Skip to main content
U.S. flag
An official website of the United States government
Dot gov
The .gov means it’s official. 
Federal government websites often end in .gov or .mil. Before sharing sensitive information, make sure you’re on a federal government site.
Https
The site is secure. 
The https:// ensures that you are connecting to the official website and that any information you provide is encrypted and transmitted securely.
Federal Register Publications

FDIC Federal Register Citations



Home > Regulation & Examinations > Laws & Regulations > FDIC Federal Register Citations




FDIC Federal Register Citations

[Federal Register: August 13, 2003 (Volume 68, Number 156)]

[Rules and Regulations]

[Page 48256-48274]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr13au03-2]

=======================================================================

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 19

[Docket No. 03-19]

RIN 1557-AC10

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. 2003-33]

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: Final rule.

-----------------------------------------------------------------------

SUMMARY: The OCC, Board, FDIC, and OTS (each an Agency, and

collectively, the Agencies) are jointly publishing final rules pursuant

to section 36 of the Federal Deposit Insurance Act (FDIA). Section 36,

as implemented by 12 CFR part 363, requires that each insured

depository institution with total assets of $500 million or more 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). The insured depository

institution must include the accountant's audit and attestation reports

in its annual report.

Section 36 authorizes the Agencies to remove, suspend, or debar

accountants from performing the audit services required by section 36

if there is good cause to do so. The final rules establish rules of

practice and procedure to implement this authority and reflect 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 final rules enhance the Agencies' ability

to address misconduct by accountants who perform annual audit and

attestation services.

EFFECTIVE DATE: October 1, 2003.

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, Legal Division,

(202) 452-3750; Nina Nichols, Counsel, (202) 452-2961; Arthur Lindo,

Project Manager, (202) 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;

Harrison E. Greene, Jr., Senior Policy Analyst, Accounting and

Securities Disclosure Section, Division of Supervision and Consumer

Protection, (202) 898-8905.

OTS: Christine A. Smith, Project Manager, (202) 906-5740,

Supervision Policy; Teresa A. Scott, Counsel (Banking & Finance), (202)

906-6478, Regulations and Legislation Division.

SUPPLEMENTARY INFORMATION:

I. Background

Section 36 of the FDIA (12 U.S.C. 1831m), 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 the

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. 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\

---------------------------------------------------------------------------

\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 363 App. A (Introduction).

\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).

---------------------------------------------------------------------------

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 Agencies' authority to remove, suspend, or debar

from practice before an Agency parties, such as accountants, who

represent others.\7\

---------------------------------------------------------------------------

\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.

---------------------------------------------------------------------------

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

[[Page 48257]]

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.

---------------------------------------------------------------------------

\8\ 12 U.S.C. 1831m(g)(4)(B).

---------------------------------------------------------------------------

II. Proposed Rule and Comments Received

On January 8, 2003, the Agencies proposed amending their rules of

practice by adding provisions for the removal, suspension, or debarment

of accountants or accounting firms from performing the audit services

required by section 36 of the FDIA.\9\ The proposed rules defined

``good cause'' for such actions and established procedures for removal,

suspension, or debarment of accountants. The proposals also contained

conforming amendments to the existing practice rules of the OCC, Board,

and FDIC.

---------------------------------------------------------------------------

\9\ 68 FR 1116 (January 8, 2003); see also 68 FR 4967, 5075

(January 31, 2003) (technical corrections).

---------------------------------------------------------------------------

The Agencies received six comments. One comment was from a major

trade association for community banks; another was from four large

accounting firms and a major professional association for the

accounting industry; a third was from three accounting firms that

provide audit services to publicly held and non-publicly held banks in

one state; the fourth and fifth comments were from certified public

accountants; and the final comment was from a banking, management, and

economic consultant. The commenters generally stated their support for

the underlying goals of section 36 and the proposal--to bolster the

quality of audit services.

One commenter expressed concern about immediate suspensions. The

commenter asked how an insured depository institution can meet the

deadline for submitting section 36 audits if the institution's

accountant is subject to an order of immediate suspension and requested

guidance on the Agencies' expectations under these circumstances.

Another commenter questioned why the Agencies are pursuing this

rulemaking, given the role of the newly constituted Public Company

Accounting Oversight Board (PCAOB) as a regulator of accountants. The

commenter's more specific concern was with the level of due process

associated with immediate and automatic suspensions. A third commenter

questioned whether the Agencies have authority to use a negligence

standard of any kind, given the higher standards elsewhere in the FDIA

for IAPs who are independent contractors. The commenter also questioned

the authority of the Agencies to extend sanctions to accounting firms

and offices.

In response to the comments, the Agencies have revised the

proposal, as discussed in detail below.

III. Final Rule

Below is a more detailed discussion of the issues raised in

response to the proposal and the Agencies' responses thereto. Because

each Agency is codifying the final rules using different section

numbers, this discussion will follow the order of the proposal, using

captions instead of section numbers for reference.

Definitions

The proposal defined ``accounting firm,'' ``audit services,'' and

``independent public accountant.'' Under the proposal, ``accounting

firm'' means a corporation, proprietorship, partnership, or other

business firm providing audit services. ``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. ``Independent public accountant'' means any individual who

performs or participates in providing audit services.

The Agencies did not receive any comments on the definitions. The

final rule adopts the definitions as proposed.

Removal, Suspension, or Debarment

Good Cause for Removal, Suspension, or Debarment. The proposed

rules defined ``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 of 2002 (Sarbanes-Oxley Act)

\10\ and developed by the PCAOB and the Securities and Exchange

Commission (SEC), as such standards and provisions become effective;

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.

---------------------------------------------------------------------------

\10\ Pub. L. 107-204, 116 Stat 745 (2002). For further guidance

on the obligations of insured depository institutions under the

Sarbanes-Oxley Act, see OCC Bulletin No. 2003-21, Application of

Recent Corporate Governance Initiatives to Non-Public Banking

Organizations (containing the Statement on Application of Recent

Corporate Governance Initiatives to Non-Public Banking Organizations

by the Board, OCC, and OTS (May 6, 2003)); Federal Reserve Board SR

Letter 03-8, Statement on Application of Recent Corporate Governance

Initiatives to Non-Public Banking Organizations (May 5, 2003). See

also FDIC Financial Institution Letter 17-2003 (Corporate

Governance, Audits, and Reporting Requirements) (March 5, 2003).

