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FDIC Federal Register Citations

[Federal Register: May 16, 2006 (Volume 71, Number 94)]

[Notices]

[Page 28326-28334]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr16my06-76]

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

[Docket No. 06-06]

Office of Thrift Supervision

[No. 2006-20]

FEDERAL RESERVE SYSTEM

[Docket No. OP-1254]

FEDERAL DEPOSIT INSURANCE CORPORATION

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53773; File No. S7-08-06]

Interagency Statement on Sound Practices Concerning Elevated Risk

Complex Structured Finance Activities

AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC);

Office of Thrift Supervision, Treasury (OTS); Board of Governors of the

Federal Reserve System (Board); Federal Deposit Insurance Corporation

(FDIC); and Securities and Exchange Commission (SEC) (collectively, the

Agencies).

ACTION: Notice of revised interagency statement with request for public

comment.

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SUMMARY: On May 19, 2004, the Agencies issued and requested comment on

a proposed Interagency Statement on Sound Practices Concerning Complex

Structured Finance Activities (``Initial Statement'') of national

banks, state banks, bank holding companies, Federal and state savings

associations, savings and loan holding companies, U.S. branches and

agencies of foreign banks, and SEC registered broker-dealers and

investment advisers (collectively, ``financial institutions'' or

``institutions''). The Initial Statement described some of the internal

controls and risk management procedures that may help financial

institutions identify, manage, and address the heightened reputational

and legal risks that may arise from certain complex structured finance

transactions (``CSFTs''). After reviewing the comments received on the

Initial Statement, the Agencies are requesting comment on a revised

proposed interagency statement (``Revised Statement''). The Revised

Statement has been modified in numerous respects to address issues and

concerns raised by commenters, clarify the purpose, scope and effect of

the statement, and make the statement more principles-based. These

changes include reorganizing and streamlining the document to reduce

redundancies and to focus the statement on those CSFTs that may pose

heightened levels of legal or reputational risk to the relevant

institution (referred to as ``elevated risk CSFTs''). In addition, the

Agencies have modified the examples of transactions that may present

elevated risk to make these examples more risk-focused, and have

recognized more explicitly that an institution's review and approval

process for elevated risk CSFTs should be commensurate with, and focus

on, the potential risks presented by the transaction to the

institution. As discussed below, the Revised Statement will not affect

or apply to the vast majority of small financial institutions, nor does

it create any private rights of action.

DATES: Comments on the Revised Statement should be received on or

before June 15, 2006.

ADDRESSES:

OCC: You should include OCC and Docket Number 06-06 in your

comment. You may submit comments by any of the following methods:

Federal eRulemaking Portal: http://www.regulations.gov.

Follow the instructions for submitting comments.

OCC Web site: http://www.occ.treas.gov. Click on ``Contact

the OCC,'' scroll down and click on ``Comments on Proposed

Regulations.''

E-mail address: regs.comments@occ.treas.gov.

Fax: (202) 874-4448.

Mail: Office of the Comptroller of the Currency, 250 E

Street, SW., Mail Stop 1-5, Washington, DC 20219.

Hand Delivery/Courier: 250 E Street, SW., Attn: Public

Information Room, Mail Stop 1-5, Washington, DC 20219.

Instructions: All submissions received must include the agency name

(OCC) and docket number or Regulatory Information Number (RIN) for this

notice of proposed rulemaking. In general, OCC will enter all comments

received into the docket without change, including any business or

personal information that you provide.

You may review comments and other related materials by any of the

following methods:

Viewing Comments Personally: You may personally inspect

and photocopy comments at the OCC's Public Information Room, 250 E

Street, SW., Washington, DC. You can make an appointment to inspect

comments by calling (202) 874-5043.

Viewing Comments Electronically: You may request e-mail or

CD-ROM copies of comments that the OCC has received by contacting the

OCC's Public Information Room at: regs.comments@occ.treas.gov.

Docket: You may also request available background

documents and project summaries using the methods described above.

OTS: You may submit comments, identified by No. 2006-20 by any of

the following methods:

Federal eRulemaking Portal: http://www.regulations.gov.

Follow the instructions for submitting comments.

E-mail: regs.comments@ots.treas.gov. Please include No.

