FR4022_20220929_omb

Supporting Statement for the
Recordkeeping Provisions Associated with the
Interagency Statement on Complex Structured Finance Activities
(FR 4022; OMB No. 7100-0311)
Summary
The Board of Governors of the Federal Reserve System (Board), under authority
delegated by the Office of Management and Budget (OMB), has extended for three years,
without revision, the Recordkeeping Provisions Associated with the Interagency Statement on
Complex Structured Finance Activities (FR 4022; OMB No. 7100-0311). This interagency
guidance 1 states that certain financial institutions should establish and maintain written policies
and procedures for identifying, evaluating, assessing, documenting, an d controlling risks
associated with complex structured finance transactions (CSFTs) and should retain certain
documents related to elevated risk CSFTs,2 which are a subcategory of CSFTs. The FR 4022
covers these information collections for financial institutions that are subject to the Statement
and that are supervised by the Board, which are state member banks, bank holding companies
(other than foreign banking organizations), savings and loan holding companies (SLHCs), and
U.S. branches and agencies of foreign banks.
The estimated total annual burden for the FR 4022 is 180 hours.
Background and Justification
When a financial institution participates in a CSFT, it bears the usual market, credit, and
operational risks associated with the transaction. In some circumstances, a financial institution
also may face heightened legal or reputational risks due to its involvement in a CSFT. For
example, a financial institution involved in a CSFT may face heightened risk if the customer’s
regulatory, tax, or accounting treatment for the CSFT, or disclosures concerning the CSFT in its
public filings or financial statements, do not comply with applicable laws, regulations, or
accounting principles.
In some cases, certain CSFTs appear to have been used in illegal schemes that
misrepresented the financial condition of public companies to investors and regulatory
authorities. Those cases highlight the substantial legal and reputational risks that financial
institutions may face when they participate in a CSFT that is used by the institutions’ customers
to circumvent regulatory or financial reporting requirements or further other illegal behaviors.
For example, in July 2003, the Board, Office of the Comptroller of the Currency (OCC), and
Securities and Exchange Commission (SEC) imposed significant financial penalties on financial
institutions that engaged in CSFTs that appeared to have been designed or used to shield their
customers’ true financial health from the public. The complex structured finance relationships

1

Interagency Statement on Sound Practices Concerning Elevated Risk Complex Structured Finance Activities (the
Statement) (January 11, 2007), available at https://www.federalregister.gov/documents/2007/01/11/0755/interagency-statement-on-sound-practices-concerning-elevated-risk-complex-structured-finance.
2
See section III, part A, “Identifying Elevated Risk CSFTs,” of the final interagency statement for more details.

involving these financial institutions also resulted in numerous lawsuits against those financial
institutions by private litigants.
In January 2007, the Board, OCC, Federal Deposit Insurance Corporation (FDIC), SEC,
and the former Office of Thrift Supervision (OTS) published the Statement. The Statement is
meant to describe the types of risk management principles that may help a financial institution to
identify CSFTs that may pose heightened legal or reputational risks to the institution and to
evaluate, manage, and address these risks within the institution’s internal control framework.
Description of Information Collection
The Statement provides that state member banks, bank holding companies (other than
foreign banking organizations), SLHCs, and U.S. branches and agencies of foreign banks
supervised by the Board should establish and maintain a set of formal, written, firm-wide
policies and procedures for identifying, evaluating, assessing, documenting, and controlling risks
associated with CSFTs. These policies and procedures should address the full range of credit,
market, operational, legal, and reputational risks associated with such transactions. The policies
may be developed specifically for CSFTs or included in the set of broader policies governing the
institution generally. A financial institution operating in foreign jurisdictions may tailor its
policies and procedures as appropriate to account for, and comply with, the applicable laws,
regulations, and standards of those jurisdictions.
A financial institution’s policies and procedures should establish a clear framework for
the review and approval of individual CSFTs. These policies and procedures should set forth the
responsibilities of the personnel involved in the origination, structuring, trading, review,
approval, documentation, verification, and execution of CSFTs. A financial institution should
define what constitutes a new complex structured finance product and establish a control process
for the approval of such new products. An institution’s policies also should provide for new
complex structured finance products to receive the approval of all relevant control areas that are
independent of the profit center before the products are offered to customers. With respect to the
institution’s elevated risk CSFTs, policies and procedures should provide for the appropriate
levels of management and the board of directors to receive sufficient information and reports to
perform their oversight functions.
Due Diligence, Approval, and Documentation Retention for Elevated Risk CSFTs
A financial institution’s transaction and new product approval controls should include
policies, procedures, and systems to identify elevated risk CSFTs. The goal of each institution’s
policies and procedures should be to identify those CSFTs that warrant additional scrutiny in the
transaction or new product approval process due to concerns regarding legal or reputational risks.
Having developed a process to identify elevated risk CSFTs, a financial institution should
implement policies and procedures to conduct a heightened level of due diligence for these
transactions. The financial institution should design these policies and procedures to allow
personnel at an appropriate level to understand and evaluate the potential legal or reputational

