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Webcast Series 2009 featuring... Operational Considerations on Regulatory Issues December 8, 2009.

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Presentation on theme: "Webcast Series 2009 featuring... Operational Considerations on Regulatory Issues December 8, 2009."— Presentation transcript:

1 Webcast Series 2009 featuring... Operational Considerations on Regulatory Issues December 8, 2009

2 Welcome Introduction Craig Hollis Vice President and AML Officer

3 Meeting Logistics  Keep Webcast to 60 minutes  Ask a question  Click on the Q&A window in the lower right hand portion of the screen  Type your question into the dialog box  Click the Send button  Following today’s Webcast  Redirected to a brief survey  Link via to access a recording of today’s Webcast  If you experience any technical difficulties during the presentation  Submit a question through the Q&A  Contact WebEx Technical Support at 1 (866)

4 Agenda Privacy Massachusetts Data Protection Law FTC Identify Theft Prevention (Red Flags Rule) Data Masking Summary Prospectus International ACH Transactions (“IAT”) New California Law: State Backup Withholding Joan Dowd Chief Compliance Officer Boston Financial Data Services Jeff Cook Director of Regulatory Compliance DST Systems

5 Massachusetts Data Protection Law  Massachusetts Office of Consumer Affairs and Business Regulation Adopt Standards – September 2008  Original Law Exceeded Authority – Rigid Standards  Multiple Public and Private Hearings  Two Significant Revisions – August 2009  Final Regulation Issued – October 30, 2009 Background Compliance Date Extended to March 1, 2010

6 Massachusetts Data Protection Law  Have a written information security program adhering to promulgated standards  Comply with specified system security requirements  Take “reasonable steps” to ensure third party service provider compliance For those maintaining or storing “personal information” of Massachusetts Residents: Requirements Compliance Date Extended to March 1, 2010

7 Massachusetts Data Protection Law  Listened and responded to industry concerns  Built more flexibility into the rules  Still requires each business to have a comprehensive information security program but can now be tailored to the following:  Size, scope, and type of business  Available resources  Amount of stored data  Need for security and confidentiality of consumers and employee information  Must take reasonable steps to ensure their third party providers protect shareholder information, but written certification is no longer required Revisions to the Law …

8 Massachusetts Data Protection Law  Compared the revised MA law with our Security Program  Periodically review our program to ensure compliance with regulations  Annual training and awareness regarding information security  Enhanced due diligence of third party providers/vendors  Daily monitoring  Use multi-factor authentication to provide information for phone inquiries  Encrypt and secure FTP for file transmission  Provide clients an overview of internal security policies Our Support Structure

9 FTC Red Flags Rule  Develop and implement a written Identity Theft Prevention Program  Designed to detect, prevent, and mitigate identity theft  One definition of financial institution is one that has “transaction accounts”  An account from which the account owner can direct payments to third parties  Check-writing; debit cards; wires to third parties  Written or telephone instructions directing money to third parties (or to bank accounts not on file) Requirements Enforcement Date Extended to June 1, 2010

10  Initial program provided in 2008; subsequent updates added  Placed program on Boston Financial Compliance Corner or issued directly to clients  Provide certification as part of our quarterly 38a-1 statement  A file that contains SSN/TIN discrepancies from the CIP verification process to run against the IRS TIN Match Program  A new report that contains only address discrepancies is being created with a procedural workflow to review and analyze for fraud, identity theft is in development FTC Red Flags Rule Our Support Structure Two Future Program Enhancements

11 Data Masking  DST TA , Desktop, SmartDesk, Vision, and FANWeb screens have been identified and provided to RCAG Steering Committee for review  Reports – FANWeb, Vision, Voice, and DST reports have been identified and masking is ongoing DST Online Masking Projects Our Support Structure  SSNs have been removed from transcripts, confirmation statements, and new account welcome kits  Fund, Account and SSN have been removed from correspondence  Encourage not returning original documents to shareholders as these may contain personal information  Validate reports and screens during testing phase

12 Tax Form Masking  Creates a pilot program allowing the masking of SSNs  For tax years 2009 and 2010 on paper payee statements only  IRS approval is not needed  The notice is effective immediately; masking is voluntary  Applies to paper payee statements (not electronic statements)  Only applies to Form 1098 series, Form 1099 series, and Form 5498 series. Form W-2 is not included  Does not apply to any information return filed with the IRS  Applies to tax forms to individuals only (SSN format only)  Does not apply to accounts registered as entities (those with EIN format of ) - paper payee statements for these accounts must include full TIN IRS Notice Requirements

