RegNN_20120513_omb

Supporting Statement for the
Reporting, Recordkeeping, and Disclosure Requirements Associated with Regulation NN
(Retail Foreign Exchange Transactions) (Reg NN; OMB No. to be obtained)
Retail Foreign Exchange Transactions (Regulation NN)
(Docket No. R-1428) (RIN 7100-AD79)
Summary
The Board of Governors of the Federal Reserve System, under delegated authority from
the Office of Management and Budget (OMB), proposes to implement the Reporting,
Recordkeeping, and Disclosure Requirements Associated with Regulation NN (Retail Foreign
Exchange Transactions) (Reg NN; OMB No. to be obtained). The Paperwork Reduction Act
(PRA) classifies reporting, recordkeeping, or disclosure requirements of a regulation as an
“information collection.”1
The Federal Reserve has adopted a final rule to permit banking organizations under its
supervision to engage in certain transactions in foreign currency with retail customers. The final
rule also describes various requirements with which banking organizations must comply to
conduct such transactions. On August 3, 2011, the Federal Reserve published a notice of
proposed rulemaking in the Federal Register for public comment (76 FR 46652). The comment
period expired on October 11, 2011. On April 9, 2013, the Federal Reserve published a notice of
final rulemaking in the Federal Register (78 FR 21019). The final rule is effective on May 13,
2013.
The reporting requirements are found in section 240.4; the recordkeeping requirements
are found in sections 240.7, 240.9, and 240.13(a); and the disclosure requirements are found in
sections 240.5, 240.6, 240.10, 240.13b-d, 240.15, and 240.16. This information collection
requirements will implement section 742(c)(2) of the Dodd-Frank Act (codified at 7 U.S.C. §
2(c)(2)(E)) for “banking institutions,” defined as state member banks, uninsured state-licensed
branches of foreign banks, financial holding companies, bank holding companies, savings and
loan holding companies, agreement corporations, and Edge Act corporations. The total annual
burden for this information collection is estimated to be 6,870 hours for the 7 institutions that are
deemed respondents for purposes of the PRA. There are no required reporting forms associated
with this information collection.
Background and Justification
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform
and Consumer Protection Act (Dodd-Frank Act).2 As amended by section 742(c)(2) of the
Dodd-Frank Act,3 the Commodity Exchange Act (CEA) provides that a United States financial
institution for which there is a Federal regulatory agency shall not enter into, or offer to enter
into, certain types of foreign exchange transactions described in section 2(c)(2)(B)(i)(I) of the
1
2
3

See 44 U.S.C. § 3501 et seq.
Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (2010).
Dodd-Frank Act § 742(c)(2) (codified at 7 U.S.C. § 2(c)(2)(E)) (2011).

CEA with a retail customer except pursuant to a rule or regulation of a Federal regulatory agency
allowing the transaction under such terms and conditions as the Federal regulatory agency shall
prescribe. Section 2(c)(2)(B)(i)(I) includes “an agreement, contract, or transaction in foreign
currency that … is a contract of sale of a commodity for future delivery (or an option on such a
contract) or an option (other than an option executed or traded on a national securities exchange
registered pursuant to section 6(a) of the Securities Exchange Act of 1934).”4 A Federal
regulatory agency’s retail foreign exchange rule must treat all such futures and options and all
agreements, contracts, or transactions that are functionally or economically similar to such
futures and options similarly.
Description of Information Collection
The reporting requirements are found in section 240.4; the recordkeeping requirements
are found in sections 240.7, 240.9, and 240.13(a); and the disclosure requirements are found in
sections 240.5, 240.6, 240.10, 240.13b-d, 240.15, and 240.16. The Federal Reserve is adopting
these requirements to permit banking organizations under its supervision to engage in offexchange transactions in foreign currency with retail customers and to describe various
requirements with which banking organizations must comply to conduct such transactions.
Compliance with the information collection is mandatory. No other federal law mandates these
reporting, recordkeeping, and disclosure requirements.
Reporting Requirements
Section 240.4 requires that, prior to initiating a retail foreign exchange business, a
banking institution provide the Board with notice. The notice must certify that the banking
institution has written policies and procedures, and risk measurement and management systems
in controls in place to ensure that retail foreign exchange transactions are conducted in a safe and
sound manner. The banking institution must also provide other information required by the
Board, such as documentation of customer due diligence, new product approvals, and haircuts
applied to noncash margin. A banking institution already engaging in a retail foreign exchange
business may continue to do so, provided it submits the notification requirements information
within 30 days of the effective date.
Recordkeeping Requirements
Sections 240.7 and 240.13(a) require that a banking institution engaging in retail foreign
exchange transactions keep full, complete, and systematic records and establish and implement
internal rules, procedures, and controls. Section 240.7 also requires that a banking institution
keep account, financial ledger, transaction and daily records, as well as memorandum orders,
post-execution allocation of bunched orders, records regarding its ratio of profitable accounts,
possible violations of law, records for noncash margin, and monthly statements and
confirmations.
Section 240.9 requires policies and procedures for haircuts for noncash margin collected
under the rule’s margin requirements, and annual evaluations and modifications of the haircuts.
4

See 7 U.S.C. § 2(c)(2)(B)(i)(I).

