FR4022_20190911_omb

Supporting Statement for the
Recordkeeping Provisions Associated with the
Interagency Statement on Complex Structured Finance Activities
(FR 4022; OMB No. 7100-0311)
Summary
The Board of Governors of the Federal Reserve System (Board), under authority
delegated by the Office of Management and Budget (OMB), has extended for three years,
without revision, the Recordkeeping Provisions Associated with the Interagency Statement on
Complex Structured Finance Activities1 (FR 4022; OMB No. 7100-0311). The guidance2
provides that financial institutions supervised by the Board should establish and maintain written
policies and procedures for identifying, evaluating, assessing, documenting, and controlling risks
associated with certain complex structured finance transactions (CSFTs), and should retain
certain documents related to elevated risk CSFTs. For purposes of the Board’s review, the term
“financial institution” refers to state member banks, bank holding companies (other than foreign
banking organizations), savings and loan holding companies (SLHCs), and U.S. branches and
agencies of foreign banks. There are no required reporting forms associated with this information
collection (the FR 4022 designation is for internal purposes only).
The estimated total annual burden for the FR 4022 is 180 hours.
Background and Justification
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 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.
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. Those cases highlight the substantial legal and reputational risks that financial
institutions may face when they participate in a CSFT that is used by the institutions’ customers
to circumvent regulatory or financial reporting requirements or further other illegal behaviors.
For example, in July 2003, the Board, Office of the Comptroller of the Currency (OCC), and
Securities and Exchange Commission (SEC) imposed significant financial penalties on financial
institutions that engaged in CSFTs that appeared to have been designed or used to shield their
This collection of information was formerly titled “Recordkeeping Requirements Associated with the Interagency
Statement on Complex Structured Finance Activities.” The Board has changed the title of the collection of
information to reflect that the information collections that are the subject of this supporting statement are voluntary.
2
Interagency Statement on Sound Practices Concerning Elevated Risk Complex Structured Finance Activities
(January 11, 2007), available at https://www.federalregister.gov/documents/2007/01/11/07-55/interagencystatement-on-sound-practices-concerning-elevated-risk-complex-structured-finance.
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customers’ true financial health from the public. The complex structured finance relationships
involving these financial institutions also resulted in numerous lawsuits against those financial
institutions by private litigants.
In January 2007, the Board, OCC, Federal Deposit Insurance Corporation (FDIC), SEC,
and the former Office of Thrift Supervision (OTS) published the guidance titled, “Interagency
Statement on Sound Practices Concerning Elevated Risk Complex Structured Finance Activities”
(the Statement). The Statement is meant to describe the types of risk management principles that
may help a financial institution to identify CSFTs that may pose heightened legal or reputational
risks to the institution and to evaluate, manage, and address these risks within the institution’s
internal control framework.
Description of Information Collection
The Statement includes a number of collections of information, each of which is
voluntary. The Statement provides state member banks, bank holding companies (other than
foreign banking organizations), SLHCs, and U.S. branches and agencies of foreign banks
supervised by the Board should establish and maintain a set of formal, written, firm-wide
policies and procedures for identifying, evaluating, assessing, documenting, and controlling risks
associated with CSFTs. These policies and procedures should address the full range of credit,
market, operational, legal, and reputational risks associated with such transactions. The 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.
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. A financial institution should
define what constitutes a new complex structured finance product and establish a control process
for the approval of such new product. An institution’s policies also should provide for new
complex structured finance products to receive the approval of all relevant control areas that are
independent of the profit center before the products are offered to customers. CSFT 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.
Due Diligence, Approval, and Documentation Retention for Elevated Risk CSFTs
A financial institution’s transaction and new product approval controls should include
policies, procedures, and systems to identify elevated risk CSFTs. The goal of each institution’s
policies and procedures should be to identify those CSFTs that warrant additional scrutiny in the
transaction or new product approval process due to concerns regarding legal or reputational risks.

