FRNN_20190820_omb

Supporting Statement for the
Reporting, Recordkeeping, and Disclosure Requirements Associated with Regulation NN
(FR NN1; OMB No. 7100-0353)
Summary
The Board of Governors of the Federal Reserve System (Board), under authority
delegated by the Office of Management and Budget (OMB), has extended, without revision, the
Reporting, Recordkeeping, and Disclosure Requirements Associated with Regulation NN
(FR NN; OMB No. 7100-0353). In 2013, the Board promulgated Regulation NN - Retail Foreign
Exchange Transactions (12 CFR 240) to implement section 742(c)(2) of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank Act).2 This section relates to the
regulation of banking institutions that engage in foreign currency transactions with retail
customers.3 Regulation NN includes certain reporting, recordkeeping, and disclosure
requirements for banking institutions that elect to provide foreign currency exchange services to
retail consumers. The regulation applies to 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 (collectively,
banking institutions) that engage in retail foreign exchange transactions.
The estimated total annual burden for FR NN is 1,956 hours. There are no required
reporting forms associated with this information collection.
Background and Justification
Section 742(c)(2) of the Dodd-Frank Act amended section 2(c)(2) of the Commodity
Exchange Act (CEA) to prohibit persons supervised by certain Federal regulatory agencies,
including the Board, from entering into, or offering to enter into, certain types of foreign
exchange transactions4 except pursuant to a rule or regulation promulgated by the relevant
supervising agency. Regulation NN authorizes banking institution supervised by the Board to
conduct retail foreign exchange transactions and establishes certain reporting, recordkeeping, and
disclosure requirements for banking institutions that choose to conduct said transactions.
Description of Information Collection
The reporting requirement associated with Regulation NN is found in section 240.4; the
recordkeeping requirements are found in sections 240.7, 240.9(b)(2), and 240.13(a); and the
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The internal Agency Tracking Number previously assigned by the Board to this information collection was
“Reg NN.” The Board is changing the internal Agency Tracking Number to “FR NN” for the purpose of
consistency.
2
Public Law 111-203, 124 Stat. 1376 (2010).
3
See 78 FR 21019 (April 9, 2013).
4
Section 2(c)(2)(B)(i)(I) of the CEA provides that an applicable foreign exchange transaction 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)” (7 U.S.C.
§ 2(c)(2)(B)(i)(I)).

disclosure requirements are found in sections 240.5(a), 240.6, 240.10, 240.13(c)-(d), 240.15, and
240.16(a)-(b). Compliance with these information collections is mandatory for banking
institutions that engage in retail foreign exchange transactions. No other federal law or regulation
mandates these reporting, recordkeeping, and disclosure requirements.
Reporting Requirements
Section 240.4 requires that a banking institution provide the Board with written notice
prior to initiating a retail foreign exchange business. The notice must include a resolution by the
banking institution’s board of directors that the institution has established and implemented
written policies, procedures, and risk measurement and management systems and controls meant
to ensure that its retail foreign exchange transactions are conducted in a safe and sound manner
and in compliance with Regulation NN. The banking institution must also provide information
concerning customer due diligence, new product approvals, and haircuts applied to noncash
margin, as well as information on addressing conflicts of interest. This information is not
available from other sources. The notice is effective 60 days after a complete notice is received
by the Board, unless the Board objects in writing.
Recordkeeping Requirements
Sections 240.7 requires a banking institution that engages in retail foreign exchange
transactions to keep full, complete and systematic records, together with all pertinent data and
memoranda, of all transactions relating to its retail foreign exchange business, including account,
financial ledger, transaction, and daily records, as well as post-execution allocation of bunched
orders, records regarding its ratio of profitable accounts, records regarding possible violations of
law, records for noncash margin, and monthly statements and confirmations.
Section 240.9(b)(2) requires banking institutions engaging in retail foreign exchange to
establish written policies and procedures that include haircuts for noncash margin collected
under that section’s margin requirements and provide for annual evaluations and, if appropriate,
modifications of the haircuts.
Section 240.13(a) requires a banking institution that engages in retail foreign exchange
transactions to establish and implement internal rules, procedures, and controls designed to (1)
ensure, to the extent reasonable, that each order received from a retail foreign exchange customer
that is executable at or near the price that the banking institution has quoted to the customer is
entered for execution before any order in any retail foreign exchange transaction for proprietary
accounts and certain accounts that raise conflict of interest concerns (conflict of interest
controls), (2) prevent banking institution related persons from placing orders, directly or
indirectly, with another person in a manner designed to circumvent the conflict of interest
controls, and (3) fairly and objectively establish settlement prices for retail foreign exchange
transactions.

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Disclosure Requirements
Section 240.5(a) requires a banking institution that sells a put or call option involving
foreign currency for the account of any retail foreign exchange customer when the account of
such retail foreign exchange customer at the time of such sale has a long put or call option
position with the same underlying currency, strike price, and expiration date as that sold to
promptly provide the customer with a statement reflecting the financial result of the transactions
and the name of any introducing broker to the account.
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, its profitable accounts ratio, the lack of relationship between past and future
performance, and information about the banking institution’s set-off practices.
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(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 transmits to the counterparty copies of all statements and written
records related to the account. 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 a person designated by the
banking institution (of which it is a related person with responsibility for the surveillance over
the account) sends to the other retail foreign exchange counterparty proper written authorization
to open and maintain the account.
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 that a banking institution to which retail
foreign exchange accounts or positions are assigned or transferred provide the affected customers
with risk disclosure statements and forms of acknowledgment and receive the signed
acknowledgments within 60 days of such assignments or transfers.
Section 240.16(a) and (b) sets forth certain requirements regarding the resolution of
disputes with retail foreign exchange customers. The section requires that, within 10 days after
receipt of notice from a customer that they intend to submit a claim to arbitration, the banking
institution provide the customer with a list of persons qualified in the dispute resolution.
Respondent Panel
The FR NN panel comprises state member banks, uninsured state-licensed branches of
foreign banks, financial holding companies, bank holding companies, savings and loan holding

