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BMO FINANCIAL GROUP
July 16th, 2004
Ms. Jennifer J. Johnson
Secretary
Board of Governors of the
Federal Reserve System
20th Street and Constitution Ave., N.W.
Washington, D.C. 20551
Docket No. OP-1189
Robert E. Feldman
Executive Secretary
Attn: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Public Information Room
Mailstop 1-5
Office of the Comptroller of the Currency
250 E Street, SW
Washington, DC 20219
Attention: Docket No. 04-12
Jonathan G. Katz
Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549-0609
Regulation Comments
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Attn: 2004-27
Dear Sir or Madam:
Re: Proposed interagency Statement on Sound Practices Regarding
Complex Structured Finance Activities
Federal Reserve Board Docket No. OP-1189;
Office of the Comptroller of the Currency Docket No. 04-12;
Office of Thrift Supervision File No. 2004-271
Securities and Exchange Commission File No. S7-22-04
I am writing on behalf of the BMO Financial Group to offer the
organization's comments on the proposed Interagency Statement on Sound
Practices Concerning Complex Structured Finance Activities (the
"Interagency Statement") which was released for comment on May 13, 2004.
We appreciate the opportunity to comment on the development of this
joint regulatory initiative.
BMO Financial Group has consistently maintained a strong commitment
to corporate governance and ethical conduct in our relations with
clients, counterparties, the capital markets and the broader public.
Accordingly, we are supportive of initiatives which enhance this
commitment.
We offer the following comments in order to ensure that the
Interagency Statement fulfils its intended goal while ensuring that
unintended collateral effects on the industry are minimized.
First, the appropriate reputational and legal risk analysis for any
given transaction, is dependant on the nature of the transaction, the
nature of the client and the nature of the financial institution. As the
statement currently reads, it could be interpreted as a minimum standard
for all transactions. To address this, we respectfully suggest that the
Interagency Statement contain an acknowledgement that the Interagency
Statement is a guideline for the review of complex structured financings
and that the exact response to any particular transaction is dependant
on that transaction's circumstances, which may lead to a review which is
either more or less onerous than that contemplated by the Interagency
Statement.
Moreover, we suggest that the Interagency Statement make clear that
the presence of one or more characteristics of a transaction which in
some circumstances might suggest additional scrutiny, may not require
the additional scrutiny in the particular case because though they
appear complex, the transactions are routine and well established
structured financings.
Second, with respect to new product approvals, the Interagency
Statement states that "it is imperative that the institution's policies
require that new products receive the approval of all relevant control
areas that are independent of the profit centre before the product is
offered to customers". (pg. 18). In addition, with respect to reputation
and legal risk review, the Interagency Statement states "tin general,
the financial institution's legal department should review complex
structured finance transactions as part of the approval process" (pg.
19). We respectfully suggest, "approval" should be clarified so that it
does not impose a role that exceeds the provision of legal advice to the
organization nor has the effect of imposing a gatekeeper role on the
control group. Any approval of a risk decision should be made by the
senior business executives.
Third, we interpret the intent of the Interagency Statement as to
ensure that financial institutions remain alert to and consider issues
of reputational and legal risk when conducting their affairs, as opposed
to imposing a duty on financial institutions to scrutinize the practices
of clients or counterparties. We respectfully suggest that the
Interagency Statement should contain a clear statement that the intent
of the statement is to suggest risk management guidelines for practices
that a financial institution could consider in determining its
involvement with a transaction and not to imply a legal standard or
duty.
Thank you for providing us with the opportunity to comment of the
proposed Interagency Statement. We would be pleased to elaborate on
these comments if so requested.
Yours truly
Bob McGlashan
BMO Financial Group
Corporate Risk Management
100 King St West
Toronto, ON |
