District Circular Letters
May 8, 1998
BANKING SUPERVISION AND REGULATION:
SAFE HARBOR PROTECTIONS
INFORMATION TECHNOLOGY IN RISK-FOCUSED SUPERVISION
BASLE ACCORD--CAPITAL REQUIREMENTS
ELECTRONIC FEDERAL PAYMENTS
(LETTER TO CHAIRMAN GREENSPAN)
To State Member Banks, Bank
Holding Companies, Edge Act Corporations,
U.S. Branches and Agencies of Foreign Banks,
and Others Concerned
in the Twelfth Federal Reserve District
Interagency Advisory on the "Safe Harbor" Protections Associated
with Suspicious Activity Reports
Federal law provides some protection to financial institutions and their
employees who refer suspicious or potentially criminal activity to the
appropriate law enforcement and bank supervisory authorities in Suspicious
Activity Reports (SARs). This statutory protection is generally referred
to as a "safe harbor." As a result of two recent federal cases, concerns
have been raised about the applicability and extent of the "safe harbor"
protections associated with the filing of SARs.
Working with the enforcement staffs of the other federal financial institutions
supervisory agencies, Federal Reserve staff prepared an Interagency
Advisory concerning the continued viability of the "safe harbor" protection.
We are pleased to provide a copy of this advisory for your information.
The Interagency Advisory provides some background information concerning
the "safe harbor" provisions of federal law and describes the two pertinent
cases. It also provides some useful information regarding steps that your
banking organization should take to better ensure that it is fully protected
under the "safe harbor" provisions of the law when it prepares and files
a Suspicious Activity Report. The Interagency Advisory concludes that,
in the opinion of the agencies' staffs, financial institutions and their
employees who follow the agencies' SAR regulations and the filing instructions
on the form will be fully protected by the "safe harbor" provisions of
federal law.
Assessment of Information Technology in the Risk-Focused Supervision
Framework
The Federal Reserve has long recognized that information technology can
greatly affect a banking organization's financial condition and operating
performance. Accordingly, Federal Reserve examiners consider the quality
of an organization's information technology function when evaluating the
institution's management and operations. To assist examiners in their
evaluations of this increasingly critical function within banking organizations,
the Federal Reserve has developed additional guidance for the assessment
of the risks associated with information technology.
The enclosed Supervisory Letter [SR
98-9 (SUP)] outlines the Federal Reserve's new guidance, which provides
a basic framework and common vocabulary to be used by examiners in evaluating
the effectiveness of an organization's ability to manage the risks associated
with information technology. This guidance is in keeping with the risk-focused
frameworks for the supervision of community banks and large complex banking
organizations.
Announcements Regarding the Basle Accord
The Basle Committee on Banking Supervision has issued two announcements
relating to the Basle Accord, which is an international agreement setting
minimum capital requirements for banks.
One announcement is an amendment to the Accord reducing the risk weight
for claims on (and claims guaranteed by) certain securities firms incorporated
in OECD countries from 100 percent to 20 percent. To qualify for the preferential
risk weight, securities firms must be subject to supervisory and regulatory
arrangements and, in particular, capital requirements that are comparable
to those applied to banks under the Basle Accord.
In the United States this amendment, in general, would provide a reduced
capital charge for claims on or guaranteed by broker-dealers registered
with the Securities and Exchange Commission and their direct subsidiaries
that are subject to supervision and capital requirements. The capital
requirements generally would be the SEC's net capital rule or, for securities
firms operating in Europe, the European Union's Capital Adequacy Directive.
Claims on the holding companies and affiliates of such broker-dealers
or securities firms not subject to capital requirements generally would
retain their 100 percent risk weighting. The Federal Reserve intends to
initiate a rulemaking to propose this revision to its risk-based capital
rules for state member banks and bank holding companies.
The second announcement sets forth principles governing on-balance-sheet
netting for capital purposes. The statement solicits industry comment
by June 30, 1998.
The announcements are accessible via the Internet at the Bank for International
Settlements web site (http://www.bis.org).
Comments on the netting proposal may be submitted to the Basle Supervisors
Committee at FAX: 011 41 61 280 9100.
Treasury Department Letter to Chairman Greenspan Regarding Electronic
Federal Payments
Enclosed is a copy of a letter from John D. Hawke Jr., Under Secretary
for Domestic Finance of the U.S. Treasury Department to Federal Reserve
Chairman Alan Greenspan. Secretary Hawke also requested that the Federal
Reserve send a copy of this letter to all State member banks.
In his letter, Secretary Hawke notes that some financial institutions
have entered into arrangements for payment services with third party providers
in connection with the move to mandatory electronic federal payments in
1999, or plan to do so. He also expresses the Treasury Department's view
that insured financial institutions that enter into these arrangements
should provide certain disclosures regarding the fees involved and other
matters.
Additional Information
For additional information regarding these matters, please contact our
Banking Supervision and Regulation Department, at (415) 974-2932
[for safe harbor protections], (415) 977-3933 [for risk-focused
supervision], (415) 974-3007 [for the Basle Accord],
and (415) 974-2242 [for third-party providers for electronic
federal payments].
FEDERAL RESERVE BANK OF SAN FRANCISCO
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