OCC 2006-22
OCC BULLETIN

    Subject:  Complex Structured Finance Transactions
Description:  Notice of Revised Interagency Statement for
              Comment


       Date:  May 9, 2006

TO:  Chief Executive Officers of National Banks,
     Department and Division Heads, All Examining
     Personnel, and Other Interested Parties

PURPOSE

The Office of the Comptroller of the Currency, the Board
of Governors of the Federal Reserve System, the Federal 
Deposit Insurance Corporation, the Office of Thrift 
Supervision, and the Securities and Exchange Commission 
(the agencies) are requesting public comment on the 
attached revised interagency statement on sound practices
for managing complex structured finance activities that 
may pose heightened legal or reputational risks to 
financial institutions.  The statement will be issued 
May 9, 2006, and subsequently published in the Federal 
Register with a 30-day comment period.

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).  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 could 
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.  Specifically, the revised 
statement

* Clarifies the purpose, scope, and effect of the
  statement, and makes the statement more principles-
  based;
* Focuses 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); 
* Modifies the examples of transactions that may present 
  elevated risk to make these examples more risk-focused;
* Recognizes more explicitly that an institution's review
  and approval process for elevated risk CSFTs should be 
  commensurate with, and should focus on, the potential 
  risks presented by the transaction to the institution;
* Clarifies that it 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, to its shareholders, or to other third
  parties under applicable law; and
* Observes that it does not affect the vast majority of 
  financial institutions, including most small financial 
  institutions. 

Examples of CSFTs that often pose elevated risks and thus
would be covered by the revised statement, include 
transactions that 

* Lack economic substance or business purpose; 
* Are designed or used primarily for questionable 
  accounting, regulatory, or tax objectives, particularly
  when the transactions are executed at year end or at 
  the end of a reporting period for the customer;
* 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 or
  inconsistent with the substance of the transaction or 
  with applicable regulatory or accounting requirements;
* Involve circular transfers of risk (either between the 
  financial institution and the customer or between the 
  customer and other related parties) that lack economic 
  substance or business purpose; 
* Involve oral or undocumented agreements that, when 
  taken into account, would have a material impact on the
  regulatory, tax, or accounting treatment of the related
  transaction, or the client's disclosure obligations;
* Have material economic terms that are inconsistent with
  market norms (e.g., deep "in the money" options or 
  historic rate rollovers); or
* Provide the financial institution with compensation 
  that appears substantially disproportionate to the 
  services provided or investment made by the financial 
  institution or to the credit, market, or operational 
  risk assumed by the institution.

FURTHER INFORMATION

Direct questions or comments to Kathy Dick, Deputy 
Comptroller for Credit and Market Risk at  
(202) 874-4660; Grace Dailey, Deputy Comptroller for 
Large Banks at (202) 874-4610; or Ellen Broadman, 
Director, Securities and Corporate Practices Division at
(202) 874-5210.



Emory W. Rushton
Senior Deputy Comptroller and 
Chief National Bank Examiner



Douglas W. Roeder
Senior Deputy Comptroller for Large Bank Supervision


Attachment - Interagency Statement
[http://www.occ.treas.gov/fr/fedregister/71fr28326.pdf]