1. The Untapped Potential of ERI Windy City Summit 2012 June 7, 2012 Michael BosaccoStephen Wojciechowicz, CTP, AAP Product ManagementGlobal Cash Management SunGard AvantGardHSBC Bank USA, N.A.

2. Background for Format Change  For many years, U.S. corporations have been asking the Fed to change the wire transfer message format – In 2005, AFP estimated that 17% of incoming wire transfers require manual research costing $35 each time – Numerous surveys of corporations and banks were conducted by the Federal Reserve Banks, the Clearinghouse, and the AFP in subsequent years – In 2010, AFP Electronic Payments Survey estimated top barriers to the adoption of electronic payments Inability to send or receive automated remittance information (77 percent) & No standard format for remittance information (72 percent)  New Fedwire® and CHIPS® format change announced in 2008 – Implemented in November 2011

3.  Remittance Information Up to 9,000 characters of the following types of business remittance information: 1.Unstructured – Block of data formatted according to another standard (e.g., EDI, ISO 20022), but not edited by Fedwire. 2.Related – Used to identify a reference number and the location of remittance information if exchanged outside of the wire payment. 3.Structured – Specific “tags” edited by Fedwire and CHIPS to carry invoice details  Payment Notification  Improved Cover Payments What is included in the new format?

4. Benefits of Extended Remittance Information (ERI)  Reduce costs associated with existing wire volume  Opportunity to electronify urgent/high-dollar payments  Inclusion of remittance details in wire payments will expedite processing/posting – Improved STP rates – Originators may receive discount for paying electronically via wire – Receivers may begin asking trading partners to pay them via wire – Opportunity to leverage existing AP applications or ERP systems that today create ACH payments with remittance information in EDI, STP 820, ISO20022 or other formats

5. ERI – Bringing Wires Up the Curve  Other payment modes in the US provide rich information remittance options (check / ACH)  Lack of ERI reduces the incentive to make or receive payments through wires  Clear end-user support for ERI voiced through multiple independent surveys  Staggered but sustained growth expected

6.  Banks typically utilize different internal systems for processing of wire payments and processing of information  Multiple clearing channels and multiple customer delivery channels further complicate pathways necessary  Multiple formats make it difficult to focus development  Local versus international payments What Makes This a Complex Implementation?

7.  Many wires originated in the US are for cross-border payments  ERI passage to the beneficiary will be a function of international banks participating in the MT103 REMIT MUG or creation of an industry utility  Definite global movement towards provision of information that aids STP reconciliation; PMPG taking a lead within banking industry Why This is Not Just a Local Development?

8.  Engage banks in a dialogue  Engage internal IT / vendors  Refer to the best practices document published by Federal Reserve addressing originators, banks and beneficiaries Corporate Implementation Check-list

9. Originator  Validate that Originator’s Bank and the Beneficiary can receive ERI before sending.  Send to Originator’s Bank in any mutually agreed upon format. Originator’s Bank  Translate to a common denominator format. Fedwire CTP structured remittance format X12 820 format (STP 820 is recommended) Beneficiary’s Bank  Translate from a common denominator format.  Report to the Beneficiary in any mutually agreed upon format. Beneficiary  Before requesting ERI from the Originator, validate that Beneficiary’s Bank can report in agreed upon format. Intermediary Bank  Pass on data to next party as received. Domestic Remittance Best Practices Core Philosophies

10.  To Originators: Reduced overhead cost of alternative communication channels for sending remittance information Reduced follow-up calls from vendors seeking clarifications on wire payments  To Beneficiaries: Reduced time and cost of reconciling wire payments Better and more updated MIS on Days Sales Outstanding Benefits and their Measurement

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13.  Provides corporate originators the ability to track their payment through the payment chain and confirm that their payment has been processed. Particularly when the payment is high-value, critical, time-sensitive Popularized by shipping companies Benefits of Payment Notification

