[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]
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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.
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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\
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\1\ 12 U.S.C. 1831m, 1831m(j)(2); see also 12 CFR part 363
(describing the requirements for independent audits and reporting
for all insured depository institutions). The statute gives the FDIC
Board of Directors the discretion to establish the threshold asset
size at which a section 36 annual report is required. That amount is
currently set at $500 million. See 12 CFR 363.1(a). While a section
36 audit is not required of financial institutions with less than
$500 million in total assets, the Agencies encourage every insured
depository institution, regardless of its size or character, to have
an annual audit of its financial statements performed by an
independent public accountant. See 12 CFR 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).
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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\
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\5\ Id. 1831m(g)(4)(A).
\6\ Id. 1813(u)(4), 1818(e)(1).
\7\ See 12 CFR part 19, subpart K; 12 CFR part 263, subpart F;
and 12 CFR part 513.
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Section 36 does not define good cause, but authorizes the Agencies
to implement section 36 through the joint issuance of rules of
practice.\8\ A removal, suspension, or debarment under section 36 would
limit an accountant's or accounting firm's eligibility to provide audit
services to
[[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.
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\8\ 12 U.S.C. 1831m(g)(4)(B).
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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.
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\9\ 68 FR 1116 (January 8, 2003); see also 68 FR 4967, 5075
(January 31, 2003) (technical corrections).
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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.
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\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).
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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.
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\11\ 12 U.S.C. 1818(e)(1)(A)(ii); see also Hendrickson v. FDIC,
113 F.3d 98 (7th Cir. 1997).
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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\
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\12\ See 12 U.S.C. 1818, 1813(u)(4).
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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.
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\13\ Id. 1831m(g)(4).
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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.
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\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.
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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\
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\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.
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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:
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\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
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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\
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\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.
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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\
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\21\ See, e.g., Fahey v. Mallonee, 322 U.S. 245 (1947).
\22\ 17 CFR 201.513(c).
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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
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