Federal bank regulators have teamed up with the Securities and Exchange Commission (SEC) to propose that banking and securities institutions be required to adopt internal policies and procedures to review complex structured finance transactions. The proposal was published at 69 Fed. Reg. 28980 on 19 May, 2004.
The most controversial aspect of the proposal is that institutions would be expected to review the use to which their customer will put the transaction under discussion. Traditionally, the customer is responsible for the accounting, tax and reporting treatment of all of its transactions with third parties. However, because of the fallout from Enron and similar cases, the agencies believe that institutions should themselves review the use of the transactions that were in the past considered to be the sole responsibility of the counterparties. While the stated rationale is to protect the institution, there is an inherent watchdog concept in the idea that the institutions have a role to play in protecting investors.
