Guidelines Establishing Year 2000 Standards for Safety and Soundness for National Bank Transfer Agents and Broker-Dealers

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 30

[Docket No. 99-12]

RIN 1557-AB73

Guidelines Establishing Year 2000 Standards for Safety and

Soundness for National Bank Transfer Agents and Broker-Dealers

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Interim rule with request for comment.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is issuing

interim guidelines (Supplemental Guidelines) establishing Year 2000

standards for safety and soundness for national bank transfer agents

and brokers or dealers pursuant to section 39 of the Federal Deposit

Insurance Act (FDI Act). Last year, the OCC, together with the other

member agencies of the Federal Financial Institutions Examination

Council (FFIEC), published joint Guidelines (Year 2000 Guidelines)

establishing standards for safety and soundness that insured depository

institutions must follow to ensure the Year 2000 readiness of their

mission-critical systems. These Supplemental Guidelines complement the

Year 2000 Guidelines by describing two essential steps that national

banks and, in certain cases, national bank operating subsidiaries, and

Federal branches that are subject to the provisions of section 39 of

the FDI Act must take to ensure the Year 2000 readiness of their

transfer agent and broker or dealer automated systems.

DATES: This interim rule is effective on September 30, 1999. Comments

must be received by November 29, 1999.

ADDRESSES: Direct comments to the Office of the Comptroller of the

Currency, Communications Division, 250 E Street, SW, Washington, DC

20219, Attention: Docket No. 99-12. Comments may be inspected and

photocopied at the same location. In addition, comments may be sent by

fax to (202) 874-5274 or by electronic mail to

[email protected].

FOR FURTHER INFORMATION CONTACT: Karl Betz, Attorney, Legislative and

Regulatory Activities (202) 874-5090; Stuart E. Feldstein, Assistant

Director, Legislative and Regulatory Activities (202) 874-5090; Joe

Malott, National Bank Examiner (202) 874-4967; or Vaughn Folks,

National Bank Examiner (202) 874-4270.

SUPPLEMENTARY INFORMATION:

Background

Pursuant to section 39 of the FDI Act (12 U.S.C. 1831p-1), the OCC

is issuing Supplemental Guidelines establishing Year 2000 standards for

safety and soundness for the following: (1) Registered transfer agents

that are national banks, national bank operating subsidiaries, and

Federal branches subject to the provisions of section 39 of the FDI Act

(bank transfer agents); and (2) national banks and Federal branches

subject to the provisions of section 39 of the FDI Act that effect

securities brokerage or dealer transactions (bank brokers or

dealers).1 These standards apply to transfer agent and

broker or dealer systems that have not been designated as mission-

critical and, therefore, are not covered under the Year 2000 Guidelines

jointly issued by the OCC and the other member agencies of the FFIEC

(collectively, the Agencies) 2, which also implement section

39 of the FDI Act. The Securities and Exchange Commission (SEC)

recently approved a rule for non-bank transfer agents and broker-

dealers that further highlights these risks. See Year 2000 Operational

Capability Requirements for Registered Broker-Dealers and Transfer

Agents, 64 FR 42012 (August 3, 1999) (imposing Year 2000 readiness

requirements on non-bank transfer agents and broker-

dealers).3

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\1\ Section 39 requires each appropriate Federal banking agency

to establish operational and managerial standards relating to, among

other things, internal controls, information systems, and internal

audit systems, or such other standards as each agency determines to

be appropriate.

\2\ The OCC, the Board of Governors of the Federal Reserve

System (Board), the Federal Deposit Insurance Corporation (FDIC),

and the Office of Thrift Supervision (OTS) jointly issued the Year

2000 Guidelines.

\3\ The SEC's rule requires broker-dealers and non-bank transfer

agents to file a notice regarding any Year 2000 problems with the

SEC by August 31, 1999, but allows firms that have Year 2000

problems to continue to operate if they certify that they will

complete their Year 2000 efforts no later than November 15, 1999.

