The Federal Reserve has published a proposed rule dictating business standards for Fed-supervised banks engaged in foreign exchange (“forex”) transactions with retail customers. The rule is part of Dodd-Frank Wall Street Reform and Consumer Protection Act implementation, and is largely similar to those adopted by the CFTC, FDIC, and OCC.
Like the OCC and FDIC rules, the Federal Reserve eschews a complex registration process and new capital requirements. Instead, Fed-supervised institutions must notify the agency of their intention to trade forex with retail customers, and meet a pre-existing “well-capitalized” standard. The rule also mentions in its risk disclosure that foreign exchange transactions are not FDIC-insured.
However, unlike FDIC and OCC rules, the Federal Reserve does not bar banks from using their right of set off, which allows them to use customer assets to cover a trading loss or margin call. It also prohibits the use of pre-dispute arbitration agreements.
Comments on the proposed rule are due October 11, 2011.