The FDIC has submitted a revised, final version of its rule governing retail foreign exchange (“forex”) transactions to the Federal Register. The rule, modeled on the CFTC and OCC rules proposed previously, has only undergone very minor alterations and clarifications since it was first proposed on May 11th.
The rule applies to all insured depository institutions (IDIs) for which the FDIC is the prudential regulator, primarily state non-member insured banks, but also including foreign banks with insured domestic branches. It covers forex futures and options (other than options on a national exchange), and leveraged foreign currency transactions. This definition includes rolling spot forward transactions, but not traditional spot or cash forward transactions.
Highlights and points of interest covered below.
- Registration. There is no lengthy application process needed to offer retail forex transactions. Interested IDIs only need to notify the FDIC in writing of their intentions, provide business details, and wait for written confirmation
- Capital requirements. The FDIC only requires that institutions be “well capitalized” based on pre-existing agency standards.
- Margin requirements. IDIs must collect margins in cash or other approved financial instruments from retail customers according to the position and currency type of their transaction.
- Recordkeeping. The FDIC mandates that institutions keep detailed records on retail forex customers and their transactions for five years.
- Other topics covered in the proposed rule include reporting, risk disclosure, position closing, and consumer protection.
Since the proposed rule was issued in May, six comments were offered by the public to help guide the FDIC. A few of the suggestions were incorporated into the final rule. For example, customers are now permitted to offer instructions for closing offsetting positions on a well-defined set of transactions. Previously, customers were not permitted to issue such instructions (and they still cannot give blanket instructions). Furthermore, the risk disclosure statement included in the rule has been modified to cut down on redundancies.
The rule will go into effect on July 15th.