Firms that are not Year 2000 compliant on November 15 will be

required to cease operations by December 1, 1999.

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On October 15, 1998, the Agencies issued joint interim final

guidelines (Year 2000 Guidelines) establishing Year 2000 standards for

safety and

[[Page 52639]]

soundness pursuant to section 39 of the FDI Act. 63 FR 55480 (Oct. 15,

1998). The Year 2000 Guidelines describe certain essential steps that

each insured depository institution must take in order to achieve Year

2000 readiness of its mission-critical systems.

The Supplemental Guidelines complement but do not supersede the

existing Year 2000 Guidelines. Therefore, if a national bank has

designated or should have designated a transfer agent or broker-dealer

system as mission-critical, the standards contained in the Year 2000

Guidelines continue to apply to these systems, including the

renovation, testing, and contingency planning deadlines that are

earlier than the deadlines contained in the Supplemental Guidelines.

The FFIEC has also issued Guidance Concerning Fiduciary Services

and Year 2000 Readiness (September 2, 1998). This issuance instructed

financial institutions that offer transfer agent services to clients to

ensure that they address any Year 2000 concerns, particularly those

associated with the use of automated transfer agent systems. The

Supplemental Guidelines complement this guidance by providing specific

instructions on the steps national banks, and where applicable, their

operating subsidiaries, or Federal branches that are subject to section

39 of the FDI Act must take at a minimum to ensure that their automated

transfer agent and broker or dealer systems are Year 2000 ready.

The OCC anticipates that most bank transfer agents and bank brokers

or dealers will already have satisfied the safety and soundness

standards set forth in the Supplemental Guidelines. Plans or procedures

that a national bank has already adopted may suffice for purposes of

complying with the Supplemental Guidelines if they have been deemed

acceptable by the OCC. However, the Supplemental Guidelines will help

ensure that non-mission-critical transfer agent and broker or dealer

systems are Year 2000 ready.

Description of Supplemental Guidelines

Definitions (Section C.)

The Supplemental Guidelines define certain key terms to help

clarify the types of actions national banks and, where applicable,

national bank operating subsidiaries, and Federal branches that are

subject to the provisions of section 39 of the FDI Act, are expected to

undertake. In addition to those terms previously defined in the Year

2000 Guidelines, these Supplemental Guidelines define the terms ``bank

transfer agent,'' ``bank broker or dealer,'' and ``system.''

For example, the term ``bank transfer agent'' covers a national

bank that provides transfer agent services directly or through an

operating subsidiary, or a Federal branch that is subject to the

provisions of section 39 of the FDI Act, and either the national bank,

operating subsidiary or Federal branch is a registered transfer agent

whose appropriate regulatory agency, as that term is defined in 15

U.S.C. 78c(a)(34), is the OCC.4 For purposes of these

Supplemental Guidelines, the term ``bank transfer agent'' does not

cover a transfer agent that qualifies as an issuer or small transfer

agent as these terms are defined under SEC rules. 17 CFR 240.17Ad-

13(d)(1) and (2).

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\4\ The OCC is the appropriate regulatory agency for operating

subsidiaries of national banks that are registered transfer agents.

The Securities Exchange Act of 1934 defines ``appropriate regulatory

agency,'' when used with respect to transfer agents, as ``the

Comptroller of the Currency, in the case of a national bank or a

bank operating under the Code of Law for the District of Columbia,

or a subsidiary of any such bank.'' 15 U.S.C. 78(c)(a)(34)(B)(i)

(emphasis added).

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The term ``bank broker or dealer'' means a national bank or a

Federal branch that is subject to the provisions of section 39 of the

FDI Act, that effects securities brokerage or dealer transactions for

customers. This definition does not include operating subsidiaries of

national banks because national bank operating subsidiaries are subject

to the SEC's regulations. For purposes of these Supplemental

Guidelines, the term ``bank broker or dealer'' does not cover a

national bank effecting fewer than 500 securities brokerage

transactions per year for customers over the prior three calender year

period.5

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\5\ This exception is drawn from existing OCC provisions in 12

CFR Part 12 exempting national banks that do not engage in extensive

securities transactions from the specific recordkeeping and

securities policies and procedures set forth in that part.