---------------------------------------------------------------------------

Under the proposal, good cause also included knowingly or

recklessly giving false or misleading information to the Agencies with

respect to any matter before the Agency; knowingly or recklessly

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 industry

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.

One commenter expressed a variety of reservations about the good

cause standard. The commenter's broadest suggestion was that the

Agencies should refer all section 36 actions against accountants to the

PCAOB and SEC, given the entities' new roles as regulators of

accountants under the Sarbanes-Oxley Act.

This comment does not reflect the jurisdictional differences among

the Agencies, PCAOB, and SEC. The Agencies have enforcement

jurisdiction that is separate and distinct from the PCAOB's and the

SEC's enforcement jurisdictions. Congress gave the Agencies discretion

to suspend or debar accountants from performing annual audit services

for good cause under section 36 of the FDIA. While an

[[Page 48258]]

enforcement action by the PCAOB or the SEC could provide good cause for

section 36 actions, neither the PCAOB nor the SEC has statutory

authority under the FDIA to suspend or debar an accountant from

performing annual audit services. Even if the PCAOB or the SEC could

accomplish this outcome indirectly, by barring an accountant from

associating with an accounting firm, neither the PCAOB nor the SEC has

authority to take action against an accountant who performs services

for an institution that is not publicly held. Accordingly, the Agencies

are not adopting the commenter's suggestion that all section 36 cases

be referred to the PCAOB or the SEC.

The commenter further asserted that there might be potential

inconsistencies between the good cause standards in the proposed rules

and those the PCAOB may establish in the future. To address these

potential problems, the commenter suggested that the Agencies should,

as stated above, defer to the PCAOB and the SEC, or at a minimum

coordinate with them before taking suspension or debarment actions

against accountants.

The Agencies intend to coordinate with the PCAOB and the SEC in

section 36 cases under appropriate circumstances. However, the Agencies

do not believe that the proposed rule creates a conflict in

professional or substantive standards for accountants among the

Agencies, the PCAOB, and the SEC. The proposed rule did not suggest new

standards for accountants. Rather, it incorporated accountants'

existing responsibility to adhere to applicable professional standards,

such as generally accepted auditing standards and generally accepted

standards for attestation engagements, and existing SEC and Agency

standards, into the definition of good cause. The proposed rules were

also consistent with the Sarbanes-Oxley Act and anticipated future

actions by the SEC and PCAOB to enforce standards set by those

agencies. The proposed rules were also drafted to accommodate the new

standards that will be adopted by the SEC and the PCAOB.

The commenter's next point concerned the possibility that conduct

at non-depository institutions could provide the basis for an action

against an accountant. The commenter questioned whether the Agencies

have the capability to evaluate the relevance of suspensions and

debarments of accountants in non-banking contexts, e.g., suspensions or

debarments by regulators of different types of businesses. The

commenter opposed using suspensions by non-banking agencies to serve as

good cause for suspensions or debarments in the banking industry.

The proposal was consistent with the Agencies' current authority

under section 8(e)(1)(A)(ii) of the FDIA, which allows the Agencies to

take into account unsafe business practices in connection not only with

any insured depository institution, but more broadly, any business

institution.\11\ The Agencies continue to believe that there may be

cases in which misconduct by accountants at non-depository institutions

could raise serious questions about the ability of the accountant to

provide audit services for an insured depository institution. Under the

final rule, therefore, the Agencies can consider as ``good cause''

suspensions and debarments of accountants in non-depository institution

contexts that come to the attention of the Agencies.

---------------------------------------------------------------------------

\11\ 12 U.S.C. 1818(e)(1)(A)(ii); see also Hendrickson v. FDIC,

113 F.3d 98 (7th Cir. 1997).

---------------------------------------------------------------------------

Another commenter questioned whether the Agencies have the

authority to use negligence as a basis for a removal, suspension, or

debarment of an accountant. The commenter argued that the negligence

standard is not consistent with remedies available now to the Agencies

against independent contractor IAPs under section 8 of the FDIA.\12\

---------------------------------------------------------------------------

\12\ See 12 U.S.C. 1818, 1813(u)(4).

---------------------------------------------------------------------------

In response, the Agencies note that section 36 of the FDIA broadly

refers to ``good cause'' as grounds for section 36 enforcement actions.

There is no limitation in the statute on the use of negligence as a

basis for action, nor does section 36 tie ``good cause'' to existing

section 8 standards. On the contrary, section 36 of the FDIA states

that the good cause enforcement remedies are in addition to those

available under section 8.\13\ The commenter's position would

essentially require this clause to be eliminated from section 36 of the

statute. Also, the negligence standard is one the SEC has used for many

years in its suspension and debarment actions against accountants.

Congress recently codified this standard for the SEC in the Sarbanes-

Oxley Act.

---------------------------------------------------------------------------

\13\ Id. 1831m(g)(4).

---------------------------------------------------------------------------

For the foregoing reasons, the Agencies are adopting in the final

rules the good cause standard from the proposed rules.

Removal, Suspension, or Debarment of Accounting Firms or Offices of

Firms. The proposed rules provided that if an Agency determines that

there is good cause for the removal, suspension, or debarment of a

member or an employee of an accounting firm, the Agency ``also may

remove, suspend, or debar such firm or one or more offices of such

firm.'' The proposed rule listed five illustrative factors that the

Agency may consider when deciding (a) whether to remove, suspend, or

debar a firm or one or more offices of such firm, and (b) the term of

any sanction imposed.

Some of the commenters questioned the authority of the Agencies to

take action against accounting firms or offices of firms. One commenter

noted that section 36(g)(4) of the FDIA specifically permits removal,

suspension, or debarment of ``an independent public accountant.'' The

commenter then asserted ``[t]here is no mention in the statute of the

possible extension of those sanctions to accounting firms or offices,

or of extended or vicarious liability in any other way or of any

kind.'' The commenter concluded that the Agencies lack authority to

implement this aspect of their proposal.

