WASHINGTON — Regulators took another step Tuesday toward harmonizing oversight of foreign currency transactions.
The Federal Deposit Insurance Corp. board unveiled new capital and margin requirements for retail futures and options in the foreign exchange market falling below a certain threshold. The proposal, which would affect only one FDIC-supervised bank, followed similar moves by other agencies required under the Dodd-Frank Act to monitor forex trading more closely.
Dodd-Frank sought to keep such transactions in the regulated sphere, allowing them only if the participating institution's primary regulator issued a rule sanctioning them. The law requires agencies to issue separate forex rules, but they must be similar. The FDIC proposal, which includes a 30-day comment period, followed earlier moves by the Commodity Futures Trading Commission and Office of the Comptroller of the Currency. The Federal Reserve Board is expected to issue a proposal soon.
"It is good news that while this is an area in which the Dodd-Frank Act asks each of the agencies to do their own rule, that we have nonetheless succeeded in getting everybody pretty much in the same place," said John Walsh, the acting comptroller of the currency and a member of the FDIC board.
The FDIC rule would affect futures and options in the retail market, meaning those involving individuals with less than $10 million invested, or less than $5 million in certain cases. Banks participating in retail forex transaction would have to be "well capitalized," and advertise that such transactions are not covered by FDIC insurance. Under the proposal, an institution would require a customer to post a margin of 2% in the case of major currencies, such as the dollar, and 5% for other currencies.
FDIC Chairman Sheila Bair said while the proposal would affect a limited sphere of banks, it is meant to provide lasting rules should institutions enter the market in the future and prevent firms from seeking out regulators with lax oversight.
"This really is preemptive to make sure that as the OCC and the CFTC tighten regulations in this area, we don't open up arbitrage opportunities for all banks," she said.
