The Federal Reserve is issuing this SR letter to provide regulated financial institutions with a copy of the attached letter from the Division of Market Regulation at the Securities and Exchange Commission (SEC) to the Federal Reserve and the Office of the Comptroller of the Currency, dated December 4, 2003. The letter includes a memorandum that discusses the principal types of Federal securities law violations that may arise when a company uses structured finance products in a deceptive manner. The memorandum also discusses the SEC’s views regarding when a financial institution’s participation in a structured finance transaction may create liability for the institution under the Federal securities laws and the statutory bases for such potential liability.

The Federal Reserve Banks are asked to provide a copy of this SR letter and the attachment to domestic and foreign banking organizations engaged in complex structured finance activities or similar activities. Please be advised that the SEC letter and guidance are referenced in the Draft Interagency Statement on Sound Practices Concerning Complex Structured Finance Activities that the Federal Reserve along with the other Federal banking agencies and the SEC issued today for public comment.¹

Questions concerning this matter may be directed to Sabeth Siddique, Manager, Credit Risk, at (202) 452-3861 or Walt Miles, Assistant Director, at (202) 452-5264 in the Division of Banking Supervision and Regulation and Kieran Fallon, Managing Senior Counsel, at (202) 452-5270 in the Legal Division

Attachment:

Guidance on the Potential liability of Financial Institutions for Securities Law Violations Arising from Deceptive Structured Finance Products and Transactions (821 KB PDF)