Another commenter did not specifically question the authority of

the Agencies to propose rules permitting the removal, suspension, or

debarment of an accounting firm or office thereof. Rather, the

commenter quoted a portion of the legislative history of the Financial

Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA),

Pub. L. 101-73, 103 Stat. 183 (1989), to the effect that enforcement

actions should usually be limited to the individuals who participated

in the wrongful action to ``prevent unintended consequences or economic

harm to innocent third parties.'' \14\ The commenter argued that the

rules should include an explicit presumption against taking action

against an entire firm, that this sanction should only be available in

the most egregious circumstances, specifically articulated in the

rules, and that a sanction against a firm should only be permissible

after the affected firm has had the opportunity for a meaningful

hearing before an independent trier of fact.

---------------------------------------------------------------------------

\14\ H.R. Rep. No. 54(I), 101st Cong., 1st Sess., at 467 (1989),

reprinted in 1989 U.S.C.C.A.N. 86,263.

---------------------------------------------------------------------------

The Agencies believe that the proposed rules, as they pertain to

actions against accounting firms and offices, are well within the

Agencies' statutory authority. As noted in the preamble to the proposed

rule, under the current practice regulations, the Agencies may

``remove, suspend, or debar a firm by naming each member of the firm or

office in the order * * *.'' Thus, the proposal also employed this

scope and provided guidance on when a firm sanction might be

appropriate. In

[[Page 48259]]

addition, there is no indication that in using the term ``independent

public accountant'' Congress intended to restrict removals,

suspensions, or debarments solely to natural persons. The term

``independent public accountant'' is used throughout section 36 and its

implementing regulation, 12 CFR part 363, not just in the section

36(g)(4) provision relating to removal, suspension, or debarment.

Indeed, section 36 specifically provides that all required audit

services must be performed by an ``independent public accountant'' who

has agreed to provide requested work papers and has received an

acceptable peer review. All required audit and other reports are

universally signed by accounting firms, not individual accountants,\15\

and peer reviews are performed at the firm level. Thus, the Agencies

believe that enforcement action at the firm level in appropriate

circumstances is entirely consistent with the section 36 statutory

scheme.\16\

---------------------------------------------------------------------------

\15\ Section AU 508.08 of the AICPA's Professional Standards

describes the basic elements of the auditor's standard report on

audited financial statements. These elements include ``i. The manual

or printed signature of the auditor's firm.'' Similarly, Section AT

501.47 of these standards states that a practitioner's examination

report on the effectiveness of an entity's internal control over

financial reporting should include ``j. The manual or printed

signature of the practitioner's firm.'' In addition, Section AU

9339.06 of the Professional Standards presents an example of a

letter that an auditor should consider submitting to a regulator

prior to allowing the regulator access to audit work papers. This

letter ends with ``Firm signature.''

\16\ The Agencies realize that the final rule includes

definitions of both independent public accountant (individuals who

provide audit services) and accounting firm (business entities that

provide auditing services). The dual definitions are required

because of the additional criteria, beyond those applicable to

individual accountants, that the Agencies may assess in determining

whether to take action against a firm. The Agencies continue to

believe that the statutory term independent public accountant

encompasses both regulatory definitions.

---------------------------------------------------------------------------

With respect to the legislative history quoted by the commenter, we

note that the history is from FIRREA, not the Federal Deposit Insurance

Corporation Improvement Act of 1991 (FDICIA),\17\ which added section

36 to the FDIA, so it is not directly relevant to our construction of

section 36. Even if this legislative history were applicable to section

36, the commenter quoted only a portion of the relevant legislative

history material--the section not quoted supports the view that, in

extending Agency enforcement jurisdiction to independent contractors,

including ``any attorney, appraiser, or accountant,'' \18\ Congress

intended such enforcement jurisdiction to extend to business

organizations under appropriate circumstances. In this regard, the

House Banking Committee's Report on FIRREA, H.R. Rep. No. 54(I), at

466-67, states:

---------------------------------------------------------------------------

\17\ Pub. L. 102-242, 105 Stat. 2236 (1991).

\18\ 12 U.S.C. 1813(u)(4).

[T]he Committee strongly believes that the agencies should have

the power to proceed against such entities (corporation, firm or

partnership) if most or many of the managing partners or senior

officers of the entity have participated in some way in the

egregious misconduct. For example, a removal and prohibition order

might be justified against the local office of a national accounting

firm if it could be shown that a majority of the managing partners

or senior supervisory staff participated directly or indirectly in

the serious misconduct to an extent sufficient to give rise to an

order. Such an order might well be inappropriate if it was taken

against the entire national firm or other geographic units of the

firm, unless the headquarters of these units were shown to have also

---------------------------------------------------------------------------

participated, even if only in a reviewing capacity.

Accordingly, the similar reference in section 36 to ``independent

public accountant'' can reasonably be read to reach firms as well.

The Agencies understand that severe economic consequences may

result from action barring an accounting firm from performing section

36 audit services. The Agencies are also sensitive to the consequences

that barring a firm might have on innocent third parties not directly

involved in the misconduct at issue. While the Agencies have had the

authority since FIRREA to pursue enforcement actions against entire

firms of professionals, such authority has been used only a handful of

times and only in the most egregious circumstances. In addition, the

Agencies believe that the five factors specified in the proposed rule

appropriately focus the inquiry on whether sufficient involvement of

firm management is present to justify action against the entire firm.

Accordingly, the Agencies see no reason to amend the proposal to

include an explicit presumption against action at the firm or office

level. The comment concerning the need for a prior hearing before

action at the firm or office level will be addressed in the sections

discussing automatic and immediate suspensions.

Proceedings to Remove, Suspend, or Debar. Under the proposed rules,

the Agencies would hold formal hearings on removals, suspensions, and

debarments under rules that are consistent with the Agencies' Uniform

Rules of Practice and Procedure (Uniform Rules).\19\ 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 so that it applied solely to

audit services provided to specified insured depository institutions,

rather than to all insured depository institutions supervised by the

issuing Agency. This was referred to in the proposed rules as a

``limited scope order.'' \20\

---------------------------------------------------------------------------

\19\ See 12 CFR part 19, subpart A (OCC); 12 CFR part 263,

subpart A (Board); 12 CFR part 308, subpart A (FDIC); 12 CFR part

509, subpart A (OTS).

\20\ 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.

---------------------------------------------------------------------------

The procedures in the proposed rules for removal, suspension, and

debarment were drawn principally from the Agencies' existing practice

rules. The Agencies did not receive comment on these procedures.

