On January 26, The Board of Governors of the Federal Reserve System (the “Federal Reserve”) issued “Strategies for Improving the U.S. Payment System,” (the “Plan”) which is a detailed proposal for updating the nation’s payment system. The Plan is the result of 18 months of work between the Federal Reserve and payment system stakeholders following the Federal Reserve’s release of “Payment System Improvement Public Consultation Paper.” The Federal Reserve hopes that stakeholders can reach general consensus on the points in the Plan and will begin to implement those elements together.
The primary objectives of the Plan are to: utilize electronic advancements to increase the speed of payments for endusers while simultaneously increasing the flexibility, costefficiency, and certainty of the payment system for clearing and settlement organizations; increase the options available for U.S. users to send and/or receive payments internationally, and gain sufficient buyin from stakeholders so that actions are taken by a sufficient number of entities to make the upgrades worthwhile.
Another primary objective is the safety of the payment system, and this objective has only gained in prominence following the publicity surrounding cyberattacks directed at large retailers. The Federal Reserve stated that it is “[p]lacing high priority on improving authentication of transactions, parties and equipment in the payment process and actively pursuing ways to protect sensitive information and limit its use and availability.” Therefore, the Federal Reserve proposes to: (i) establish and lead a Payment System Task Force which, among other things, will provide advice on security matters; (ii) help implement security standards for payment systems; (iii) increase the Federal Reserve’s antifraud and riskmanagement services; and (iv) help share information regarding payment fraud data and payment security research.
In the wake of the security breaches experienced by large institutions last year and the customer and shareholder confidence concerns raised thereby, it is advisable for all payment system participants to examine the Federal Reserve’s Plan. Institutions should remain alert to further Federal Reserve announcements and should evaluate whether, and to what extent, their organization is, or should be, compliant with those announcements.