DEPARTMENT OF THE TREASURY
Agency decision
Ask Donna
What actually matters in this document.
Text
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
[Docket No. 06-17]
Office of Thrift Supervision
[Docket No. 2006-55]
FEDERAL RESERVE SYSTEM
[Docket No. OP-1254]
FEDERAL DEPOSIT INSURANCE CORPORATION
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55043; File No. S7-08-06]
Interagency Statement on Sound Practices Concerning
Elevated Risk Complex Structured Finance Activities
AGENCIES: Office of the Comptroller of the Currency, Treasury (“OCC”); Office of
Thrift Supervision, Treasury (“OTS”); Board of Governors of the Federal Reserve
System (“Board”); Federal Deposit Insurance Corporation (“FDIC”); and Securities and
Exchange Commission (“SEC”) (collectively, the “Agencies”).
ACTION: Notice of final interagency statement.
SUMMARY: The Agencies are adopting an Interagency Statement on Sound Practices
Concerning Elevated Risk Complex Structured Finance Activities (“Final Statement”).
The Final Statement pertains to national banks, state banks, bank holding companies
(other than foreign banks), federal and state savings associations, savings and loan
holding companies, U.S. branches and agencies of foreign banks, and SEC-registered
broker-dealers and investment advisers (collectively, “financial institutions” or
“institutions”) engaged in complex structured finance transactions (“CSFTs”). In May
2004, the Agencies issued and requested comment on a proposed interagency statement
(“Initial Proposed Statement”). After reviewing the comments received on the Initial
Proposed Statement, the Agencies in May 2006 issued and requested comment on a
revised proposed interagency statement (“Revised Proposed Statement”). The
modifications to the Revised Proposed Statement, among other things, made the
statement more principles-based and focused on the identification, review and approval
process for those CSFTs that may pose heightened levels of legal or reputational risk to
the relevant institution (referred to as “elevated risk CSFTs”). After carefully reviewing
the comments on the Revised Proposed Statement, the Agencies have adopted the Final
Statement with minor modifications designed to clarify, but not alter, the principles set
forth in the Revised Proposed Statement. The Final Statement describes some of the
internal controls and risk management procedures that may help financial institutions
identify, manage, and address the heightened reputational and legal risks that may arise
from elevated risk CSFTs. As discussed further below, the Final Statement will not
affect or apply to the vast majority of financial institutions, including most small
institutions, nor does it create any private rights of action.
EFFECTIVE DATE: The Final Statement is effective upon January 11, 2007.
FOR FURTHER INFORMATION CONTACT:
OCC: Kathryn E. Dick, Deputy Comptroller, Credit and Market Risk, (202) 874-4660;
Grace E. Dailey, Deputy Comptroller, Large Bank Supervision, (202) 874-4610; or Ellen
2
Broadman, Director, Securities and Corporate Practices Division, (202) 874-5210, Office
of the Comptroller of the Currency, 250 E Street, SW, Washington, DC 20219.
OTS: Fred J. Phillips-Patrick, Director, Credit Policy, (202) 906-7295, and Deborah S.
Merkle, Project Manager, Credit Policy, (202) 906-5688, Examinations and Supervision
Policy; or David A. Permut, Senior Attorney, Business Transactions Division, (202) 9067505, Office of Thrift Supervision, 1700 G Street, NW, Washington, DC 20552.
Board: Sabeth I. Siddique, Assistant Director, (202) 452-3861, or Virginia Gibbs, Senior
Supervisory Financial Analyst, (202) 452-2521, Division of Banking Supervision and
Regulation; or Kieran J. Fallon, Assistant General Counsel, (202) 452-5270, or Anne B.
Zorc, Senior Attorney, (202) 452-3876, Legal Division, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, NW, Washington, DC
20551. Users of Telecommunication Device for Deaf (TTD) only, call (202) 263-4869.
FDIC: Jason C. Cave, Associate Director, (202) 898-3548; Division of Supervision and
Consumer Protection; or Mark G. Flanigan, Counsel, Supervision and Legislation
Branch, Legal Division, (202) 898-7426, Federal Deposit Insurance Corporation, 550 17th
Street, NW, Washington, DC 20429.
SEC: Mary Ann Gadziala, Associate Director, Office of Compliance Inspections and
Examinations, (202) 551-6207; Catherine McGuire, Chief Counsel, Linda Stamp
Sundberg, Senior Special Counsel (Banking and Derivatives), or Randall W. Roy, Branch
Chief, Division of Market Regulation, (202) 551-5550, Securities and Exchange
Commission, 100 F Street, NE, Washington, DC 20549.
SUPPLEMENTARY INFORMATION:
I.
Background
3
Financial markets have grown rapidly over the past decade, and innovations in
financial instruments have facilitated the structuring of cash flows and allocation of risk
among creditors, borrowers, and investors in more efficient ways. Financial derivatives
for market and credit risk, asset-backed securities with customized cash flow features,
specialized financial conduits that manage pools of assets, and other types of structured
finance transactions serve important purposes, such as diversifying risk, allocating cash
flows and reducing cost of capital. As a result, structured finance transactions, including
the more complex variations of these transactions, now are an essential part of U.S. and
international capital markets.
When a financial institution participates in a CSFT, it bears the usual market,
credit, and operational risks associated with the transaction. In some circumstances, a
financial institution also may face heightened legal or reputational risks due to its
involvement in a CSFT. For example, a financial institution involved in a CSFT may
face heightened legal or reputational risk if the customer’s regulatory, tax or accounting
treatment for the CSFT, or disclosures concerning the CSFT in its public filings or
financial statements, do not comply with applicable laws, regulations or accounting
principles. 1
In some cases, certain CSFTs appear to have been used in illegal schemes that
misrepresented the financial condition of public companies to investors and regulatory
authorities. After conducting investigations, the OCC, Federal Reserve System and SEC
1
For a memorandum on the potential liability of a financial institution for securities laws violations arising
from participation in a CSFT, see Letter from Annette L. Nazareth, Director, Division of Market
Regulation, Securities and Exchange Commission, to Richard Spillenkothen and Douglas W. Roeder, dated
December 4, 2003 (available at http://www.federalreserve.gov/boarddocs/srletters/2004/ and
http://www.occ.treas.gov).