Therefore, the Agencies are adopting the procedures as proposed.

Immediate Suspension from Performing Audit Services. The proposed

rule implemented the authority in section 36 to ``suspend'' an

independent public accountant by providing that an Agency may issue a

notice immediately suspending an accountant or a firm subject to a

notice of intention to remove, suspend, or debar if the Agency

determines that immediate suspension is necessary for the protection of

an insured depository institution, or its depositors, or for the

protection of the insured depository system as a whole. In making this

proposal, the Agencies stated that the authority to immediately suspend

an accountant or firm could prevent seriously harmful conduct relating

to accounting matters at an insured depository institution from being

repeated or escalating while the administrative proceedings relating to

a permanent removal, suspension, or debarment order are pending.

One commenter asked for guidance to insured depository institutions

on what to do if their accountant were suspended immediately, more

specifically, how to meet the deadlines for filing annual audits. The

commenter was concerned that there would not be sufficient time to

complete the audit, given the time it would take for a new accountant

to become familiar with the facts.

The Agencies understand that an immediate suspension may cause

disruption to an institution and make it

[[Page 48260]]

difficult to meet the deadlines for submitting annual audits. The

Agencies expect that immediate suspensions would only be issued in

compelling situations. In the case where an Agency head imposed an

immediate suspension, the Agency will make appropriate adjustments to

the filing deadlines, if warranted, at the institution's request.

Another commenter expressed a variety of objections to the proposed

procedures for contesting an immediate suspension. The commenter

generally stated that the proposed procedures do not comport with due

process and suggested that the Agencies modify the proposed procedures

in a number of areas to follow more closely those procedures governing

issuance of temporary cease-and-desist orders by the SEC. Except for

the modifications explained below, the Agencies do not believe that the

proposed procedures should be conformed to the procedures applicable to

temporary cease-and-desist orders issued under the securities laws.

With regard to the protection of the nation's banking system, judicial

decisions have recognized that there is a compelling governmental

interest that can justify regulatory action with abbreviated procedures

when necessary.\21\ The Agencies expect that the immediate suspension

remedy would be used only in circumstances where serious harm to a

depository institution, its depositors, or to the depository system as

a whole would occur unless immediate enforcement action is taken.

The commenter also had more specific suggestions for revisions to

the proposal. First, the commenter stated that the Agencies' proposed

procedures should allow for a quicker agency decisionmaking process.

The commenter noted that, under the time frames contained in the

proposed rules, an accountant or a firm that petitions the Agency to

stay a notice of immediate suspension may not receive a decision with

respect to the petition until 70 days after the immediate suspension

becomes effective. The commenter noted that, under the SEC Rules of

Practice, a final agency decision on a challenge to a temporary cease-

and-desist order issued by the SEC without a prior hearing is required

within 20 days.\22\

---------------------------------------------------------------------------

\21\ See, e.g., Fahey v. Mallonee, 322 U.S. 245 (1947).

\22\ 17 CFR 201.513(c).

---------------------------------------------------------------------------

The Agencies believe that the proposed maximum time period

permitted for an Agency decision on a stay petition is consistent with

due process requirements. The Agencies note that the Supreme Court has

approved a procedural framework allowing up to 90 days for a final

decision by the Agencies on a challenge to an ex parte suspension order

issued by the Agencies against an IAP of a depository institution who

has been indicted for certain types of crimes. FDIC v. Mallen, 486 U.S.

230 (1988).

The maximum time limits in the proposed rules were designed by the

Agencies to permit a sufficient period for the creation of a meaningful

record with regard to a stay petition and for careful and deliberate

review of that record by the Agency decision maker, consistent with the

recognized necessity for prompt administrative action on such a

petition. As with the post-deprivation Agency hearing at issue in the

Mallen decision, a stay petition could necessitate resolution of

factual disputes that would require at least some examination of

relevant evidence.

The Agencies intend that an administrative decision on a stay

petition under the rules should be made at the earliest practicable

time. Thus, the time limits imposed in the rules are intended to

establish only the maximum period allowable for issuing a decision and

a decision is expected to be made more promptly whenever feasible.

Nevertheless, in order to further minimize concerns about undue delay

in the decision on a stay petition, the Agencies believe that the date

by which a hearing on a petition to stay is ordered can be shortened

without unduly impairing the administrative decisionmaking process.

Accordingly, the final rules require that an Agency must order a

hearing on a petition to stay to be held 10 days after receipt of the

petition, rather than within 30 days as proposed.

As the commenter pointed out, the Supreme Court's approval of a 90-

day agency decisionmaking period in the Mallen decision depended in

part on the fact that, under the statutory framework at issue, the

suspension of an IAP may be issued only after the individual involved

has been indicted by an independent entity, like a grand jury.

According to the Court, the indictment serves to reduce the likelihood

that the banking agency suspension is unjustified. Under the proposed

rules, an immediate suspension notice may be issued by an Agency

without any similar action by a third party. In the Agencies' view,

however, the lack of an independent triggering event by a third party

for accountant suspensions does not mean that the maximum time limits

in the final rules would result in the denial of a prompt and

meaningful hearing before the Agency on the propriety of the

suspension. The Agencies intend that, under the final rules, an

immediate suspension could be issued only where there is probative

evidence that substantial harm to an insured depository institution,

its depositors, or to the depository system as a whole is likely to

occur prior to completion of the proceedings on a permanent order of

removal, suspension, or debarment. In addition, under the final rules,

the maximum time period permitted for a decision on a stay petition (50

days) is only slightly longer than half the maximum time limit approved

in the Mallen case for an agency decision on an indictment-triggered

suspension. In the Agencies' judgment, the maximum time for decision in

the final rules represents the shortest realistic period necessary for

adequate consideration of the suspended party's opposition to the

suspension.\23\ As the Supreme Court noted in Mallen, the public has a

strong interest in seeing that the ultimate agency decision with

respect to a suspension is made in a ``considered and deliberate

manner.'' \24\

---------------------------------------------------------------------------

\23\ The proposed and final rules permit a suspended accountant

or firm to elect to seek review of the presiding officer's decision

on a stay petition by the Agency. However, the appeal to the Agency

is not mandatory.

\24\ 486 U.S. at 244.

