27.10.97 

MEMORANDUM OF UNDERSTANillNG 

In view of the fact that a number of securities and futures firms and banks incorporated in the United 

States or the United Kingdom conduct operations in each of the respective jurisdictions, the UNITED 

STATES SECURITIES AND EXCHANGE COMMISSION (the "SEC") and the UNITED 

STATES COMMODITY FUTURES TRADING COMMISSION (the "CFTC"), on the one hand, 

and the BANK OF ENGLAND (the "Bank''), on the other hand, have reached the following 

understanding on the sharing of supervisory infom1ation to facilitate the performance of their respective 

duties: 

DEFINITIONS 

1 For purposes of this Memorandum of Understanding: 

(a) "Authorities" means the SEC, the CFTC and the Bank. "US Authorities" means the SEC and the 

CFTC. 

(b) "Relevant Firm" means a broker-dealer, a futures commission merchant or a bank, if that entity, its 

parent or holding company is incorporated or headquartered in the United States or the United 

Kingdom, and any holding companies, subsidiaries and affiliates of such entity, if that entity, alone 

or together with one or more of its related entities, conducts securities, futures, and/or banking 

transactions (including derivatives transactions) in both the United States and the United Kingdom. 

"Designated Relevant Finns" means those Relevant Finns designated by the SEC, CFTC, and the 

Bank. 

(c) "Emergency Situation" means (i) the occurrence of an event that indicates to the SEC, CFTC, or 

Bank that a Relevant Finn may be experiencing or may be about to experience significant financial 

or operational difficulties; or (ii) a request of the SEC, CFTC, or Bank based upon reasonable 

grounds for concem that the financial or operational condition of a Relevant Firm may be 

materially affected by a related entity; or (iii) the occurrence of a market disturbance or other 

event that may materially affect the financial or operational condition of a Relevant Firm. 

GENERAL PRINCIPLES 

2 This Memorandum is a statement of the intent of the Authorities and does not create any binding 

legal obligations. 

3 The purpose of this Memorandum !S to formalise mechanisms between the US Authorities and the 

Bank for co-operation and sharing mformation to strengthen regulatory oversight of Relevant Firms. 

The growth of cross-border fmancwl activity, including the globalisation of securities and futures firms 

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and banks, has made the sharing of supervisory and financial information critical to the ability of the 

Authorities to carry out their respective oversight responsibilities. 

4 In light of its objective, this Memorandum is intended to apply to co-operation and the sharing of 

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information between either of the US Authorities and the Bank. It is not intended to cover co-operation 

between the US Authorities. 

MANAGEMENT CONTROLS 

5 In view of the expanded global activities of Relevant Finns, the Authorities believe that, to enhance 

the effectiveness of their oversight, it is important that they work together to identify and monitor the 

use of management controls by Relevant Firms. In this regard, the Authorities believe that management 

controls that Relevant Firms must have for the global risk management of their activities include 

controls relating to: (i) market risk management; (ii) credit risk management; (iii) balance sheet and 

liquidity management; (iv) operations and systems; (v) counterpartyllegal risk controls; and (vi) 

compliance and audit. To promote supervisory co-operation, the US Authorities and the Bank intend to 

consult regarding issues identified in connection with the use of management controls by Relevant 

Finns. 

6 The Authorities aim to have each Designated Relevant Firm maintain an appropriate, current, 

written description of the manner in which it is implementing the management controls identified above. 

7 The US Authorities and the Bank intend to inform each other promptly of any significant concerns 

that they may have in respect of the operation of management controls at Designated Relevant Finns, to 

the extent that these concerns could have implications for the activities of such Firms in the other 

jurisdiction. Where remedial action is called for to address any such significant concern, the US 

Authorities and the Bank intend to notify each other promptly once such remedial action has been taken. 

Where practicable and appropriate, the US Authonties and the Bank intend to consult prior to taking 

action. 

ASSISTANCE IN OBTAINING INFORMATION 

8 The Bank may request the SEC or the CFTC, to the extent that the SEC or CFTC can do so, to 

obtam and provide 1t with information in the possession of a Relevant Finn located m the Umted States. 
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The SEC and the CFTC may request the Bank, to the extent that the Bank can do so, to obtain and 

provide it with information in the possession of a Relevant Finn located m the United Kingdom. The 

relevant Authorities will consult regarding the basis and terms upon which any such information will be 

provided. 