14.  Includes optional data elements that banks can use to provide payment notification services to their clients. Contact electronic address (could be e-mail or URL) End-to-end identification number  Market practice conventions or bilateral agreements will specify how the data elements will be used First industry-wide use case recently developed – Originator Model (Payment Notification Indicator = “1”) Other models have also been discussed (named for the party being notified) – Beneficiary Model – 3rd Party Model New Payment Notification Field {3620}

15.  Product of industry workgroup led by the Fed  Creates the concept of a Payment Notification User Group (PNUG)  Establishes set of market practices surrounding the use of tag {3620} that PNUG members should follow. Ultimately designed to provide notification to the originator when the funds transfer is credited to the beneficiary (i.e., the “originator model”)  Fed maintains list of PNUG members on its public website.  Fed requires PNUG members to sign an agreement indicating intent to follow the Payment Notification Guidelines New Appendix E to Operating Circular 6 available on FRBservices.org. – Appendix E-1 – for “Participant Members” – Appendix E-2 – for “Agent Banks” acting as agent for “Non-participant members ” Payment Notification Guidelines

16. Fedwire Funds Service Tag {3620} Payment Notification  Notification Indicator = 1  Notification electronic address= Notify@1stBank.com  Notification reference number = XXXXXXXXXXXXX Fedwire Funds Service Tag {3620} Payment Notification  Notification Indicator = 1  Notification electronic address= Notify@1stBank.com  Notification reference number = XXXXXXXXXXXXX 1st Bank Advice Originator requests wire with notification 2 nd Bank Beneficiary Payment Order With Notification Wire Fee Notification Fee Notification e-mail – 2 nd Bank must participate for 1 st Bank to offer notification Notifications Notification E-mail Content  ABA or BIC or UID of party sending the e-mail  Notification reference number  Status code : Accepted Settlement Complete or Rejected  Time Stamp when status was achieved Notification E-mail Content  ABA or BIC or UID of party sending the e-mail  Notification reference number  Status code : Accepted Settlement Complete or Rejected  Time Stamp when status was achieved Payment Notification

17.  During March 2012: About half of Fedwire Funds traffic utilized the new Customer Transfer Plus (CTP) message (primarily using traditional rather than new fields) Usage of new fields on Fedwire Funds: – 115 institutions sent about 10,000 cover payments per day – About 300 institutions sent about 9,000 messages per day using the new originator Option F field – 15 institutions sent about 110 messages per day using the extended remittance fields, primarily using the “narrative” code for free text Five Fedwire participants joined the Payment Notification User Group Early Adopters

18. DISCLAIMER This information was prepared exclusively for the benefit and use at the Windy City Summit on June 7, 2012 and contains information proprietary and confidential to HSBC Bank USA, N.A. (“HSBC”) and the Federal Reserve Banks. Neither this presentation nor any part thereof may be used for any other purpose or disclosed to a third party without the prior written consent of HSBC and the Federal Reserve Banks. The presentation provides an overview of certain relevant activities concerning US dollar wire payments. It is not intended to provide specific compliance guidance. Attendees should review compliance concerns with their internal legal and compliance counsels. The information herein reflects our services and activities as of this date and are subject to change. The information herein is not intended as an offer or solicitation for the purchase or sale of any financial instrument nor to amend or supplement any agreement. Any information herein obtained from independent sources is believed to be reliable, but HSBC does not warrant its accuracy or completeness. Please note that regulations and practices change from time to time and the reader is advised to consult HSBC Global Payments and Cash Management, and confirm with independent legal and tax experts prior to the implementation of any cash management structure. The products and services described herein are subject to the previous authorization of the corresponding local entity of HSBC Group and to the terms and conditions of their corresponding agreements. The execution of every agreement is made on a case by case basis according to the market practice and the applicable local legislation. Therefore, neither this document nor any part hereof is intended as an obligation to celebrate any contract and its exhibits or annexes are only for information purposes. United States persons (including entities) are subject to U.S. taxation on their worldwide income and may be subject to tax and other filing obligations with respect to their U.S. and non-U.S. accounts. U.S. persons and entities should consult a tax adviser for more information. Issued by HSBC Bank USA, N.A. © 2012 HSBC Bank USA, N.A. ALL RIGHTS RESERVED.