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companies, agreement corporations, and Edge Act corporations that engage in retail foreign
exchange transactions.
Time Schedule for Information Collection
The reporting, recordkeeping, and disclosure requirements in Regulation NN are eventgenerated.
Public Availability of Data
There is no data related to this information collection available to the public.
Legal Status
The reporting, recordkeeping, and disclosure requirements in Regulation NN are
authorized pursuant to section 2(c)(2)(E) of the CEA (7 U.S.C. § 2(c)(2)(E)). Section 2(c)(2)(E)
of the CEA prohibits a United States financial institution and its related persons under the
supervision of a Federal regulatory agency, such as the Board, from offering or entering into
certain types of foreign exchange transactions with retail customers except pursuant to a rule or
regulation prescribed by the appropriate Federal regulatory agency allowing the transaction
under such terms and conditions as the Federal regulatory agency shall prescribe. Additionally,
the Board also has the authority to require reports from state member banks under section 11 of
the Federal Reserve Act (FRA) (12 U.S.C. § 248), from branches of foreign banks under
sections 9 and 13a of the International Banking Act of 1978 (12 U.S.C. §§ 3106a and 3108),
from bank holding companies under section 5(b) and (c) of the Bank Holding Company Act of
1956 (12 U.S.C. § 1844(b) and (c)), from savings and loan holding companies (12 U.S.C. §§
1467a(b) and (g)), from Edge Act corporations under section 25A(17) of the FRA (12 U.S.C. §
625), and from agreement corporations under section 25 of the FRA (12 U.S.C. §§ 601-604a).
Regulation NN’s reporting, recordkeeping, and disclosure requirements are mandatory for
banking institutions that engage in retail foreign exchange transactions.
The reporting requirement under section 240.4 of Regulation NN requires a banking
institution to provide a prior written notice to the Board that includes information concerning
customer due diligence; the policies and procedures for haircuts to be applied to noncash margin;
information concerning new product approvals; and information on addressing conflicts of
interest. The disclosure of this information is reasonably likely to result in substantial
competitive harm to the banking institution, and therefore, may be kept confidential under
exemption (b)(4) of the Freedom of Information Act (FOIA), which protects “trade secrets and
commercial or financial information obtained from a person and privileged or confidential”
(5 U.S.C. § 552(b)(4)). In addition, the prior written notice must also include a resolution of the
banking institution’s board of directors certifying that the institution has written policies,
procedures, and risk measurement and management systems and controls in place to ensure retail
foreign exchange transactions are conducted in a safe and sound manner and in compliance with
Regulation NN. Generally, this resolution by the board of directors would not be accorded
confidential treatment. If confidential treatment is requested by a banking institution, the Board
will review the request to determine if confidential treatment is appropriate.

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The recordkeeping and disclosures required under sections 240.5(a), 240.6, 240.7,
240.9(b)(2), 240.10, 240.13(a), (c), and (d), 240.15, and 240.16(a) and (b) of Regulation NN
generally are not submitted to the Board. Accordingly, normally no confidentiality issues will
arise under the FOIA. In the event such records or disclosures are obtained by the Federal
Reserve through the examination or enforcement process, such information may be kept
confidential under exemption 8 of FOIA, which protects information contained in or related to an
examination of a financial institution (5 U.S.C. § 552(b)(8)).
Consultation Outside the Agency
There has been no consultation outside the Federal Reserve System.
Public Comments
On May 17, 2019, the Board published an initial notice in the Federal Register
(84 FR 22494) requesting public comment for 60 days on the extension, without revision, of the
FR NN. The comment period for this notice expired on July 16, 2019. The Board did not receive
any comments. On August 12, 2019, the Board published a final notice in the Federal Register
(84 FR 39850).
Estimate of Respondent Burden
As shown in the table below, the estimated total annual burden for the FR NN is 1,956
hours. These reporting, recordkeeping, and disclosure requirements represent less than 1 percent
of the Board’s total paperwork burden.
Estimated
number of
respondents5

Annual
frequency

Reporting
Section 240.4

1

1

16

16

Recordkeeping
Sections 240.7, 240.9(b)(2), and
240.13(a)

2

1

183

366

Disclosure
Sections 240.5(a), 240.6,
240.10, 240.13(c)-(d), 240.15,
and 240.16(a) and (b)

2

1

787

1,574

FR NN

Estimated
average hours
per response

Estimated
annual burden
hours

1,956

Total

5

Of these respondents, none are considered small entities as defined by the Small Business Administration (i.e.,
entities with less than $550 million in total assets), https://www.sba.gov/document/support--table-size-standards.

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The estimated total annual cost to the public for this information collection is $112,666.6
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 estimated cost to the Federal Reserve System is negligible.

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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 $19, 45% Financial Managers at
$71, 15% Lawyers at $69, and 10% Chief Executives at $96). 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 2018, published March 29, 2019, https://www.bls.gov/news.release/ocwage.t01.htm. Occupations are defined
using the BLS Occupational Classification System, https://www.bls.gov/soc/.

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