RegNN_20160527_omb

Supporting Statement for the
Reporting, Recordkeeping, and Disclosure Requirements Associated with
Retail Foreign Exchange Transactions (Regulation NN)
(Reg NN; OMB No. 7100-0353)
Summary
The Board of Governors of the Federal Reserve System (Board), under delegated
authority from the Office of Management and Budget (OMB), proposes to extend, without
revision, the Reporting, Recordkeeping, and Disclosure Requirements Associated with Retail
Foreign Exchange Transactions (Regulation NN) (Reg NN; OMB No. 7100-0353). The
Paperwork Reduction Act (PRA) classifies reporting, recordkeeping, or disclosure requirements
of a regulation as an “information collection.”1
This information collection implements 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 1,972
hours for the two 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
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. This information collection implements section 742(c)(2).

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2
3
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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 section 742(c)(2) (codified at 7 U.S.C. § 2(c)(2)(E)) (2011).
See 7 U.S.C. § 2(c)(2)(B)(i)(I).

Description of Information Collection
The reporting requirements associated with Regulation NN 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. These requirements permit banking organizations under the Board’s supervision to
engage in off-exchange 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
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. The notice will be effective 60 days after a complete notice is
received by the Board, which commences on the day the Board acknowledges the receipt of the
complete notice in writing to the banking institution, unless the Board objects in writing.
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.
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

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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 from a person designated by such other retail foreign exchange counterparty with
the responsibility for the surveillance over such account, promptly prepares a written record of
the order, and transmits to the counterparty copies of all statements and written records. Section
240.13(d) prohibits a related person of a banking institution working in the banking institution’s
retail foreign exchange business from having an account with another retail foreign exchange
counterparty unless the other retail foreign exchange counterparty receives proper written
authorization to open and maintain the account from a person designated by the banking
institution of which it is a related person with responsibility for the surveillance over the account
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.
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 determined that this information collection is required by the
Commodity Exchange Act (7 U.S.C. § 2(c)(2)(E)), the Federal Reserve Act (12 U.S.C. §§ 248

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and 321–338), the Federal Deposit Insurance Act (12 U.S.C. § 1818), and the International
Banking Act (12 U.S.C. § 3108). The information collection is mandatory. 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 March 17, 2016, the Board published a notice in the Federal Register (81 FR 14444)
requesting public comment for 60 days on the extension, without revision, of Reg NN. The
comment period for this notice expired on May 16, 2016. The Board did not receive any
comments. On May 27, 2016, the Board published a final notice in the Federal Register
(81 FR 33672).
Estimate of Respondent Burden
The total annual burden for the information collection is estimated to be 1,972 hours.
The reporting, recordkeeping, and disclosure requirements represent less than 1 percent of the
total Federal Reserve System paperwork burden.
Estimated
average hours
per response

Estimated
annual burden
hours

Number of
respondents5

Annual
frequency

Reporting
Section 240.4

2

1

16

32

Recordkeeping
Sections 240.7, 240.9, and
240.13a

2

1

183

366

Disclosure
Sections 240.5, 240.6, 240.10,
240.13b-d, 240.15, and
240.16

2

1

787

1,574

Reg NN

Total

1,972

The total cost to the public is estimated to be $104,812.6

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Of these respondents, none are small entities as defined by the Small Business Administration (i.e., entities with
less than $550 million in total assets) www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sbasize-standards/table-small-business-size-standards.
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Total cost to the public was estimated using the following formula: percent of staff time, multiplied by annual
burden hours, multiplied by hourly rates (30% Office & Administrative Support at $17, 45% Financial Managers at
$65, 15% Lawyers at $66, and 10% Chief Executives at $89). Hourly rates for each occupational group are the
(rounded) mean hourly wages from the Bureau of Labor and Statistics (BLS), Occupational Employment and Wages
May 2015, published March 30, 2016 www.bls.gov/news.release/ocwage.t01.htm. Occupations are defined using
the BLS Occupational Classification System, www.bls.gov/soc/.

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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.

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