)

7. Regulation CC – Proposed Changes • Reduced Timeframes For Exception Holds • Deposits At Non-Proprietary ATMs • Maximum hold reduced from 5 to 4 business days • Disclosures & Notices • Models would become more “tabular” and less “narrative • Simpler language to describe the “business day on which funds are available for withdrawal”

8. Regulation CC – Proposed Changes • Disclosures & Notices (cont.) • Exception Hold Notices • Would have to include the “total amount of the deposit” • Could only state one reason for the hold • Would have to specify the “day funds will be made available” instead of the “time period within which the funds will be available for withdrawal” • Electronic notices would have to be sent so that the customer will receive it no later than the first business day after deposit (e.g., via e-mail)

9. Regulation CC – Proposed Changes • Disclosures & Notices (cont.) • Case-By-Case Hold Notices • Would have to include the “total amount of the deposit” • Would have to specify the “day funds will be made available” instead of the “time period within which the funds will be available for withdrawal” • Electronic notices would have to be sent so that the customer will receive it no later than the first business day after deposit (e.g., via e-mail)

10. Regulation E Remittance Transfers

11. Regulation E – Remittance Transfers Dates • 5/23/11 – Proposed Rule (FRB) • 7/22/11 – Comments Due • 2/7/12 – Final Rule (CFPB) • 2/7/13 – Effective Date • 8/20/12 – Amendments Round #1 (Final) • 12/31/12 – Amendments Round #2 (Proposed) • 1/29/13 – Effective Date Delayed

12. Regulation E – Remittance Transfers • Purpose • Protections for consumers who send remittance transfers to foreign countries • Scope • Wire Transfers • International ACH Transactions

13. Regulation E – Remittance Transfers • Disclosures • Prepayment Disclosure • Receipt • Combined Disclosure • Long-Form Error Resolution & Cancellation Notice

14. ACH Proposed Changes

15. ACH – Stop Payments Return Reason Codes • New Code “R90” (Payment Stopped – All Future Entries) • Used to return entries related to a stop payment that applies to all future entries. • Existing Code “R80” (Payment Stopped – Ind. Transaction) • Used to return entries related to a stop payment that applies to a single transaction. • Objective • To assist originators in determining whether or not future entries should continue to be originated. • 3/20/15 – Proposed Effective Date

16. ACH – IAT Entries Country Codes • In certain fields of an IAT entry, countries would have to be identified using their official ISO Country Code. • Originator County & Postal Code (field #4 in the 3rd IAT Addenda Record) • Receiver Country & Postal Code (field #4 in the 7th IAT Addenda Record) • Objective • To reduce the potential for errors in (1) populating the fields, and (2) screening for OFAC compliance. • 3/21/14 – Proposed Effective Date

17. ACH – IAT Entries Ultimate Beneficiary • New requirements would apply when the Originator of an IAT entry is not the ultimate beneficiary of the transaction. • The “Payment Related Information” (field #3 in the IAT Addenda Record For Remittance Info.) would have to include info. about the ultimate beneficiary: name, street address, city, state/province, postal code, ISO country code. • Objective: • To ensure that the ultimate beneficiary is identified within the IAT entry and thus can be screened for OFAC. • 3/21/14 – Proposed Effective Date

18. ACH – Double Re-Credits • New Dishonored Return Reason Code “R62” • Would be used by an Originator/ODFI when a reversal has already been initiated to correct the erroneous entry. In other words, the Originator/ODFI would not honor the return because the error has already been corrected via the reversal process. • New Contested Dishonored Return Reason Code “R77” • Would be used by an RDFI when both the original entry and the reversing entry were returned by the RDFI, or when the dishonored return entry (R62) would cause the RDFI to suffer a loss relating to the reversal process. In other words, the RDFI would contest the dishonored return because the reversal that was supposed to correct the error was also returned.