13 IRS Notice  Substitute and composite/combined payee statements are in scope  The identifying number must be truncated by replacing the first five digits of the nine-digit number with asterisks or Xs  For example, a social security number would appear on the paper payee statement as ***-**-6789 or XXX-XX-6789)  Entire social security number for individuals and/or tax identification number for entities are still required on files sent to IRS  The Notice is available at The IRS is accepting comments until May 1, 2010, with regard to the current notice and go forward strategy Requirements

14 IRS Notice  We will work to have the TA2000 programming ready for systematic masking the SSNs for tax year 2010  Distinguishing and separating the masking for SSN and EIN formats is necessary  Interfering with the YE platform at this late date is not recommended  Working with DST Output for a 2009 masking solution that will not involve changes to the YE platform Our Support Structure

15 Summary Prospectus

16  Three or four-page, “plain English” summary  Updated annually  Can be sent in lieu of statutory prospectus  Must be incorporated into the statutory prospectus  Must have Internet availability of compliance materials  Summary Prospectus, statutory prospectus, SAI, and shareholder reports  Must send statutory prospectus if requested Requirements 3/31/2009: SEC Effective Date (optional) 1/01/2010: Mandatory Filing

17

18 International ACH Transactions (“IAT”)

19 What is IAT?  A new ACH transaction type, International ACH Transaction or “IAT”  This new payment code and record layout will be used to identify an ACH credit or debit that is part of a payment transaction that involves a financial agency's office that is not located within the territorial jurisdiction of the US  It allows for the identification and facilitation of IAT transactions  It enables financial institutions to comply with OFAC obligations regarding international transactions  The territorial jurisdiction of United States includes all 50 states, U.S. territories, U.S. Military bases and U.S. embassies in foreign countries Effective Date: September 18, 2009 Background

20 Incoming IATs - project complete  Worked with Banks that have an interface with DST  DST receives ACH file from bank that contains the new code and new record layout  DST created a report that is executed daily that contains ACH transactions with IAT code and transaction information  Operations receives the report and scans information against the OFAC database  If there is not an OFAC hit, transaction is processed same day  If there is an OFAC match the transaction is not processed and operations contact the originating bank  Worked with banks who do not have an interface with DST  Reviewed the bank reports to identify any IAT transactions  Process follows that noted above International ACH Transactions (“IAT”) Our Support Structure

21 International ACH Transactions (“IAT”) Outgoing IATs - project underway  All outgoing ACH transactions are run against the OFAC database  A report that identifies outgoing systematic ACH transactions for accounts with foreign addresses is printed daily  Currently DST is developing a systematic solution to include the IAT code and transaction information  Boston Financial/DST are retaining reports until the process is automated  If destination bank contacts Boston Financial/DST, transaction information will be provided Our Support Structure

22 International ACH Transactions (“IAT”) Systematic Solution for Outgoing IAT  Flag outbound ACHs as IAT for all accounts with a foreign address based on country code  Update the ACH layout with the new IAT layout  Provide a front-end method for users to flag the account as IAT when setting up a new ACH  Project was rated as highest priority by RCAG Steering Committee

23 New California Law State Backup Withholding

24 New California Law: State Backup Withholding  There is a 7% state backup withholding for California residents on transactions that are subject to federal backup withholding (28%)  Exclusions include:  Those accounts or transactions not subject to federal backup withholding  Money Market Funds – (not subject to withholding)  Interest and dividend payments or release of loans  Accounts with uncertified or missing TINs, and B-Notices, California backup withholding will apply to redemption and long-term capital gains only  Accounts with C-Notices, California backup withholding applies only to long- term capital gains Signed into law on July 28, 2009 Effective Date: January 1, 2010 Requirements

25 New California Law State Backup Withholding  We will continue the analysis of the Bill and work to begin identifying potential impacts to determine necessary long-term system changes  Analyzing possible solutions  Efforts involved in taking the withholding automatically on applicable payments, remitting withholding, and reporting to California residents  Due to the short time-frame, a full systematic process will not be available on January 1, 2010  DST programming is developing a short-term solution that will involve minimal manual effort until the long-term systematic solution is available Our Support Structure

26 Craig Hollis Vice President, AML Officer, Boston Financial Questions

27 Thank You


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