The Federal Reserve initiated changes to its regulatory framework that would allow participants in the FedNow instant payment system to use intermediaries when making transfers, opening the door to cross-border operations.
The Federal Reserve Board of Governors reviewed a proposal to amend Regulation J, which governs interbank settlements in the United States. The key change would expand FedNow’s functionality by allowing the use of intermediary banks, other than Federal Reserve Banks, when processing payments through the system.
Currently, FedNow’s architecture limits transfers strictly to domestic operations, meaning a transaction can involve only two U.S. banks in addition to a Federal Reserve Bank. This makes it impossible to use the service for international payments. The proposed changes would remove this restriction and allow FedNow to be integrated into cross-border payment chains, where the international portion would be handled through correspondent banks.
FedNow was launched in the summer of 2023 as a 24/7/365 instant interbank payment system in the United States. Initially, the service was designed for domestic payments only, although the Fed indicated the possibility of expanding its functionality in the future.
The proposed amendments effectively bring FedNow in line with the Fedwire system, where the use of intermediaries has been permitted for decades. At the same time, the changes don’t affect the core settlement logic within FedNow or expand the system’s participant base, they simply allow for extra steps before and after a payment is processed within the U.S. As a result, the update doesn’t introduce significant additional risks related to money laundering, sanctions evasion, or payment system stability.
As part of the initiative, the rules regarding notifications to receiving banks are also being clarified in cases where additional time is required to verify the legitimacy of a payment. These updates are intended to reduce operational burden and prevent excessive notifications from banks that aren’t participants in FedNow.
The timeline for approving the amendments is yet to be determined. The proposal is currently in the public consultation stage. Market participants have 60 days to submit comments, after which the Fed will review the feedback and revise the document if necessary. A final decision is expected no earlier than several months after the consultation period closes.
In 2024, 51% of U.S. companies used the RTP network and the FedNow service for digital payments.
