US regulators outline rules on structured finance

Five US regulatory organisations have issued a statement of principles on dealing with the risks involved in complex structured financial products.

The Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Reserve, the Federal Deposit Insurance Corporation and the Securities and Exchange Commission started drawing up the guidelines in 2004, in response to the failure of Enron.

The regulators warned that companies should consider products "elevated risk" if they seemed to be intended not to serve business objectives, but to deceive auditors or investors. In particular, they warned against "circular transfers of risk", oral agreements, unusual terms such as deeply in-the-money options, or disproportionate compensation.

They stopped short of blocking banks from dealing in elevated risk products, but warned that they should be properly documented and subject to careful oversight.

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