US Federal Agencies Consult On Risk Management

by Glen Shapiro, LawAndTax-News.com, New York

19 May 2004

Five US federal agencies on Friday requested comment on a statement outlining internal controls and risk management procedures that the agencies believe will assist financial institutions which engage in complex structured finance activities to manage the risk involved in such undertakings.

The statement, issued by the US Securities and Exchange Commission, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Office of Thrift Supervision, stipulates that financial institutions engaged in complex structured finance activities should have policies and procedures in place to:

• Identify those complex structured finance transactions that may involve heightened reputational and legal risk;
• Ensure that these transactions receive enhanced scrutiny by the institution; and
• Ensure that an institution does not participate in illegal or inappropriate transactions.

The agencies also stressed the crucial role played by an institution's board of directors and senior management in establishing a good corporate culture which encourages integrity, compliance with the law, and good business ethics.

Comment is requested on the statement within thirty days of its publication in the Federal Register.

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