CRCM: Certified Regulatory Compliance Manager Exam - Sender's Agreement | 12 CFR 210.28

12 CFR 210.28 - Sender's Agreement in CRCM Exam | Certified Regulatory Compliance Manager

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Question

In Sender's agreement-12 CFR 210.28 it is clearly mentioned that:

Answers

A. Reserve Banks have the right to debit payment amounts from accounts of senders with the Reserve Bank

B. Senders have the right to create overdrafts in their accounts at the Reserve Bank; any overdraft is due and payable, without demand, at the end of the funds transfer day, when the Reserve Bank deems itself to be insecure, or at the time the sender suspends payments or is closed, whichever is earlier

C. Sender gives the Reserve Bank a security interest in all of sender's assets that are in the possession of the Reserve Bank to secure any obligations to the Reserve Bank, including an overdraft

D. Senders have 25 calendar days after receiving notice of a payment order to notify a Reserve Bank of an erroneously executed or unauthorized payment order

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Explanations

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A. B. C. D.

The answer to this question is A. Reserve Banks have the right to debit payment amounts from accounts of senders with the Reserve Bank.

The Sender's agreement, as defined in 12 CFR 210.28, is an agreement between the Sender (the financial institution initiating the funds transfer) and the Reserve Bank. It outlines the terms and conditions of the Sender's participation in the Fedwire Funds Service, which is a real-time gross settlement system operated by the Federal Reserve Banks.

According to the Sender's agreement, Reserve Banks have the right to debit payment amounts from the accounts of Senders with the Reserve Bank. This means that if a Sender initiates a funds transfer but does not have sufficient funds in their Reserve Bank account to cover the payment amount, the Reserve Bank can debit the Sender's account to make up the shortfall.

This provision is important because it ensures that the Reserve Bank is not left with unpaid obligations as a result of a Sender's inability to cover payment amounts. By having the right to debit Senders' accounts, Reserve Banks can effectively manage their own liquidity and ensure that the Fedwire Funds Service operates smoothly and efficiently.

It's important to note that while Reserve Banks have the right to debit Senders' accounts, they do not have the right to create overdrafts in those accounts (as described in option B). Instead, Senders are required to maintain sufficient funds in their Reserve Bank accounts to cover payment amounts, and any overdrafts are subject to immediate repayment.

Option C is also incorrect because it refers to a security interest in all of the Sender's assets, which is not a provision of the Sender's agreement.

Finally, option D is incorrect because the Sender's agreement does not provide Senders with 25 calendar days to notify a Reserve Bank of an erroneously executed or unauthorized payment order. While there are procedures in place to address errors and unauthorized transactions, the timeframe for notification is not specified in the Sender's agreement.

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