---------------------------------------------------------------------------

The commenter's second objection to the procedures was to the

proposed provisions under which the decision on a petition to stay an

immediate suspension is made by a presiding officer designated by the

Agency. According to the commenter, the stay petition should be decided

by an administrative law judge, who by statute has some independence

from the agency whose cases the judge hears.

The Agencies do not believe that an administrative law judge must

be designated as the decisionmaking official with regard to a petition

to stay the immediate suspension of an accountant or firm. The Agencies

note that under their existing rules of practice, a similar type of

decision on an interim order, namely the decision with respect to

whether a suspension of an IAP who has been indicted should be lifted

pending completion of the criminal trial, is made by a presiding

officer, not by an administrative law judge.\25\ A court decision that

prescribed the minimum procedures required by due process for these

suspensions did not suggest that the agency decision on lifting the

suspension had to be made by

[[Page 48261]]

an administrative law judge in order to meet constitutional

requirements.\26\

---------------------------------------------------------------------------

\25\ 12 CFR 19.112(b) (OCC); 12 CFR 263.73(a) (Board); 12 CFR

308.164(b) (FDIC); and 12 CFR 508.6(a) (OTS).

\26\ Feinberg v. FDIC, 420 F. Supp. 109, 120 (D.D.C. 1976).

---------------------------------------------------------------------------

The Agencies recognize, however, that it may be useful to clarify

that the presiding officer who decides a petition to stay an immediate

suspension must be insulated from the Agency staff responsible for

prosecuting the charges against the suspended accountant or firm. The

provisions of the proposed rules relating to the hearing on a stay

petition are therefore being modified to add a new sentence, which

follows the requirements of the Administrative Procedure Act \27\ for

formal agency adjudications. The final rules explicitly state that an

Agency employee engaged in investigative or prosecuting functions for

the Agency in a particular action against an accountant or a firm, or

in a factually related action, may not serve as the presiding officer

or otherwise participate or advise in the decision with respect to a

petition to stay the immediate suspension.

---------------------------------------------------------------------------

\27\ 5 U.S.C. 554.

---------------------------------------------------------------------------

The commenter's third suggestion was that the proposed immediate

suspension provisions be modified to make clear that, except in unusual

cases, an accountant or firm should be suspended immediately only after

prior notice and opportunity for the party involved to contest the

suspension. In the Agencies' judgment, the modification to the proposed

procedures advocated by the commenter is neither necessary nor

appropriate. There is nothing in section 36 that requires prior notice

and opportunity for hearing before a suspension under that provision

may be issued. Moreover, the courts have long recognized that the

strong governmental interest in protecting depositors and preserving

confidence in the financial system can justify immediate action by the

regulatory agencies prior to notice and the opportunity for

hearing.\28\

---------------------------------------------------------------------------

\28\ See, e.g., Fahey v. Mallonee, 332 U.S. at 253; Mallen, 486

U.S. at 240-41; Feinberg, 420 F. Supp. at 119.

---------------------------------------------------------------------------

Fourth, the commenter asserted that, like the SEC Rules of

Practice, the Agencies' procedures should require a showing that

irreparable harm would result before authorizing an immediate

suspension. Contrary to this comment, there is no requirement in

section 36 that the Agencies show ``irreparable harm.'' Nor are the

agencies aware of any authority that requires a finding by the

Government of irreparable harm in order to satisfy minimum

constitutional standards of due process before immediate action can be

taken. The Agencies further note that the suspension procedures in the

proposed rules and the finding that must be made by the Agencies to

justify an immediate suspension are very similar to those prescribed in

section 8(e)(3) of the FDIA, which govern the suspension of an IAP of

an insured depository institution pending completion of administrative

proceedings concerning a proposed permanent order of removal or

prohibition.\29\ Nevertheless, to better express the immediate

suspension standard, the rule has been revised to require ``immediate

harm'' to an insured depository institution, its depositors, or to the

depository system as a whole.

---------------------------------------------------------------------------

\29\ 12 U.S.C. 1818(e)(3).

---------------------------------------------------------------------------

The commenter's fifth criticism of the proposed rule was that it

did not establish a procedure for judicial review of immediate

suspensions imposed by the Agencies. However, section 36 contains no

specific provision for review by the courts of any action taken by the

Agencies under the authority of that provision. Administrative agencies

have no authority to create a right to judicial review of agency

action.\30\ Any right to judicial review of an immediate suspension

must be based on some statutory authority.

---------------------------------------------------------------------------

\30\ Final agency action would, however, be reviewable by a

court under the Administrative Procedures Act.

---------------------------------------------------------------------------

The commenter's sixth point concerned immediate suspensions of

accounting firms. The commenter stated that the Agencies' authority

under the proposal to immediately suspend a firm from providing audit

services is too broad and subjective and any firm subject to an

immediate suspension should have greater procedural protections than

what is provided in the proposed rules.

The Agencies recognize that the immediate suspension of an entire

firm could have a serious effect on the firm as well as on the insured

depository institutions that may be relying on the firm for audit

services. However, as explained above, the Agencies intend that the

immediate suspension sanction would be applied to a firm only when

clearly necessary to protect a depository institution or the depository

system and when the factors specified in the rules for applying

disciplinary action to a firm support such a regulatory response.

Because the Agencies believe that these circumstances, though unusual,

warrant disciplinary action against an entire accounting firm should

they occur, the Agencies have retained that authority in the final

rule. The procedural protections afforded an immediately suspended

party in the final rules, whether an individual or a firm, represent an

appropriate balance between protecting the banking system and

protecting the rights of affected parties.

Automatic Removal, Suspension, and Debarment. The proposed rule

provided that accountants or firms subject to certain specified

disciplinary actions would automatically be prohibited from providing

audit services. No further proceedings or hearings by the Agency would

be required in these instances. Under each Agency's proposed rule, the

actions giving rise to such an automatic bar include: (1) A final order

of removal, suspension, or debarment under section 36 (other than a

limited scope order) issued by any of the other Agencies; (2) certain

actions by the PCAOB (specifically, a temporary suspension or permanent

revocation of registration or a temporary or permanent suspension or

debarment from further association with a registered public accounting

firm); (3) certain actions by the SEC (specifically, an order of

suspension or a denial of the privilege of appearing or practicing

before the SEC); and (4) suspension or debarment for cause from

practice as an accountant by the licensing authority of any state,

possession, commonwealth, or the District of Columbia.