2006-20 in the subject line of the message, and include your name and

telephone number in the message.

Fax: (202) 906-6518.

Mail: Regulation Comments, Chief Counsel's Office, Office

of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552,

Attention: No. 2006-20.

Hand Delivery/Courier: Guard's Desk, East Lobby Entrance,

1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, Attention:

Regulation Comments, Chief Counsel's Office, Attention: No. 2006-20.

Instructions: All submissions received must include the agency name

and document number. All comments received will be posted without

change to http://www.ots.treas.gov/pagehtml.cfm?catNumber=67&an=1,

including any personal information provided.

Docket: For access to the docket to read background documents or

comments received, go to http://www.ots.treas.gov/pagehtml.cfm?catNumber=67&an=1.

In addition, you may inspect comments

at the Public Reading Room, 1700 G Street, NW., by appointment. To make

an appointment for access, call (202) 906-5922, send an e-mail to

public.info@ots.treas.gov, or send a facsimile transmission to (202)

906-7755. (Prior notice identifying the materials you will be

requesting will assist us in serving you.) We schedule appointments on

business days between 10 a.m. and 4 p.m. In most cases, appointments

will be available the next business day following the date we receive a

request.

Board: You may submit comments, identified by Docket No. OP-1254,

by any of the following methods:

Board's Web site: http://www.federalreserve.gov Follow the instructions for submitting comments at http://.

http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.

Federal eRulemaking Portal: http//http://www.regulations.gov.

Follow the instructions for submitting comments.

[[Page 28327]]

E-mail: regs.comments@federalreserve.gov. Include docket

number in the subject line of the message.

Fax: (202) 452-3819 or (202) 452-3102.

Mail: Jennifer J. Johnson, Secretary, Board of Governors

of the Federal Reserve System, 20th Street and Constitution Avenue,

NW., Washington, DC 20551.

All public comments are available from the Board's Web site at

http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as

submitted, unless modified for technical reasons. Accordingly, your

comments will not be edited to remove any identifying or contact

information. Public comments also may be viewed electronically or in

paper form in Room MP-500 of the Board's Martin Building (C and 20th

Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.

FDIC: Written comments should be addressed to Robert E. Feldman,

Executive Secretary, Attention: Comments/OES, Federal Deposit Insurance

Corporation, 550 17th Street, NW., Washington, DC 20429. Comments may

be hand delivered to the guard station at the rear of the 550 17th

Street Building (located on F Street), on business days between 7 a.m.

and 5 p.m. (Fax number: (202) 898-3838; Internet address:

comments@fdic.gov.) Comments may be inspected and photocopied in the

FDIC Public Information Center, Room 100, 801 17th Street, NW.,

Washington, DC, between 9 a.m. and 4:30 p.m. on business days.

SEC: Comments may be submitted by any of the following methods:

Electronic Comments

Use the Commission's Internet comment form (http://www.sec.gov/rules/policy.shtml.

;) or Send an e-mail to rule-comments@sec.gov. Please include

File Number S7-08-06 on the subject line.

Paper Comments

Send paper comments in triplicate to Nancy M. Morris,

Secretary, Securities and Exchange Commission, 100 F Street, NE.,

Washington, DC 20549-1090.

All submissions should refer to File Number S7-08-06. This file number

should be included on the subject line if e-mail is used. To help us

process and review your comments more efficiently, please use only one

method. The Commission will post all comments on the Commission's

Internet Web site (http://www.sec.gov/rules/policy.shtml). Comments are

also available for public inspection and copying in the Commission's

Public Reference Room, 100 F Street, NE., Washington, DC 20549. All

comments received will be posted without change; we do not edit

personal identifying information from submissions. You should submit

only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT:

OCC: Kathryn E. Dick, Deputy Comptroller, Credit and Market Risk,

(202) 874-4660; Grace E. Dailey, Deputy Comptroller, Large Bank

Supervision, (202) 874-4610; or Ellen Broadman, Director, Securities

and Corporate Practices Division, (202) 874-5210, Office of the

Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.