19. ACH – Double Re-Credits • Objective • To address situations where a Receiver gets re-credited twice for the same error. • This situation can occur when both the Originator (via a reversal) and the Receiver (via a return) attempt to correct the same error. • 3/20/15 – Proposed Effective Date

20. ACH – P2P Payments • Objective • To standardize the use of the ACH network for P2P pmts. • Definition: • A P2P entry would be defined as a credit entry initiated by or on behalf of a holder of a Consumer Account to a Consumer Account of a Receiver. • SEC Code • P2P entries would be processed as a “credit” version of the WEB (Internet-Initiated/Mobil Entry) SEC Code. • 3/21/14 – Proposed Effective Date

21. ACH – P2P Payments (Formatting) • Company/Batch Header Record • Company Entry Description - would include a description that will let the consumer Receiver know that the entry was a P2P transaction. The description used would need to be something that is meaningful to the consumer (e.g., a financial institution could include the name of their service as the description). • Company Name Field - would contain the service provider’s name and the sender’s financial institution.

22. ACH – P2P Payments (Formatting) • Entry Detail Record • Individual ID Field - would contain the consumer Originator’s (sender’s) name. This is used to comply with Reg. E statement requirements. • Individual Name Field - would contain the consumer Receiver’s name.

23. ACH – P2P Payments (Addenda Records) • New Addenda Type Code “06” • This would be used to indicate that “Payment Related Information” field of the Addenda Record contains a URL link to additional payment related documentation. It would be optional for an ODFI/Originator to use this type of Addenda Record. And it would be optional for an RDFI to provide the information contained within it to its customers. • Existing Addenda Type Code “05” • With this code, Originators would be permitted to place up to 80 characters of payment related information in the “Payment Related Information” field of the Addenda Record in plain-text format. This would allow consumer Originators to include additional information to further identify the payment (e.g., the purpose of the payment).

24. FinCEN CDD Proposal

25. FinCEN – CDD Proposal • Customer Due Diligence • 3/5/12 • FinCEN requests comments on the possible development of a CDD regulation for financial institutions • 5/4/12 • Comments were due (later extended to 6/11/12) • Objective • To promote uniformity and consistency in the way financial institutions carry out their CDD procedures (as part of BSA/AML compliance programs)

26. FinCEN – CDD Proposal Key Areas • Customer Identification & Verification • Nature & Purpose Of An Account • Obtaining Beneficial Ownership Information • Ongoing Monitoring

27. FinCEN – CDD Proposal Customer Identification & Verification Covered financial institutions shall identify, and on a risk-basis verify, the identity of each customer, to the extent reasonable, such that the institution can form a reasonable belief that it knows the true identity of each customer. • No new requirements expected. • Financial institutions should already be following similar procedures in order to comply with the existing Customer Identification Program (CIP) rules.

28. FinCEN – CDD Proposal Nature & Purpose Of An Account Covered financial institutions shall understand the nature and purpose of the account and expected activity associated with the account for the purpose of assessing the risk and identifying and reporting suspicious activity. • No new requirements expected. • Financial institutions should already be following similar procedures in order to comply with the existing requirements to (1) assess risk, and (2) detect/ report suspicious activity.

29. FinCEN – CDD Proposal Obtaining Beneficial Ownership Information Except as otherwise provided, financial institutions shall identify the beneficial owner(s) of all customers, and verify the beneficial owners’ identity pursuant to a risk-based approach. • Under Section 312 of the USA PATRIOT Act, financial institutions are already required to obtain beneficial ownership information for (1) private banking accounts, and (2) correspondent accounts. • Under the rule being considered, financial institutions would be required to obtain beneficial ownership information for all accounts. • Exemptions would likely be provided for customer that may be considered low risk.

30. FinCEN – CDD Proposal Ongoing Monitoring Consistent with its suspicious activity reporting requirements, covered financial institutions shall establish and maintain appropriate policies, procedures, and processes for conducting on-going monitoring of all customer relationships, and additional CDD as appropriate based on such monitoring for the purpose of the identification and reporting of suspicious activity. • No new requirements expected. • Financial institutions should already be following similar procedures as part of their overall BSA/AML programs.

