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FDIC Federal Register Citations

[Federal Register: January 8, 2003 (Volume 68, Number 5)]
[Proposed Rules]               
[Page 1115-1130]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08ja03-20]                         

[[Page 1115]]

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Part III

Department of the Treasury

Office of the Comptroller of the Currency

12 CFR Part 19

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Board of Governors of the Federal Reserve System

12 CFR Part 263

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Federal Deposit Insurance Corporation

12 CFR Part 308

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Department of the Treasury

Office of Thrift Supervision

12 CFR Part 513



Removal, Suspension, and Debarment of Accountants From Performing Audit Services; Proposed Rule


[[Page 1116]]


DEPARTMENT OF THE TREASURY


Office of the Comptroller of the Currency


12 CFR Part 19


[Docket No. 02-15]
RIN 1557-AB43


BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM


12 CFR Part 263


[Docket No. R-1139]


FEDERAL DEPOSIT INSURANCE CORPORATION


12 CFR Part 308


RIN 3064-AC57


DEPARTMENT OF THE TREASURY


Office of Thrift Supervision


12 CFR Part 513


[No. 2002-58]
RIN 1550-AB53


 
Removal, Suspension, and Debarment of Accountants From Performing 
Audit Services


AGENCIES: Office of the Comptroller of the Currency (OCC), Treasury; 
Board of Governors of the Federal Reserve System (Board); Federal 
Deposit Insurance Corporation (FDIC); and Office of Thrift Supervision 
(OTS), Treasury.


ACTION: Joint notice of proposed rulemaking.


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SUMMARY: The OCC, Board, FDIC, and OTS (each an Agency, and 
collectively, the Agencies) propose to revise their respective rules of 
practice pursuant to section 36 of the Federal Deposit Insurance Act 
(FDIA) (12 U.S.C. 1831m). Section 36, as implemented by 12 CFR part 
363, requires that each insured depository institution with total 
assets of $500 million or more produce an annual report containing the 
institution's financial statements and certain management assessments. 
The depository institution must provide the report to the FDIC, the 
appropriate Federal banking agency, and any appropriate state bank 
supervisor. Section 36 also requires that the depository institution 
obtain an audit of its financial statements and an attestation on 
management's assertions concerning internal controls over financial 
reporting by an independent public accountant (accountant) and include 
the accountant's audit and attestation reports in its annual report.
    Congress gave the Agencies authority to remove, suspend, or debar 
accountants from performing the audit services required by section 36 
if there is good cause to do so. This proposal would amend the 
Agencies' rules to establish rules of practice and procedure for the 
removal, suspension, and debarment of accountants and their firms from 
performing section 36 audit services for insured depository 
institutions. The proposal reflects the Agencies' increasing concern 
with the quality of audits and internal controls for financial 
reporting at insured depository institutions. Although there have been 
few bank and thrift failures in recent years, the circumstances of the 
failures that have occurred illustrate the importance of maintaining 
high quality in the audits of the financial position and attestations 
of management assessments of insured depository institutions. The 
proposed regulations enhance the Agencies' ability to address 
misconduct by accountants who perform annual audit and attestation 
services.


DATES: Comments must be received by March 10, 2003.


ADDRESSES:
    OCC: Please direct comments to: Public Information Room, Office of 
the Comptroller of the Currency, 250 E Street, SW, Mailstop 1-5, 
Washington, DC 20219, Attention Docket No. 02-15. Comments are 
available for inspection and photocopying at that address. You can make 
an appointment to inspect the comments by calling (202) 874-5043. In 
addition, comments may be sent by facsimile transmission to (202) 874-
4448, or by electronic mail to regs.comments@occ.treas.gov. Due to 
delays in paper mail delivery in the Washington area, commenters are 
encouraged to use fax or e-mail delivery, if possible.
    Board: Comments should refer to Docket No. R-1139 and may be mailed 
to Secretary, Board of Governors of the Federal Reserve System, 20th 
Street and Constitution Avenue, NW., Washington, DC 20551; sent by FAX 
to (202) 452-3819 or (202) 452-3102; or sent by e-mail to 
regs.comments@federalreserve.gov. Members of the public may inspect 
comments in Room MP-500 between 9 a.m. and 5 p.m. on weekdays pursuant 
to section 261.12 (except as provided in section 261.14) of the Board's 
Rules Regarding Availability of Information, 12 CFR 261.12 and 261.14.
    FDIC: Written comments should be addressed to Robert E. Feldman, 
Executive Secretary, Attention: Comments, Federal Deposit Insurance 
Corporation, 550 17th Street, NW, Washington, DC 20429. Commenters are 
encouraged to submit comments by facsimile transmission to FAX number 
(202) 898-3838 or by electronic mail to Comments@FDIC.gov. Comments 
also may be hand delivered to the guard station at the rear of the 550 
17th Street Building (located on F Street), on business days between 
8:30 am and 5 p.m. Comments may be inspected and photocopied in the 
FDIC Public Information Center, Room 100, 801 17th Street, NW, 
Washington, DC, between 9 am and 4:30 p.m. on business days.
    OTS: Mail: Send comments to Regulation Comments, Chief Counsel's 
Office, Office of Thrift Supervision, 1700 G Street, NW., Washington, 
DC 20552, Attention No. 2002-58.
    Delivery: Hand deliver comments to the Guard's Desk, East Lobby 
Entrance, 1700 G Street, N.W. from 9 a.m. to 4 p.m. on business days, 
Attention: Regulation Comments, Chief Counsel's Office, Attention No. 
2002-58.
    Facsimiles: Send facsimile transmissions to FAX Number (202) 906-
6518, Attention Docket No. 2002-58.
    E-mail: Send e-mails to <regs.comments@ots.treas.gov, 
Attention Docket No. 2002-58 and include your name and telephone 
number. Due to temporary disruptions in mail service in the Washington, 
D.C. area, commenters are encouraged to send comments by fax or e-mail 
if possible.
    Public Inspection: Interested persons may inspect comments at the 
Public Reading Room, 1700 G St. NW., from 10 a.m. until 4 p.m. on 
business days by appointment or obtain comments and/or an index of 
comments by facsimile by telephoning the Public Reading Room at (202) 
906-5922 from 9 a.m. until 5 p.m. on business days. Comments and the 
related index will also be posted on the OTS Internet site at http://www.ots.treas.gov
.


FOR FURTHER INFORMATION CONTACT:
OCC: Mitchell Plave, Counsel, Legislative and Regulatory Activities 
Division, (202) 874-5090; Richard Shack, Senior Accountant, Office of 
the Chief Accountant, (202) 874-4911; and Karen Besser, National Bank 
Examiner, Special Supervision/Fraud, (202) 874-4464.
    Board: Richard Ashton, Associate General Counsel, (202) 452-3750; 
Nina Nichols, Counsel, (202) 452-2961; Arthur Lindo, Project Manager, 
(202)


[[Page 1117]]


452-2695; and Salome Tinker, Senior Financial Analyst, (202) 452-3034, 
Division of Banking Supervision and Regulation; for users of 
Telecommunication Devices for the Deaf (TDD) only, contact (202) 263-
4869.
    FDIC: Richard Bogue, Counsel, Enforcement Unit, (202) 898-3726; 
Robert F. Storch, Chief, Accounting and Securities Disclosure Section, 
(202) 898-8906.
    OTS: Christine A. Smith, Project Manager, (202) 906-5740, 
Supervision Policy; Teresa A. Scott, Counsel (Banking & Finance), (202) 
906-6478, Regulations and Legislation Division, Office of Thrift 
Supervision, 1700 G Street, NW., Washington, DC 20552.


SUPPLEMENTARY INFORMATION:


I. Background


    Section 36 of the FDIA, as implemented by FDIC regulations, 
requires every large insured depository institution to submit an annual 
report containing its financial statements and certain management 
assessments to the FDIC, the appropriate Federal banking agency, and 
any appropriate state bank supervisor.\1\ Section 36 of the FDIA also 
requires that an independent public accountant audit such insured 
depository institution's annual financial statements to determine 
whether those statements are presented fairly in accordance with 
generally accepted accounting principles (GAAP) and with the accounting 
objectives, standards, and requirements described in section 37 of the 
FDIA.
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    \1\ 12 U.S.C. 1831m, 1831m(j)(2); see also 12 CFR part 363 
(describing the requirements for independent audits and reporting 
for all insured depository institutions). The statute gives the FDIC 
Board of Directors the discretion to establish the threshold asset 
size at which a section 36 annual report is required. That amount is 
currently set at $500 million. See 12 CFR 363.1(a). While a section 
36 audit is not required of financial institutions with less than 
$500 million in total assets, the Agencies encourage every insured 
depository institution, regardless of its size or character, to have 
an annual audit of its financial statements performed by an 
independent public accountant. See 12 CFR part 363 App. A 
(Introduction).
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    Under section 37, the accounting principles applicable to financial 
statements required to be filed with the Agencies must be uniform and 
consistent with GAAP.\2\ In addition, the accountant must attest to and 
report on management's assertions concerning internal controls over 
financial reporting.\3\ The institution's annual report also must 
contain the accountant's audit and attestation reports.\4\ Section 36 
of the FDIA gives the Agencies the authority to remove, suspend, or bar 
an accountant from performing the audit services required under section 
36 for good cause.\5\ This authority is in addition to the enforcement 
tools the Agencies have under section 8 of the FDIA, which enable the 
Agencies to remove or prohibit an institution-affiliated party (IAP), 
including an accountant, from further participation in the affairs of 
an insured depository institution for certain types of misconduct.\6\ 
Section 36 authority is also distinct from the Agency's capability to 
remove, suspend, or debar from practice before the Agency parties, such 
as accountants, who represent others.\7\
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    \2\ 12 U.S.C. 1831m(d), 1831n.
    \3\ Id. 1831m(c): see also 12 CFR part 363 (independent audit 
and reporting requirements).
    \4\ 12 U.S.C. 1831m(a)(1) and (2).
    \5\ Id. 1831m(g)(4)(A).
    \6\ Id. 1813(u)(4), 1818(e)(1).
    \7\ See 12 CFR part 19, subpart K; 12 CFR part 263, subpart F; 
and 12 CFR part 513.
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    Section 36 does not define good cause, but authorizes the Agencies 
to implement section 36 through the joint issuance of rules of 
practice.\8\ A removal, suspension, or debarment under section 36 would 
limit an accountant's or accounting firm's eligibility to provide audit 
services to insured depository institutions with total assets of $500 
million or more. A section 36 action would not restrict the ability of 
accountants and firms to provide audit services to financial 
institutions with less than $500 million in total assets, however, or 
to provide other types of services to all financial institutions.
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    \8\ 12 U.S.C. 1831m(g)(4)(B).
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    The Agencies have jointly prepared proposed rules of practice to 
implement the provisions of section 36. The texts of the Agencies' 
proposed regulations are substantively identical and differ with 
respect to conforming changes each Agency is making to its existing 
rules. These proposed rules do not create independent professional 
standards or obligations for accountants or firms. Rather, they are 
consistent with an accountant's existing responsibility to adhere to 
applicable professional standards such as generally accepted auditing 
standards and generally accepted standards for attestation engagements. 
The proposed rules are also consistent with the Sarbanes-Oxley Act of 
2002 (Sarbanes-Oxley Act),\9\ which, among other things, provides for 
significant reforms in the oversight of the accounting industry. The 
discussion that follows refers more specifically to the provisions of 
the Sarbanes-Oxley Act that are relevant to this proposal.
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    \9\ The Sarbanes-Oxley Act of 2002, Pub. L. 107-204, 116 Stat 
745 (2002).
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II. Discussion of the Proposal and Request for Comment


    The proposal would amend the Agencies' rules of practice by adding 
provisions for removal, suspension, or debarment of accountants or 
accounting firms from performing the audit services required by section 
36 of the FDIA. The proposed rules would define ``good cause'' to 
remove, suspend, or debar an accountant or firm from performing audit 
services and establish procedures for removal, suspension, or debarment 
of accountants or firms if the ``good cause'' standards are satisfied.
    The first part of the discussion that follows describes the common 
elements of the proposed rules. The second part explains proposed 
technical and conforming changes to the existing rules of the OCC, 
Board, and FDIC. The Agencies invite comment on all aspects of the 
proposed rules.


