As financial institutions expand ACH services through fintechs and payment processors, Third-Party Sender (TPS) and Nested TPS relationships are becoming more common, and more scrutinized under NACHA Rules.
What Are TPS & Nested TPS Relationships?
- TPS: Your direct ACH processing customer (e.g., payroll company or payment processor)
- Nested TPS: Your customer’s customer that also originates ACH transactions, often without a direct relationship with your institution (e.g., employee benefits administrators)
NACHA requires banks to identify and report TPS relationships, including whether those TPS arrangements involve nested relationships, through its risk management processes. All TPS must be registered with NACHA by their originating financial institution. See the diagram below to help determine if you have customers that fall into one of these categories.
Key Audit Requirements
- All TPS and Nested TPS must complete an annual ACH audit (by Dec. 31)
- Each entity must perform its own audit and risk assessment—no reliance on others in the chain
- Audit documentation must be retained and available upon request
What This Means for Your Institution
- You remain ultimately responsible for ACH activity flowing through your institution
- You should:
- Identify all TPS and nested TPS relationships
- Ensure these relationships are properly registered and understood
- Confirm annual audits are completed (don’t rely solely on attestations)
How Bonadio Can Help
Our team of experts can help you determine whether a relationship qualifies as a TPS or nested TPS and provide NACHA-compliant audit support for organizations with third-party or nested third-party arrangements. If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