4
took strong and coordinated civil and administrative enforcement actions against certain
financial institutions that engaged in CSFTs that appeared to have been designed or used
to shield their customers’ true financial health from the public. These actions involved
the assessment of significant financial penalties on the institutions and required the
institutions to take several measures to strengthen their risk management procedures for
CSFTs. 2 The complex structured finance relationships involving these financial
institutions also sparked an investigation by the Permanent Subcommittee on
Governmental Affairs of the United States Senate, 3 as well as numerous lawsuits by
private litigants.
The OCC, Federal Reserve System and SEC also conducted special reviews of
several large financial institutions engaged in CSFTs, and the Agencies have focused
attention on the CSFT activities of financial institutions in the normal course of the
supervisory process. These reviews and activities indicate that many of the large
financial institutions engaged in CSFTs have taken meaningful steps in recent years to
improve their control infrastructure relating to CSFTs.
II.
Initial and Revised Proposed Statements
2
See, e.g., In the Matter of Citigroup, Inc., Securities Exchange Act Release No. 48230 (July 28, 2003),
Written Agreement by and between Citibank, N.A. and the Office of the Comptroller of the Currency, No.
2003-77 (July 28, 2003) (pertaining to transactions entered into by Citibank, N.A. with Enron Corp.) and
Written Agreement by and between Citigroup, Inc. and the Federal Reserve Bank of New York, dated July
28, 2003 (pertaining to transactions involving Citigroup Inc. and its subsidiaries and Enron Corp. and
Dynegy Inc.); SEC v. J.P. Morgan Chase, SEC Litigation Release No. 18252 (July 28, 2003) and Written
Agreement by and among J.P. Morgan Chase & Co., the Federal Reserve Bank of New York, and the New
York State Banking Department, dated July 28, 2003 (pertaining to transactions involving J.P. Morgan
Chase & Co. and its subsidiaries and Enron Corp.).
3
See Fishtail, Bacchus, Sundance, and Slapshot: Four Enron Transactions Funded and Facilitated by U.S.
Financial Institutions, Report Prepared by the Permanent Subcomm. on Investigations, Comm. on
Governmental Affairs, United States Senate, S. Rpt. 107-82 (2003).
5
To assist financial institutions in identifying, managing, and addressing the risks
that may be associated with CSFTs, the Agencies developed and requested public
comment on the Initial Proposed Statement. 4 The Initial Proposed Statement described
the types of policies and procedures that a financial institution engaged in CSFTs should
have in place to allow the institution to identify, document, evaluate, and control the full
range of credit, market, operational, legal, and reputational risks that may arise from
CSFTs. The agencies collectively received comments from more than 40 commenters on
the Initial Proposed Statement. Although commenters generally supported the Agencies’
efforts to describe the types of risk management procedures and internal controls that
may help institutions manage the risks associated with CSFTs, virtually all of the
commenters recommended changes to the Initial Proposed Statement.
After carefully reviewing the comments on the Initial Proposed Statement, the
Agencies issued and requested comment on a Revised Proposed Statement. 5 The
Revised Proposed Statement was modified in numerous respects to clarify the purpose,
scope and effect of the statement; make the statement more risk-focused and principles
based; and focus the statement on those CSFTs that may pose elevated levels of legal or
reputational risk to the relevant institution. 6
III.
Overview of Comments on the Revised Proposed Statement
The Agencies collectively received written comments from 19 commenters on the
Revised Proposed Statement, although many commenters submitted identical comments
4
See 69 FR 28980, May 19, 2004.
5
See 71 FR 28326, May 16, 2006.
6
A more detailed summary of the comments on the Initial Proposed Statement, as well as the changes
made in response to those comments, is contained in the Federal Register notice accompanying the Revised
Proposed Statement (71 FR 28326, 28328-29 (May 16, 2006)).
6
to multiple Agencies. Commenters included banking organizations, financial services
trade associations, and individuals. Commenters generally expressed strong support for
the Revised Proposed Statement, including its principles-based structure and focus on
elevated risk CSFTs. Many commenters also asserted that the Revised Proposed
Statement provides a financial institution appropriate flexibility to develop internal
controls and risk management procedures that are tailored to the institution’s own
business activities and organizational structure.
Several commenters requested that the Agencies clarify or revise the Revised
Proposed Statement in certain respects. For example, some commenters asked the
Agencies to further streamline the provisions in the statement pertaining to
documentation of elevated risk CSFTs, or clarify how the U.S. branches or agencies of
foreign banks might implement risk management systems, policies or controls consistent
with the statement’s principles. In addition, some commenters asked the Agencies to set
forth or clarify the legal standards governing the potential liability of financial institutions
for CSFTs or provide “safe harbors” from such potential liability. One group of
commenters also argued that the Revised Proposed Statement should not be implemented
because it allegedly would encourage or condone illegal conduct by financial institutions.
The comments received on the Revised Proposed Statement are further discussed below.
IV.
Overview of Final Statement
After carefully reviewing the comments on the Revised Proposed Statement, the
Agencies have made minor modifications to the Revised Proposed Statement in response
to comments and to clarify the principles, scope, and intent of the Final Statement. The
Final Statement has been adopted as supervisory guidance by the Board, OCC, FDIC and
7
OTS and as a policy statement by the SEC. The Agencies will use the Final Statement
going forward in reviewing the internal controls and risk management policies,
procedures and systems of financial institutions engaged in CSFTs as part of the
Agencies’ ongoing supervisory process.
The Agencies continue to believe that it is important for a financial institution
engaged in CSFTs to have policies and procedures that are designed to allow the
institution to effectively manage and address the full range of risks associated with its
CSFT activities, including the elevated legal or reputational risks that may arise in
connection with certain CSFTs. For this reason, the Final Statement describes the types
of risk management principles that the Agencies believe may help a financial institution
to identify elevated risk CSFTs and to evaluate, manage, and address these risks within
the institution’s internal control framework. 7 These policies and procedures should,
among other things, be designed to allow the institution to identify elevated risk CSFTs
during its transaction and new product approval processes, and should provide for
elevated risk CSFTs to be reviewed by appropriate levels of control and management
personnel at the institution, including personnel from control areas that are independent
of the business line(s) involved in the transaction.
The Final Statement – like the Revised Proposed Statement – applies to financial
institutions that are engaged in CSFT activities and focuses on those CSFTs that may
create heightened levels of legal or reputational risks for a participating financial
institution. Because CSFTs typically are conducted by a limited number of large
7
As noted in the Final Statement, financial institutions are encouraged to refer to other supervisory
guidance and materials prepared by the Agencies for further information concerning market, credit and
operational risk, as well as for further information on legal and reputational risk, internal audit and internal
controls.