A. Proposed Additions to the Rules of All the Agencies


1. Audit Services
    The proposed rules define ``audit services'' as any service 
required to be performed under section 36 of the FDIA (12 U.S.C. 1831m) 
and 12 CFR part 363, including attestation services.\10\
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    \10\ For the Board and OTS, ``audit services'' also includes 
services provided to a bank holding company or thrift holding 
company that satisfy the audit requirements under section 36 of a 
subsidiary bank or thrift of that holding company.
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2. Good Cause for Agency Action
    The proposed rules define good cause for removal, suspension, or 
debarment of accountants from providing audit services required by 
section 36. Under the proposal, the Agencies would have ``good cause'' 
if the accountant does not possess the requisite qualifications to 
perform audit services; engages in knowing or reckless conduct that 
results in a violation of applicable professional standards, including 
those standards and conflicts of interest provisions applicable to 
accountants through the Sarbanes-Oxley Act and developed by the Public 
Company Accounting Oversight Board (Accounting Oversight Board) and the 
Securities and Exchange Commission (SEC), as such standards and 
provisions become effective;\11\


[[Page 1118]]


engages in a single instance of highly unreasonable conduct that 
results in a violation of applicable professional standards in 
circumstances in which an accountant knows, or should know, that 
heightened scrutiny is warranted; or engages in repeated instances of 
unreasonable conduct, each resulting in a violation of applicable 
standards, that indicate a lack of competence to perform annual audit 
services.
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    \11\ The FDIC's Guidelines and Interpretations concerning annual 
independent audits and reporting requirements, see 12 CFR part 363 
app. A, at para. 14, call for accountants who perform audit and 
attestation services to comply with the American Institute of 
Certified Public Accountants' Code of Professional Conduct and meet 
the independence requirements and interpretations of the SEC and its 
staff. Title II of the Sarbanes-Oxley Act amended the Securities and 
Exchange Act of 1934 by adding new auditor indepdence provisions. 
Title II also requires that the SEC promulgate regulations, within 
180 days after enactment of the Act, or by January 23, 2003, to 
implement these provisions. See Sarbanes-Oxley Act, section 208. 
Most of the provisions, however, are not effective until after an 
accountant is required to register with the Accounting Oversight 
Board created by this legislation. This requirement will not be 
effective until later in 2003. Therefore, accountants who perform 
section 36 annual audits and attestation services for insured 
depository institutions, regardless of whether the institution or 
its holding company is an issuer directly subject to the Sarbanes-
Oxley Act, must comply with the SEC's upcoming regulations on 
auditor independence, once those regulations become effective for 
registered public accounts under the Sarbanes-Oxley Act.
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    Good cause also includes knowingly or recklessly giving false or 
misleading information to the Agencies with respect to any matter 
before the Agency; knowingly or recklessly materially violating any 
provision of the Federal banking or securities laws or regulations, or 
any other law, including the Sarbanes-Oxley Act; and removal, 
suspension, or debarment from practice before any Federal or state 
agency regulating the banking, insurance, or securities industries on 
grounds relevant to the provision of audit services, other than those 
actions that result in automatic removal, suspension, and debarment 
under the proposed rules.
    Conduct giving rise to good cause under the proposed rules does not 
have to occur in connection with the provision of audit services or in 
connection with services provided to depository institutions. Any 
actions or failures to act by an independent public accountant or 
accounting firm that meet the criteria for good cause set forth in the 
regulation, whether or not related to the banking industry, could 
constitute good cause for Agency action. The standards in the proposed 
rules for removal, suspension, and debarment are drawn principally from 
the Agencies' existing practice rules and from the practice rules of 
the SEC.\12\ The proposal thus promotes consistency with respect to 
professional standards for accountants.
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    \12\ See 17 CFR 201.102(e) (SEC's rules on suspension and 
debarment of those who practice before the Commission, including 
accountants). Congress recently codified the SEC's suspension and 
debarment rules in section 602 of the Sarbanes-Oxley Act.
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3. Removal, Suspension, or Debarment of Accounting Firms or Offices of 
Firms
    The proposed rules provide for the removal, suspension, or 
debarment of accounting firms as a whole and identify factors the 
Agencies may consider in determining the appropriate remedy. Under 
current regulations governing practice before the Agencies, the 
Agencies generally can remove, suspend, or debar a firm by naming each 
member of the firm or office in the order of suspension or debarment. 
The proposal retains this flexibility and provides guidance on conduct 
that may result in a firm-wide sanction.
    The proposed rules provide that, in considering whether to take 
action against a firm and the severity of the sanction against a firm, 
the Agencies may assess the gravity, scope, or repetition of the act or 
failure to act; the adequacy of and adherence to applicable policies, 
practices, or procedures for the firm's conduct of its business and the 
performance of audit services; the selection, training, supervision, 
and conduct of members or employees of the firm involved in the 
performance of audit services; the extent to which managing partners or 
senior officers of the firm participated, directly or indirectly 
through oversight or review, in the act or failure to act; and the 
extent to which the firm has, since the occurrence of the act or 
failure to act, implemented corrective internal controls to prevent its 
recurrence. This is not an exclusive list of factors the Agencies may 
consider, and circumstances may present other facts that the Agencies 
will take into account in determining whether to take an action against 
a firm.
    The Agencies anticipate that there may be circumstances in which it 
will not be appropriate to remove, suspend, or debar an entire firm, 
but that action should be taken against a particular office or offices 
of a firm. The proposed rules permit that more limited action.
4. Removal, Suspension, and Debarment Procedures
    Under the proposed rules, the Agencies would hold hearings on 
removals, suspensions, and debarments under rules that are consistent 
with the Agencies' Uniform Rules of Practice and Procedure (Uniform 
Rules).\13\ The Uniform Rules provide, among other things, for written 
notice to the respondent of the intended Agency action and the 
opportunity for a public hearing before an administrative law judge. 
The administrative law judge would refer a recommended decision to the 
Agency, which would issue a final decision and order. Each Agency would 
have the discretion to limit an order of removal, suspension, or 
debarment from providing audit services to a limited number of insured 
depository institutions, rather than to all insured depository 
institutions supervised by the issuing Agency. This is referred to in 
the proposed regulations as a ``limited scope order.'' \14\
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    \13\ See 12 CFR part 19, subpart A (OCC); 12 CFR part 263, 
subpart A (Board); 12 CFR part 308, subpart A (FDIC); 12 CFR 509, 
supart A (OTS).
    \14\ The Agencies will also have the discretion to issue 
suspension orders where the duration of the suspension would be 
dependent on the satisfactory completion of remedial action.
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    The Agencies do not intend the proposed rules to create any new or 
different procedural mechanisms for Agency removal, suspension, or 
debarment of accountants. Rather, the Agencies generally intend to 
apply to these proceedings established rules and practices.
5. Immediate Suspensions
    Section 36 of the FDIA provides that the appropriate Federal 
banking agency may ``remove, suspend, or bar'' an independent public 
accountant from performing audit services.\15\ The proposed rules would 
implement the authority to suspend by providing that an Agency may 
issue a notice of immediate suspension when an Agency has a reasonable 
basis to believe that an accountant or accounting firm is engaged in 
conduct that would constitute grounds for an order of removal, 
suspension, or debarment and if immediate suspension is necessary for 
the protection of an insured depository institution, its depositors, or 
the depository system as a whole. The discretion to impose immediate 
suspensions can be critical to the safety and soundness of one or more 
insured depository institutions. For example, once misconduct is 
identified, immediate suspensions would prevent additional or 
escalating instances of misconduct.
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    \15\ 12 U.S.C. 1831m(g)(4)(A).
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    Under the proposed rules, a notice of immediate suspension would 
remain in effect until the Agency dismisses the charges in the notice 
or issues a final order of removal, suspension, or debarment. The 
proposals establish a system for expedited review of a notice of 
immediate suspension. The accountant or accounting firm has the right 
to petition for a stay of a notice of immediate suspension within 10 
calendar days after receiving service of


[[Page 1119]]


