The purpose of this letter is to clarify the Federal Reserve's expectations regarding confidentiality provisions in agreements between a banking organization and its counterparties (for example, mutual funds, hedge funds, and other trading counterparties) or other third parties. It is contrary to Federal Reserve regulation and policy for agreements to contain confidentiality provisions that (1) restrict the banking organization from providing information to Federal Reserve supervisory staff;1 (2) require or permit, without the prior approval of the Federal Reserve, the banking organization to disclose to a counterparty that any information will be or was provided to Federal Reserve supervisory staff; or (3) require or permit, without the prior approval of the Federal Reserve, the banking organization to inform a counterparty of a current or upcoming Federal Reserve examination or any nonpublic Federal Reserve supervisory initiative or action. Banking organizations that have entered into agreements containing such confidentiality provisions are subject to legal risk.
Specifically, as noted in SR 97-17, "Access to Books and Records of Financial Institutions During Examinations and Inspections," supervisory staff may review all books and records maintained on the premises of a banking organization that is subject to Federal Reserve supervision. This authority extends to any and all documents on the premises.2 In addition, under the Board's Rules Regarding the Availability of Information, banking organizations are prohibited from disclosing confidential supervisory information without prior written permission of the Board's General Counsel.3 Confidential supervisory information is defined to include any information related to the examination of a banking organization.4 Staff has taken the position that identification of information requested by, or provided to, supervisory staff – including the fact that an examination has taken or will take place – is related to an examination and falls within the definition of confidential supervisory information.
Some agreements between banking organizations and counterparties contain confidentiality provisions that allow the banking organization to provide supervisory staff access to the agreement and related information provided by the counterparty and relieve the organization of any obligation to inform the counterparty when the banking organization is asked to furnish such information to supervisory staff. For example, the Global Documentation Steering Committee (GDSC)5 published standard confidentiality terms to promote prompt negotiation of confidentiality agreements. The GDSC Confidentiality Terms (2004)6 contain a provision stating that in the event that a supervisory authority with appropriate jurisdiction requests access to or delivery of confidential information from an organization, the organization may comply with such request and should give its counterparty written notice of such request only "if lawfully permitted to do so." Given that banking organizations are not permitted without prior approval from the Federal Reserve to inform their counterparties that Federal Reserve staff is reviewing, has reviewed, or has asked to review information covered by an agreement, the GDSC Confidentiality Terms are consistent with regulatory requirements for banking organizations entering into third-party agreements that contain confidentiality provisions.
Reserve Banks are asked to distribute this SR letter to the domestic and foreign banking organizations supervised by the Federal Reserve in their districts as well as to supervisory and examination staff. Questions regarding this SR letter may be directed to Barbara J. Bouchard, Deputy Associate Director, at (202) 452-3072, or Juan C. Climent, Supervisory Financial Analyst, at (202) 872-7526, in the Division of Banking Supervision and Regulation, or to Allison Breault, Attorney, at (202) 452-3124, in the Board's Legal Division.