8
financial institutions, the Final Statement will not affect or apply to the vast majority of
financial institutions, including most small institutions.
As the Final Statement recognizes, structured finance transactions encompass a
broad array of products with varying levels of complexity. Most structured finance
transactions, such as standard public mortgage-backed securities and hedging-type
transactions involving “plain vanilla” derivatives or collateralized debt obligations, are
familiar to participants in the financial markets, have well-established track records, and
typically would not be considered CSFTs for purposes of the Final Statement. Some
commenters requested that the Agencies provide a more extensive list of structured
finance transactions that typically would not be considered CSFTs. The Agencies note
that the types of non-complex transactions listed in the Final Statement are only examples
of the types of transactions that typically would not be considered CSFTs and that any list
of examples would not, and could not, be all inclusive given the changing nature of the
structured finance market. Consistent with the principles-based approach of the Final
Statement, the Agencies believe the statement appropriately highlights the hallmarks of a
non-complex transaction – i.e., a well established track record and familiarity to
participants in the financial markets – that may guide institutions and examiners in
considering whether a particular type of transaction should be considered a CSFT now or
in the future.
9
A.
Identification, Due Diligence, and Approval Processes for Elevated Risk
CSFTs
As noted above, a financial institution should establish and maintain policies,
procedures and systems that are designed to identify elevated risk CSFTs as part of the
institution’s transaction or new product approval processes, and to ensure that
transactions or new products identified as elevated risk CSFTs are subject to heightened
review. 8 In general, a financial institution should conduct the level and amount of due
diligence for an elevated risk CSFT that is commensurate with the level of risks
identified. A financial institution’s policies and procedures should provide that CSFTs
identified as potentially having elevated legal or reputational risk are reviewed and
approved by appropriate levels of management. The Agencies continue to believe that
the designated approval process for elevated risk CSFTs should include the institution’s
representatives from the relevant business line(s) and/or client relationship management,
as well as from appropriate control areas that are independent of the business line(s)
involved in the transaction. An institution’s policies should provide that new complex
structured finance products receive the approval of all relevant control areas that are
independent of the profit center before the product is offered to customers. 9
8
In response to comments, the Agencies have modified the Final Statement to clarify that a U.S. branch or
agency of a foreign bank is not necessarily expected to establish or adopt separate U.S.-based risk
management structures or policies for its CSFT activities. In addition, the Agencies believe the Final
Statement provides U.S. branches and agencies of foreign banks sufficient flexibility to develop controls,
risk management and reporting structures, and lines of authority that are consistent with the internal
management structure of U.S. branches and agencies. However, the risk management structure and
policies used by a U.S. branch or agency, whether adopted or implemented on a group-wide or stand-alone
basis, should be effective in allowing the branch or agency to manage the risks associated with its CSFT
activities.
9
One commenter sought clarification regarding when during the new product approval process a new
complex structured finance product should receive the approval of relevant control areas. The Agencies
note that the Final Statement is not intended to prevent institutions from engaging in initial or preliminary
discussions or negotiations with potential customers about a new complex structured finance product.
10
The Final Statement – like the Revised Proposed Statement – provides examples
of transactions that may warrant additional scrutiny by an institution. These examples
include, among other things, transactions that appear to the institution to:
•
Lack economic substance or business purpose;
•
Be designed or used primarily for questionable accounting, regulatory,
or tax objectives, particularly when the transactions are executed at
year-end or at the end of a reporting period for the customer; or
•
Raise concerns that the client will report or disclose the transaction in
its public filings or financial statements in a manner that is materially
misleading or inconsistent with the substance of the transaction or
applicable regulatory or accounting requirements.
A few commenters contended that the examples of elevated risk CSFTs contained
in the Revised Proposed Statement have characteristics that are signals, if not conclusive
proof, of fraudulent activity, and recommended that the Agencies inform financial
institutions that transactions or products with any of these characteristics should be
considered presumptively prohibited. The commenters also argued that the statement
encourages or condones illegal conduct by financial institutions. The Agencies believe
that CSFTs that initially appear to an institution, during the ordinary course of its new
product or transaction approval process, to have one or more of the characteristics
identified in the Final Statement should generally be identified as an elevated risk CSFT,
and the institution should conduct due diligence for the transaction that is commensurate
However, an institution should obtain the necessary approvals for a new complex structured finance
product from appropriate control areas before the institution enters into, or becomes obligated to enter into,
a transaction with the customer.
11
with the level of identified, potential risks. The Agencies, however, do not believe it is
appropriate to provide that all transactions initially identified as potentially creating
elevated legal or reputational risks for an institution should be considered presumptively
prohibited. For example, an institution, after conducting additional due diligence for a
transaction initially identified as an elevated risk CSFT, may determine that the
transaction does not, in fact, have the characteristics that initially triggered the review.
Alternatively, the institution may take steps to address the legal or reputational risks that
initially triggered the review. In this regard, the Final Statement expressly provides that,
if after evaluating an elevated risk CSFT, a financial institution determines that its
participation in the transaction would create significant legal or reputational risks for the
institution, the financial institution should take appropriate steps to manage and address
these risks. Such steps may include modifying the transaction or conditioning the
institution’s participation in the transaction upon the receipt of representations or
assurances from the customer that reasonably address the heightened risks presented by
the transaction.
Importantly, the Final Statement continues to provide that a financial institution
should decline to participate in an elevated risk CSFT if, after conducting appropriate due
diligence and taking appropriate steps to address the risks from the transaction, the
institution determines that the transaction presents unacceptable risks to the institution or
would result in a violation of applicable laws, regulations or accounting principles. 10 The
10
Some commenters asked the Agencies to clarify that the Final Statement does not necessarily prevent a
financial institution from proceeding with a CSFT simply because there may be some ambiguity in how the
transaction might be viewed under the law or applicable accounting principles. The Agencies recognize
that in certain circumstances ambiguities may exist as to how the law or accounting principles apply to a
CSFT, particularly in light of the inherent complexity and rapidly evolving nature of CSFTs. Nevertheless,
as discussed in the Final Statement, a financial institution should maintain strong and effective processes
12
Final Statement also expressly notes that financial institutions must conduct their
activities in accordance with applicable statutes and regulations. The Agencies believe
the Final Statement should assist financial institutions engaged in CSFTs in managing the
risks associated with these activities and complying with the law, and does not, as some
commenters alleged, encourage or condone illegal conduct.