the notice. A presiding officer appointed by the Agency would hold a 
hearing on the stay petition not more than 30 days after receipt of the 
petition. The presiding officer would be required to issue a decision 
within 30 days of the hearing. The presiding officer could grant a stay 
of an immediate suspension upon a demonstration that a substantial 
likelihood exists of the accountant's or firm's success on the issues 
raised by the notice and that, absent such relief, the accountant or 
firm would suffer immediate and irreparable injury, loss, or damage. 
Any party may appeal the presiding officer's decision to the Agency.
    The Agencies modeled the procedures set out in the proposed rules 
for imposing an immediate suspension of an accountant or accounting 
firm pending completion of a formal removal, suspension, or debarment 
administrative hearing after the procedures that apply to other types 
of temporary suspensions by regulatory agencies. In particular, the 
proposed immediate suspension procedures are substantially the same as 
those in section 8(g) of the FDIA governing the suspension by a Federal 
banking agency of an institution-affiliated party who has been charged 
with a felony.\16\ The courts have upheld the procedures established in 
section 8(g) as meeting constitutional due process requirements.\17\ 
Nevertheless, the Agencies invite comment on whether additional 
procedures should be provided to ensure that parties have adequate due 
process protections when they are suspended prior to a hearing on the 
charges made by an Agency.
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    \16\ Id. 1818(g).
    \17\ See FDIC v. Mallen, 486 U.S. 230 (1988).
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6. Automatic Removal, Suspension, and Debarment
    Under the proposed rules, an accountant or accounting firm that is 
subject to a final order of removal, suspension, or debarment issued by 
one Agency would be automatically precluded from performing audit 
services for insured depository institutions regulated by the other 
Agencies. In addition, automatic removal, suspension, or debarment 
would result from a final order of suspension or denial of the 
privilege of appearing or practicing before the Securities and Exchange 
Commission, a currently effective disciplinary sanction by the 
Accounting Oversight Board under sections 105(c)(4)(A) or (B) of the 
Sarbanes-Oxley Act,\18\ or a suspension or debarment from practice for 
cause by a state, possession, commonwealth, or District of Columbia 
licensing authority.
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    \18\ Section 105(c)(4)(A) of the Sarbanes-Oxley Act allows the 
Accounting Oversight Board to revoke the registration of an 
accounting firm for violation of the Act or other laws or 
regulations cited. Section 105(c)(4)(B) gives the Accounting 
Oversight Board authority to suspend or bar a person from further 
association with any registered public accounting firm.
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    Each Agency would have the discretion to waive the automatic 
suspension on a case-by-case basis with respect to an institution it 
supervises by issuing written permission to the accountant or 
accounting firm. The Agencies intend that neither a limited scope order 
nor a notice of immediate suspension would bar an accountant or 
accounting firm from performing audit services for insured depository 
institutions outside the scope of that order or notice.
7. Notice
    The proposed rules would require the Agencies to make public any 
final order of removal, suspension, or debarment against an accountant 
or accounting firm and notify the other Agencies of such orders. This 
is consistent with the presumption in favor of public notice for 
enforcement actions in the FDIA.\19\
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    \19\ 12 U.S.C. 1818(u)(1).
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    The rules also contain notification provisions for accountants and 
firms. The proposal would require that an accountant or accounting firm 
that performs section 36 audit services for any insured depository 
institution provide the Agencies with written notice of any currently 
effective disciplinary sanction against the accountant or firm issued 
by the Accounting Oversight Board under sections 105(c)(4)(A) or (B) of 
the Sarbanes-Oxley Act, relating to revocation of registration and 
association with a public accounting firm or issuer; any current 
suspension or denial of the privilege of appearing or practicing before 
the SEC; or any suspensions or debarments for cause from practice as an 
accountant by any duly constituted licensing authority of any state, 
possession, commonwealth, or the District of Columbia. Written notice 
is also required respecting any removal, suspension, or debarment from 
practice before any Federal or state agency regulating the banking, 
insurance, or securities industries on grounds relevant to the 
provision of audit services; and any action by the Accounting Oversight 
Board under sections 105(c)(4)(C) or (G) of the Sarbanes-Oxley Act, 
relating to limitations on the activities of accountants and accounting 
firms and any other appropriate sanction provided in the rules of the 
Accounting Oversight Board. Written notice must be given no later than 
15 calendar days following the effective date of an order or action, or 
15 calendar days before an accountant or accounting firm accepts an 
engagement to provide audit services, whichever date is earlier.
8. Reinstatement
    The Agencies would have the discretion to grant an accountant's or 
accounting firm's request for reinstatement. Under the proposals, a 
removed, suspended, or debarred individual or firm would be able to 
request reinstatement by the Agency that issued the order. The 
individual or firm would be able to request reinstatement at any time 
more than one year after the effective date of the order and, 
thereafter, at any time more than one year after the most recent 
request for reinstatement.


B. Conforming and Technical Changes to the Rules of the Agencies


1. OCC
    The OCC proposes to add ``recklessness'' to its description of 
``disreputable conduct'' that may lead to removal, suspension, or 
debarment of parties or their representatives who practice or appear 
before the OCC.\20\ This change would conform the OCC's general rules 
of practice with the standards in the proposal for removal, suspension, 
or debarment of accountants from performance of section 36-required 
audit services, which in turn reflects the addition of the recklessness 
standard to the SEC's rules of practice by the Sarbanes-Oxley Act. The 
purpose of adding the recklessness standard is to clarify that conduct 
more culpable than incompetence, but less culpable than willful or 
knowing action, may form the basis for a suspension or debarment.
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    \20\ See 12 CFR 19.196 (describing disreputable conduct).
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    The OCC also proposes to broaden the scope of ``disreputable 
conduct'' to allow the OCC to consider suspensions or debarments of 
accountants--for any reason--by the other Agencies, the SEC, the 
Commodity Futures Trading Commission, or any other Federal agency. This 
change would remove the requirement in the current section 19.196(g) 
that suspensions by other agencies concern ``matters relating to the 
supervisory responsibilities of the OCC.'' This change takes into 
account the possibility that a suspension of an accountant by another 
agency, relating to the professional conduct of an accountant, could be 
grounds for


[[Page 1120]]


removal, suspension, or debarment by the OCC, even if the suspension by 
the other agency did not relate to a banking matter.
    Unlike the other amendments in the proposal, which would address an 
accountant's or firm's ability to perform section 36-required audits, 
this part of the proposal concerns who may practice before the OCC in 
other capacities, such as in adjudications, or through preparation of 
documents for submission to the OCC.
    The OCC would also revise a number of sections within part 19 to 
make conforming and technical changes to implement section 36 of the 
FDIA and bring procedural aspects of part 19 up to date.
2. Board
    The Board proposes to amend its Rules of Practice Before the Board 
(12 CFR part 263, subpart F) to expand the type of conduct for which an 
individual may be censured, debarred, or suspended from practice before 
the Agency. In particular, the Board proposes to revise the description 
of the conduct that would warrant sanctions to include reckless 
violations, or reckless aiding and abetting violations, of specified 
laws and the reckless provision of false or misleading information, or 
reckless participation in the provision of false or misleading 
information, to the Board. The regulation currently provides for 
sanctions only for willful misconduct. The purpose of this proposed 
amendment is to clarify that conduct more culpable than incompetence, 
but less culpable than willful or knowing action, may form the basis 
for a suspension or debarment from practice before the Agency. This 
change also reflects the modification made to the SEC's rules of 
practice by the Sarbanes-Oxley Act.
3. FDIC
    The FDIC proposes to make a clarifying and conforming amendment to 
12 CFR 308.109, which deals with the suspension and disbarment of the 
right of any counsel to appear or practice before the FDIC, to specify 
that an application for reinstatement must comply with the general 
filing procedures established by part 303. The amendment would add a 
new sentence before the current last sentence of section 308.109(b)(3) 
to read as follows: ``The application shall comply with the 
requirements of 12 CFR 303.3.''


C. Comment Solicitation


    The Agencies ask for comment on all aspects of the proposed rules. 
Section 722 of the Gramm-Leach-Bliley Act, Pub. L. 106-102, sec. 722, 
113 Stat. 1338, 1471 (Nov. 12. 1999), requires the Federal banking 
agencies to use plain language in all proposed and final rules 
published after January 1, 2000. We invite your comments on how to make 
this proposal easier to understand. For example:
    [sbull] Have we organized the material to suit your needs? If not, 
how could this material be better organized?
    [sbull] Are the requirements in the proposed regulation clearly 
stated? If not, how could the regulation be more clearly stated?
    [sbull] Does the proposed regulation contain language or jargon 
that is not clear? If so, which language requires clarification?
    [sbull] Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes to the format would make the regulation 
easier to understand?
    [sbull] What else could we do to make the regulation easier to 
understand?


D. Community Bank Comment Request


    The Agencies invite comment on the impact of this proposal on 
community banks. The Agencies recognize that community banks operate 
with more limited resources than larger institutions and may present a 
different risk profile. Thus, we specifically request comments on the 
impact of this proposal on community banks' current resources and 
available personnel with the requisite expertise, and whether the goals 
of the proposed regulation could be achieved, for community banks, 
through an alternative approach.


E. Regulatory Flexibility Act


    OCC: Under section 605(b) of the Regulatory Flexibility Act, 5 
U.S.C. 601 et seq. (RFA), the appropriate Federal banking agencies must 
either provide an Initial Regulatory Flexibility Analysis (IRFA) with a 
proposed rule or certify that the rule would not have a significant 
economic impact on a substantial number of small entities. For purposes 
of this Regulatory Flexibility Analysis and proposed regulation, the 
OCC defines ``small entities'' to be those national banks with less 
than $150 million in total assets. For other entities that could be 
affected by this rule, such as accountants and accounting firms, a 
small entity is defined as an accounting office with $7 million or less 
in annual receipts.
    We have reviewed the impact this proposed rule will have on small 
banks. Based on that review, we certify that the proposed rule will not 
have a significant economic impact on a substantial number of small 
entities. The basis for the certification is that the requirement for 
audits does not apply to national banks with less than $500 million in 
total assets. In addition, only a limited number of small accounting 
firms provide section 36 audit services to national banks. For these 
reasons, the OCC does not anticipate that the proposal will affect a 
substantial number of small entities.
    Board: Pursuant to section 605(b) of the Regulatory Flexibility Act 
(5 U.S.C. 605(b)), the Board certifies that the suspension and 
debarment amendments proposed in this rulemaking will not have a 
significant adverse economic impact on a substantial number of small 
entities. For purposes of this Regulatory Flexibility Analysis, the 
Board defines ``small entity'' as (1) any insured state member bank 
with less than $150 million in total assets, or (2) any bank holding 
company with a subsidiary insured state member bank with less than $150 
million in total assets. For other entities that could be affected by 
this rule, such as accountants and accounting firms, a small entity is 
defined as an accounting office with $7 million or less in annual 
receipts. The basis for the Board's certification is that the rule will 
not apply to state member banks that have less than $500 million in 
total assets. In addition, only a limited number of small accounting 
firms provide section 36 audit services to institutions that are 
regulated by the Federal Reserve.
    FDIC: The rule proposes and requests comment on amendments to the 
FDIC's rules of practice (12 CFR part 308). These amendments would add 
rules of practice and standards of conduct with regard to accountants 
and accounting firms engaged by State nonmember banks. The FDIC hereby 
certifies, pursuant to section 605(b) of the RFA, 5 U.S.C. 605(b), that 
the proposed suspension and debarment amendments will not, if 
promulgated through a final rule, have a significant economic impact on 
a substantial number of small entities. The basis for the certification 
is that the rule will not apply to insured depository institutions that 
have less than $150 million in total assets. Furthermore, only a 
limited number of small accounting firms provide section 36 audit 
services to insured depository institutions for which the FDIC is the 
appropriate Federal banking agency.
    OTS: Under the RFA, OTS must either provide an IRFA with this 
proposed rule, or certify that the rule would not have a significant 
economic impact on a substantial number of small entities. For purposes 
of this RFA analysis and


[[Page 1121]]


proposed regulation, the OTS defines ``small banks'' to be those 
savings associations with less than $150 million in total assets.
    Pursuant to section 605(b) of the RFA, OTS certifies that this 
proposed rule would not have a significant economic impact on a 
substantial number of small entities. The basis of this certification 
is that this rule does not apply to savings associations with less than 
$500 million in assets.


F. Executive Order 12866


    The OCC and OTS have determined that this proposal is not a 
significant regulatory action under Executive Order 12866.


G. Unfunded Mandates Reform Act of 1995


    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency 
prepare a budgetary impact statement before promulgating any rule 
likely to result in a Federal mandate that may result in the 
expenditure by state, local, and tribal governments, in the aggregate, 
or by the private sector of $100 million or more in any one year. If a 
budgetary impact statement is required, section 205 of the Unfunded 
Mandates Act also requires an agency to identify and consider a 
reasonable number of regulatory alternatives before promulgating a 
rule. The OCC and OTS have determined that the proposed rule will not 
result in expenditures by state, local, and tribal governments, or by 
the private sector, of $100 million or more in any one year. 
Accordingly, this rulemaking requires no further analysis under the 
Unfunded Mandates Act.


H. Paperwork Reduction Act


    The Agencies have determined that this proposed rule does not 
involve a collection of information pursuant to the provisions of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501, et seq.).


List of Subjects


12 CFR Part 19


    Administrative practice and procedure, Crime, Equal access to 
justice, Investigations, National banks, Penalties, Securities.


12 CFR Part 263


    Administrative practice and procedure, Claims, Crime, Equal access 
to justice, Federal Reserve System, Lawyers, Penalties.


