Fed Proposes to Allow Banks to Use Third-Party Intermediaries for FedNow Transfers

The Federal Reserve Board ("Fed") proposed a rule to allow U.S. banks and credit unions to use intermediaries, other than Federal Reserve Banks, to transfer funds through the FedNow Service.

As the Fed explained in the proposed rule, the FedNow Service "is an interbank real-time gross settlement service that supports instant payments in the United States 24x7x365." The proposed rule would amend Subpart C ("Funds Transfers Through the FedNow Service") of Regulation J ("Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers Through the Fedwire Funds Service and the FedNow Service"). The Fed explained that when the FedNow Service launched in 2023, it was restricted to domestic instant payments to ensure a timely rollout. Under current rules, a funds transfer sent through FedNow can only include two U.S. banks aside from a Reserve Bank. The proposed amendments would remove this restriction, allowing for FedNow participants to utilize correspondent banking networks to facilitate the U.S. domestic leg of cross-border transactions.

The Fed said that the proposed amendments would (i) facilitate cross-border payments, (ii) align FedNow capabilities with the Fedwire Funds Service, (iii) not alter the payment flow between FedNow participants or change which entities can connect to the service, and (iv) prevent unnecessary administrative burden.

Comments on the proposal are due within 60 days of its publication in the Federal Register.