9 Upon written request to the SEC or CFTC signed by an authorised official of the Bank setting forth 

a reasonable explanation of the relevance of the information requested to the Bank's supervisory 

concerns, the SEC or CFTC, as appropriate, may provide to the Bank information regarding a US 

securities or futures subsidiary within a UK Relevant Firm. Such information normally would not 

include customer account information unless this is of particular relevance to the supervisory concern 

prompting the request. 

10 Upon written request to the Bank signed by an authorised official of the SEC or CFTC setting forth 

a reasonable explanation of the relevance of the information requested to the SEC's or CFTC's 

supervisory concerns, the Bank may provide to the SEC or CFTC, as appropriate, information regarding 

a UK banking subsidiary within a US Relevant Firm. Such information normally would not include 

customer account information unless this is of particular relevance to the supervisory concern prompting 

the request. 

11 The US Authorities and the Bank also intend to provide to the other information: (a) reasonably 

required by the other to facilitate a determination whether a proposed subsidiary meets the requirements 

for authorisation in the host country or continues to meet the requirements for authorisation; (b) 

regarding the extent and nature of its supervision of Relevant Finns with operations in the other country; 

and (c) concerning material changes or developments with respect to its supervisory regime. Such 

information may be supplied either upon ~equest, to the extent that the information is readily available 

to the supplying Authority, or in other circumstances where either of the US Authorities and the Bank 

detenninc that it is in their mutual interest to exchange such infonnation. 

12 The Authonties believe that early detection of serious financial or operational difficulties at a 

Relevant Fim1 is critical to the effective resolution of such difficulties. Therefore, m the case of a US or 

UK Relevant Finn facing serious financial difficulties in the US or UK that could have a matcnal 

adverse effect on the operations of such Firm in the other country, the Authonties recognise that close 

l1aison would he mutually advantageous. r·:ach Authonty will endeavour to commumcatc such 
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information relating to a US or UK Relevant Firm as appropriate in the particular circumstances, taking 

into account all relevant factors, including the status of efforts to address the difficulties. 

CO-OPERATION IN EMERGENCY OVERSIGHT 

13 The Authorities' aim is to promote mutual consultation and the prompt and productive exchange of 

information in Emergency Situations. In Emergency Situations, the US Authorities and the Bank will 

endeavour to notify the other of the Emergency Situation and communicate such information to the 

other as would be appropriate in the particular circumstances, taking into account all relevant factors 

including the status of efforts to address the Relevant Firm's difficulties. 

14 During an Emergency Situation, requests for information may be made in any form, including 

orally. Requests should be narrowly framed to secure information that may be useful in connection with 

responding to the particular Emergency Situation. In responding to requests, information about the 

Relevant Firm(s) should be made available on an expedited basis. 

15 During an Emergency Situation, the US Authorities and the Bank will endeavour to take practical 

steps to assist the other in monitoring the situation on a timely basis. These will include designating a 

point person (and a back-up point person) who will be available and competent to discuss the 

Emergency Situation with the requesting Authority and endeavouring to provide the requesting 

Authority with relevant and timely information. The Authorities may also jointly decide that it would 

be appropriate for a representative of the requesting Authority to be physically present at the premises of 

the relevant Authority to obtain briefings and other information on a regular basis. The type of 

information which might be exchanged could include: current financial position (balance sheet and 

off-balance sheet) and income statement; portfolio and credit information, including details of major 

long and short positions; and counterparty exposures. 

16 Throughout an Emergency Situation, the US Authorities and the Bank. will endeavour to: (i) 

continue to make information available on a timely basis; (ii) adv1sc each other of the actions they 

intend to take to address the Emergency Situation; and (iii) consult regarding the Emergency Situation 

for as long as the Authorities cm1Slder appropriate. 
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PERIODIC CONSULTATIONS 

17 The Authorities intend to consult regarding the scope and operation of this Memorandum, and 

general supervisory developments, including any significant changes in the laws and regulatory 

requirements relevant to co-operation pursuant to this Memorandum. The US Authorities and the Bank 

will also, as appropriate, update each other on issues concerning Relevant Finns, and review whether 

they have disclosed to each other all relevant information. In addition, every effort will be made to 

encourage informal contacts between staff of the Authorities, including holding meetings where useful. 

USE AND CONFIDENTIALITY OF INFORMATION 

18 The Authorities recognise that effective oversight involves co-operation and the sharing of sensitive 

non-public information. Accordingly, information provided pursuant to this Memorandum is to be used 

solely for lawful supervisory purposes. 

