Five federal agencies on Friday issued a final statement on the complex structured finance activities of financial institutions. The final guidance describes a set of internal controls and risk management procedures intended to help financial institutions identify, manage, and address the heightened legal and reputational risks that may arise from certain complex structured finance transactions (CSFTs).
The final statement is substantially similar to the revised statement issued for comment in May 2006, but was modified to address comments received on the revised statement. Industry groups had swiftly filed 40 comment letters criticizing the regulators' initial structured finance plan as being overly prescriptive and as possibly opening new avenues for plaintiff lawyers to sue over deals gone sour. Like the proposal issued in May, the regulators' final statement takes a risk-and principles-based approach to addressing the risks CSFTs may pose to institutions and focuses on those CSFTs that may present elevated levels of legal or reputational risk to institutions. The final statement was issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Securities and Exchange Commission. The statement represents supervisory guidance for institutions supervised by the four banking agencies and a policy statement for institutions supervised by the Securities and Exchange Commission. Because the statement focuses on sound practices related to elevated risk CSFTs -- transactions that typically are conducted by a limited number of large financial institutions -- regulators said it will not affect or apply to the vast majority of financial institutions, including most small institutions. The new rules will go into effect upon publication in the Federal Register, the agencies said. Link provided: Final Statement (pdf)