31. IRS Issues

32. IRS Issues – Overview • Information Reporting • Tax Year 2013 Form Changes • TIN Truncation • 1042-S Reporting • Fiscal Cliff Legislation • IRPAC Recommendations To IRS

33. Tax Year 2013 Form Changes (as of 4/21/13)

34. Changes Impacting All Forms • Payer’s Name Box – Caption Expanded • 1099-INT caption now reads: PAYER’S name, street address, city or town, province or state, country, ZIP or foreign postal code, and telephone no. • Recipient’s Name Box – Last Address Line Caption Expanded • 1099-INT last address line caption now reads: City or town, province or state, country, and ZIP or foreign postal code. • Web Links • 1099-INT web link reads: www.irs.gov/form1099int

35. 1099-INT – Interest Income • Form Size Enlarged • No Significant New Information

36. 1099-K – Payment Card Transactions • New Boxes • Box 4 – Federal Income Tax Withheld • Box 6 – State • Box 7 – State Identification No. • Box 8 – State Income Tax Withheld

37. 1099-MISC - Miscellaneous Income • New Box 11 – Foreign Tax Paid • New Box 12 – Foreign Country or U.S. Possession

38. 1099-OID – Original Issue Discount • Form Size Enlarged • New Box 5 – Foreign Tax Paid • New box 6 – Foreign Country Or U.S. Possession • Existing Boxes 5-10 Renumbered As Boxes 7-12

39. Forms With No Changes • 1042-S……..…. Interest Paid To NRAs • 1099-DIV….…. Dividends & Distributions • 1099-Q.......... ESA Distributions • 1099-R………… IRA Distributions • 1099-SA………. HSA Distributions • 5498……………. IRA Contributions • 5498-ESA…….. ESA Contribution Information • 5498-SA......... HSA Contributions • W-2…………….. Wage & Tax Statement

40. 2013 Forms Not Yet Available • 1099-B……..…. Proceeds From Broker & Barter Exchange Transactions

41. TIN Truncation (a/k/a TIN Masking)

42. TIN Truncation • 10/16/08 – IRPAC Report To IRS • Recommends that filers be allowed to truncate (mask) taxpayer TINs on information returns. • Objective: To help prevent identity theft. • 11/19/09 – IRS Notice 2009-93 • TIN truncation permitted on taxpayer copies (generally Copy “B”)

43. TIN Truncation • Pilot Program • Tax years 2009 & 2010. • Forms Covered • 1098 series (except 1098-C – Contributions of Motor Vehicles, Boats, & Airplanes) • 1099 series • 5498 series NOTE: Forms1042-S & Form W-2 are not included

44. TIN Truncation • Media Covered • “Paper” payee statements (not “electronic” statements) • TINs Covered • SSNs, ITINs, & ATINs (not EINs) • Format • ***-**-6789 OR • xxx-xx-6789

45. TIN Truncation • 1/5/10 – IRS Clarifications • Scope – may truncate the TIN on all copies of the form that are furnished to the payee. • Disclosure – may include a note on the 2009 forms stating that the TIN has been truncated. 2010 forms included this information already. • 4/14/11 – IRS Notice 2011-38 • Pilot program extended for 2 more years (2011 & 2012)

46. TIN Truncation • 1/7/13 – Proposed Rule Published In Federal Register • 2/21/13 – Comments Due • Pilot Program: would be made permanent. • Participation: would continue to be voluntary. • Scope: would be expanded to include forms that are delivered “electronically” • New Terminology: the truncated TIN would be referred to as a “TTIN” • TTIN = Truncated Taxpayer Identification Number

47. 1042-S Reporting

48. 1042-S Reporting • Reporting Deposit Interest Paid To Residents Of Canada • 1988 – Proposed Rules • 4/22/96 – Final Rules • 1997 – First Year Of Reporting • Intended to fulfill U.S. obligations under an income tax treaty with Canada • Efforts To Expand Reporting • 2001 – Proposal to include all NRAs (not just Canadians) • 2002 – Proposal to include residents of 15 specific countries • 2011 – Proposal to include all NRAs (not just Canadians)

49. 1042-S Reporting • Expanded Reporting • 4/19/12 – Final Rule • 1/1/13 – Effective Date • Applies to NRAs who are residents of foreign countries that have information exchange agreements with the U.S. • IRS Revenue Procedure 2012-24 lists the countries • If a country is listed as of 12/31 of a given year, then reporting is required for the following year. • Example: since “Aruba” was on the list as of 12/31/12, banks must report deposit interest paid to residents of Aruba during tax year 2013 (on a 2013 Forms 1042-S filed in early 2014).

50. Fiscal Cliff Legislation