OTS: Fred J. Phillips-Patrick, Director, Credit Policy,

Examinations and Supervision Policy, (202) 906-7295; Deborah S. Merkle,

Project Manager, Credit Policy, Examinations and Supervision Policy,

(202) 906-5688; or David A. Permut, Senior Attorney, Business

Transactions Division, (202) 906-7505, Office of Thrift Supervision,

1700 G Street, NW., Washington, DC 20552.

Board: Sabeth I. Siddique, Assistant Director, (202) 452-3861,

Virginia Gibbs, Senior Supervisory Financial Analyst, (202) 452-2521,

Division of Banking Supervision and Regulation; or Kieran J. Fallon,

Assistant General Counsel, (202) 452-5270, Anne B. Zorc, Attorney,

(202) 452-3876, Legal Division, Board of Governors of the Federal

Reserve System, 20th Street and Constitution Avenue, NW., Washington,

DC 20551. Users of Telecommunication Device for Deaf (TTD) only, call

(202) 263-4869.

FDIC: Jason C. Cave, Associate Director, (202) 898-3548; Division

of Supervision and Consumer Protection; or Mark G. Flanigan, Counsel,

Supervision and Legislation Branch, Legal Division, (202) 898-7426,

Federal Deposit Insurance Corporation, 550 17th Street, NW.,

Washington, DC 20429.

SEC: Mary Ann Gadziala, Associate Director, Office of Compliance

Inspections and Examinations, (202) 551-6207; Catherine McGuire, Chief

Counsel, Linda Stamp Sundberg, Senior Special Counsel (Banking and

Derivatives), or Randall W. Roy, Branch Chief, Division of Market

Regulation, (202) 551-5550, Securities and Exchange Commission, 100 F

Street, NE., Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

I. Background

Financial markets have grown rapidly over the past decade, and

innovations in financial instruments have facilitated the structuring

of cash flows and allocation of risk among creditors, borrowers and

investors in more efficient ways. Financial derivatives for market and

credit risk, asset-backed securities with customized cash flow

features, specialized financial conduits that manage pools of assets,

and other types of structured finance transactions serve important

purposes, such as diversifying risks, allocating cash flows, and

reducing cost of capital. As a result, structured finance transactions,

including the more complex variations of these transactions, now are an

essential part of U.S. and international capital markets.

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

institution's customer to circumvent regulatory or financial reporting

requirements or further other illegal behavior.\1\ After conducting

investigations, the OCC, Federal Reserve System and the SEC took strong

and coordinated civil and administrative enforcement actions against

certain financial institutions that engaged in CSFTs that appeared to

have been designed or used to shield their customers' true financial

health from the public. These actions involved significant financial

penalties on the institutions and required the institutions to take

several measures to strengthen their risk management

[[Page 28328]]

procedures for CSFTs.\2\ The complex structured finance relationships

involving these financial institutions also sparked an investigation by

the Permanent Subcommittee on Governmental Affairs of the United States

Senate,\3\ as well as numerous lawsuits by private litigants.

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\1\ For a memorandum on the potential liability of a financial

institution for securities laws violations arising from

participation in a CSFT, see Letter from Annette L. Nazareth,

Director, Division of Market Regulation, Securities and Exchange

Commission, to Richard Spillenkothen and Douglas W. Roeder, dated

December 4, 2003 (available at http://www.federalreserve.gov/boarddocs/srletters/2004/ and http://www.occ.treas.gov).

\2\ See, e.g. In the Matter of Citigroup, Inc., Securities

Exchange Act Release No. 48230 (July 28, 2003), Written Agreement by

and between Citibank, N.A. and the Office of the Comptroller of the

Currency, No. 2003-77 (July 28, 2003) (pertaining to transactions

entered into by Citibank, N.A. with Enron Corp.), and Written

Agreement by and between Citigroup, Inc. and the Federal Reserve

Bank of New York, dated July 28, 2003 (pertaining to transactions

involving Citigroup Inc. and its subsidiaries and Enron Corp. and

Dynegy Inc.); SEC v. J.P. Morgan Chase, SEC Litigation Release No.

18252 (July 28, 2003) and Written Agreement by and among J.P. Morgan

Chase & Co., the Federal Reserve Bank of New York, and the New York

State Banking Department, dated July 28, 2003 (pertaining to

transactions involving J.P. Morgan Chase & Co. and its subsidiaries

and Enron Corp.).

