FDIC Board Approves Proposed Rule on Retail Foreign Exchange Transactions

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On May 10, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) approved a proposed rule to adopt requirements for FDIC-supervised institutions that may engage in certain foreign exchange transactions with retail customers which fall under the provisions of Section 742 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. As amended by the Dodd-Frank Act, the Commodity Exchange Act (CEA) provides that a U.S. financial institution for which there is a federal regulatory agency shall not enter into, or offer to enter into, a transaction described in Section 2(c)(2)(B)(i)(I) of the CEA with a retail customer except pursuant to a rule or regulation of a federal regulatory agency allowing the transaction under such terms and conditions as the federal regulatory agency shall prescribe ("retail forex rule"). The Dodd-Frank Act does not require that retail forex rules be issued jointly, or on a coordinated basis, with any other federal regulatory agency. While each federal banking agency is issuing a separate proposed rule, the federal banking agencies are coordinating their efforts. According to the FDIC, its notice of proposed rulemaking is substantially similar to the OCC's notice of proposed rulemaking regarding retail foreign currency transactions published on April 22 and regulations adopted by the Commodity Futures Trading Commission in September 2010.

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