12 CFR Part 308


    Administrative practice and procedure, Bank deposit insurance, 
Banks, banking, Claims, Crime, Equal access to justice, investigations, 
Lawyers, Penalties, State nonmember banks.


12 CFR Part 513


    Accountants, Administrative practice and procedure, Lawyers.


Deparment of the Treasury


Office of the Comptroller of the Currency


12 CFR Chapter I


Authority and Issuance


    For reasons set out in the joint preamble, the OCC proposes to 
amend part 19 of chapter I of title 12 of the Code of Federal 
Regulations to read as follows:


PART 19--RULES OF PRACTICE AND PROCEDURE


    1. The authority citation for part 19 is amended to read as 
follows:


    Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 93(b), 93a, 164, 
505, 1817, 1818, 1820, 1831m, 1831o, 1972, 3102, 3108(a), 3909 and 
4717; 15 U.S.C. 78(h) and (i), 78o-4(c), 78o-5, 78q-1, 78s, 78u, 
78u-2, 78u-3, and 78w; 28 U.S.C. 2461 note; 31 U.S.C. 330, 5321; and 
42 U.S.C. 4012a.
    2. Section 19.100 of subpart B is revised to read as follows:




Sec.  19.100  Filing documents.


    All materials required to be filed with or referred to the 
Comptroller or the administrative law judge in any proceeding under 
this part must be filed with the Hearing Clerk, Office of the 
Comptroller of the Currency, 250 E Street, SW, Washington, DC 20219. 
Filings to be made with the Hearing Clerk include the notice and 
answer; motions and responses to motions; briefs; the record filed by 
the administrative law judge after the issuance of a recommended 
decision; the recommended decision filed by the administrative law 
judge following a motion for summary disposition (except that in 
removal and prohibition cases instituted pursuant to 12 U.S.C. 1818, 
the administrative law judge will file the record and the recommended 
decision with the Board of Governors of the Federal Reserve System); 
referrals by the administrative law judge of motions for interlocutory 
review; exceptions and requests for oral argument; and any other papers 
required to be filed with the Comptroller or the administrative law 
judge under this part.
    3. In Sec.  19.111 of subpart C, the section heading and the fourth 
and fifth sentences are revised to read as follows:




Sec.  19.111  Suspension, removal, or prohibition.


    * * * The written request must be sent by certified mail to, or 
served personally with a signed receipt on, the District Deputy 
Comptroller in the OCC district in which the bank, accountant, or 
accounting firm in question is located, or, if the bank is supervised 
by the Large Bank Supervision Department, to the appropriate Deputy 
Comptroller for Large Bank Supervision for the Office of the 
Comptroller of the Currency, or if the bank is supervised by the Mid-
Size/Community Banks Department, to the Deputy Comptroller for Mid-
Size/Community Banks for Office of the Comptroller of the Currency, 
Washington, DC 20219. The request must state specifically the relief 
desired and the grounds on which that relief is based.
    4. In Sec.  19.196 of subpart K, the introductory text and 
paragraphs (a), (b), and (g) are revised to read as follows:




Sec.  19.196  Disreputable conduct.


    Disreputable conduct for which an individual may be censured, 
debarred, or suspended from practice before the OCC includes:
    (a) Willfully or recklessly violating or willfully or recklessly 
aiding and abetting the violation of any provision of the Federal 
banking or applicable securities laws or the rules and regulations 
thereunder or conviction of any offense involving dishonesty or breach 
of trust;
    (b) Knowingly or recklessly giving false or misleading information, 
or participating in any way in the giving of false information to the 
OCC or any officer or employee thereof, or to any tribunal authorized 
to pass upon matters administered by the OCC in connection with any 
matter pending or likely to be pending before it. The term 
``information'' includes facts or other statements contained in 
testimony, financial statements, applications for enrollment, 
affidavits, declarations, or any other document or written or oral 
statement;
* * * * *
    (g) Suspension, debarment or removal from practice before the Board 
of Governors, the FDIC, the OTS, the Securities and Exchange 
Commission, the Commodity Futures Trading Commission, or any other 
Federal or state agency; and
* * * * *
    5. A new subpart P is added to read as follows:


[[Page 1122]]


Subpart P--Removal, Suspension, and Debarment of Accountants From 
Performing Audit Services
Sec.
19.241 Scope.
19.242 Definitions.
19.243 Removal, suspension, or debarment.
19.244 Automatic removal, suspension, or debarment.
19.245 Notice of removal, suspension, or debarment.
19.246 Petition for reinstatement.


Subpart P--Removal, Suspension, and Debarment of Accountants From 
Performing Audit Services




Sec.  19.241  Scope.


    This subpart, which implements section 36(g)(4) of the Federal 
Deposit Insurance Act (FDIA) (12 U.S.C. 1831m(g)(4)), provides rules 
and procedures for the removal, suspension, or debarment of independent 
public accountants and their accounting firms from performing 
independent audit and attestation services required by section 36 of 
the FDIA (12 U.S.C. 1831m) for insured national banks, District of 
Columbia banks, and Federal branches and agencies of foreign banks.




Sec.  19.242  Definitions.


    As used in this subpart, the following terms shall have the meaning 
given below unless the context requires otherwise:
    (a) Accounting firm means a corporation, proprietorship, 
partnership, or other business firm providing audit services.
    (b) Audit services means any service required to be performed by an 
independent public accountant by section 36 of the FDIA and 12 CFR part 
363, including attestation services.
    (c) Independent public accountant (accountant) means any individual 
who performs or participates in providing audit services.




Sec.  19.243  Removal, suspension, or debarment.


    (a) Good cause for removal, suspension, or debarment--(1) 
Individuals. The Comptroller may remove, suspend, or debar an 
independent public accountant from performing audit services for 
insured national banks that are subject to section 36 of the FDIA if, 
after service of a notice of intention and opportunity for hearing in 
the matter, the Comptroller finds that the accountant:
    (i) Lacks the requisite qualifications to perform audit services;
    (ii) Has knowingly or recklessly engaged in conduct that results in 
a violation of applicable professional standards, including those 
standards and conflicts of interest provisions applicable to 
accountants through the Sarbanes-Oxley Act of 2002, Pub. L. 107-204, 
116 Stat. 745 (2002) (Sarbanes-Oxley Act), and developed by the Public 
Company Accounting Oversight Board and the Securities and Exchange 
Commission;
    (iii) Has engaged in negligent conduct in the form of:
    (A) A single instance of highly unreasonable conduct that results 
in a violation of applicable professional standards in circumstances in 
which an accountant knows, or should know, that heightened scrutiny is 
warranted; or
    (B) Repeated instances of unreasonable conduct, each resulting in a 
violation of applicable professional standards, that indicate a lack of 
competence to perform audit services;
    (iv) Has knowingly or recklessly given false or misleading 
information, or knowingly or recklessly participated in any way in the 
giving of false or misleading information, to the OCC or any officer or 
employee of the OCC;
    (v) Has engaged in, or aided and abetted, a material and knowing or 
reckless violation of any provision of the Federal banking or 
securities laws or the rules and regulations thereunder, or any other 
law;
    (vi) Has been removed, suspended, or debarred from practice before 
any Federal or state agency regulating the banking, insurance, or 
securities industries, other than by an action listed in Sec.  19.244, 
on grounds relevant to the provision of audit services.
    (2) Accounting firms. If the Comptroller determines that there is 
good cause for the removal, suspension, or debarment of a member or 
employee of an accounting firm under paragraph (a)(1) of this section, 
the Comptroller also may remove, suspend, or debar such firm or one or 
more offices of such firm. In considering whether to remove, suspend, 
or debar a firm or an office thereof, and the term of any sanction 
against a firm under this section, the Comptroller may consider, for 
example:
    (i) The gravity, scope, or repetition of the act or failure to act 
that constitutes good cause for the removal, suspension, or debarment;
    (ii) The adequacy of, and adherence to, applicable policies, 
practices, or procedures for the accounting firm's conduct of its 
business and the performance of audit services;
    (iii) The selection, training, supervision, and conduct of members 
or employees of the accounting firm involved in the performance of 
audit services;
    (iv) The extent to which managing partners or senior officers of 
the accounting firm have participated, directly, or indirectly through 
oversight or review, in the act or failure to act; and
    (v) The extent to which the accounting firm has, since the 
occurrence of the act or failure to act, implemented corrective 
internal controls to prevent its recurrence.
    (3) Limited scope orders. An order of removal, suspension 
(including an immediate suspension), or debarment may, at the 
discretion of the Comptroller, be made applicable to a particular 
national bank or class of national banks.
    (4) Remedies not exclusive. The remedies provided in this subpart 
are in addition to any other remedies the OCC may have under any other 
applicable provisions of law, rule, or regulation.
    (b) Proceedings to remove, suspend, or debar--(1) Initiation of 
formal removal, suspension, or debarment proceedings. The Comptroller 
may initiate a proceeding to remove, suspend, or debar an accountant or 
accounting firm from performing audit services by issuing a written 
notice of intention to take such action that names the individual or 
firm as a respondent and describes the nature of the conduct that 
constitutes good cause for such action.
    (2) Hearings under paragraph (b) of this section. An accountant or 
firm named as a respondent in the notice issued under paragraph (b)(1) 
of this section may request a hearing on the allegations in the notice. 
Hearings conducted under this paragraph shall be conducted in the same 
manner as other hearings under the Uniform Rules of Practice and 
Procedure (12 CFR part 19, subpart A.)
    (c) Immediate suspension from performing audit services--(1) In 
general. If the Comptroller serves a written notice of intention to 
remove, suspend, or debar an accountant or accounting firm from 
performing audit services, the Comptroller may, with due regard for the 
public interest and without a preliminary hearing, immediately suspend 
such accountant or firm from performing audit services for insured 
national banks, if the Comptroller:
    (i) Has a reasonable basis to believe that the accountant or firm 
has engaged in conduct (specified in the notice served on the 
accountant or firm under paragraph (b) of this section) that would 
constitute grounds for removal, suspension, or debarment under 
paragraph (a) of this section;
    (ii) Determines that immediate suspension is necessary for the 
protection of an insured depository


[[Page 1123]]


institution or its depositors or for the protection of the depository 
system as a whole; and
    (iii) Serves such respondent with written notice of the immediate 
suspension.
    (2) Procedures. An immediate suspension notice issued under this 
paragraph will become effective upon service. Such suspension will 
remain in effect until the date the Comptroller dismisses the charges 
contained in the notice of intention, or the effective date of a final 
order of removal, suspension, or debarment issued by the Comptroller to 
the respondent.
    (3) Petition for stay. Any accountant or firm immediately suspended 
from performing audit services in accordance with paragraph (c)(1) of 
this section may, within 10 calendar days after service of the notice 
of immediate suspension, file with the Office of the Comptroller of the 
Currency, Washington, DC 20219 for a stay of such immediate suspension. 
If no petition is filed within 10 calendar days, the immediate 
suspension shall remain in effect.
    (4) Hearing on petition. Upon receipt of a stay petition, the 
Comptroller will designate a presiding officer who shall fix a place 
and time (not more than 30 calendar days after receipt of the petition, 
unless extended at the request of petitioner) at which the immediately 
suspended party may appear, personally or through counsel, to submit 
written materials and oral argument. In the sole discretion of the 
presiding officer, upon a specific showing of compelling need, oral 
testimony of witnesses may also be presented. In hearings held pursuant 
to this paragraph there shall be no discovery and the provisions of 
Sec. Sec.  19.6 through 19.12, 19.16, and 19.21 of this part shall 
apply.
    (5) Decision on petition. Within 30 calendar days after the 
hearing, the presiding officer shall issue a decision. The presiding 
officer will grant a stay upon a demonstration that a substantial 
likelihood exists of the respondent's success on the issues raised by 
the notice of intention and that, absent such relief, the respondent 
will suffer immediate and irreparable injury, loss, or damage. In the 
absence of such a demonstration, the presiding officer will notify the 
parties that the immediate suspension will be continued pending the 
completion of the administrative proceedings pursuant to the notice.
    (6) Review of presiding officer's decision. The parties may seek 
review of the presiding officer's decision by filing a petition for 
review with the presiding officer within 10 calendar days after service 
of the decision. Replies must be filed within 10 calendar days after 
the petition filing date. Upon receipt of a petition for review and any 
reply, the presiding officer shall promptly certify the entire record 
to the Comptroller. Within 60 calendar days of the presiding officer's 
certification, the Comptroller shall issue an order notifying the 
affected party whether or not the immediate suspension should be 
continued or reinstated. The order shall state the basis of the 
Comptroller's decision.




