Retail Foreign Exchange Transactions

Statement of Applicability to Institutions with Total Assets under $1 Billion: The FDIC believes no FDIC-supervised banks in this size category are affected by the final rule. The rule does not cover traditional spot and forward contracts; therefore, only institutions planning to engage in foreign currency futures, options, or rolling spot contracts would be affected.

The final rule applies to foreign currency futures, options on futures, and options as these terms are used in the Commodity Exchange Act. The rule would also apply to transactions that are "functionally or economically similar" to futures and options, such as "rolling spot" trades. Under the rule:

• FDIC-supervised IDIs entering into trades covered by the rule would be subject to requirements in six areas: disclosure, recordkeeping, capital and margin, reporting, business conduct, and documentation. The requirements focus on safety and soundness and consumer protection.
• Traditional spot and forward contracts would not be covered by this rule.
• The rule would only apply to covered transactions with a retail customer. For purposes of the rule, a retail customer may include certain small businesses. It may also include an individual with $10 million or less invested on a discretionary basis and who is not using the trades to reduce risks associated with other investments.
• FDIC-supervised IDIs engaged in or that wish to engage in transactions covered by the rule would be required to submit a detailed business plan, demonstrate board approval of the activity, and obtain written approval from the FDIC to provide such products, among other requirements.
• FDIC-supervised IDIs engaged in this or any sales or marketing of any investment products should continue to meet the expectations set out in the 1994 Interagency Statement on Retail Sales of Nondeposit Investment Products to the extent such expectations do not conflict with the requirements of the final rule. See FIL-9-94 (February 17, 1994).

Distribution:
FDIC-Supervised Banks (Commercial and Savings)

Suggested Routing:
Chief Executive Officer
Chief Financial Officer
Chief Risk Officer
Chief Compliance Officer

Note:
FDIC Financial Institution Letters (FILs) may be accessed from the FDIC's Web site at www.fdic.gov/news/financial-institution-letters/2011/index.html

To receive FILs electronically, please visit http://www.fdic.gov/about/subscriptions/fil.html

Paper copies of FDIC Financial Institution Letters may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226 (877-275-3342 or 703-562-2200).