Under the proposed rules, disciplinary actions not giving rise to

an automatic bar could still serve as grounds for an Agency to take

action against an accountant or a firm. In this respect, grounds for

Agency action set forth in the proposal specifically include removal,

suspension, or debarment by any Federal or state agency regulating the

banking, insurance, or securities industries. If such an action were

grounds for an Agency proceeding, however, the full array of hearings

and procedures in the proposed rules would be required.

One commenter objected to the proposed rules' approach to the

automatic bar, contending that it was too broad in scope because the

reasons for an action by the SEC, PCAOB, or a state might be irrelevant

to the provision of audit services under the rules. The commenter

argued that, to prevent an unwarranted automatic bar, an accountant or

a firm should in all cases have the opportunity for a hearing before an

Agency considering removal, suspension, or debarment, and that the

Agency should be required to conduct an independent analysis. The

commenter also asserted that the SEC's automatic suspension provisions

are more limited and generally require license revocation, criminal

conviction, or prior action by the SEC. Finally, the commenter urged

the Agencies to include in the final rule an expedited

[[Page 48262]]

review process for an automatic removal, suspension, or debarment.

The Agencies believe that the automatic bar provisions are

generally appropriate, notwithstanding certain differences from the

SEC's practice, and that the protections granted in the rule are

adequate. In a case where another Agency has taken disciplinary action

against an accountant or a firm under section 36, the Agency has

resolved issues that are relevant to the provision of audit services

throughout the banking system. If an accountant or a firm were entitled

to a separate hearing before each Agency, four separate hearings would

be required to prevent an accountant or firm from providing audit

services under the rules, notwithstanding the similarity of the issues.

Such a requirement would essentially result in duplicative proceedings

to implement a single action, and the Agencies do not believe that the

repetitive proceedings would result in any significant additional

protection for the accountant or firm. The Agencies believe it is

appropriate and within the statutory direction of section 36 for the

joint rules to provide that each Agency will defer to the proceedings

of the other federal banking supervisors.

It should be noted that the automatic bar resulting from an action

by another Agency does not apply in a case where the other Agency has

issued a limited scope order effective only with respect to audit

services provided to one or more specified institutions. If another

Agency sought to remove, suspend, or debar an accountant subject to a

limited scope order, it would have to provide the accountant with the

hearings and procedures set forth in the rule. Moreover, in the event

that the particular facts and circumstances of a removal, suspension,

or debarment justify an exception from the automatic, industry-wide

bar, each Agency's proposed rule provided that the Agency has

discretion to override the automatic bar with respect to the

institutions it supervises. An accountant or firm would be entitled to

make such a request in any case, and the Agency could grant written

permission.

One commenter suggested that the Agencies should include in the

rule substantive standards for when they will override the automatic

bar. In response, we note that the general standard for suspension or

debarment under section 36--``good cause''--would apply to the decision

of whether or not to override an automatic bar. It is impossible to

predict all the situations in which the facts will support an override

of an automatic suspension or debarment. A bright-line test could have

the effect of limiting an Agency's flexibility to give the relief

sought by the accountant or firm. Accordingly, the final rule retains

the provision permitting the accountant or firm to request that an

Agency grant an exception from the automatic bar.

With regard to SEC and PCAOB actions as a predicate for the

automatic bar, the Agencies believe that the SEC's and PCAOB's

expertise and jurisdiction in this area warrant recognition by the

Agencies of their actions against an accountant or firm. While there

are differences between insured depository institutions and

institutions under the primary jurisdiction of the SEC, the conduct

giving rise to suspension or debarment by the SEC is likely to be of

equally significant concern to the banking regulators. In the rare case

where an action by the SEC or the PCAOB is based on conduct that is

unrelated to the provision of audit services to an insured institution,

the Agencies retain override authority, and an accountant or firm would

be able to request Agency permission to provide audit services

notwithstanding SEC or PCAOB action.

The final trigger for an automatic bar in the proposed rule was

suspension or debarment for cause by a state licensing authority. The

Agencies have further considered the potential effects of this

provision in light of the comments received and agree that there are

likely to be instances in which a state's action is not relevant to the

provision of audit services--there may be a wide range of ``for cause''

grounds for suspension or debarment under various state laws. In

addition, the procedural protections afforded to accountants in state

proceedings may not be as uniform and as broad as those provided by the

Agencies, the SEC, and the PCAOB. Accordingly, the Agencies have

determined that suspension or debarment of an accountant for cause by a

state licensing authority should properly be treated as grounds for

discretionary Agency removal, suspension, or debarment, rather than as

a trigger for the automatic prohibition on the provision of audit

services. The final rule amends both the automatic bar section and the

section on grounds for Agency action to reflect this change.

One commenter raised a concern about whether the automatic bar

provision of the proposed rule could violate an accountant's or a

firm's right to due process by imposing a penalty without allowing

opportunity for a hearing. As set forth above, the automatic bar only

applies in instances where the accountant or a firm has already

received due process protections in proceedings before another Agency,

the SEC, or the PCAOB. Moreover, an accountant or a firm may petition

an Agency to perform audit services for a bank or savings association.

The Agencies believe that these procedures will provide ample

opportunity for an accountant or firm to obtain a fair hearing that

comports with due process protections of the Constitution.

Notice of Removal, Suspension, or Debarment. The proposed rules

required 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 was consistent with the

presumption in favor of public notice for enforcement actions in the

FDIA.\31\ The proposed rules also contained notification provisions for

accountants and firms.

---------------------------------------------------------------------------

\31\ 12 U.S.C. 1818(u)(1).

---------------------------------------------------------------------------

The proposal required that an accountant or accounting firm

performing section 36 audit services for any insured depository

institution must provide the Agencies with written notice of any

currently effective disciplinary sanction against the accountant or

firm issued by the PCAOB 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

under the proposed rules is also required of any removal, suspension,

or debarment from practice before any Federal or state (non-licensing)

agency regulating the banking, insurance, or securities industry on

grounds relevant to the provision of audit services; and any action by

the PCAOB 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

PCAOB. 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.

The Agencies did not receive any comments on the notice provisions.

The Agencies are therefore adopting the

[[Page 48263]]

provisions as proposed, although there are technical changes to

accommodate changes to the good cause and automatic suspension

provisions described above.