\3\ See Fishtail, Bacchus, Sundance, and Slapshot: Four Enron

Transactions Funded and Facilitated by U.S. Financial Institutions,

Report Prepared by the Permanent Subcomm. on Investigations, Comm.

on Governmental Affairs, United States Senate, S. Rpt. 107-82

(2003).

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Following these investigations, the OCC, Board and SEC also

conducted special reviews of several large banking and securities firms

that are significant participants in the market for CSFTs. These

reviews were designed to evaluate the new product approval, transaction

approval, and other internal controls and processes used by these

institutions to identify and manage the legal, reputational and other

risks associated with CSFTs. These assessments indicated that many of

the large financial institutions engaged in CSFTs already had taken

meaningful steps to improve their control infrastructure relating to

CSFTs. The Agencies also focused attention on the complex structured

finance activities of financial institutions in the normal course of

the supervisory process.

II. Initial Statement

To further assist financial institutions in identifying, managing,

and addressing the risks that may be associated with CSFTs, the

Agencies developed and requested public comment on the Initial

Statement.\4\ As a general matter, the Initial Statement provided that

financial institutions engaged in CSFTs should have and maintain a

comprehensive set of formal, firm-wide policies and procedures that are

designed to allow the institution to identify, document, evaluate, and

control the full range of credit, market, operational, legal, and

reputational risks that may arise from CSFTs. The Initial Statement

also described the types of policies and procedures that financial

institutions should have for CSFTs in the following specific areas: (1)

Transaction approval; (2) approval of new complex structured finance

products; (3) identification and management of the potential

reputational and legal risk associated with CSFTs; (4) review of the

customer's proposed accounting and disclosures for CSFTs; (5)

documentation of CSFTs; (6) management reporting for CSFTs; (7)

independent monitoring and analysis of the institution's compliance

with its internal policies regarding CSFTs; (8) role of internal audit;

and (9) training of personnel involved in CSFTs.

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\4\ See 69 FR 28980, May 19, 2004.

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Among other things, the Initial Statement provided that financial

institutions should establish a clear process for identifying those

CSFTs that may create heightened legal or reputational risk for the

institution, and included a list of transaction characteristics that

may indicate that a CSFT (or series of CSFTs) creates elevated levels

of legal or reputational risk for the institution. The Initial

Statement also provided that an institution should ensure that

transactions identified as being elevated risk CSFTs are thoroughly

reviewed by the institution's control functions and management during

the institution's transaction or new product approval processes. As

part of this review, the Initial Statement indicated that the

institution should obtain and document complete and accurate

information about the customer's business objectives for entering into

the transaction, as well as about the customer's proposed accounting

treatment and financial disclosures relating to the transaction.

III. Overview of Comments

The Agencies collectively received comments on the Initial

Statement from more than 40 persons, although many commenters submitted

multiple comments or submitted identical comments to multiple Agencies.

Commenters included banking organizations, trade associations,

investment banks, consulting firms, public accounting firms, law firms,

an association of state officials, and individuals. In addition to

submitting written comments, some commenters also met with Agency

representatives to discuss their views of the Initial Statement.

Commenters generally supported the Agencies' efforts to describe

the types of risk management procedures and internal controls that may

help financial institutions identify and mitigate the legal and

reputational risks associated with CSFTs. In this regard, many

commenters recognized that financial institutions need a robust risk

management and control framework to help institutions avoid becoming

involved in CSFTs that are used for illegal or abusive purposes and to

manage the risks associated with CSFTs.

Virtually all of the commenters, however, recommended changes to

the Initial Statement. For example, many commenters argued that the

characteristics of CSFTs in general and of elevated risk CSFTs in

particular identified in the Initial Statement were too broad and would

encompass many structured finance products that are not novel or

complex and that do not present heightened legal or reputational risks

for participating financial institutions. These commenters argued, for

example, that the Initial Statement could be read as requiring

financial institutions to identify any structured finance transaction

that involves a special purpose entity (``SPE'') or cross-border

elements as an elevated risk CSFT.