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Year 2000 Standards for Safety and Soundness (Section D.)

The Supplemental Guidelines impose two requirements. First, no

later than November 1, 1999, each bank transfer agent and broker or

dealer must identify all transfer agent or broker or dealer systems

that are not Year 2000 ready. Second, for each non-Year 2000 ready

transfer agent or broker or dealer system the bank transfer agent or

bank broker or dealer must develop and implement an effective written

business resumption contingency plan by November 15, 1999. Among other

things, this contingency plan must describe how the bank transfer agent

or bank broker or dealer will mitigate the risks associated with the

failure of the transfer agent and broker or dealer systems.

As noted earlier, plans and procedures already adopted may suffice

if the OCC has deemed them acceptable. Nevertheless, contingency

planning is a dynamic process. A contingency plan may become inadequate

at a later date if it is not revised to address current needs.

Accordingly, each bank transfer agent and bank broker or dealer must

continue to update the contingency plans they have developed and

implemented, as needed, to ensure the plans remain effective.

This interim rule also updates 12 CFR part 30 pertaining to safety

and soundness standards issued under section 39 of the FDI Act. The

Supplemental Guidelines published today will appear as appendix C to

part 30. This interim rule makes minor conforming amendments to part 30

to incorporate appropriate references to the Supplemental Guidelines.

This interim rule makes no substantive change to part 30.

Request for Comment

The OCC invites comment on all aspects of the Supplemental

Guidelines.

Request for Comments on Plain Language

On June 1, 1998, the President issued a Memorandum directing each

agency in the Executive branch to write its rules in plain language.

This directive is effective for all new proposed and final rulemaking

documents issued on or after January 1, 1999. The OCC invites comments

on how to make this interim rule clearer. For example, you may wish to

discuss: (1) Whether we have organized the material to suit your needs;

(2) whether the requirements of this interim rule are clear; or (3)

whether there is something else we could do to make this rule easier to

understand.

Request for Comment on Impact of Guidelines on Community Banks

The OCC also seeks comments on the impact of this interim rule on

community banks. The OCC recognizes that community banks operate with

more limited resources than larger institutions and may present a

different risk profile. Thus, the OCC specifically requests comments on

the impact of this interim rule on community banks' current resources

and available personnel with the requisite expertise, and whether the

goals of the interim rule could be achieved, for community banks,

through an alternative approach.

[[Page 52640]]

Effective Date

The OCC finds good cause for issuing this interim rule effective

immediately, without prior notice and comment. (Cf. 5 U.S.C. 553(b)(B)

(Administrative Procedure Act (APA) provision permitting an agency to

issue a rule without prior notice and comment when the agency for good

cause finds that notice and public procedure thereon are impracticable,

unnecessary, or contrary to the public interest); 5 U.S.C. 553(d) (good

cause exception to APA requirement for a 30-day delayed effective date

for interim rule); 12 U.S.C. 4802(b)(1) (good cause exception to the

CDRIA requirement that the Federal banking agencies make rules

effective on the first day of a calender quarter which begins on or

after the date on which the regulations are published in final form).

