Securities Activities of Banks in the GLB Era - Cleary Gottlieb Steen ...

C. Complex Structured Finance Transactions
1. The use of derivatives and other complex structured finance
transactions, and the role of banks and other financial institutions in
structuring these transactions for customers, have come under scrutiny
in the wake of the Enron bankruptcy and related regulatory actions
and litigation. These actions and proceedings show an increased
willingness on the part of courts and regulators to hold financial
institutions responsible for participating in transactions that may be
deceptive or improperly reported. 22
2. The proposed Interagency Statement on Sound Practices Concerning
Complex Structured Finance Activities, 69 Fed. Reg. 28980 (May 19,
2004) (solicitation of public comments) (the “Proposed Interagency
Statement”) reflects in certain respects the requirements imposed
under the regulatory actions against individual financial institutions in
the wake of the Enron bankruptcy.
a. Under the Proposed Interagency Statement each financial
institution would be expected to develop:
(i) Policies that:
22 See generally Bank Activities Guide at Part II.E.2.f.
(A) Define the approval and control process for
complex structured finance transactions.
(B) Ensure that the reputational and legal risks
associated with such a transaction are identified
and evaluated in both the transaction and new
product approval process and appropriately
managed.
(C) Ensure appropriate review and documentation
of a customer’s proposed accounting treatment
of such a transaction, financial disclosures
relating to such transaction, and business
objectives.
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