Shipkevich Law Firm is a full service law firm focusing in foreign exchange and FX technology transactions, as well as credit and insolvency matters. (212) 252-3003.
Felix Shipkevich is a New York Attorney with an extensive background representing banks, broker-dealers, futures and Forex firms. He began his career at UBS, NYSE, and the SEC. Before founding Shipkevich Law Firm, he was VP and General Counsel at CMS Forex, where he was responsible for supervising the firm’s global offices. fs@shipkevich.com
Elan Mendel is an associate with Shipkevich Law Firm, who comes from a boutique New York law firm specializing in bankruptcy law and insurance coverage. He previously worked in the legal department of a major Retail Foreign Exchange Dealer in New York, and performed internal AML/BSA and currency audits for Commerce Bank. emendel@shipkevich.com
FDIC joins OCC in publishing proposed rule to regulate Retail Foreign Exchange transactions.
The FDIC published a proposed regulation governing retail foreign exchange transactions today, following the publication by the OCC of a similar rule a few weeks ago. Generally, the rule follows those requirements already laid out by the CFTC and SEC. The rule is only intended to cover rolling spot forward transactions, not traditional spot or cash forward transactions. Major points of interest for interested parties are outlined below.
Registration
There is no lengthy registration process involved in beginning retail Forex Trading for FDIC-regulated institutions. Instead, interested parties must file a written notice with the FDIC and obtain written consent before engaging in any retail forex activity. These notices must include:
- A brief description of the proposed business;
- The amount of the institution’s current or proposed investment in the forex business;
- Proof of compliance with capital requirements;
- A description of the institutions business plan and target customers;
- Approval from the Board of Directors;
- Sample risk disclosures.
Institutions already engaged in retail forex swaps before the final publication date of these rules must request consent within 30 days of the final publication and have six months to bring their business into compliance with FDIC regulations.
Capital Requirements
Because FDIC-regulated institutions are already subject to capital requirements, the FDIC only requires that the bank be “well capitalized” according to its own regulations (see 12 CFR part 325), unless specifically exempt. There are no additional capital requirements.
Margin Requirements
The institution must collect at least 2% of the notional value of the retail forex transaction for major currency pairs, or 5% for all other currencies. For short options, in addition to 2%/5% margins, the institution also must collect the premium received by the retail customer. For long options, the institution must collect the entire purchase price of the option.
Margins may be collected in cash or from among the following financial instruments:
- Obligations of the United States, one of the States, or of other sovereign nations;
- Deposit certificates from an insured institution;
- Commercial paper or corporate bonds or notes;
- Interests in money market mutual funds;
- Any other instruments deemed appropriate by the FDIC.
The institution must create policies and procedures for haircuts for non-cash margins.
Margins must be kept in a separate account, and once a day the institution must value each retail customer’s market position, their margin, and adjust their margin accordingly. Any losses on a customer’s forex transaction may not be applied against any fund other than their margin account or added to a loan or used any right of set-off.
Recordkeeping
Institutions must keep detailed records for each retail forex customer, including:
- Contact information for the customer and any guarantors, the beginning and end of each account, and the person responsible for handling the account;
- Financial records showing funds deposited, withdrawn, transferred, lost, and gained on closed transactions;
- Transactions records which include details like price, quantity, currency pair, delivery date, strike price, according to the type of transaction;
- The order ticket.
The institution is also responsible for calculating the ratio of profitable accounts, record an possible violations of the law, keep track of non-cash margins, and copy customer statements and confirmations. These records must be kept for at least five years after the date of creation.
Other
- Reporting. Institutions must send out monthly statements on open accounts, and confirmation statements after any transaction
- Risk Disclosure. Retail forex customers must read and sign a risk disclosure agreement as set forth in the proposed rule.
- Position Closing. Open long and short positions must be closed out, regardless of customer instructions.
- Consumer Protection. The rule contains a number of requirements to prevent institutions from taking practice in questionable practices which exploit their customer’s trust.
Read the full details of this FDIC regulatory proposal.
