Federal Regulatory Agencies' Proposed Statement on Complex Structured Finance Activities

Abstract

While many legislative and regulatory responses to recent financial and accounting scandals are well-intentioned efforts to deal with serious problems, in some instances they are unnecessary in light of existing law and practice, and risk serious adverse unintended consequences. As proposed, the Interagency Statement on Sound Practices Concerning Complex Structured Finance Activities (the “Guidelines”) released on May 19, 2004 by the four principal federal regulators of depository institutions (Office of the Comptroller of the Currency [OCC], Office of Thrift Supervision [OTS], Board of Governors of the Federal Reserve System [Fed], and Federal Deposit Insurance Corporation [FDIC]) and by the Securities and Exchange Commission (SEC) reflects this phenomenon. The authors and numerous commenters have identified several common concerns with the Guidelines in four overlapping areas: 1) They suggest obligations and responsibilities that currently do not exist in law, regulation, or practice, and, as a consequence, may increase, not minimize, the legal risk of U.S. financial institutions. 2) Their scope is overbroad, covering myriad transactions that the Agencies could not have intended to cover and failing to distinguish among the distinct roles financial institutions play in these transactions. 3) They are unduly prescriptive and fail to calibrate their requirements to varying degrees of risk. 4) They do not recognize the extensive body of current law, regulation, and best practice that applies in the context of the myriad roles and transactions covered by the Guidelines.