Federal savings associations may engage in off-exchange trades in foreign currency – known as forex transactions – with retail customers so long as they comply with retail foreign exchange rules, according to new Office of the Comptroller of the Currency regulations.
Savings associations were originally chartered under the Home Owners’ Loan Act to encourage mortgage lending, but have expanded to offer similar financial services to those offered by national banks.
Retail forex transactions are those between banks or other authorized financial institutions and individual customers who are worth less than $5 million and are not registered financial professionals or non-financial service companies worth less than $10 million.
The OCC became the regulator for savings associations on July 21, 2011 in accordance with the regulatory shuffle mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Prior to July 21, the Office of Thrift Supervision regulated federal savings associations and it had not adopted retail forex rules pending the Dodd-Frank transitions.
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This allowed some savings associations to begin retail-forex transactions. These associations will have to obtain a supervisory “non-objection” from the OCC to continue their retail forex business.
The proposed and interim rules are virtually identical to the OCC’s rules allowing national banks to operate retail forex businesses.
Before starting a new retail forex desk, savings associations will have to demonstrate to the OCC that they have proper risk-management procedures in place, including an extensive disclosure statement warning customers of the potential risks of forex trades and their rights under OCC rules. They also must have reporting policies in place that will capture the details of all trades made between the association and its customers.