19 Each Authority intends to hold confidential all information received pursuant to this Memorandum 

to the fullest extent permitted by law, and not to otherwise disclose such information other than as 

necessary for lawful supervisory purposes. 

20 All documents provided pursuant to this Memordndum shall remain the property of the Authority 

providing such information. Subject to the provisions of paragraphs 18 and 19 above, upon receiving a 

legally enforceable demand from a third party for non-public supervisory information provided pursuant 

to this Memorandum, the SEC, CFTC or Bank intend to notify the other relevant Authority as soon as 

feasible and co-operate with the other in seeking to preserve the confidentiality of such information. 

Upon receiving any other request from a third-party for non-public supervisory information provided 

pursuant to this Memorandum, the SEC, CFTC or Bank shall notify the other relevant Authority as soon 

as possible of the request, and shall not disclose such information without the prior consent of the 

providing Authority. 

21 The sharing of non-public supervisory infom1at10n pursuant to this Memorandum is done in 

reliance on the foregoing assurances and is not mtcnded to waive any legally cogmzablc privt!ege as to 

any person other than the parties to this Memorandum. 
22 Non-public materials provided by the SEC, CFTC and the Bank, pursuant to this Memorandum, 

should be marked on each page of the material provided with a legend reading as follows: 

"NON-PUBLIC-PROVIDED PURSUANT TO SEC/CFTC/BOE MEMORANDUM OF 

UNDERSTANDING". 

MISCELLANEOUS PROVISIONS 

G 

23 In addition to the other terms set forth herein, the provision of, or a request for, information under 

this Memorandum may be denied (a) where compliance would require any of the Authorities to act in a 

marmcr that would violate applicable law; or (b) on grounds of public interest or national security. 

24 By executing this Memorandum, none of the Authorities waives any immunity from suit to which it 

may be entitled nor submits to the jurisdiction of any court that would not have been a court of 

competent jurisdiction if this Memorandum had not been executed. Nothing in this Memorandum 

limits, expands or affects the respective jurisdiction of the SEC, CFTC or Bank. 

25 No provision of this Memorandum is intended to give rise to the right on the part of any person, 

entity or governmental authority other than the SEC, CFTC or the Bank, directly or indirectly, to request 

any information or to challenge the provision of information under this Memorandum. 

26 The Authorities recognise that the Bank's responsibilities for banking supervision, and in relation 

to money market institutions listed under section 43 of the Financial Services Act, will be transferred in 

1998 to the Financial Services Authority (the new name for the enhanced Securities and Investments 

Board), which will become the single statutory financial regulator in the UK in the course of 1998-99. 

Co-operation under this Memorandum will continue after this transfer and its provisions will, from the 

time of transfer of these responsibilities, cease as between the Bank and the US Authorities and continue 

in effect between the Financial Services Authority and the US Authorities, as if all references to the 

Bank in the Memorandum were references to the Financial Services Authority in its capacity as 

supervisor of banks under the Banking Act 1987 as amended (and as the party responsible for 

mamtaining the list provided for in Section 4] of the Financial Services Act). This Memorandum has 

accordingly been signed on behalf of the Financtal Services Authority to evidence this understanding. 

27 Co-operation under this Memorandum IS to contmuc untd the expiratton of 30 days after any of the 

Authorities gtvcs wntten notice to the others oftts mtcntion to tt:nmnate its co-operation hereunder. rr 
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either of the US Authorities gives such notice, co-operation under this Memorandum will continue with 

respect to the other two Authorities. Notwithstanding the foregoing, the provisions set forth under the 

headings "Use and Confidentiality ofinformation" and "Miscellaneous Provisions" are to continue with 

respect to any information provided or actions taken under this Memorandum prior to the termination of 

co-operation hereunder. 

DATED this ___ day of ______ 1997 

UNITED STATES SECURJTIES AND EXCHANGE COMMISSION 

By ____jc'---Wtv' _ Arthur Levitt 

Chairman 

UNITED STATES COMMODITY FUTURES TRADING COMMISSION 

By~~ Barbara Holum 

Commissioner 

BANK OF ENGLAND 

By 

Eddie George 

Governor 

SECURITIES AND INVESTMENTS BOARD [which proposes to change its name by 

28 October 1997 to Financial Services Authority] 

I I award Davies 

Chairman 

[to confi.nn the understanding set forth in paragraph 26]