Some commenters also requested that the Agencies enunciate, clarify or modify
the legal standards governing the potential liability of a financial institution for
participating in a CSFT that is used for fraudulent or illegal purposes. For example, some
commenters asked the Agencies to declare that institutions do not have a duty to ensure
the accuracy of a client’s public filings or accounting. Other commenters asked that the
Agencies state that an institution will not be held liable or responsible for a CSFT if the
institution has a reasonable degree of confidence that the customer will report or account
for the transactions properly. Other commenters expressed concern that the Revised
Proposed Statement, or the comments submitted on that document, attempted to alter the
current legal standards under which a financial institution may be held liable for
fraudulent activity or criminally responsible under the Federal securities law or other
laws.
As events in recent years have highlighted, institutions may in certain
circumstances bear significant legal or reputational risk from participating in a CSFT. In
light of these risks, the Final Statement describes the types of risk management systems
and internal controls that may help a financial institution engaged in CSFTs to identify
those CSFTs that may pose heightened legal or reputational risk to the institution, and to
and controls designed to determine whether any such ambiguities may create significant legal or
reputational risks for the institution and to manage and address those risks as appropriate.
13
evaluate, manage, and address those risks. Because the Final Statement represents
guidance on the part of the Banking Agencies and a policy statement on the part of the
SEC, it does not, by itself, establish any legally enforceable requirements or obligations.
Moreover, as the Final Statement expressly provides, it does not create any private rights
of action, nor does it alter or expand the legal duties and obligations that a financial
institution may have to a customer, its shareholders or other parties under applicable law.
Accordingly, the Agencies do not believe it is appropriate or possible to address in the
Final Statement these legal concerns expressed by commenters.
B.
Documentation
The Final Statement states that a financial institution should create and collect
sufficient documentation to, among other things, verify that the institution’s policies and
procedures related to elevated risk CSFTs are being followed and allow the internal audit
function to monitor compliance with those policies and procedures. The Final Statement
also provides that, when an institution’s policies and procedures require an elevated risk
CSFT to be submitted for approval to senior management, the institution should maintain
the transaction-related documentation provided to senior management as well as other
documentation that reflect management’s approval (or disapproval) of the transaction,
any conditions imposed by senior management, and the reasons for such action.
Several commenters strongly suggested that the Agencies should eliminate or
modify the portions of the statement that provide for a financial institution to maintain
certain documentation related to elevated risk CSFTs that are submitted to the
institution’s senior management for approval (or denial). For example, some commenters
argued that institutions should not be required to maintain any documentation for
14
declined transactions. Other commenters expressed concern that this provision was
inconsistent with the current practice of financial institutions, would require financial
institutions to create new and potentially extensive documentation to memorialize all
aspects of the institution’s analytical and decision-making process with respect to an
elevated risk CSFT, or would require institutions to create or maintain extensive
documentation even for transactions that are approved or rejected by junior staff.
As an initial matter, the Agencies note that the Final Statement’s provisions
regarding documentation for elevated risk CSFTs submitted to senior management for
approval (or disapproval) do not apply to transactions that may be reviewed and acted on
by more junior personnel in accordance with the institution’s policies and procedures.
Rather, these provisions apply only to those elevated risk CSFTs that are identified by the
institution as potentially involving the greatest degree of risk to the institution and, for
this reason, are required to be reviewed by the institution’s senior management. The
Agencies believe that it is important for institutions to maintain documentation for this
category of elevated risk CSFTs, whether approved or declined, that reflects the factors
considered by senior management in taking such action. The Agencies believe this type
of documentation may be of significant benefit to the institution and to the Agencies in
reviewing the effectiveness of the institution’s CSFT-related policies, procedures, and
internal controls. However, to help address the commenter’s concern about potential
burden, the Agencies have modified the Final Statement to recognize that the minutes of
an institution’s reviewing senior management committee may have the information
described and to clarify that the documentation for a transaction should reflect the factors
15
considered by senior management in taking action, but does not have to detail every
aspect of the institution’s legal or business analysis of the transaction. 11
C.
General Risk Management Principles for Elevated Risk CSFTs
The Final Statement – like the Revised Proposed Statement – also describes some
of the other key risk management policies and internal controls that financial institutions
should have in place for elevated risk CSFTs. For example, the Final Statement provides
that the board of directors and senior management of an institution should establish a
“tone at the top” through both actions and formalized policies that sends a strong message
throughout the financial institution about the importance of compliance with the law and
overall good business ethics. The Final Statement also describes the types of training,
reporting mechanisms, and audit procedures that institutions should have in place with
respect to elevated risk CSFTs. The Final Statement also provides that a financial
institution should conduct periodic independent reviews of its CSFT activities to verify
and monitor that its policies and controls relating to elevated risk CSFTs are being
implemented effectively and that elevated risk CSFTs are accurately identified and
receive proper approvals.
In response to comments, the Agencies have modified the Final Statement to
clarify that the independent reviews conducted by a financial institution may be
performed by the institution’s audit department or an independent compliance function
within the institution. One commenter also asked the Agencies to state that the proper
role of an institution’s independent review function is only to confirm that the
11
In light of comments, the Agencies have modified the Documentation section of the Statement to clarify
that an institution should retain sufficient documentation to establish that it has provided the customer any
disclosures concerning an elevated risk CSFT that the institution is otherwise required to provide to the
customer.
16
institution’s policies and procedures for elevated risk CSFTs are being followed and that
the function should not assess the quality of the decisions made by institution personnel.
The Agencies believe that an institution’s audit or compliance department should have
the flexibility, in appropriate circumstances, to review the decisions made by institution
personnel during the review and approval process for elevated risk CSFTs and for this
reason have not made the recommended change.
V.
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. § 3506; 5
CFR 1320 Appendix A.1), the Agencies reviewed the Final Statement. The Agencies
may not conduct or sponsor, and an organization is not required to respond to, this
information collection unless it displays a currently valid OMB control number. The
Agencies previously determined that certain provisions of the Revised Proposed
Statement contained information collection requirements. OMB reviewed and approved
the information collections contained in the Revised Proposed Statement for the FDIC,
OTS, OCC and SEC; and the Board reviewed the Revised Proposed Statement under the
authority delegated to the Board by OMB (5 CFR 1320, Appendix A.1).