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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.
A financial institution’s policies and procedures should provide that CSFTs identified as
having elevated legal or reputational risk are reviewed and approved by appropriate levels of
control and management personnel. 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.
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 transactionrelated 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. 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.
Respondent Panel
The FR 4022 panel comprises state member banks, bank holding companies (other than
foreign banking organizations), SLHCs, and U.S. branches and agencies of foreign banks.
Time Schedule for Information Collection
The development of policies and procedures concerning CSFTs would involve a one-time
implementation and the ongoing maintenance of such policies and procedures. The retention of
documents related to elevated risk CSFTs would be ongoing.
Public Availability of Data
There is no data related to this information collection available to the public.
Legal Status
The Board is authorized to issue the recordkeeping guidance associated with the
Statement with respect to state member banks pursuant to sections 9(7), 11(a), 21(4), and 25(4)
of the Federal Reserve Act (12 U.S.C. §§ 325, 248(a), 483, and 602); with respect to bank
holding companies pursuant to section 5(c) of the Bank Holding Company Act of 1956
(12 U.S.C. § 1844(c)); with respect to SLHCs pursuant to section 10(b) and (g) of the Home
Owners’ Loan Act (12 U.S.C. § 1467a(b) and (g)); and with respect to U.S. branches and
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agencies of foreign banks pursuant to sections 7(c) and 13(a) of the International Banking Act of
1978 (12 U.S.C. §§ 3105(c) and 3108(a)). Because the recordkeeping provisions are contained
within guidance, which is nonbinding, these provisions are voluntary.3
Because any policies, procedures, or other records that were voluntarily created pursuant
to the guidance in the Statement would be maintained at each financial institution, the Freedom
of Information Act (FOIA) would only be implicated if the Board obtained such records as part
of the examination or supervision of a financial institution. In the event the records are obtained
by the Board as part of an examination or supervision of a financial institution, this information
is considered confidential pursuant to exemption 8 of the FOIA, which protects information
contained in “examination, operating, or condition reports” obtained in the bank supervisory
process (5 U.S.C. § 552(b)(8)). In addition, the information may also be kept confidential under
exemption 4 of the FOIA, which protects trade secrets or confidential commercial or financial
information that is reasonably likely to result in substantial competitive harm if disclosed
(5U.S.C. § 552(b)(4)).
Consultation Outside the Agency
There has been no consultation outside the Federal Reserve System.
Public Comments
On May 15, 2019, the Board published an initial notice in the Federal Register
(84 FR 21778) requesting public comment for 60 days on the extension, without revision, of the
FR 4022. The comment period for this notice expired on July 15, 2019. The Board did not
receive any comments. On August 13, 2019, the Board published a final notice in the Federal
Register (84 FR 40051).
Estimate of Respondent Burden
As shown in the table below, the estimated total annual burden for the FR 4022 is 180
hours. Since CSFTs are typically conducted by a limited number of large financial institutions,
the Board estimates that only 18 of the institutions it supervises are affected by the guidance. The
Board estimates that it will take each of the 18 respondents 10 hours each year to comply with
the Statement. Based on the Board’s experience in supervising the CSFT activities of financial
institutions, the Board believes that the recordkeeping provisions included in the Statement are
generally consistent with the types of policies and procedures that large financial institutions
actively involved in CSFTs already have developed and implemented as part of their usual and
customary business practices. The burden estimate for the recordkeeping provisions reflects the
time to revisit CSFT policies and procedures on a periodic basis to ensure that an institution’s
risk management systems continue to address the CSFT guidance, as well as the time associated
with retaining records associated with elevated risk CSFTs. These recordkeeping provisions
represent less than 1 percent of the Board’s total paperwork burden.
3

See SR 18-5 / CA 18-7: Interagency Statement Clarifying the Role of Supervisory Guidance (September 11, 2018)
https://www.federalreserve.gov/supervisionreg/srletters/sr1805.htm.

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FR 4022
Maintain records
associated with the
compliance program

Estimated
Annual
number of
frequency
respondents4

18

1

Estimated
average hours
per response

Estimated
annual burden
hours

10

180

The estimated total annual cost to the public for this information collection is $10,368.5
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 for collecting and processing this
information collection is negligible.

4

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.
5
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 Standard Occupational Classification System, https://www.bls.gov/soc/.

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