Petition for Reinstatement. Under the proposal, a removed,

suspended, or debarred ``independent public accountant or accounting

firm'' may 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.

One commenter asked that the Agencies revise the proposal to permit

a firm to petition for reinstatement of individual offices that have

been removed, suspended or debarred, in addition to permitting

petitions for reinstatement of individual accountants or the firm as a

whole. The Agencies did not intend in the proposed rule to prohibit

offices of a firm that have been removed, suspended, or debarred from

petitioning for reinstatement. The proposed reinstatement provision,

therefore, has been revised in the final rule to clarify that a

removed, suspended, or debarred office of a firm may petition for

reinstatement.

Another commenter urged the Agencies to state factors that the

Agencies would consider in evaluating a reinstatement request so that

affected parties would know what type of information the Agencies need

to make a decision. The Agencies understand that petitioners will wish

to tailor their reinstatement requests in a manner that they believe

will yield them success in obtaining the relief they seek. In the past

and in other contexts, the Agencies have looked at various factors in

reviewing reinstatement petitions. These factors included: (1) The

nature, extent, and duration of the conduct that led to the issuance of

the order; (2) the period of time that an order has been outstanding,

as well as any prior requests made by the petitioner; (3) activities of

the petitioner since the order was issued, including evidence of

rehabilitation; (4) the nature of the position or proposed action the

requestor is seeking, and the scope of relief sought; (5) the

likelihood of future misconduct giving good cause for removing,

suspending, or debarring the petitioner; and (6) the views and opinions

of other Federal banking agencies, when applicable. The Agencies will

include these factors in their evaluations of petitions for

reinstatement.

Second, the commenter asserted that the Agencies failed to explain

the necessity for a one-year waiting period before a suspended,

removed, or debarred party could seek reinstatement. The commenter

argued in favor of a case-by-case approach. In addition, the commenter

argued that the Agencies' requirement of a one-year period is

inconsistent with the SEC's rules, which permit a petitioner to file

for reinstatement at any time.

The Agencies believe that the proposed rule made room for a case-

by-case approach to reinstatement by providing that, ``unless otherwise

ordered'' by the appropriate agency decision maker, the one-year

waiting period would apply. Under the proposed rule, if a petitioner

believed that the circumstances merited review prior to the expiration

of the one-year period, the petitioner could seek an order from the

Agency decision maker permitting the petitioner to seek such earlier

review. Given the Agencies' intention, as reflected in the proposed

rule, that the one-year waiting period for reinstatement have some

flexibility and considering the comments received, the Agencies have

amended the final rule to permit persons, firms, and offices to

petition for reinstatement at any time.

The proposal reflected the view of the Agencies that petitions for

reinstatement filed close in time, either to the Agency's decision or

the last petition for reinstatement, are unlikely to present new issues

or bases for reinstatement and would waste Agency resources. Thus,

although the final rule permits a petition for reinstatement at any

time, it will be unusual for the Agencies to grant such relief within

one year of a removal, suspension or debarment order.\32\

---------------------------------------------------------------------------

\32\ Also, in the case of a suspension, it will be unusual for

the Agencies to grant reinstatement prior to the expiration of the

suspension period.

---------------------------------------------------------------------------

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

OCC

The OCC proposed adding ``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.\33\ 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 was 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.

---------------------------------------------------------------------------

\33\ See 12 CFR 19.196 (describing disreputable conduct).

---------------------------------------------------------------------------

The OCC also proposed broadening 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 Sec. 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 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 a firm's ability to perform section 36-required audits,

this part of the proposal concerned who may practice before the OCC in

other capacities, such as in adjudications, or through preparation of

documents for submission to the OCC. Under the proposed rule, the OCC

also revised 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.

The OCC did not receive any comments on these proposed changes.

Accordingly, the conforming and technical changes are adopted in the

final rule as proposed.

Board

The Board proposed to amend its Rules of Practice Before the Board

(12 CFR 263, subpart F) to expand the type of conduct for which an

individual may be censured, debarred, or suspended from practice before

the Board. In particular, the Board proposed 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 was to clarify that conduct more culpable than incompetence,

but less culpable than willful or knowing

[[Page 48264]]

action, may form the basis for a suspension or debarment from practice

before the Board. This change also reflected the modification made to

the SEC's rules of practice by the Sarbanes-Oxley Act.

The Board did not receive any comments on these proposed changes.

Accordingly, the conforming and technical changes are adopted in the

final rule as proposed.

FDIC

The FDIC proposed making 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.''

The FDIC did not receive any comments on these proposed changes.

Accordingly, the conforming and technical changes are adopted in the

final rule as proposed.

V. Regulatory Analysis

A. Regulatory Flexibility Act

OCC: Under section 605(b) of the Regulatory Flexibility Act, 5

U.S.C. 605(b) (RFA), the appropriate Federal banking agencies must

either provide a Final Regulatory Flexibility Analysis for a final rule

or certify that the rule will not have a significant economic impact on

a substantial number of small entities. For purposes of this Regulatory

Flexibility Analysis and final 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 final rule will have on small

banks. Based on that review, we certify that the final 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 RFA, 5 U.S.C. 605(b), the

Board certifies that the suspension and debarment amendments in this

final 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 final 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 FDIC certifies, pursuant to section 605(b) of the RFA, 5

U.S.C. 605(b), that the final suspension and debarment amendments will

not 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 a Final Regulatory

Flexibility Analysis, or certify that the rule will not have a

significant economic impact on a substantial number of small entities.

For purposes of this RFA analysis, 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, 5 U.S.C. 605(b) certifies

that this final rule will 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.

B. 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.).

C. Executive Order 12866

The OCC and OTS have determined that this final rule is not a

significant regulatory action under Executive Order 12866.

D. 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 final 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.

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.

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

0

For reasons set out in the joint preamble, part 19 of chapter I of

title 12

[[Page 48265]]

of the Code of Federal Regulations is amended to read as follows:

PART 19--RULES OF PRACTICE AND PROCEDURE

0

1. The authority citation for part 19 is revised 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.

Subpart B--[Amended]

0

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.

Subpart C--[Amended]

0

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 Large Bank Supervision, 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 Mid-Size/Community Bank

Supervision, to the Senior Deputy Comptroller for Mid-Size/Community

Bank Supervision for the 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.