OMB control numbers:
OCC: 1557-0229.
OTS: 1550-0111.
FRB: 7100-0311.
FDIC: 3064-0148.
SEC: 3235-0622.
Burden Estimates
17
OCC
Number of Respondents: 21.
Estimated Time per Response: 25 hours.
Total Estimated Annual Burden: 525 hours.
OTS
Number of Respondents: 5.
Estimated Time per Response: 25 hours.
Total Estimated Annual Burden: 125 hours.
Board
Number of Respondents: 20.
Estimated Time per Response: 25 hours.
Total Estimated Annual Burden: 500 hours.
FDIC
Number of Respondents: 5.
Estimated Time per Response: 25 hours.
Total Estimated Annual Burden: 125 hours.
SEC
Number of Respondents: 5.
Estimated Time per Response: 25 hours.
Total Estimated Annual Burden: 125 hours.
No commenters addressed the Agencies’ information collection estimates. The
Agencies do not believe that the clarifications included in this Final Statement impact the
burden estimates previously developed and approved for these information collections.
18
The Agencies have a continuing interest in the public's opinions of our collections of
information. At any time, comments regarding the burden estimate, or any other aspect
of this collection of information, including suggestions for reducing the burden, may be
sent to:
OCC: You should direct your comments to:
Communications Division, Office of the Comptroller of the Currency, Public
Information Room, Mailstop 1-5, Attention: 1557-0229, 250 E Street, SW., Washington,
DC 20219. In addition, comments may be sent by fax to (202) 874-4448, or by electronic
mail to regs.comments@occ.treas.gov. You can inspect and photocopy the comments at
the OCC’s Public Information Room, 250 E Street, SW., Washington, DC 20219. You
can make an appointment to inspect the comments by calling (202) 874-5043.
Additionally, you should send a copy of your comments to OCC Desk Officer, 15570229, by mail to U.S. Office of Management and Budget, 725 17th Street, NW., #10235,
Washington, DC 20503, or by fax to (202) 395-6974.
You can request additional information or a copy of the collection from Mary
Gottlieb, OCC Clearance Officer, or Camille Dickerson, (202) 874-5090, Legislative and
Regulatory Activities Division, Office of the Comptroller of the Currency, 250 E Street,
SW., Washington, DC 20219.
OTS: Information Collection Comments, Chief Counsel’s Office, Office of Thrift
Supervision, 1700 G Street, NW., Washington, DC 20552; send a facsimile transmission
to (202) 906-6518; or send an e-mail to infocollection.comments@ots.treas.gov. OTS
will post comments and the related index on the OTS Internet site at
http://www.treas.gov. In addition, interested persons may inspect the comments at the
19
Public Reading Room, 1700 G Street, NW., by appointment. To make an appointment,
call (202) 906-5922, send an e-mail to public.info@ots.treas.gov, or send a facsimile
transmission to (202) 906-7755.
To obtain a copy of the submission to OMB, contact Marilyn K. Burton at
marilyn.burton@ots.treas.gov, (202) 906-6467, or fax number (202) 906-6518, Chief
Counsel’s Office, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC
20552
Board: You may submit comments, identified by FR 4022, by any of the
following methods:
•
Agency Web site: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
•
Federal eRulemaking Portal: http://www.regulations.gov. Follow the
instructions for submitting comments.
•
E-mail:
Regs.comments@federalreserve.gov. Include docket number in the subject line
of the message.
•
Fax: (202) 452-3819 or (202) 452-3102.
•
Mail: Michelle Long, Federal Reserve Board Clearance Officer (202)
452-3829, Division of Research and Statistics, Board of Governors of the Federal
Reserve System, Washington, DC 20551. Telecommunications Device for the
Deaf (TDD) users may contact (202) 263-4869, Board of Governors of the
Federal Reserve System, Washington, DC 20551.
20
All public comments are available from the Board’s Web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, unless
modified for technical reasons. Accordingly, your comments will not be edited to
remove any identifying or contact information. Public comments may also be viewed
electronically or in paper in Room MP-500 of the Board’s Martin Building (20th and C
Streets, NW) between 9 a.m. and 5 p.m. on weekdays.
FDIC: Interested parties are invited to submit written comments to the FDIC
concerning the Paperwork Reduction Act implications of this proposal. Such comments
should refer to “Complex Structured Finance Transactions, 3064-0148.” Comments may
be submitted by any of the following methods:
•
http://www.FDIC.gov/regulations/laws/federal/propose.html.
•
E-mail: comments@FDIC.gov. Include Complex Structured
Financial Transactions, 3064-0148 in the subject line of the message.
•
Mail: Steven F. Hanft (202) 898-3907, Federal Deposit Insurance
Corporation, 550 17th Street, NW., Washington, DC 20429.
•
Hand Delivery: Comments may be hand-delivered to the guard station
at the rear of the 17th Street Building (located on F Street), on business days
between 7 a.m. and 5 p.m.
SEC: You should direct your comments to: Office of Management and Budget,
Attention Desk Officer for the Securities and Exchange Commission, Office of
Information and Regulatory Affairs, Room 10102, New Executive Office Building,
Washington, DC 20503, with a copy sent to Nancy M. Morris, Secretary, Securities and
21
Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090 with reference
to File No. S7-08-06.
The Final Statement follows:
Interagency Statement on Sound Practices Concerning
Elevated Risk Complex Structured Finance Activities
I. Introduction
Financial markets have grown rapidly over the past decade, and innovations in
financial instruments have facilitated the structuring of cash flows and allocation of risk
among creditors, borrowers and investors in more efficient ways. Financial derivatives
for market and credit risk, asset-backed securities with customized cash flow features,
specialized financial conduits that manage pools of assets and other types of structured
finance transactions serve important business purposes, such as diversifying risks,
allocating cash flows, and reducing cost of capital. As a result, structured finance
transactions now are an essential part of U.S. and international capital markets. Financial
institutions have played and continue to play an active and important role in the
development of structured finance products and markets, including the market for the
more complex variations of structured finance products.
