§ 163.172. Financial derivatives.
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/us/cfr/t12/s§ 163.172·A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
(a)Definition. A financial derivative is a financial contract whose value depends on the value of one or more underlying assets, indices, or reference rates. The most common types of financial derivatives are futures, forward contracts, options, and swaps. A mortgage derivative security, such as a collateralized mortgage obligation or a real estate mortgage investment conduit, is not a financial derivative under this section.
(b)Permissible financial derivatives transactions. A Federal savings association may engage in a transaction involving a financial derivative if the savings association is authorized to invest in the assets underlying the financial derivative, the transaction is safe and sound, and the requirements in paragraphs
(c)through
(e)of this section are met. In general, a Federal savings association that engages in a transaction involving a financial derivative should do so to reduce its risk exposure.
(c)Board of directors' responsibilities.
(1)A Federal savings association's board of directors is responsible for effective oversight of financial derivatives activities.
(2)Before a savings association may engage in any transaction involving a financial derivative, your board of directors must establish written policies and procedures governing authorized financial derivatives. The board of directors should review applicable guidance issued by the OCC on establishing a sound risk management program.
(3)The board of directors must periodically review:
(i)Compliance with the policies and procedures established under paragraph (c)(2) of this section; and
(ii)The adequacy of these policies and procedures to ensure that they continue to be appropriate to the nature and scope of the savings association's operations and existing market conditions.
(4)The board of directors must ensure that management establishes an adequate system of internal controls for transactions involving financial derivatives.
(d)Management responsibilities.
(1)The management of a Federal savings association is responsible for daily oversight and management of financial derivatives activities. The management of a Federal savings association must implement the policies and procedures established by the board of directors and must establish a system of internal controls. This system of internal controls should, at a minimum, provide for periodic reporting to the board of directors and management, segregation of duties, and internal review procedures.
(2)Management must ensure that financial derivatives activities are conducted in a safe and sound manner and should review applicable guidance issued by the OCC on implementing a sound risk management program.
(e)Recordkeeping requirement. A Federal savings association must maintain records adequate to demonstrate compliance with this section and with its board of directors' policies and procedures on financial derivatives. [76 FR 49047, Aug. 9, 2011, as amended at 82 FR 8110, Jan. 23, 2017]
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§ 163.172
Financial derivatives.
Fed. Reg.×8
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