Many commenters also asserted that the internal controls and risk

management processes described in the Initial Statement for CSFTs and

elevated risk CSFTs were overly prescriptive and burdensome. For

example, many commenters expressed concern that the Initial Statement

could be read as requiring a financial institution to conduct a

detailed and extensive pre-transaction review of all CSFTs regardless

of the role that the institution played in the transaction, and

regardless of whether the transaction's characteristics suggested that

it may create significant legal, reputational or other risks for the

institution. Similarly, many commenters argued that the Initial

Statement imposed new and inappropriate obligations on financial

institutions to confirm the validity of a customer's financial

disclosures or accounting or tax treatment for a CSFT, and would

establish new and extensive documentation requirements for CSFTs.

Commenters asserted that, in light of these and other concerns, the

Initial Statement had the potential to increase the legal risks faced

by financial institutions participating in CSFTs. In addition,

commenters argued that the Initial Statement, if implemented, would

disrupt the market for legitimate structured finance products and place

U.S. financial institutions at a competitive disadvantage in the market

for CSFTs both in the United States and abroad.

As a general matter, commenters recommended that the Agencies

modify the Initial Statement to make it more

[[Page 28329]]

principles-based and focused on transactions that may create elevated

risks for a participating financial institution. For example, many

commenters recommended that the Agencies modify the list of

characteristics of elevated risk CSFTs to focus on factors that are

likely indicators that a transaction may, in fact, create heightened

legal or reputational risks for a participating institution. In

addition, commenters recommended that the Agencies provide financial

institutions greater flexibility to design internal controls and risk

management procedures for CSFTs that are tailored to the size,

activities and general internal control framework of the institution.

Finally, many commenters recommended that the Agencies republish a

revised statement for a new round of public comment.

IV. Overview of Revised Statement

The Agencies have substantially revised the Initial Statement in

light of the comments. In particular, the Revised Statement has been

shortened and reorganized to be more principles-based and to focus on

elevated risk CSFTs. Because these revisions are substantial, and the

Revised Statement is an important explanation of the key principles and

best practices governing CSFT activities, the Agencies invite public

comment on the Revised Statement.

The Agencies continue to believe that it is important for a

financial institution engaged in CSFTs to have policies and procedures

that are designed to allow the institution to effectively manage and

address the risks associated with its CSFT activities. These policies

and procedures should, among other things, be designed to allow the

institution to identify during its transaction and new product approval

processes those CSFTs that may present elevated legal or reputational

risks to the institution. In addition, an institution's policies and

procedures should provide that CSFTs identified as potentially having

elevated legal or reputational risks are reviewed by appropriate levels

of control and management personnel at the institution, including

personnel from control areas that are independent of the business

line(s) involved in the transaction. The level and amount of due

diligence conducted by an institution for an elevated risk CSFT should

be commensurate with the transaction's potential risk to the

institution. In conducting this due diligence, the institution may find

it useful or necessary to obtain additional information from the

customer or to obtain specialized advice from qualified in-house or

outside accounting, tax, legal or other professionals.

If, after evaluating an elevated risk CSFT, a financial institution

determines that its participation in the CSFT would create significant

legal or reputational risks for the institution, the financial

institution should take appropriate steps to manage and address these

risks. Such steps may include modifying the transaction or conditioning

the institution's participation in the transaction upon the receipt of

representations or assurances from the customer that reasonably address

the heightened risks presented by the transaction. A financial

institution should decline to participate in an elevated risk CSFT if,

after conducting appropriate due diligence and taking appropriate steps

to address the risks from the transaction, the institution determines

that the transaction presents unacceptable risks to the institution or

would result in a violation of applicable laws, regulations or

accounting principles.

With these broad principles in mind, the Agencies have made a

number of changes to the Initial Statement to address the issues and

concerns raised by commenters, to clarify the purpose, scope and effect

of the Revised Statement, and to make the document more risk-focused.