When a financial institution participates in a complex structured finance
transaction (“CSFT”), it bears the usual market, credit, and operational risks associated
with the transaction. In some circumstances, a financial institution also may face
22
heightened legal or reputational risks due to its involvement in a CSFT. For example, in
some circumstances, a financial institution may face heightened legal or reputational risk
if a customer’s regulatory, tax or accounting treatment for a CSFT, or disclosures to
investors concerning the CSFT in the customer’s public filings or financial statements, do
not comply with applicable laws, regulations or accounting principles. Indeed, in some
instances, CSFTs have been used to misrepresent a customer’s financial condition to
investors, regulatory authorities and others. In these situations, investors have been
harmed, and financial institutions have incurred significant legal and reputational
exposure. In addition to legal risk, reputational risk poses a significant threat to financial
institutions because the nature of their business requires them to maintain the confidence
of customers, creditors and the general marketplace.
The Office of the Comptroller of the Currency, the Office of Thrift Supervision,
the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, and the Securities and Exchange Commission (the “Agencies”) have long
expected financial institutions to develop and maintain robust control infrastructures that
enable them to identify, evaluate and address the risks associated with their business
activities. Financial institutions also must conduct their activities in accordance with
applicable statutes and regulations.
II. Scope and Purpose of Statement
The Agencies are issuing this Statement to describe the types of risk management
principles that we believe may help a financial institution to identify CSFTs that may
pose heightened legal or reputational risks to the institution (“elevated risk CSFTs”) and
23
to evaluate, manage and address these risks within the institution’s internal control
framework. 12
Structured finance transactions encompass a broad array of products with varying
levels of complexity. Most structured finance transactions, such as standard public
mortgage-backed securities transactions, public securitizations of retail credit cards,
asset-backed commercial paper conduit transactions, and hedging-type transactions
involving “plain vanilla” derivatives and collateralized loan obligations, are familiar to
participants in the financial markets, and these vehicles have a well-established track
record. These transactions typically would not be considered CSFTs for the purpose of
this Statement.
Because this Statement focuses on sound practices related to CSFTs that may
create heightened legal or reputational risks – transactions that typically are conducted by
a limited number of large financial institutions – it will not affect or apply to the vast
majority of financial institutions, including most small institutions. As in all cases, a
financial institution should tailor its internal controls so that they are appropriate in light
of the nature, scope, complexity and risks of its activities. Thus, for example, an
institution that is actively involved in structuring and offering CSFTs that may create
heightened legal or reputational risk for the institution should have a more formalized and
detailed control framework than an institution that participates in these types of
12
As used in this Statement, the term “financial institution” or “institution” refers to national banks in the
case of the Office of the Comptroller of the Currency; federal and state savings associations and savings
and loan holding companies in the case of the Office of Thrift Supervision; state member banks and bank
holding companies (other than foreign banking organizations) in the case of the Federal Reserve Board;
state nonmember banks in the case of the Federal Deposit Insurance Corporation; and registered brokerdealers and investment advisers in the case of the Securities and Exchange Commission. The U.S.
branches and agencies of foreign banks supervised by the Office of the Comptroller, the Federal Reserve
Board and the Federal Deposit Insurance Corporation also are considered to be financial institutions for
purposes of this Statement.
24
transactions less frequently. The internal controls and procedures discussed in this
Statement are not all inclusive, and, in appropriate circumstances, an institution may find
that other controls, policies, or procedures are appropriate in light of its particular CSFT
activities.
Because many of the core elements of an effective control infrastructure are the
same regardless of the business line involved, this Statement draws heavily on controls
and procedures that the Agencies previously have found to be effective in assisting a
financial institution to manage and control risks and identifies ways in which these
controls and procedures can be effectively applied to elevated risk CSFTs. Although this
Statement highlights some of the most significant risks associated with elevated risk
CSFTs, it is not intended to present a full exposition of all risks associated with these
transactions. Financial institutions are encouraged to refer to other supervisory guidance
prepared by the Agencies for further information concerning market, credit, operational,
legal and reputational risks as well as internal audit and other appropriate internal
controls.
This Statement does not create any private rights of action, and does not alter or
expand the legal duties and obligations that a financial institution may have to a
customer, its shareholders or other third parties under applicable law. At the same time,
adherence to the principles discussed in this Statement would not necessarily insulate a
financial institution from regulatory action or any liability the institution may have to
third parties under applicable law.
III. Identification and Review of Elevated Risk Complex Structured Finance
Transactions
25
A financial institution that engages in CSFTs should maintain a set of formal,
written, firm-wide policies and procedures that are designed to allow the institution to
identify, evaluate, assess, document, and control the full range of credit, market,
operational, legal and reputational risks associated with these transactions. These
policies may be developed specifically for CSFTs, or included in the set of broader
policies governing the institution generally. A financial institution operating in foreign
jurisdictions may tailor its policies and procedures as appropriate to account for, and
comply with, the applicable laws, regulations and standards of those jurisdictions. 13
A financial institution’s policies and procedures should establish a clear
framework for the review and approval of individual CSFTs. These policies and
procedures should set forth the responsibilities of the personnel involved in the
origination, structuring, trading, review, approval, documentation, verification, and
execution of CSFTs. Financial institutions may find it helpful to incorporate the review
of new CSFTs into their existing new product policies. In this regard, a financial
institution should define what constitutes a “new” complex structured finance product
and establish a control process for the approval of such new products. In determining
whether a CSFT is new, a financial institution may consider a variety of factors,
including whether it contains structural or pricing variations from existing products,
whether the product is targeted at a new class of customers, whether it is designed to
address a new need of customers, whether it raises significant new legal, compliance or
13
In the case of U.S. branches and agencies of foreign banks, these policies, including management,
review and approval requirements, should be coordinated with the foreign bank’s group-wide policies
developed in accordance with the rules of the foreign bank’s home country supervisor and should be
consistent with the foreign bank’s overall corporate and management structure as well as its framework for
risk management and internal controls.
26
regulatory issues, and whether it or the manner in which it would be offered would
materially deviate from standard market practices. An institution’s policies should
require new complex structured finance products to receive the approval of all relevant
control areas that are independent of the profit center before the product is offered to
customers.