Sec.  19.244  Automatic removal, suspension, and debarment.


    (a) An independent public accountant or accounting firm may not 
perform audit services for insured national banks if the accountant or 
firm:
    (1) Is subject to a final order of removal, suspension, or 
debarment (other than a limited scope order) issued by the Board of 
Governors of the Federal Reserve System, the Federal Deposit Insurance 
Corporation, or the Office of Thrift Supervision under section 36 of 
the FDIA.
    (2) Is subject to a temporary suspension or permanent revocation of 
registration or a temporary or permanent suspension or bar from further 
association with any registered public accounting firm issued by the 
Public Company Accounting Oversight Board under sections 105(c)(4)(A) 
or (B) of the Sarbanes-Oxley Act (15 U.S.C. 7215(c)(4)(A) or (B));
    (3) Is subject to an order of suspension or denial of the privilege 
of appearing or practicing before the Securities and Exchange 
Commission; or
    (4) Is suspended or debarred for cause from practice as an 
accountant by any duly constituted licensing authority of any state, 
possession, commonwealth, or the District of Columbia.
    (b) Upon written request, the Comptroller, for good cause shown, 
may grant written permission to such accountant or firm to perform 
audit services for national banks. The request shall contain a concise 
statement of the action requested. The Comptroller may require the 
applicant to submit additional information.




Sec.  19.245  Notice of removal, suspension or debarment.


    (a) Notice to the public. Upon the issuance of a final order for 
removal, suspension, or debarment of an independent public accountant 
or accounting firm from providing audit services, the Comptroller shall 
make the order publicly available and provide notice of the order to 
the other Federal banking agencies.
    (b) Notice to the Comptroller by accountants and firms. An 
accountant or accounting firm that provides audit services to a 
national bank must provide the Comptroller with written notice of:
    (1) Any currently effective order or other action described in 
Sec.  19.243(a)(1)(vi) or Sec. Sec.  19.244(a)(2) through (a)(4); or
    (2) Any currently effective action by the Public Company Accounting 
Oversight Board under sections 105(c)(4)(C) or (G) of the Sarbanes-
Oxley Act) (15 U.S.C. 7215(c)(4)(C) or (G)).
    (c) Timing of notice. Written notice required by this paragraph 
shall be given no later than 15 calendar days following the effective 
date of an order or action, or 15 calendar days before an accountant or 
firm accepts an engagement to provide audit services, whichever date is 
earlier.




Sec.  19.246  Petition for reinstatement.


    (a) Form of petition. Unless otherwise ordered by the Comptroller, 
a petition for reinstatement by an independent public accountant or 
accounting firm removed, suspended, or debarred under Sec.  19.243 may 
be made in writing at any time one year after the effective date of the 
order of removal, suspension, or debarment and, thereafter, at any time 
more than one year after the accountant's or firm's most recent 
petition for reinstatement. The request shall contain a concise 
statement of the action requested. The Comptroller may require the 
applicant to submit additional information.
    (b) Procedure. A petitioner for reinstatement under this section 
may, in the sole discretion of the Comptroller, be afforded a hearing. 
The accountant or firm shall bear the burden of going forward with a 
petition and proving the grounds asserted in support of the petition. 
In reinstatement proceedings, the person seeking reinstatement shall 
bear the burden of going forward with an application and proving the 
grounds asserted in support of the application. The Comptroller may, in 
his sole discretion, direct that any reinstatement proceeding be 
limited to written submissions. The removal, suspension, or debarment 
shall continue until the Comptroller, for good cause shown, has 
reinstated the petitioner or until the suspension period has expired. 
The filing of a petition for reinstatement shall not stay the 
effectiveness of the removal, suspension, or debarment of an accountant 
or firm.




[[Page 1124]]




    Dated: November 27, 2002.
John D. Hawke, Jr.,
Comptroller of the Currency.


Federal Reserve System


12 CFR Chapter II


Authority and Issuance


    For the reasons set out in the joint preamble, the Board proposes 
to amend part 263, chapter II, title 12 of the Code of Federal 
Regulations as follows:


PART 263--RULES OF PRACTICE FOR HEARINGS


    1. The authority citation for part 263 is revised to read as 
follows:


    Authority: 5 U.S.C. 504; 12 U.S.C. 248, 324, 504, 506, 1817(j), 
1818, 1828(c), 1831m, 1831o, 1831p-1, 1847(b), 1847(d), 1884(b), 
1972(2)(F), 3105, 3107, 3108, 3907, 3909; 15 U.S.C. 21, 78o-4, 78o-
5, 78u-2, 6801, 6805; and 28 U.S.C. 2461 note.


    2. In Sec.  263.94, paragraphs (a) and (b) are revised to read as 
follows:




Sec.  263.94  Conduct warranting sanctions.


* * * * *
    (a) Willfully or recklessly violating or willfully or recklessly 
aiding and abetting the violation of any provision of the Federal 
banking or applicable securities laws or the rules and regulations 
thereunder or conviction of any offense involving dishonesty or breach 
of trust;
    (b) Knowingly or recklessly giving false or misleading information, 
or participating in any way in the giving of false information to the 
Board or to any Board officer or employee, or to any tribunal 
authorized to pass upon matters administered by the Board in connection 
with any matter pending or likely to be pending before it. The term 
``information'' includes facts or other statements contained in 
testimony, financial statements, applications, affidavits, 
declarations, or any other document or written or oral statement;
* * * * *
    3. A new subpart J is added as follows:
Subpart J--Removal, Suspension, and Debarment of Accountants From 
Performing Audit Services
Sec.
263.400 Scope.
263.401 Definitions.
263.402 Removal, suspension, or debarment.
263.403 Automatic removal, suspension, and debarment
263.404 Notice of removal, suspension, or debarment.
263.405 Petition for reinstatement.


Subpart J--Removal, Suspension, and Debarment of Accountants From 
Performing Audit Services




Sec.  263.400  Scope.


    This subpart, which implements section 36(g)(4) of the Federal 
Deposit Insurance Act (FDIA) (12 U.S.C. 1831m(g)(4)), provides rules 
and procedures for the removal, suspension, or debarment of independent 
public accountants and their accounting firms from performing 
independent audit and attestation services for insured state member 
banks and for bank holding companies required by section 36 of the FDIA 
(12 U.S.C. 1831m).




Sec.  263.401  Definitions.


    As used in this subpart, the following terms shall have the meaning 
given below unless the context requires otherwise:
    (a) Accounting firm means a corporation, proprietorship, 
partnership, or other business firm providing audit services.
    (b) Audit services means any service required to be performed by an 
independent public accountant by section 36 of the FDIA and 12 CFR part 
363, including attestation services. Audit services include any service 
performed with respect to the holding company of an insured bank that 
is used to satisfy requirements imposed by section 36 or part 363 on 
that bank.
    (c) Banking organization means an insured state member bank or a 
bank holding company that obtains audit services that are used to 
satisfy requirements imposed by section 36 or part 363 on an insured 
subsidiary bank of that holding company.
    (d) Independent public accountant (accountant) means any individual 
who performs or participates in providing audit services.




Sec.  263.402  Removal, suspension, or debarment.


    (a) Good cause for removal, suspension, or debarment--
    (1) Individuals. The Board may remove, suspend, or debar an 
independent public accountant from performing audit services for 
banking organizations that are subject to section 36 of the FDIA, if, 
after notice of and opportunity for hearing in the matter, the Board 
finds that the accountant:
    (i) Lacks the requisite qualifications to perform audit services;
    (ii) Has knowingly or recklessly engaged in conduct that results in 
a violation of applicable professional standards, including those 
standards and conflict of interest provisions applicable to accountants 
through the Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 
745 (2002) (Sarbanes-Oxley Act), and developed by the Public Company 
Accounting Oversight Board and the Securities and Exchange Commission;
    (iii) Has engaged in negligent conduct in the form of:
    (A) A single instance of highly unreasonable conduct that results 
in a violation of applicable professional standards in circumstances in 
which an accountant knows, or should know, that heightened scrutiny is 
warranted; or
    (B) Repeated instances of unreasonable conduct, each resulting in a 
violation of applicable professional standards, that indicate a lack of 
competence to perform audit services;
    (iv) Has knowingly or recklessly given false or misleading 
information, or knowingly or recklessly participated in any way in the 
giving of false or misleading information, to the Board or any officer 
or employee of the Board;
    (v) Has engaged in, or aided and abetted, a material and knowing or 
reckless violation of any provision of the Federal banking or 
securities laws or the rules and regulations thereunder, or any other 
law; or
    (vi) Has been removed, suspended, or debarred from practice before 
any Federal or state agency regulating the banking, insurance, or 
securities industries, other than by an action listed in Sec.  263.403, 
on grounds relevant to the provision of audit services.
    (2) Accounting firms. If the Board determines that there is good 
cause for the removal, suspension, or debarment of a member or employee 
of an accounting firm under paragraph (a)(1) of this section, the Board 
also may remove, suspend, or debar such firm or one or more offices of 
such firm. In considering whether to remove, suspend or debar a firm or 
an office thereof, and the term of any sanction against a firm under 
this section, the Board may consider, for example:
    (i) The gravity, scope, or repetition of the act or failure to act 
that constitutes good cause for removal, suspension, or debarment;
    (ii) The adequacy of, and adherence to, applicable policies, 
practices, or procedures for the accounting firm's conduct of its 
business and the performance of audit services;
    (iii) The selection, training, supervision, and conduct of members 
or employees of the accounting firm involved in the performance of 
audit services;
    (iv) The extent to which managing partners or senior officers of 
the accounting firm have participated, directly, or indirectly through 
oversight


