A trio of U.S. securities industry trade associations are joining to criticize regulators over their approach to complex structured finance deals.

The Bond Market Association, the International Swaps and Derivatives Association and the Securities Industry Association have submitted a joint comment letter on the issue in response to guidance that was proposed by a group of U.S. regulatory agencies in May.

The proposed guidance was issued jointly by the Office of the Comptroller of the Currency, Treasury, Office of Thrift Supervision, Treasury; Board of Governors of the Federal Reserve System; Federal Deposit Insurance Corporation; and, the Securities and Exchange Commission. It proposed internal controls and risk management procedures that the agencies believe will assist financial institutions that engage in complex structured finance activities to identify and address the risks associated with such transactions. Structured financial transactions include products such as derivatives used to minimize market and credit risk, asset-backed securities and specialized conduits.

While the industry trade associations say they endorse the risk management objectives of the guidance, they expressed concern that it is overly broad and would result in burdensome and costly procedures for a wide range of structured transactions. “The proposed guidance could impose significant burdens on market participants and discourage innovation,” said Micah Green, president of the BMA. “Unless the scope is clarified or narrowed, it will result in a system that leaves financial institutions bogged down in process and unable to focus on transactions that most warrant increased scrutiny.”

The associations argue that the guidance could be interpreted to apply to any structured transaction containing one or more of a range of characteristics common in routine transactions, and argue that the costs of undertaking such reviews would outweigh the benefits by inhibiting creative risk management solutions and creating a competitive disadvantage for firms. They also worry that financial institutions, instead of a company’s management, are responsible for ensuring that a company’s accounting, disclosure and tax treatment of a transaction are correct and ensuring that the transaction is appropriate for the company. The proposed guidance also includes onerous documentation responsibilities, such as retaining documents on transactions that aren’t pursued, they say.