A. Identifying Elevated Risk CSFTs
As part of its transaction and new product approval controls, a financial institution
should establish and maintain policies, procedures and systems to identify elevated risk
CSFTs. Because of the potential risks they present to the institution, transactions or new
products identified as elevated risk CSFTs should be subject to heightened reviews
during the institution’s transaction or new product approval processes. Examples of
transactions that an institution may determine warrant this additional scrutiny are those
that (either individually or collectively) appear to the institution during the ordinary
course of its transaction approval or new product approval process to:
•
Lack economic substance or business purpose;
•
Be designed or used primarily for questionable accounting, regulatory,
or tax objectives, particularly when the transactions are executed at
year end or at the end of a reporting period for the customer;
•
Raise concerns that the client will report or disclose the transaction in
its public filings or financial statements in a manner that is materially
misleading or inconsistent with the substance of the transaction or
applicable regulatory or accounting requirements;
27
•
Involve circular transfers of risk (either between the financial
institution and the customer or between the customer and other related
parties) that lack economic substance or business purpose;
•
Involve oral or undocumented agreements that, when taken into
account, would have a material impact on the regulatory, tax, or
accounting treatment of the related transaction, or the client’s
disclosure obligations; 14
•
Have material economic terms that are inconsistent with market norms
(e.g., deep “in the money” options or historic rate rollovers); or
•
Provide the financial institution with compensation that appears
substantially disproportionate to the services provided or investment
made by the financial institution or to the credit, market or operational
risk assumed by the institution.
The examples listed previously are provided for illustrative purposes only, and the
policies and procedures established by financial institutions may differ in how they seek
to identify elevated risk CSFTs. The goal of each institution’s policies and procedures,
however, should remain the same – to identify those CSFTs that warrant additional
scrutiny in the transaction or new product approval process due to concerns regarding
legal or reputational risks.
Financial institutions that structure or market, act as an advisor to a customer
regarding, or otherwise play a substantial role in a transaction may have more
information concerning the customer’s business purpose for the transaction and any
14
This item is not intended to include traditional, non-binding “comfort” letters or assurances provided to
financial institutions in the loan process where, for example, the parent of a loan customer states that the
customer (i.e., the parent’s subsidiary) is an integral and important part of the parent’s operations.
28
special accounting, tax or financial disclosure issues raised by the transaction than
institutions that play a more limited role. Thus, the ability of a financial institution to
identify the risks associated with an elevated risk CSFT may differ depending on its role.
B. Due Diligence, Approval and Documentation Process for Elevated Risk CSFTs
Having developed a process to identify elevated risk CSFTs, a financial institution
should implement policies and procedures to conduct a heightened level of due diligence
for these transactions. The financial institution should design these policies and
procedures to allow personnel at an appropriate level to understand and evaluate the
potential legal or reputational risks presented by the transaction to the institution and to
manage and address any heightened legal or reputational risks ultimately found to exist
with the transaction.
Due Diligence. If a CSFT is identified as an elevated risk CSFT, the institution
should carefully evaluate and take appropriate steps to address the risks presented by the
transaction with a particular focus on those issues identified as potentially creating
heightened levels of legal or reputational risk for the institution. In general, a financial
institution should conduct the level and amount of due diligence for an elevated risk
CSFT that is commensurate with the level of risks identified. A financial institution that
structures or markets an elevated risk CSFT to a customer, or that acts as an advisor to a
customer or investors concerning an elevated risk CSFT, may have additional
responsibilities under the federal securities laws, the Internal Revenue Code, state
fiduciary laws or other laws or regulations and, thus, may have greater legal and
reputational risk exposure with respect to an elevated risk CSFT than a financial
institution that acts only as a counterparty for the transaction. Accordingly, a financial
29
institution may need to exercise a higher degree of care in conducting its due diligence
when the institution structures or markets an elevated risk CSFT or acts as an advisor
concerning such a transaction than when the institution plays a more limited role in the
transaction.
To appropriately understand and evaluate the potential legal and reputational risks
associated with an elevated risk CSFT that a financial institution has identified, the
institution may find it useful or necessary to obtain additional information from the
customer or to obtain specialized advice from qualified in-house or outside accounting,
tax, legal, or other professionals. As with any transaction, an institution should obtain
satisfactory responses to its material questions and concerns prior to consummation of a
transaction. 15
In conducting its due diligence for an elevated risk CSFT, a financial institution
should independently analyze the potential risks to the institution from both the
transaction and the institution’s overall relationship with the customer. Institutions
should not conclude that a transaction identified as being an elevated risk CSFT involves
minimal or manageable risks solely because another financial institution will participate
in the transaction or because of the size or sophistication of the customer or counterparty.
Moreover, a financial institution should carefully consider whether it would be
appropriate to rely on opinions or analyses prepared by or for the customer concerning
any significant accounting, tax or legal issues associated with an elevated risk CSFT.
Approval Process. A financial institution’s policies and procedures should
provide that CSFTs identified as having elevated legal or reputational risk are reviewed
15
Of course, financial institutions also should ensure that their own accounting for transactions complies
with applicable accounting standards, consistently applied.
30
and approved by appropriate levels of control and management personnel. The
designated approval process for such CSFTs should include representatives from the
relevant business line(s) and/or client management, as well as from appropriate control
areas that are independent of the business line(s) involved in the transaction. The
personnel responsible for approving an elevated risk CSFT on behalf of a financial
institution should have sufficient experience, training and stature within the organization
to evaluate the legal and reputational risks, as well as the credit, market and operational
risks to the institution.
The institution’s control framework should have procedures to deliver the
necessary or appropriate information to the personnel responsible for reviewing or
approving an elevated risk CSFT to allow them to properly perform their duties. Such
information may include, for example, the material terms of the transaction, a summary
of the institution’s relationship with the customer, and a discussion of the significant
legal, reputational, credit, market and operational risks presented by the transaction.
Some institutions have established a senior management committee that is
designed to involve experienced business executives and senior representatives from all
of the relevant control functions within the financial institution (including such groups as
independent risk management, tax, accounting, policy, legal, compliance, and financial
control) in the oversight and approval of those elevated risk CSFTs that are identified by
the institution’s personnel as requiring senior management review and approval due to
the potential risks associated with the transactions. While this type of management
committee may not be appropriate for all financial institutions, a financial institution
31
should establish processes that assist the institution in consistently managing the review
and approval of elevated risk CSFTs on a firm-wide basis. 16
If, after evaluating an elevated risk CSFT, the financial institution determines that
its participation in the CSFT would create significant legal or reputational risks for the
institution, the institution should take appropriate steps to address those risks. Such
actions may include declining to participate in the transaction, or conditioning its
participation upon the receipt of representations or assurances from the customer that
reasonably address the heightened legal or reputational risks presented by the transaction.
Any representations or assurances provided by a customer should be obtained before a
transaction is executed and be received from, or approved by, an appropriate level of the
customer’s management. A financial institution should decline to participate in an
elevated risk CSFT if, after conducting appropriate due diligence and taking appropriate
steps to address the risks from the transaction, the institution determines that the
transaction presents unacceptable risk to the institution or would result in a violation of
applicable laws, regulations or accounting principles.