[[Page 1125]]


or review, in the act or failure to act; and
    (v) The extent to which the accounting firm has, since the 
occurrence of the act or failure to act, implemented corrective 
internal controls to prevent its recurrence.
    (3) Limited scope orders. An order of removal, suspension 
(including an immediate suspension), or debarment may, at the 
discretion of the Board, be made applicable to a particular banking 
organization or class of banking organizations.
    (4) Remedies not exclusive. The remedies provided in this subpart 
are in addition to any other remedies the Board may have under any 
other applicable provisions of law, rule, or regulation.
    (b) Proceedings to remove, suspend, or debar--(1) Initiation of 
formal removal, suspension, or debarment proceedings. The Board may 
initiate a proceeding to remove, suspend, or debar an accountant or 
accounting firm from performing audit services by issuing a written 
notice of intention to take such action that names the individual or 
firm as a respondent and describes the nature of the conduct that 
constitutes good cause for such action.
    (2) Hearing under paragraph (b) of this section. An accountant or 
firm named as a respondent in the notice issued under paragraph (b)(2) 
of this section may request a hearing on the allegations in the notice. 
Hearings conducted under this paragraph shall be conducted in the same 
manner as other hearings under the Uniform Rules of Practice and 
Procedure (12 CFR part 263, subpart A).
    (c) Immediate suspension from performing audit services--(1) In 
general. If the Board serves a written notice of intention to remove, 
suspend, or debar an accountant or accounting firm from performing 
audit services, the Board may, with due regard for the public interest 
and without a preliminary hearing, immediately suspend such accountant 
or firm from performing audit services for banking organizations, if 
the Board:
    (i) Has a reasonable basis to believe that the accountant or firm 
has engaged in conduct (specified in the notice served on the 
accountant or firm under paragraph (b) of this section) that would 
constitute grounds for removal, suspension, or debarment under 
paragraph (a) of this section;
    (ii) Determines that immediate suspension is necessary for the 
protection of an insured depository institution or its depositors or 
for the protection of the depository system as a whole; and
    (iii) Serves such respondent with written notice of the immediate 
suspension.
    (2) Procedures. An immediate suspension notice issued under this 
paragraph will become effective upon service. Such suspension will 
remain in effect until the date the Board dismisses the charges 
contained in the notice of intention, or the effective date of a final 
order of removal, suspension, or debarment issued by the Board to the 
respondent.
    (3) Petition to stay. Any accountant or firm immediately suspended 
from performing audit services in accordance with paragraph (c)(1) of 
this section may, within 10 calendar days after service of the notice 
of immediate suspension, file with the Secretary, Board of Governors of 
the Federal Reserve System, Washington, DC 20551 for a stay of such 
immediate suspension. If no petition is filed within 10 calendar days, 
the immediate suspension shall remain in effect.
    (4) Hearing on petition. Upon receipt of a stay petition, the 
Secretary will designate a presiding officer who shall fix a place and 
time (not more than 30 calendar days after receipt of the petition, 
unless extended at the request of petitioner) at which the immediately 
suspended party may appear, personally or through counsel, to submit 
written materials and oral argument. In the sole discretion of the 
presiding officer, upon a specific showing of compelling need, oral 
testimony of witnesses may also be presented. In hearings held pursuant 
to this paragraph there shall be no discovery and the provisions of 
Sec. Sec.  263.6 through 263.12, 263.16, and 263.21 of this part shall 
apply.
    (5) Decision on petition. Within 30 calendar days after the 
hearing, the presiding officer shall issue a decision. The presiding 
officer will grant a stay upon a demonstration that a substantial 
likelihood exists of the respondent's success on the issues raised by 
the notice of intention and that, absent such relief, the respondent 
will suffer immediate and irreparable injury, loss, or damage. In the 
absence of such a demonstration, the presiding officer will notify the 
parties that the immediate suspension will be continued pending the 
completion of the administrative proceedings pursuant to the notice.
    (6) Review of presiding officer's decision. The parties may seek 
review of the presiding officer's decision by filing a petition for 
review with the presiding officer within 10 calendar days after service 
of the decision. Replies must be filed within 10 calendar days after 
the petition filing date. Upon receipt of a petition for review and any 
reply, the presiding officer shall promptly certify the entire record 
to the Board. Within 60 calendar days of the presiding officer's 
certification, the Board shall issue an order notifying the affected 
party whether or not the immediate suspension should be continued or 
reinstated. The order shall state the basis of the Board's decision.




Sec.  263.403  Automatic removal, suspension, and debarment.


    (a) An independent public accountant or accounting firm may not 
perform audit services for banking organizations if the accountant or 
firm:
    (1) Is subject to a final order of removal, suspension, or 
debarment (other than a limited scope order) issued by the Federal 
Deposit Insurance Corporation, the Office of the Comptroller of the 
Currency, or the Office of Thrift Supervision under section 36 of the 
FDIA;
    (2) Is subject to a temporary suspension or permanent revocation of 
registration or a temporary or permanent suspension or bar from further 
association with any registered public accounting firm issued by the 
Public Company Accounting Oversight Board under sections 105(c)(4)(A) 
or (B) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7215(c)(4)(A) or 
(B));
    (3) Is subject to an order of suspension or denial of the privilege 
of appearing or practicing before the Securities and Exchange 
Commission; or
    (4) Is suspended or debarred for cause from practice as an 
accountant by any duly constituted licensing authority of any state, 
possession, commonwealth, or the District of Columbia.
    (b) Upon written request, the Board, for good cause shown, may 
grant written permission to such accountant or firm to perform audit 
services for banking organizations. The request shall contain a concise 
statement of the action requested. The Board may require the applicant 
to submit additional information.




Sec.  263.404.  Notice of removal, suspension, or debarment.


    (a) Notice to the public. Upon the issuance of a final order for 
removal, suspension, or debarment of an independent public accountant 
or accounting firm from providing audit services, the Board shall make 
the order publicly available and provide notice of the order to the 
other Federal banking agencies.
    (b) Notice to the Board by accountants and firms. An accountant or 
accounting firm that provides audit services to a banking organization 
must provide the Board with written notice of:


[[Page 1126]]


    (1) Any currently effective order or other action described in 
Sec.  263.402(a)(1)(vi) or Sec. Sec.  263.403(a)(2) through (a)(4); or
    (2) Any currently effective action by the Public Company Accounting 
Oversight Board under sections 105(c)(4)(C) or (G) of the Sarbanes-
Oxley Act of 2002 (15 U.S.C. 7215(c)(4)(C) or (G)).
    (c) Timing of notice. Written notice required by this paragraph 
shall be given no later than 15 calendar days following the effective 
date of an order or action, or 15 calendar days before an accountant or 
firm accepts an engagement to provide audit services, whichever date is 
earlier.




Sec.  263.405  Petition for reinstatement.


    (a) Form of petition. Unless otherwise ordered by the Board, a 
petition for reinstatement by an independent public accountant or 
accounting firm removed, suspended, or debarred under Sec.  263.402 may 
be made in writing at any time one year after the effective date of the 
order of removal, suspension, or debarment and, thereafter, at any time 
more than one year after the accountant's or firm's most recent 
petition for reinstatement. The request shall contain a concise 
statement of the action requested. The Board may require the petitioner 
to submit additional information.
    (b) Procedure. A petitioner for reinstatement under this section 
may, in the sole discretion of the Board, be afforded a hearing. The 
accountant or firm shall bear the burden of going forward with a 
petition and proving the grounds asserted in support of the petition. 
The Board may, in its sole discretion, direct that any reinstatement 
proceeding be limited to written submissions. The removal, suspension, 
or debarment shall continue until the Board, for good cause shown, has 
reinstated the petitioner or until the suspension period has expired. 
The filing of a petition for reinstatement shall not stay the 
effectiveness of the removal, suspension, or debarment of an accountant 
or firm.


    By order of the Board of Governors of the Federal Reserve 
System, December 17, 2002.
Jennifer J. Johnson,
Secretary of the Board.


Federal Deposit Insurance Corporation


PART 308--RULES OF PRACTICE AND PROCEDURE


    1.The authority citation for part 308 is revised to read as 
follows:


    Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 93(b), 164, 505, 
1815(e), 1817, 1818, 1820, 1828, 1829, 1829b, 1831i, 1831m(g)(4), 
1831o, 1831p-1, 1832(c), 1884(b), 1972, 3102, 3108(a), 3349, 3909, 
4717; 15 U.S.C. 78(h) and (i), 78o-4(c), 78o-5, 78q-1, 78s, 78u, 
78u-2, 78u-3 and 78w, 6801(b), 6805(b)(1); 28 U.S.C. 2461 note; 31 
U.S.C. 330, 5321; 42 U.S.C. 4012a; Sec. 3100(s), Pub. L. 104-134, 
110 Stat. 1321-358.


    2. Section 308.109(b)(3) is amended to add a new sentence before 
the last sentence to read as follows:




Sec.  308.109  Suspension and disbarment


* * * * *
    (b) * * *
    (3) * * * The application must comply with the requirements of 
Sec.  303.3 of this chapter. * * *
* * * * *
    3. A new Subpart U is added to read as follows:
Subpart U--Removal, Suspension, and Debarment of Accountants From 
Performing Audit Service
Sec.
308.600 Scope.
308.601 Definitions.
308.602 Removal, suspension, or debarment.
308.603 Automatic removal, suspension, and debarment.
308.604 Notice of removal, suspension, or debarment.
308.605 Application for reinstatement.


Subpart U--Removal, Suspension, and Debarment of Accountants From 
Performing Audit Service




Sec.  308.600  Scope.


    This subpart, which implements section 36(g)(4) of the FDIA (12 
U.S.C. 1831m(g)(4)), provides rules and procedures for the removal, 
suspension, or debarment of independent public accountants and 
accounting firms from performing independent audit and attestation 
services required by section 36 of the FDIA (12 U.S.C. 1831m) for 
insured depository institutions for which the FDIC is the appropriate 
Federal banking agency.




Sec.  308.601  Definitions.


    As used in this subpart, the following terms shall have the meaning 
given below unless the context requires otherwise:
    (a) Accounting firm means a corporation, proprietorship, 
partnership, or other business firm providing audit services.
    (b) Audit services means any service required to be performed by an 
independent public accountant by section 36 of the FDIA and 12 CFR part 
363, including attestation services.
    (c) Independent public accountant (accountant) means any individual 
who performs or participates in providing audit services.




Sec.  308.602  Removal, suspension, or debarment.