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risks presented by the transaction to the institution and to manage and address any heightened
legal or reputational risks ultimately found to exist with the transaction.
A financial institution’s policies and procedures should provide that CSFTs identified as
having elevated legal or reputational risk are reviewed and approved by appropriate levels of
control and management personnel. The institution’s control framework should have procedures
to deliver the necessary or appropriate information to the personnel responsible for reviewing or
approving an elevated risk CSFT to allow them to properly perform their duties. Such
information may include, for example, the material terms of the transaction, a summary of the
institution’s relationship with the customer, and a discussion of the significant legal, reputational,
credit, market, and operational risks presented by the transaction.
A financial institution should create and collect sufficient documentation associated with
elevated risk CSFTs to allow the institution to: document the material terms of the transaction;
enforce the material obligations of the counterparties; confirm that the institution has provided
the customer any disclosures concerning the transaction that the institution is otherwise required
to provide; and verify that the institution’s policies and procedures are being followed and allow
the internal audit function to monitor compliance with those policies and procedures. When an
institution’s policies and procedures require an elevated risk CSFT to be submitted for approval
to senior management, the institution should maintain the transaction-related documentation
provided to senior management as well as other documentation that reflect management’s
approval (or disapproval) of the transaction, any conditions imposed by senior management, and
the reasons for such action. The institution should retain documents created for elevated risk
CSFTs in accordance with its record retention policies and procedures as well as applicable
statutes and regulations.
Respondent Panel
The FR 4022 panel comprises state member banks, bank holding companies (other than
foreign banking organizations), SLHCs, and U.S. branches and agencies of foreign banks.
Time Schedule for Information Collection
The maintenance of policies and procedures concerning CSFTs and the retention of
documents related to elevated risk CSFTs is ongoing.
Public Availability of Data
There is no data related to this information collection available to the public.
Legal Status
The Board’s recordkeeping guidance associated with the Statement relates to information
that the Board is authorized to collect under the Federal Reserve Act with respect to state
member banks (12 U.S.C. § 248(a)), under the Bank Holding Company Act of 1956 with respect
to bank holding companies (12 U.S.C. § 1844(c)), under the Home Owners’ Loan Act with

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respect to SLHCs (12 U.S.C. §§ 1467a(b) and 1467a(g)), and under the International Banking
Act of 1978 with respect to U.S. branches and agencies of foreign banks (12 U.S.C. §§ 3105(c)
and 3108(a)). The FR 4022 recordkeeping provisions are voluntary. 3
Any policies, procedures, or other records voluntarily created based on the Statement
would be maintained at the financial institution that created them. The Freedom of Information
Act (FOIA) would be implicated only if the Board obtained such records as part of the
examination or supervision of a financial institution, in which case the records would be
protected from disclosure under FOIA exemption 8, which protects information contained in
“examination, operating, or condition reports” obtained in the bank supervisory process
(5 U.S.C. § 552(b)(8)). Information provided on the FR 4022 may also be exempt from
disclosure pursuant to FOIA exemption 4 if it is nonpublic commercial or financial information,
which is both customarily and actually treated as private by the respondent (5 U.S.C. §
552(b)(4)).
Consultation Outside the Agency
There has been no consultation outside the Federal Reserve System with respect to the
extension of this information collection.
Public Comments
On January 25, 2022, the Board published an initial notice in the Federal Register (87 FR
3809) requesting public comment for 60 days on the extension, without revision, of the FR 4022.
The comment period for this notice expired on March 28, 2022. The Board did not receive any
comments. The Board adopted the extension, without revision, of the FR 4022 as originally
proposed. On May 24, 2022, the Board published a final notice in the Federal Register (87 FR
31552).
Estimate of Respondent Burden
As shown in the table below, the estimated total annual burden for the FR 4022 is 180
hours. Since CSFTs are typically conducted by a limited number of large financial institutions,
the Board estimates that only 18 of the institutions it supervises are affected by th e Statement.
The Board estimates that each of the 18 respondents will spend 10 hours each year to engage in
the recordkeeping recommended by the Statement. Based on the Board’s experience in
supervising the CSFT activities of financial institutions, the Board believes that the
recordkeeping provisions included in the Statement are generally consistent with the types of
policies and procedures that large financial institutions actively involved in CSFTs already have
developed and implemented as part of their usual and customary business practices. The burden
estimate for the recordkeeping provisions reflects the time to revisit CSFT policies and
procedures on a periodic basis to ensure that an institution’s risk management systems continue
to address the CSFT guidance, as well as the time associated with retaining records associated
with elevated risk CSFTs. These recordkeeping provisions represent less than 1 percent of the
Board’s total paperwork burden.
3

See 86 FR 18173 (April 8, 2021).

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FR 4022
Maintain records associated with
the compliance program

Estimated
Estimated
Estimated
Annual
number of
average hours annual burden
frequency
respondents4
per response
hours
18

1

10

180

The estimated total annual cost to the public for the FR 4022 is $10,881.5
Sensitive Questions
This information collection contains no questions of a sensitive nature, as defined by
OMB guidelines.
Estimate of Cost to the Federal Reserve System
The estimated cost to the Federal Reserve System for this information collection is
negligible.

4

Of these respondents, none are considered small entities as defined by the Small Business Administration (i.e.,
entities with less than $750 million in total assets), https://www.sba.gov/document/support--table-size-standards.
5
Total cost to the public was estimated using the following formula: percent of staff time, multiplied by annual
burden hours, multiplied by hourly rates (30% Office & Administrative Support at $21, 45% Financial Managers at
$74, 15% Lawyers at $71, and 10% Chief Executives at $102). Hourly rates for each occupational group are the
(rounded) mean hourly wages from the Bureau of Labor Statistics (BLS), Occupational Employment and Wages,
May 2021, published March 31, 2022, https://www.bls.gov/news.release/ocwage.t01.htm. Occupations are defined
using the BLS Standard Occupational Classification System, https://www.bls.gov/soc/.

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