Making this interim rule effective immediately is essential for

ensuring that the OCC can properly and timely address the Year 2000

problem and that insured depository institutions can achieve Year 2000

readiness in the relatively short time remaining before Year 2000

problems may begin to occur. The OCC notes that Congress recently

underscored the importance and urgency of ensuring Year 2000 readiness

in the financial services sector by passing the Examination Parity and

Year 2000 Readiness for Financial Institutions Act, Public Law 105-164,

sec. 2, 112 Stat. 32, 32 (1998). Congress expressly found that the Year

2000 problem poses a serious challenge to the American economy,

including the Nation's banking and financial services industries, and

that Federal financial regulatory agencies must have sufficient

examination authority to ensure that the safety and soundness of the

Nation's financial institutions will not be at risk. See also the Y2K

Act, Pub. L. 106-37, 113 Stat. 185 (July 20, 1999) (addressing the

economic threat posed by Year 2000 problems). Under these

circumstances, the OCC concludes that it has good cause for issuing

this interim rule with an immediate effective date, without prior

notice and comment. Nevertheless, the OCC is inviting comment and will

consider the comments received before finalizing the rule.

Regulatory Flexibility Act Analysis

An initial regulatory flexibility analysis under the Regulatory

Flexibility Act (RFA) is required when an agency is required to publish

a general notice of proposed rulemaking. 5 U.S.C. 603. As noted above,

the OCC concluded, for good cause, that this interim rule should take

immediate effect and, therefore, that a notice of proposed rulemaking

is not required. Accordingly, the RFA does not require an initial

regulatory flexibility analysis of this interim rule.

Nonetheless, the OCC has considered the likely impact of this

interim rule on small entities and believes that this interim rule will

not have a significant economic impact on a substantial number of small

entities. The potential inability of computers to correctly recognize

certain dates in 1999, and on and after January 1, 2000, compels all

national banks, including small national banks, to formulate

appropriate and timely management responses. The interim rule provides

a procedural framework for formulating that response and reiterates the

OCC's expectations regarding appropriate business practices for

achieving Year 2000 readiness. For example, as indicated earlier in

this preamble, plans and procedures that bank transfer agents and bank

broker or dealers have already developed to achieve Year 2000 readiness

can satisfy the Supplemental Guidelines if they have been deemed

acceptable by the OCC.

The OCC invites interested persons to submit comments on the impact

of the interim rule on small entities for consideration in the

development of the final rule.

Paperwork Reduction Act

The OCC invites comment on:

(1) Whether the proposed collection of information contained in the

Supplemental Guidelines are necessary for the proper performance of the

OCC's functions, including whether the information has practical

utility;

(2) The accuracy of the OCC's estimate of the burden of the

proposed information collection;

(3) Ways to enhance the quality, utility, and clarity of the

information to be collected;

(4) Ways to minimize the burden of the information collection on

respondents, including the use of automated collection techniques or

other forms of information technology; and

(5) Estimates of capital or start-up costs and costs of operation,

minutes, and purchase of services to provide information.

The collection of information requirement contained in this interim

rule has been submitted to and approved by the OMB under its emergency

procedures and in accordance with the Paperwork Reduction Act of 1995.

44 U.S.C. 3507. Since OMB clearance is for a six-month period, OCC will

use any comments received to develop its renewed request if

appropriate. Comments on the collection of information should be sent

to the Office of Management and Budget, Paperwork Reduction Project

(1557-0214), Washington, DC 20503, with a copy to the Communications

Division (1557-0214), Office of the Comptroller of the Currency, 250 E

Street, SW, Washington, DC 20219.

Respondents and recordkeepers are not required to respond to this

collection of information unless it displays a currently valid Office

of Management and Budget (OMB) control number. The OMB Control Number

for this collection is 1557-0214.

In addition to the paperwork usually maintained by a national bank

in the regular course of business, the Supplemental Guidelines impose

some additional paperwork burden. This burden is found in appendix C,

section D to part 30. The OCC needs this information to assess a

national bank's compliance with the Supplemental Guidelines set forth

in appendix C. The likely respondents are national banks.

Estimated number of respondents: 98.

Estimated average annual burden hours per respondent: 1.6

hours.6

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\6\ Consistent with guidance provided by the Office of

Management and Budget, the burden hour estimate is presented as an

average for all national banks subject to the Supplemental

Guidelines. Most of the paperwork burden associated with this

interim rule results from the requirement to prepare a contingency

plan. The OCC expects that only a small percentage of the national

banks covered by these guidelines will be required to prepare a

contingency plan.