    (a) Good cause for removal, suspension, or debarment--(1) 
Individuals. The Board of Directors may remove, suspend, or debar an 
independent public accountant from performing audit services for 
insured depository institutions for which the FDIC is the appropriate 
Federal banking agency under section 36 of the FDIA if, after service 
of a notice of intention and opportunity for hearing in the matter, the 
Board of Directors finds that the accountant:
    (i) Lacks the requisite qualifications to perform audit services;
    (ii) Has knowingly or recklessly engaged in conduct that results in 
a violation of applicable professional standards, including those 
standards and conflicts of interest provisions applicable to 
accountants through the Sarbanes-Oxley Act of 2002 (Pub. L. 107-204, 
116 Stat. 745 (2002)) (Sarbanes-Oxley Act) and developed by the Public 
Company Accounting Oversight Board and the Securities and Exchange 
Commission;
    (iii) Has engaged in negligent conduct in the form of:
    (A) A single instance of highly unreasonable conduct that results 
in a violation of applicable professional standards in circumstances in 
which an accountant knows, or should know, that heightened scrutiny is 
warranted; or
    (B) Repeated instances of unreasonable conduct, each resulting in a 
violation of applicable professional standards, that indicate a lack of 
competence to perform audit services;
    (iv) Has knowingly or recklessly given false or misleading 
information, or knowingly or recklessly participated in any way in the 
giving of false or misleading information, to the FDIC or any officer 
or employee of the FDIC;
    (v) Has engaged in, or aided and abetted, a material and knowing or 
reckless violation of any provision of the Federal banking or 
securities laws or the rules and regulations thereunder, or any other 
law; or
    (vi) Has been removed, suspended, or debarred from practice before 
any Federal or state agency regulating the banking, insurance, or 
securities industries, other than by an action listed in Sec.  308.603, 
on grounds relevant to the provision of audit services.
    (2) Accounting firms. If the Board of Directors determines that 
there is good cause for the removal, suspension, or debarment of a 
member or employee of an accounting firm under paragraph


[[Page 1127]]


(a)(1) of this section, the Board of Directors also may remove, 
suspend, or debar such firm or one or more offices of such firm. In 
considering whether to remove, suspend, or debar an accounting firm or 
an office thereof, and the term of any sanction against an accounting 
firm under this section, the Board of Directors may consider, for 
example:
    (i) The gravity, scope, or repetition of the act or failure to act 
that constitutes good cause for the removal, suspension, or debarment;
    (ii) The adequacy of, and adherence to, applicable policies, 
practices, or procedures for the accounting firm's conduct of its 
business and the performance of audit services;
    (iii) The selection, training, supervision, and conduct of members 
or employees of the accounting firm involved in the performance of 
audit services;
    (iv) The extent to which managing partners or senior officers of 
the accounting firm have participated, directly, or indirectly through 
oversight or review, in the act or failure to act; and
    (v) The extent to which the accounting firm has, since the 
occurrence of the act or failure to act, implemented corrective 
internal controls to prevent its recurrence.
    (3) Limited scope orders. An order of removal, suspension 
(including an immediate suspension), or debarment may, at the 
discretion of the Board of Directors, be made applicable to a limited 
number of insured depository institutions for which the FDIC is the 
appropriate Federal banking agency.
    (4) Remedies not exclusive. The remedies provided in this subpart 
are in addition to any other remedies the FDIC may have under any other 
applicable provision of law, rule, or regulation.
    (b) Proceedings to remove, suspend or debar-- (1) Initiation of 
formal removal, suspension, or debarment proceedings. The Board of 
Directors may initiate a proceeding to remove, suspend, or debar an 
accountant or accounting firm from performing audit services by issuing 
a written notice of intention to take such action that names the 
individual or firm as a respondent and describes the nature of the 
conduct that constitutes good cause for such action.
    (2) Hearings under paragraph (b) of this section. An accountant or 
firm named as a respondent in the notice issued under paragraph (b)(1) 
of this section may request a hearing on the allegations contained in 
the notice. Hearings conducted under this paragraph shall be conducted 
in the same manner as other hearings under the Uniform Rules of 
Practice and Procedure (12 CFR part 308, subpart A) (Uniform Rules).
    (c) Immediate suspension from performing audit service-- (1) In 
general. If the Board of Directors serves a written notice of intention 
to remove, suspend, or debar an accountant or accounting firm from 
performing audit services, the Board of Directors may, with due regard 
for the public interest and without a preliminary hearing, immediately 
suspend such accountant or firm from performing audit services for 
insured depository institutions for which the FDIC is the appropriate 
Federal banking agency if the Board of Directors:
    (i) Has a reasonable basis to believe that the accountant or 
accounting firm has engaged in conduct (specified in the notice served 
upon the accountant or accounting firm under paragraph (b)(1) of this 
section) that would constitute grounds for removal, suspension, or 
debarment under paragraph (a) of this section;
    (ii) Determines that immediate suspension is necessary for the 
protection of an insured depository institution or its depositors or 
for the protection of the depository system as a whole; and
    (iii) Serves such respondent with written notice of the immediate 
suspension.
    (2) Procedures. An immediate suspension notice issued under this 
paragraph will become effective upon service. Such suspension will 
remain in effect until the date the Board of Directors dismisses the 
charges contained in the notice of intention, or the effective date of 
a final order of removal, suspension, or debarment issued by the Board 
of Directors to the respondent.
    (3) Petition to stay. Any accountant or accounting firm immediately 
suspended from performing audit services in accordance with paragraph 
(c)(1) of this section may, within 10 calendar days after service of 
the notice of immediate suspension, file a petition with the Executive 
Secretary for a stay of such immediate suspension. If no petition is 
filed within 10 calendar days, the immediate suspension will remain in 
effect.
    (4) Hearing on petition. Upon receipt of a stay petition, the 
Executive Secretary will designate a presiding officer who will fix a 
place and time (not more than 30 calendar days after receipt of the 
petition, unless extended at the request of petitioner) at which the 
immediately suspended party may appear, personally or through counsel, 
to submit written materials and oral argument. In the sole discretion 
of the presiding officer, upon a specific showing of compelling need, 
oral testimony of witnesses also may be presented. Enforcement counsel 
may represent the agency at the hearing. In hearings held pursuant to 
this paragraph there shall be no discovery, and the provisions of 
Sec. Sec.  308.6 through 308.12, Sec.  308.16, and Sec.  308.21 of the 
Uniform Rules will apply.
    (5) Decision on petition. Within 30 calendar days after the 
hearing, the presiding officer will issue a decision. The presiding 
officer will grant a stay upon a demonstration that a substantial 
likelihood exists of the respondent's success on the issues raised by 
the notice of intention and that, absent such relief, the respondent 
will suffer immediate and irreparable injury, loss, or damage. In the 
absence of such a demonstration, the presiding officer will notify the 
parties that the immediate suspension will be continued pending the 
completion of the administrative proceedings pursuant to the notice of 
intention. The presiding officer will serve a copy of the decision on, 
and simultaneously certify the record to, the Executive Secretary.
    (6) Review of presiding officer's decision. The parties may seek 
review of the presiding officer's decision by filing a petition for 
review with the Executive Secretary within 10 calendar days after 
service of the decision. Replies must be filed within 10 calendar days 
after the petition filing date. Upon receipt of a petition for review 
and any reply, the Executive Secretary will promptly certify the entire 
record to the Board of Directors. Within 60 calendar days of the 
Executive Secretary's certification, the Board of Directors will issue 
an order notifying the affected party whether or not the immediate 
suspension should be continued or reinstated. The order will state the 
basis of the Board's decision.




Sec.  308.603  Automatic removal, suspension, and debarment.


    (a) An independent public accountant or accounting firm may not 
perform audit services for insured depository institutions for which 
the FDIC is the appropriate Federal banking agency if the accountant or 
firm:
    (1) Is subject to a final order of removal, suspension, or 
debarment (other than a limited scope order) issued by the Board of 
Governors of the Federal Reserve System, the Office of the Comptroller 
of the Currency, or the Office of Thrift Supervision under section 36 
of the FDIA;
    (2) Is subject to a temporary suspension or permanent revocation of


[[Page 1128]]


registration or a temporary or permanent suspension or bar from further 
association with any registered public accounting firm issued by the 
Public Company Accounting Oversight Board under sections 105(c)(4)(A) 
or (B) of the Sarbanes-Oxley Act (15 U.S.C. 7215(c)(4)(A) or (B));
    (3) Is subject to an order of suspension or denial of the privilege 
of appearing or practicing before the Securities and Exchange 
Commission; or
    (4) Is suspended or debarred for cause from practice as an 
accountant by any duly constituted licensing authority of any state, 
possession, commonwealth, or the District of Columbia.
    (b) Upon written request, the FDIC, for good cause shown, may grant 
written permission to such accountant or firm to perform audit services 
for insured depository institutions for which the FDIC is the 
appropriate Federal banking agency. The written request must comply 
with the requirements of Sec.  303.3 of this chapter.




Sec.  308.604  Notice of removal, suspension, or debarment.


    (a) Notice to the public. Upon the issuance of a final order for 
removal, suspension, or debarment of an independent public accountant 
or accounting firm from providing audit services, the FDIC will make 
the order publicly available and provide notice of the order to the 
other Federal banking agencies.
    (b) Notice to the FDIC by accountants and firms. An accountant or 
accounting firm that provides audit services to any insured depository 
institution for which the FDIC is the appropriate Federal banking 
agency must provide the FDIC with written notice of:
    (1) any currently effective order or other action described in 
Sec.  308.602(a)(1)(vi) or Sec. Sec.  308.603(b) through (d); or
    (2) any currently effective action by the Public Company Accounting 
Oversight Board under sections 105(c)(4)(C) or (G) of the Sarbanes-
Oxley Act (15 U.S.C. 7215(c)(4)(C) or (G)).
    (c) Timing of Notice. Written notice required by this paragraph 
shall be given no later than 15 calendar days following the effective 
date of an order or action, or 15 calendar days before an accountant or 
accounting firm accepts an engagement to provide audit services, 
whichever date is earlier.




Sec.  308.605  Application for reinstatement.


    (a) Form of petition. Unless otherwise ordered by the Board of 
Directors, an application for reinstatement by an independent public 
accountant or accounting firm removed, suspended, or debarred under 
Sec.  308.602 may be made in writing at any time more than one year 
after the effective date of the removal, suspension, or debarment and, 
thereafter, at any time more than one year after the accountant's or 
accounting firm's most recent application for reinstatement. The 
application must comply with the requirements of Sec.  303.3 of this 
chapter.
    (b) Procedure. An applicant for reinstatement under this section 
may, in the sole discretion of the Board of Directors, be afforded a 
hearing. In reinstatement proceedings, the person seeking reinstatement 
shall bear the burden of going forward with an application and proving 
the grounds asserted in support of the application, and the Board of 
Directors may, in its sole discretion, direct that any reinstatement 
proceeding be limited to written submissions. The removal, suspension, 
or debarment shall continue until the Board of Directors, for good 
cause shown, has reinstated the applicant or until the suspension 
period has expired. The filing of an application for reinstatement will 
not stay the effectiveness of the removal, suspension, or debarment of 
an accountant or firm.


    Dated: December 17, 2002.
    By order of the Board of Directors of the Federal Deposit 
Insurance Corporation.


Robert Feldman,
Executive Secretary.


Office of Thrift Supervision


12 CFR Chapter V


Authority and Issuance


    For the reasons set out in the preamble, the Office of Thrift 
Supervision proposes to amend part 513 of chapter V of title 12 of the 
Code of Federal Regulations as follows:
    1. The authority citation for part 513 is revised to read as 
follows:


    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1813, 1831m, and 
15 U.S.C. 78.


    2. Add Sec.  513.8 to read as follows:




Sec.  513.8  Removal, suspension, or debarment of independent public 
accountants and accounting firms performing audit services.


