FRNN_20220802_omb

Supporting Statement for the
Reporting, Recordkeeping, and Disclosure Requirements Associated with Regulation NN
(FR NN; 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 for three years,
without revision, the Reporting, Recordkeeping, and Disclosure Requirements Associated with
Regulation NN (FR NN; OMB No. 7100-0353). The Board’s Regulation NN - Retail Foreign
Exchange Transactions (12 CFR Part 240) establishes rules appliable to retail foreign currency
transactions engaged in by 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 corporations (collectively, banking institutions).
Regulation NN includes certain reporting, recordkeeping, and disclosure requirements for
banking institutions that elect to provide foreign currency exchange services to retail consumers.
The estimated total annual burden for the FR NN is 1,956 hours. There is no formal
reporting form for this information collection.
Background and Justification
Section 742(c)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection 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 transactions, 1 except pursuant to a rule or regulation
promulgated by the relevant supervising agency. Regulation NN authorizes banking institutions
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 such transactions. This information is not available from other sources.
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
disclosure requirements are found in sections 240.5(a), 240.6, 240.10, 240.13(c) and (d), 240.15,
and 240.16(a) and (b).

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).
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Reporting Requirements
Section 240.4 requires that a banking institution provide the Board with written notice 60
days prior to initiating a retail foreign exchange business. The notice must include a resolution
by the banking institution’s board of directors indicating 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.
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 records related to any method or
algorithm used to determine the bid or asked price; price changes on a trading platform, if used;
post-execution allocation of bunched orders; the ratio of profitable accounts; possible violations
of law; noncash margin; order tickets;2 and monthly statements and confirmations. The banking
institution also must maintain audio recordings of oral orders and oral offset instructions. A
banking institution must keep each record required by this section for at least five years from the
date the record is created. 3
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 ord ers, 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.

2

See also 12 CFR 240.13(c)(2) (further specifying certain circumstances in which an order ticket must be produced
and kept as a record).
3
The Bank Secrecy Act requires that “every person engaging in any transaction subject to the provisions of this
chapter shall keep a full and accurate record of each such transaction engaged in, regardless of whether such
transaction is effected pursuant to license or otherwise, and such record shall be available for examination for at
least 5 years after the date of such transaction” (31 U.S.C. § 501.60).

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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. The disclosure statement must contain certain language prescribed by the
regulation,4 as well as certain other firm-specific information required by sections 240.6(e)-(g).
The required firm-specific information includes information about the banking institution’s 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. In addition, the
firm must provide certain information about its profitable accounts ratio upon request to any
retail foreign exchange customer or prospective retail foreign exchange customer and must
provide information to its foreign exchange customers regarding changes to the banking
institution’s foreign exchange fees, charges, or commissions at least 15 days prior to the effective
date of the change.
Section 240.10 requires a banking institution to issue monthly statements to each retail
foreign exchange customer and to send confirmation statements following transactions. Each
statement provided must, if applicable, show that the account for which the banking institution
was introduced by an introducing broker and the name of the introducing broker.
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.
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12 CFR 240.6(d). The public disclosure of information originally supplied by the Board is not considered a n
information collection for purposes of the Paperwork Reduction Act (5 CFR 1320.3(c)(2)).

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Sections 240.16(a) and (b) set forth certain requirements regarding the resolution of
disputes with retail foreign exchange customers. These provisions require 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
companies, agreement corporations, and Edge corporations that engage in retail foreign
exchange transactions.
Time Schedule for Information Collection
The reporting, recordkeeping, and disclosure requirements in Regulation NN are event
generated.
Public Availability of Data
No data collected by this information collection is published.
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)), which 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 13 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 under section 10 of the Home
Owners’ Loan Act (12 U.S.C. §§ 1467a(b) and (g)); from Edge 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. This information is likely to constitute nonpublic commercial or financial information,

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which is both customarily and actually treated as private by the respondent, and thus may be kept
confidential by the Board pursuant to exemption 4 of the Freedom of Information Act (FOIA)
(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.
The records and disclosures required by Regulation NN generally are not submitted to the
Federal Reserve. Accordingly, confidentiality issues generally do not 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 the FOIA (5 U.S.C. § 552(b)(8)), which protects information contained in or
related to an examination of a financial institution.
Consultation Outside the Agency
There has been no consultation outside the Federal Reserve System.
Public Comments
On November 23, 2021, the Board published an initial notice in the Federal Register (86
FR 66561) requesting public comment for 60 days on the extension, without revision, of the
FR NN. The comment period for this notice expired on January 24, 2022. The Board did not
receive any comments. The Board adopted the extension, without revision, of the FR NN as
originally proposed. On March 2, 2022, the Board published a final notice in the Federal
Register (87 FR 11705).
Estimate of Respondent Burden
As shown in the table below, the estimated total annual burden for the FR NN is 1,956
hours. There are very few, often no, banking institutions that initiate this activity in a given year.
With regard to the reporting requirement, which applies only to banking institutions that initiate
retail foreign exchange operations, the Board therefore estimates one respondent per year. With
regard to the ongoing recordkeeping and disclosure requirements, the Board estimates two
respondents per year. These reporting, recordkeeping, and disclosure requirements represent less
than 1 percent of the Board’s total paperwork burden.

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FR NN
Reporting
Section 240.4
Recordkeeping
Sections 240.7, 240.9(b)(2), and
240.13(a)
Disclosure
Sections 240.5(a), 240.6, 240.10,
240.13(c) and (d), 240.15, and
240.16(a) and (b)
Total

Estimated
Estimated
Estimated
Annual
number of
average hours annual burden
frequency
respondents5
per response
hours
1

1

16

16

2

1

183

366

2

1

787

1,574
1,956

The estimated total annual cost to the public for the FR NN is $118,240.6
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.

5

Of these respondents, none are considered small entities as defined by the Small Business Administration (i.e.,
entities with less than $750 million in total assets), https://www.sba.gov/document/support--table-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 rates (30% Office & Administrative Support at $21, 45% Financial Managers at
$74, 15% Lawyers at $71, and 10% Chief Executives at $102). 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 2021, published March 31, 2022, 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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