FedNow Service to permit intermediary fund transfers for cross-border payments
The Federal Reserve Board proposes amending Regulation J to allow FedNow participants to use intermediaries for funds transfers. This change aims to support private-sector cross-border payment solutions by enabling FedNow for the U.S. domestic portion of international transactions.
Unlocking FedNow's global potential
Launched on July 20, 2023, the FedNow Service currently supports only domestic instant payments, as Regulation J prohibits the use of non-Reserve Bank intermediaries.
This limits transfers to two U.S. banks, preventing cross-border use despite earlier plans to evaluate expansion.
Responding to participant interest, the Board now proposes amending Regulation J to permit non-Reserve Bank intermediaries.
This change would allow FedNow participants to use correspondent banks for the international portion of a transaction, while FedNow handles the U.S. domestic part.
The Board notes this aligns FedNow with the Fedwire Funds Service, which has long permitted intermediaries, and believes it introduces no material new money laundering, sanctions evasion, or payment system integrity risks, as the correspondent model is well-established.
Regulatory adjustments for broader access
The proposed amendments target specific sections of Regulation J. Section 210.42
(a) would permit a Reserve Bank to rely on a number identifying an intermediary bank, aligning with Article 4A of the UCC and mirroring Fedwire rules.
Section 210.45
(b) would allow FedNow payment orders to designate non-Reserve Bank intermediary banks.
The Board also clarifies funds-availability requirements: immediate availability applies only when a U.S. beneficiary's bank accepts a FedNow payment order, not to intermediary banks in cross-border transfers.
A competitive impact analysis found no adverse effect on private-sector payment service providers.