Application of the Correspondent Account Rule to Executing Dealers Operating in Over-The-Counter Foreign Exchange and Derivatives Markets Pursuant to Prime Brokerage Arrangements

Executing dealers in over-the-counter foreign exchange and derivatives markets are not required to comply with the correspondent account rule due diligence provisions for prime brokerage clients. The guidance clarifies that transactions conducted pursuant to prime brokerage arrangements do not constitute the establishment, maintenance, administration, or management of a correspondent account because the prime broker, rather than the client, becomes the counterparty to the executing dealer. Consequently, the interaction between an executing dealer and a prime brokerage client is limited to the initiation of trade-by-trade transactions and does not trigger the specific obligations under section 312 of the USA PATRIOT Act.

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FIN-2007-G004

Issued Date

Guidance Subject

Application of the Correspondent Account Rule to Executing Dealers Operating in Over-The-Counter Foreign Exchange and Derivatives Markets Pursuant to Prime Brokerage Arrangements

The Financial Crimes Enforcement Network is issuing this interpretive guidance to clarify the due diligence obligations of executing dealers in over-the-counter foreign exchange and derivatives markets (“OTC derivatives markets”) pursuant to prime brokerage arrangements under our rules implementing the correspondent account provisions of section 312 of the USA PATRIOT Act (“correspondent account rule”).
Specifically, this guidance addresses whether executing dealers conducting transactions pursuant to prime brokerage arrangements in the OTC derivatives markets establish correspondent accounts with prime brokerage clients that would require the executing dealers to comply with the correspondent account rule.

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Lineage: In force

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Source: Financial Crimes Enforcement Network — original document · Summary generated with machine assistance and reviewed before publication; the authoritative text is the regulator's original document. How RegAlert works