Subpart K--[Amended]

0

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

* * * * *

0

5. A new subpart P is added to read as follows:

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.

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

[[Page 48266]]

(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; or

(vii) 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) 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 to avoid

immediate harm to an insured depository institution or its depositors

or to 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 10 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. Any OCC employee engaged in

investigative or prosecuting functions for the OCC in a case may not,

in that or a factually related case, serve as a presiding officer or

participate or advise in the decision of the presiding officer or of

the OCC, except as witness or counsel in the proceeding. 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

[[Page 48267]]

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 or the Securities and

Exchange Commission under sections 105(c)(4)(A) or (B) of the Sarbanes-

Oxley Act (15 U.S.C. 7215(c)(4)(A) or (B)); or

(3) Is subject to an order of suspension or denial of the privilege

of appearing or practicing before the Securities and Exchange

Commission.

(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. Sec. 19.243(a)(1)(vi) through (a)(1)(vii) or Sec. Sec.

19.244(a)(2) through (a)(3); and

(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, an

accounting firm, or an office of a firm that was removed, suspended, or

debarred under Sec. 19.243 may be made in writing at any time. 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.

Dated: July 23, 2003.

John D. Hawke, Jr.,

Comptroller of the Currency.

FEDERAL RESERVE SYSTEM

12 CFR Chapter II

Authority and Issuance

0

For the reasons set out in the joint preamble, part 263, chapter II,

title 12 of the Code of Federal Regulations is amended as follows:

PART 263--RULES OF PRACTICE FOR HEARINGS

0

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.

Subpart F--[Amended]

0

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;

* * * * *

0

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).

[[Page 48268]]

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. 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;

(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; or

(vii) 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) 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 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)(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 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 to avoid

immediate harm to an insured depository institution or its depositors

or to 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

[[Page 48269]]

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 10 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. Any Board employee engaged in

investigative or prosecuting functions for the Board in a case may not,

in that or a factually related case, serve as a presiding officer or

participate or advise in the decision of the presiding officer or of

the Board, except as witness or counsel in the proceeding. 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 or the Securities and

Exchange Commission 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)); or

(3) Is subject to an order of suspension or denial of the privilege

of appearing or practicing before the Securities and Exchange

Commission.

(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:

(1) Any currently effective order or other action described in

Sec. Sec. 263.402(a)(1)(vi) through (a)(1)(vii) or Sec. Sec.

263.403(a)(2) through (a)(3); and

(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, an

accounting firm, or an office of a firm that was removed, suspended, or

debarred under Sec. 263.402 may be made in writing at any time. 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.

Dated: August 6, 2003.

Jennifer J. Johnson,

Secretary of the Board.

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 308

Authority and Issuance

0

For the reasons set out in the joint preamble, part 308, chapter III,

title 12 of the Code of Federal Regulations is amended as follows:

PART 308--RULES OF PRACTICE AND PROCEDURE

0

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.

[[Page 48270]]

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.

0

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. * * *

* * * * *

0

3. A new Subpart U is added to read as follows:

Subpart U--Removal, Suspension, and Debarment of Accountants From

Performing Audit Services

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.

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 under section 36 of the FDIA

from performing audit services for insured depository institutions for

which the FDIC is the appropriate Federal banking agency 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;

(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; or

(vii) 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) 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 (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

[[Page 48271]]

Procedure (12 CFR part 308, subpart A) (Uniform Rules).

(c) Immediate suspension from performing audit services.

(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 to avoid

immediate harm to an insured depository institution or its depositors

or to 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 shall 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 10 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. Any FDIC employee

engaged in investigative or prosecuting functions for the FDIC in a

case may not, in that or a factually related case, serve as a presiding

officer or participate or advise in the decision of the presiding

officer or of the FDIC, except as witness or counsel in the proceeding.

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

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 or the Securities and

Exchange Commission under sections 105(c)(4)(A) or (B) of the Sarbanes-

Oxley Act (15 U.S.C. 7215(c)(4)(A) or (B)); or

(3) Is subject to an order of suspension or denial of the privilege

of appearing or practicing before the Securities and Exchange

Commission.

(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. Sec. 308.602(a)(1)(vi) through (a)(1)(vii) or Sec. Sec.

308.603(a)(2) through (a)(3); and

(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

[[Page 48272]]

independent public accountant, an accounting firm, or an office of a

firm that was removed, suspended, or debarred under Sec. 308.602 may

be made in writing at any time. 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.

By order of the Board of Directors of the Federal Deposit

Insurance Corporation.

Dated: August 4, 2003.

Valerie J. Best,

Assistant Executive Secretary.

OFFICE OF THRIFT SUPERVISION

12 CFR Chapter V

Authority and Issuance

PART 513--PRACTICE BEFORE THE OFFICE

0

For the reasons set out in the joint preamble, part 513 of chapter V of

title 12 of the Code of Federal Regulations is amended as follows:

0

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.

0

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 companies.

(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 Accounting 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 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;

(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;

or

(7) 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.

(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

[[Page 48273]]

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 to avoid

immediate harm to an insured depository institution or its depositors

or to 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 shall 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 10

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. Any OTS employee engaged in investigative or

prosecuting functions for the OTS in a case may not, in that or a

factually related case, serve as a presiding officer or participate or

advise in the decision of the presiding officer or of the OTS, except

as witness or counsel in the proceeding. 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).

(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 or the Securities and

Exchange Commission under sections 105(c)(4)(A) or (B) of the Sarbanes-

Oxley Act (15 U.S.C. 7215(c)(4)(A) or (B)); or

(iii) Is subject to an order of suspension or denial of the

privilege of appearing or practicing before the Securities and Exchange

Commission.

(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

paragraphs (c)(6) through (c)(7) or paragraphs (j)(1)(ii) through

(j)(1)(iii) of this section; and

[[Page 48274]]

(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, accounting firm, or

office of a firm that was removed, suspended or debarred under this

section may apply for reinstatement in writing at any time. 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: August 5, 2003.

By the Office of Thrift Supervision.

James Gilleran,

Director.

[FR Doc. 03-20565 Filed 8-12-03; 8:45 am]

BILLING CODE 4810-33-P

Last Updated 07/07/2003 regs@fdic.gov

Last Updated: August 4, 2024