US bank regulators would more strictly supervise banks' relationships with retail customers who speculate in the foreign exchange market, under a proposal issued on Tuesday. The Federal Deposit Insurance Corp plan would require retail customers who engage in foreign exchange transactions with a bank, that are not cleared through an exchange, to post a margin amount of 2 percent in the case of major currencies, such as the dollar and euro.
The amount would rise to 5 percent of the notional value of the transaction for some other currencies. Banks also would have to keep more transaction records and give customers more information on things such as the fees they are being charged. The rule does not affect large companies involved in the derivatives and swaps markets and is instead aimed at protecting less-sophisticated individual investors.
The proposal is similar to a final rule published in September by the Commodity Futures Trade Commission in response what it said was retail fraud in the currency trading area. It is also similar to a proposal released last month by the Office of the Comptroller of the Currency. The board of the FDIC voted to put the proposal out for 30 days of public comment.
The FDIC only has a small part in policing this market. It said only one of the banks it regulates is involved in the retail foreign exchange business. It did not identify the bank. The rule is required by last year's Dodd-Frank financial oversight law. "It's really focused on the speculative activity that provides higher risk and for which additional consumer protections would seem justified," said FDIC Vice Chairman Martin Gruenberg said.