    (a) Scope. This subpart, which implements section 36(g)(4) of the 
Federal Deposit Insurance Act (FDIA) (12 U.S.C. 1831m(g)(4)), provides 
rules and procedures for the removal, suspension, or debarment of 
independent public accountants and their accounting firms from 
performing independent audit and attestation services required by 
section 36 of the FDIA (12 U.S.C. 1831m) for insured savings 
associations and savings and loan holding.
    (b) Definitions. As used in this section, the following terms have 
the meaning given below unless the context requires otherwise:
    (1) Accounting firm. The term accounting firm means a corporation, 
proprietorship, partnership, or other business firm providing audit 
services.
    (2) Audit services. The term audit services means any service 
required to be performed by an independent public accountant by section 
36 of the FDIA Act and 12 CFR part 363, including attestation services. 
Audit services include any service performed with respect to a savings 
and loan holding company of a savings association that is used to 
satisfy requirements imposed by section 36 or part 363 on that savings 
association.
    (3) Independent public accountant. The term independent public 
accountant means any individual who performs or participates in 
providing audit services.
    (c) Removal, suspension, or debarment of independent public 
accountants. The Office may remove, suspend, or debar an independent 
public accountant from performing audit services for savings 
associations that are subject to section 36 of the FDIA if, after 
service of a notice of intention and opportunity for hearing in the 
matter, the Office finds that the independent public accountant:
    (1) Lacks the requisite qualifications to perform audit services;
    (2) Has knowingly or recklessly engaged in conduct that results in 
a violation of applicable professional standards, including those 
standards and conflicts of interest provisions applicable to 
independent public accountants through the Sarbanes-Oxley Act of 2002, 
Pub. L. 107-204, 116 Stat. 745 (2002) (Sarbanes-Oxley Act), and 
developed by the Public Company Oversight Board and the Securities and 
Exchange Commission;
    (3) Has engaged in negligent conduct in the form of:
    (i) A single instance of highly unreasonable conduct that results 
in a violation of applicable professional standards in circumstances in 
which an independent public accountant knows, or should know, that 
heightened scrutiny is warranted; or
    (ii) Repeated instances of unreasonable conduct, each resulting in 
a violation of applicable professional standards, that indicate a lack 
of competence to perform audit services;
    (4) Has knowingly or recklessly given false or misleading 
information or knowingly or recklessly participated in


[[Page 1129]]


any way in the giving of false or misleading information to the Office 
or any officer or employee of the Office;
    (5) Has engaged in, or aided and abetted, a material and knowing or 
reckless violation of any provision of the Federal banking or 
securities laws or the rules and regulations thereunder, or any other 
law; or
    (6) Has been removed, suspended, or debarred from practice before 
any federal or state agency regulating the banking, insurance, or 
securities industries, other than by action listed in paragraph (j) of 
this section, on grounds relevant to the provision of audit services.
    (d) Removal, suspension or debarment of an accounting firm. If the 
Office determines that there is good cause for the removal, suspension, 
or debarment of a member or employee of an accounting firm under 
paragraph (c) of this section, the Office also may remove, suspend, or 
debar such firm or one or more offices of such firm. In considering 
whether to remove, suspend, or debar an accounting firm or office 
thereof, and the term of any sanction against an accounting firm under 
this section, the Office may consider, for example:
    (1) The gravity, scope, or repetition of the act or failure to act 
that constitutes good cause for the removal, suspension, or debarment;
    (2) The adequacy of, and adherence to, applicable policies, 
practices, or procedures for the accounting firm's conduct of its 
business and the performance of audit services;
    (3) The selection, training, supervision, and conduct of members or 
employees of the accounting firm involved in the performance of audit 
services;
    (4) The extent to which managing partners or senior officers of the 
accounting firm have participated, directly or indirectly through 
oversight or review, in the act or failure to act; and
    (5) The extent to which the accounting firm has, since the 
occurrence of the act or failure to act, implemented corrective 
internal controls to prevent its recurrence.
    (e) Remedies. The remedies provided in this section are in addition 
to any other remedies the Office may have under any other applicable 
provisions of law, rule, or regulation.
    (f) Proceedings to remove, suspend, or debar. (1) The Office may 
initiate a proceeding to remove, suspend, or debar an independent 
public accountant or accounting firm from performing audit services by 
issuing a written notice of intention to take such action that names 
the individual or firm as a respondent and describes the nature of the 
conduct that constitutes good cause for such action.
    (2) An independent public accountant or accounting firm named as a 
respondent in the notice issued under paragraph (f)(1) of this section 
may request a hearing on the allegations in the notice. Hearings 
conducted under this paragraph shall be conducted in the same manner as 
other hearings under the Uniform Rules of Practice and Procedure (12 
CFR part 509).
    (g) Immediate suspension from performing audit services. (1) If the 
Office serves written notice of intention to remove, suspend, or debar 
an independent public accountant or accounting firm from performing 
audit services, the Office may, with due regard for the public interest 
and without preliminary hearing, immediately suspend an independent 
public accountant or accounting firm from performing audit services for 
savings associations, if the Office:
    (i) Has a reasonable basis to believe that the independent public 
accountant or accounting firm engaged in conduct (specified in the 
notice served upon the independent public accountant or accounting firm 
under paragraph (f) of this section) that would constitute grounds for 
removal, suspension, or debarment under paragraph (c) or (d) of this 
section;
    (ii) Determines that immediate suspension is necessary for the 
protection of an insured depository institution or its depositors or 
for the protection of the depository system as a whole; and
    (iii) Serves such independent public accountant or accounting firm 
with written notice of the immediate suspension.
    (2) An immediate suspension notice issued under this paragraph will 
become effective upon service. Such suspension will remain in effect 
until the date the Office dismisses the charges contained in the notice 
of intention, or the effective date of a final order of removal, 
suspension, or debarment issued by the Office to the independent public 
accountant or accounting firm.
    (h) Petition to stay. (1) Any independent public accountant or 
accounting firm immediately suspended from performing audit services in 
accordance with paragraph (g) of this section may, within 10 calendar 
days after service of the notice of immediate suspension, file a 
petition with the Office for a stay of such suspension. If no petition 
is filed within 10 calendar days, the immediate suspension will remain 
in effect.
    (2) Upon receipt of a stay petition, the Office will designate a 
presiding officer who shall fix a place and time (not more than 30 
calendar days after receipt of such petition, unless extended at the 
request of the petitioner), at which the immediately suspended party 
may appear, personally or through counsel, to submit written materials 
and oral argument. In the sole discretion of the presiding officer, 
upon a specific showing of compelling need, oral testimony of witnesses 
may also be presented. In hearings held pursuant to this paragraph, 
there will be no discovery and the provisions of Sec. Sec.  509.6 
through 509.12, 509.16, and 509.21 of the Uniform Rules will apply.
    (3) Within 30 calendar days after the hearing, the presiding 
officer shall issue a decision. The presiding officer will grant a stay 
upon a demonstration that a substantial likelihood exists of the 
respondent's success on the issues raised by the notice of intention 
and that, absent such relief, the respondent will suffer immediate and 
irreparable injury, loss, or damage. In the absence of such a 
demonstration, the presiding officer will notify the parties that the 
immediate suspension will be continued pending the completion of the 
administrative proceedings pursuant to the notice.
    (4) The parties may seek review of the presiding officer's decision 
by filing a petition for review with the presiding officer within 10 
calendar days after service of the decision. Replies must be filed 
within 10 calendar days after the petition filing date. Upon receipt of 
a petition for review and any reply, the presiding officer must 
promptly certify the entire record to the Director. Within 60 calendar 
days of the presiding officer's certification, the Director shall issue 
an order notifying the affected party whether or not the immediate 
suspension should be continued or reinstated. The order shall state the 
basis of the Director's decision.
    (i) Scope of any order of removal, suspension, or debarment. (1) 
Except as provided in paragraph (i)(2), any independent public 
accountant or accounting firm that has been removed, suspended 
(including an immediate suspension), or debarred from performing audit 
services by the Office may not, while such order is in effect, perform 
audit services for any savings association.
    (2) An order of removal, suspension (including an immediate 
suspension), or debarment may, at the discretion of the Office, be made 
applicable to a limited number of savings associations or savings and 
loan holding companies (limited scope order).


[[Page 1130]]


    (j) Automatic removal, suspension, and debarment. (1) An 
independent public accountant or accounting firm may not perform audit 
services for a savings association if the independent public accountant 
or accounting firm:
    (i) Is subject to a final order of removal, suspension, or 
debarment (other than a limited scope order) issued by the Board of 
Governors of the Federal Reserve System, the Federal Deposit Insurance 
Corporation, or the Office of the Comptroller of the Currency under 
section 36 of the FDIA;
    (ii) Is subject to a temporary suspension or permanent revocation 
of registration or a temporary or permanent suspension or bar from 
further association with any registered public accounting firm issued 
by the Public Company Accounting Oversight Board under sections 
105(c)(4)(A) or (B) of the Sarbanes-Oxley Act (15 U.S.C. 7215(c)(4)(A) 
or (B));
    (iii) Is subject to an order of suspension or denial of the 
privilege of appearing or practicing before the Securities and Exchange 
Commission; and
    (iv) Is suspended or debarred for cause from practice as an 
accountant by any duly constituted licensing authority of any state, 
possession, commonwealth, or the District of Columbia.
    (2) Upon written request, the Office, for good cause shown, may 
grant written permission to an independent public accountant or 
accounting firm to perform audit services for savings associations. The 
request must contain a concise statement of action requested. The 
Office may require the applicant to submit additional information.
    (k) Notice of removal, suspension, or debarment. (1) Upon issuance 
of a final order for removal, suspension, or debarment of an 
independent public accountant or accounting firm from providing audit 
services, the Office shall make the order publicly available and 
provide notice of the order to the other Federal banking agencies.
    (2) An independent public accountant or accounting firm that 
provides audit services to a savings association must provide the 
Office with written notice of:
    (i) Any currently effective order or other action described in 
paragraph (c)(6) or paragraphs (j)(1)(ii) through (j)(1)(iv) of this 
section; or
    (ii) Any currently effective action by the Public Company 
Accounting Oversight Board under sections 105(c)(4)(C) or (G) of the 
Sarbanes-Oxley Act (15 U.S.C. 7215(c)(4)(C) or (G)).
    (3) Written notice required by this paragraph shall be given no 
later than 15 calendar days following the effective date of an order or 
action or 15 calendar days before an independent public accountant or 
accounting firm accepts an engagement to provide audit services, 
whichever date is earlier.
    (l) Application for reinstatement. (1) Unless otherwise ordered by 
the Office, an independent public accountant or accounting firm 
removed, suspended or debarred under this section may apply for 
reinstatement in writing at any time one year after the effective date 
of the order of removal, suspension, or debarment and, thereafter, at 
any time more than one year after the independent public accountant's 
or accounting firm's most recent application for reinstatement. The 
request shall contain a concise statement of action requested. The 
Office may require the applicant to submit additional information.
    (2) An applicant for reinstatement under paragraph (l)(1) of this 
section may, in the Office's sole discretion, be afforded a hearing. 
The independent public accountant or accounting firm shall bear the 
burden of going forward with an application and the burden of proving 
the grounds supporting the application. The Office may, in its sole 
discretion, direct that any reinstatement proceeding be limited to 
written submissions. The removal, suspension, or debarment shall 
continue until the Office, for good cause shown, has reinstated the 
applicant or until, in the case of a suspension, the suspension period 
has expired. The filing of a petition for reinstatement shall not stay 
the effectiveness of the removal, suspension, or debarment of an 
independent public accountant or accounting firm.


    Dated: December 2, 2002.


    By the Office of Thrift Supervision.
James Gilleran,
Director.
[FR Doc. 03-98 Filed 1-7-03; 8:45 am]
BILLING CODE 4810-33-P, 6210-01-P, 6714-01-P, 6720-01-P
Last Updated 01/08/2003 regs@fdic.gov