(a) No transaction, class of transactions,
or activity may be deemed permissible under sections 248.11 through
248.13 of this subpart if the transaction, class of transactions,
or activity would:
(1)
Involve or result in a material conflict of interest between the banking
entity and its clients, customers, or counterparties;
(2) Result, directly or indirectly, in
a material exposure by the banking entity to a high-risk asset or
a high-risk trading strategy; or
(3) Pose a threat to the safety and soundness of the banking entity
or to the financial stability of the United States.
(b) Definition of material conflict
of interest.
(1)
For purposes of this section, a material conflict of interest between
a banking entity and its clients, customers, or counterparties exists
if the banking entity engages in any transaction, class of transactions,
or activity that would involve or result in the banking entity’s interests
being materially adverse to the interests of its client, customer,
or counterparty with respect to such transaction, class of transactions,
or activity, and the banking entity has not taken at least one of
the actions in paragraph (b)(2) of this section.
(2) Prior to effecting the specific transaction
or class or type of transactions, or engaging in the specific activity,
the banking entity:
(i) Timely and effective disclosure.
(A) Has made clear,
timely, and effective disclosure of the conflict of interest, together
with other necessary information, in reasonable detail and in a manner
sufficient to permit a reasonable client, customer, or counterparty
to meaningfully understand the conflict of interest; and
(B) Such disclosure is made in a manner that
provides the client, customer, or counterparty the opportunity to
negate, or substantially mitigate, any materially adverse effect on
the client, customer, or counterparty created by the conflict of interest;
or
(ii) Information barriers. Has established,
maintained, and enforced information barriers that are memorialized
in written policies and procedures, such as physical separation of
personnel, or functions, or limitations on types of activity, that
are reasonably designed, taking into consideration the nature of the
banking entity’s business, to prevent the conflict of interest from
involving or resulting in a materially adverse effect on a client,
customer, or counterparty. A banking entity may not rely on such information
barriers if, in the case of any specific transaction, class or type
of transactions or activity, the banking entity knows or should reasonably
know that, notwithstanding the banking entity’s establishment of information
barriers, the conflict of interest may involve or result in a materially
adverse effect on a client, customer, or counterparty.
(c) Definition of high-risk
asset and high-risk trading strategy. For purposes of this section:
(1) High-risk asset means an asset or group of related assets that would, if held by
a banking entity, significantly increase the likelihood that the banking
entity would incur a substantial financial loss or would pose a threat
to the financial stability of the United States.
(2) High-risk trading strategy means
a trading strategy that would, if engaged in by a banking entity,
significantly increase the likelihood that the banking entity would
incur a substantial financial loss or would pose a threat to the financial
stability of the United States.