The Agencies believe that, with these changes, the Revised Statement

promotes sound risk management principles while providing an individual

financial institution greater flexibility to develop implementing

policies, procedures and systems that are appropriately tailored to the

nature, scope, complexity and risks of its CSFT activities and to the

institution's general internal control framework. In particular, the

Agencies have, among other things:

Focused the statement more clearly on those CSFTs that may

present heightened legal or reputational risks to a participating

institution;

Clarified that the statement does not apply to structured

finance transactions, such as standard public mortgage-backed

securities transactions, that are familiar to participants in the

financial markets and have well-established track records and, for this

reason, will not affect or apply to the vast majority of small

financial institutions;

Modified the examples of CSFTs that may warrant additional

scrutiny by an institution to focus on transactions that are more

likely to present elevated levels of legal or reputational risk to an

institution (e.g., transactions that raise concerns that the client

will report or disclose the transaction in its public filings or

financial statements in a manner that is materially misleading);

Clarified that the due diligence conducted by a financial

institution for an elevated risk CSFT should focus on those issues

identified by the institution as potentially creating heightened levels

of legal or reputational risk for the institution;

Recognized that the role a financial institution plays in

a CSFT may affect both the amount of information it has concerning the

transaction and the level of legal or reputational risks presented by

the transaction to the institution;

Streamlined and modified the documentation and general

control portions of the statement to focus on the proper goals of an

institution s policies and procedures in these areas; and

Provided that 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 foreign jurisdictions.

Because many of the core elements of an effective control

infrastructure are the same regardless of the business line involved,

the Revised Statement continues to draw heavily on controls and

procedures that the Agencies previously have found to be effective in

assisting a financial institution to manage and control risks and

identifies ways in which these controls and procedures can be applied

effectively to elevated risk CSFTs. Moreover, as noted above, many of

the large financial institutions that are actively involved in CSFT-

related activities have taken steps in recent years to bolster and

improve their risk management and internal control processes for CSFTs.

Based on the Agencies' supervisory experience, the Agencies believe

that the Revised Statement generally is consistent with the controls

and processes used by large financial institutions to manage the risks

arising from their CSFT activities.

The Agencies propose to adopt the Revised Statement as supervisory

guidance (in the case of the Federal banking agencies) or a policy

statement (in the case of the SEC) and to use the Revised Statement in

reviewing the internal controls and risk management systems of those

financial institutions that are engaged in CSFTs as part of the

Agencies' supervisory processes. Accordingly, the Revised Statement

does not create any private rights of action, nor does it alter or

expand the legal duties and obligations that a financial institution

may have to a customer, its shareholders or other third parties under

applicable law. The

[[Page 28330]]

Agencies have added a statement to this effect in the Revised

Statement.

The Agencies request comment on all aspects of the Revised

Statement.

V. Paperwork Reduction Act

The Agencies have determined that certain provisions of the Revised

Statement contain collection of information requirements as defined in

the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (PRA). An

Agency may not conduct or sponsor, and a respondent is not required to

respond to, an information collection unless it displays a currently

valid Office of Management and Budget (OMB) control number.

OMB has reviewed and approved the proposed information collections

for the FDIC, OTS, and OCC; the SEC is submitting their proposed

information collection to OMB for review and approval; and the Board

has reviewed the Revised Statement under the authority delegated to the

Board by OMB (5 CFR 1320, appendix A.1).

OMB control numbers:

OCC: 1557-0229.

OTS: 1550-0111.

FRB: 7100-0311.

FDIC: 3064-0148.

SEC: 3235-0xxx (to be assigned).

Comment was requested on the proposed information collections

contained in the Initial Statement published for comment on May 19,

2004. As discussed above, many commenters asserted that the Initial

Statement in general, and its documentation provisions in particular,

were unduly burdensome and prescriptive. For this reason, some

commenters asserted that the estimates of the burden (100 hours per

respondent) were too low.

In light of this and the modifications made to the Initial

Statement, the Agencies have reconsidered the burden estimates

previously published and are once again requesting comment before

finalizing this statement. In response to the comments, the Agencies

have made significant modifications to make the Revised Statement more

principles-based and risk-focused than the Initial Statement, and to

provide an individual institution greater flexibility in developing

policies, procedures, and systems that are appropriate and tailored to

the nature of the institution's CSFT activities and general internal

control framework. The Agencies believe that the information collection

requirements contained in the Revised Statement, as discussed earlier

in the notice, are generally consistent with the types of policies and

procedures that the large financial institutions actively involved in

CSFTs have already developed and implemented as a matter of usual and

customary business practices. Therefore, the information collections

contained in the Revised Statement are significantly less burdensome

than those estimated in the Initial Statement and, thus, the Agencies

have revised the hourly estimate down from 100 hours per response to an

average of 25 hours per response.

New Estimates

OCC

Number of Respondents: 21.