Documentation. The documentation that financial institutions use to support
CSFTs is often highly customized for individual transactions and negotiated with the
customer. Careful generation, collection and retention of documents associated with
elevated risk CSFTs are important control mechanisms that may help an institution
monitor and manage the legal, reputational, operational, market, and credit risks
16
The control processes that a financial institution establishes for CSFTs should take account of, and be
consistent with, any informational barriers established by the institution to manage potential conflicts of
interest, insider trading or other concerns.
32
associated with the transactions. In addition, sound documentation practices may help
reduce unwarranted exposure to the financial institution’s reputation.
A financial institution should create and collect sufficient documentation to allow
the institution to:
•
Document the material terms of the transaction;
•
Enforce the material obligations of the counterparties;
•
Confirm that the institution has provided the customer any disclosures
concerning the transaction that the institution is otherwise required to
provide; and
•
Verify that the institution’s policies and procedures are being followed
and allow the internal audit function to monitor compliance with those
policies and procedures.
When an institution’s policies and procedures require an elevated risk CSFT to be
submitted for approval to senior management, the institution should maintain the
transaction-related documentation provided to senior management as well as other
documentation, such as minutes of the relevant senior management committee, that
reflect senior management’s approval (or disapproval) of the transaction, any conditions
imposed by senior management, and the factors considered in taking such action. The
institution should retain documents created for elevated risk CSFTs in accordance with its
record retention policies and procedures as well as applicable statutes and regulations.
C. Other Risk Management Principles for Elevated Risk CSFTs
General Business Ethics. The board and senior management of a financial
institution also should establish a “tone at the top” through both actions and formalized
33
policies that sends a strong message throughout the financial institution about the
importance of compliance with the law and overall good business ethics. The board and
senior management should strive to create a firm-wide corporate culture that is sensitive
to ethical or legal issues as well as the potential risks to the financial institution that may
arise from unethical or illegal behavior. This kind of culture coupled with appropriate
procedures should reinforce business-line ownership of risk identification, and encourage
personnel to move ethical or legal concerns regarding elevated risk CSFTs to appropriate
levels of management. In appropriate circumstances, financial institutions may also need
to consider implementing mechanisms to protect personnel by permitting the confidential
disclosure of concerns. 17 As in other areas of financial institution management,
compensation and incentive plans should be structured, in the context of elevated risk
CSFTs, so that they provide personnel with appropriate incentives to have due regard for
the legal, ethical and reputational risk interests of the institution.
Reporting. A financial institution’s policies and procedures should provide for
the appropriate levels of management and the board of directors to receive sufficient
information and reports concerning the institution’s elevated risk CSFTs to perform their
oversight functions.
Monitoring Compliance with Internal Policies and Procedures. The events of
recent years evidence the need for an effective oversight and review program for elevated
risk CSFTs. A financial institution’s program should provide for periodic independent
reviews of its CSFT activities to verify and monitor that its policies and controls relating
17
The agencies note that the Sarbanes-Oxley Act of 2002 requires companies listed on a national securities
exchange or inter-dealer quotation system of a national securities association to establish procedures that
enable employees to submit concerns regarding questionable accounting or auditing matters on a
confidential, anonymous basis. See 15 U.S.C. 78j-1(m).
34
to elevated risk CSFTs are being implemented effectively and that elevated risk CSFTs
are accurately identified and received proper approvals. These independent reviews
should be performed by appropriately qualified audit, compliance or other personnel in a
manner consistent with the institution’s overall framework for compliance monitoring,
which should include consideration of issues such as the independence of reviewing
personnel from the business line. Such monitoring may include more frequent
assessments of the risk arising from elevated risk CSFTs, both individually and within the
context of the overall customer relationship, and the results of this monitoring should be
provided to an appropriate level of management in the financial institution.
Audit. The internal audit department of any financial institution is integral to its
defense against fraud, unauthorized risk taking and damage to the financial institution’s
reputation. The internal audit department of a financial institution should regularly audit
the financial institution’s adherence to its own control procedures relating to elevated risk
CSFTs, and further assess the adequacy of its policies and procedures related to elevated
risk CSFTs. Internal audit should periodically validate that business lines and individual
employees are complying with the financial institution’s standards for elevated risk
CSFTs and appropriately identifying any exceptions. This validation should include
transaction testing for elevated risk CSFTs.
Training. An institution should identify relevant personnel who may need
specialized training regarding CSFTs to be able to effectively perform their oversight and
review responsibilities. Appropriate training on the financial institution’s policies and
procedures for handling elevated risk CSFTs is critical. Financial institution personnel
involved in CSFTs should be familiar with the institution’s policies and procedures
35
concerning elevated risk CSFTs, including the processes established by the institution for
identification and approval of elevated risk CSFTs and new complex structured finance
products and for the elevation of concerns regarding transactions or products to
appropriate levels of management. Financial institution personnel involved in CSFTs
should be trained to identify and properly handle elevated risk CSFTs that may result in a
violation of law.
IV. Conclusion
Structured finance products have become an essential and important part of the
U.S. and international capital markets, and financial institutions have played an important
role in the development of structured finance markets. In some instances, however,
CSFTs have been used to misrepresent a customer’s financial condition to investors and
others, and financial institutions involved in these transactions have sustained significant
legal and reputational harm. In light of the potential legal and reputational risks
associated with CSFTs, a financial institution should have effective risk management and
internal control systems that are designed to allow the institution to identify elevated risk
CSFTs, to evaluate, manage and address the risks arising from such transactions, and to
conduct those activities in compliance with applicable law.
36
Dated: December 12, 2006.
____________________________
John C. Dugan,
Comptroller of the Currency.
_______________________________________________
Dated: December 21, 2006.
____________________________
By the Office of Thrift Supervision.
Scott M. Polakoff,
Deputy Director & Chief Operating Officer
_______________________________________________
By order of the Board of Governors of the Federal Reserve System, December 20, 2006.
____________________________
Jennifer J. Johnson,
Secretary of the Board.
_______________________________________________
Dated at Washington, DC, the 22nd day of December, 2006.
____________________________
By order of the Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
_______________________________________________
Dated: January 5, 2007
____________________________
By the Securities and Exchange Commission
Nancy M. Morris
Secretary
37
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.