2

Disclosure Requirements
Section 240.5, regarding the application and closing out of offsetting long and short
positions, requires a banking institution to promptly provide the customer with a statement
reflecting the financial result of the transactions and the name of the introducing broker to the
account. The customer may provide specific written instructions on how the offsetting
transaction should be applied.
Section 240.6 requires that a banking institution furnish a retail foreign exchange
customer with a written disclosure before opening an account that will engage in retail foreign
exchange transactions and receive an acknowledgment from the customer that it was received
and understood. It also requires the disclosure by a banking institution of its fees and other
charges and its profitable accounts ratio.
Section 240.10 requires a banking institution to issue monthly statements to each retail
foreign exchange customer and to send confirmation statements following transactions.
Section 240.13(b) allows disclosure by a banking institution that an order of another
person is being held by them only when necessary to the effective execution of the order or when
the disclosure is requested by the Board. Section 240.13(c) prohibits a banking institution
engaging in retail foreign exchange transactions from knowingly handling the account of any
related person of another retail foreign exchange counterparty unless it receives proper written
authorization, promptly prepares a written record of the order, and transmits to the counterparty
copies all statements and written records. Section 240.13(d) prohibits a related person of a
banking institution engaging in foreign exchange transactions from having an account with
another retail foreign exchange counterparty unless it receives proper written authorization and
copies of all statements and written records for such accounts are transmitted to the counterparty.
Section 240.15 requires a banking institution to provide a retail foreign exchange
customer with 30 days’ prior notice of any assignment of any position or transfer of any account
of the retail foreign exchange customer. It also requires a banking institution to which retail
foreign exchange accounts or positions are assigned or transferred to provide the affected
customers with risk disclosure statements and forms of acknowledgment and receive the signed
acknowledgments within 60 days.
The customer dispute resolution provisions in section 240.16 require certain
endorsements, acknowledgments, and signature language. It also requires that within 10 days
after receipt of notice from the retail foreign exchange customer that they intend to submit a
claim to arbitration, the banking institution will provide them with a list of persons qualified in
the dispute resolution and that the customer must notify the banking institution of the person
selected within 45 days of receipt of such list.

3

Time Schedule for Information Collection
The information collection pursuant to the reporting, recordkeeping, and disclosure
requirements is event-generated.
Legal Status
The Board’s Legal Division has determined that these information collections are
required by the Commodity Exchange Act (7 U.S.C. § 2(c)(2)(E)), the Federal Reserve Act (12
U.S.C. §§ 248 and 321–338), the Federal Deposit Insurance Act (12 U.S.C. § 1818), the
International Banking Act (12 U.S.C. § 3108), and Regulation NN (12 C.F.R. § 240). The
reported data are regarded as confidential under the Freedom of Information Act (5 U.S.C. §
552(b)(4)).
Consultation Outside the Agency
On August 3, 2011, the Federal Reserve published the proposed rule in the Federal
Register (76 FR 46652) requesting public comment on the proposed information collection. The
comment period for this notice expired on October 11, 2011. The Federal Reserve did not
receive any comments regarding the PRA implication of its retail foreign exchange regulation.
On April 9, 2013, the Federal Reserve published the final rule in the Federal Register (78 FR
21019) and it is effective on May 13, 2013.
Estimate of Respondent Burden
The total annual burden for Reg NN is estimated to be 6,870 hours. The Reg NN
reporting, recordkeeping, and disclosure requirements represent less than 1 percent of the total
Federal Reserve System paperwork burden.

4

Reporting
Section 240.4
Recordkeeping
Sections 240.7, 240.9, and
240.13a
Disclosure
Sections 240.5, 240.6, 240.10,
240.13b-d, 240.15, and
240.16

Number of
respondents5

Annual
frequency

5

1

16

80

7

1

183

1,281

7

1

787

5,509

Total

Estimated
average hours
per response

Estimated
annual burden
hours

6,870

The total cost to the public for this information collection is estimated to be $308,120.6
Sensitive Questions
This collection of information contains no questions of a sensitive nature, as defined by
OMB guidelines.
Estimate of Cost to the Federal Reserve System
The cost to the Federal Reserve System is negligible.

5

Of these respondents, none are small entities as defined by the Small Business Administration (i.e., entities with
less than $175 million in total assets) www.sba.gov/content/table-small-business-size-standards.
6
Total cost to the public was estimated using the following formula: percent of staff time, multiplied by annual
burden hours, multiplied by hourly rate (30% Office & Administrative Support @ $17, 45% Financial Managers @
$52, 15% Legal Counsel @ $55, and 10% Chief Executives @ $81). Hourly rate for each occupational group are
the median hourly wages (rounded up) from the Bureau of Labor and Statistics (BLS), Occupational Employment
and Wages 2011, www.bls.gov/news.release/ocwage.nr0.htm. Occupations are defined using the BLS Occupational
Classification System, www.bls.gov/soc/.

5