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Estimated total annual recordkeeping burden: 161 hours.

Executive Order 12866

The OCC has determined that this interim rule is not a significant

regulatory action under Executive Order 12866.

Unfunded Mandates Reform Act Analysis

The Unfunded Mandates Reform Act of 1995 (UMA), Public Law 104-4,

applies only when an agency is required to issue a general notice of

proposed rulemaking or a final rule for which a general notice of

proposed rulemaking was published. 2 U.S.C. 1532. As noted earlier, the

OCC has concluded, for good cause, that a notice of proposed rulemaking

is not required. Accordingly, the OCC has concluded that the UMA does

not require an unfunded mandates analysis of this interim rule.

Moreover, the OCC believes that the interim rule will not result in

expenditures by State, local, and tribal governments, or by the private

sector, of more than $100 million in any one year.

[[Page 52641]]

Accordingly, the OCC has not prepared a budgetary impact statement or

specifically addressed the regulatory alternatives considered.

List of Subjects in 12 CFR Part 30

Administrative practice and procedure, National banks, Reporting

and recordkeeping requirements, Safety and soundness.

Authority and Issuance

For the reasons set out in the preamble, part 30 of chapter I of

title 12 of the Code of Federal Regulations is amended as set forth

below:

PART 30--SAFETY AND SOUNDNESS STANDARDS

1. The authority citation for part 30 is revised to read as

follows:

Authority: 12 U.S.C. 93a, 1818, 1831p-1, 3102(b).

2. In Sec. 30.2, the last sentence is revised to read as follows:

Sec. 30.2 Purpose.

* * * The Interagency Guidelines Establishing Standards for Safety

and Soundness are set forth in appendix A to this part, the Interagency

Guidelines Establishing Year 2000 Standards for Safety and Soundness

are set forth in appendix B to this part, and the Supplemental

Guidelines Establishing Year 2000 Standards for Safety and Soundness

for National Bank Transfer Agents and Brokers or Dealers are set forth

in appendix C to this part.

3. In Sec. 30.3, paragraph (a) is revised to read as follows:

Sec. 30.3 Determination and notification of failure to meet safety and

soundness standard and request for compliance plan.

(a) Determination. The OCC may, based upon an examination,

inspection, or any other information that becomes available to the OCC,

determine that a bank has failed to satisfy the safety and soundness

standards contained in the Interagency Guidelines Establishing

Standards for Safety and Soundness set forth in appendix A to this

part, the Interagency Guidelines Establishing Year 2000 Standards for

Safety and Soundness set forth in appendix B to this part, or the

Guidelines Establishing Year 2000 Standards for Safety and Soundness

for National Bank Transfer Agents and Brokers or Dealers are set forth

in appendix C to this part.

* * * * *

4. A new appendix C is added to part 30 to read as follows:

Appendix C to Part 30--Supplemental Guidelines Establishing Year

2000 Standards for Safety and Soundness for National Bank Transfer

Agents and Brokers or Dealers

Table of Contents

A. Introduction.

B. Preservation of existing authority.

C. Definitions.

D. Year 2000 Standards for safety and soundness.

A. Introduction

These Supplemental Guidelines are issued pursuant to section 39

of the Federal Deposit Insurance Act (FDI Act) (12 U.S.C. 1831p-1)

and apply to transfer agent and broker or dealer systems that a

national bank has not designated as mission-critical. These

Supplemental Guidelines are in addition to, but do not supersede,

the Year 2000 Guidelines previously adopted as Appendix B to 12 CFR

Part 30. The Guidelines in Appendix B continue to apply to efforts

of national banks to achieve Year 2000 readiness of their mission-

critical systems.

B. Preservation of existing authority

Neither section 39 nor these Supplemental Guidelines in any way

limits the authority of the OCC to address unsafe or unsound

practices, violations of law, unsafe or unsound conditions, or other

practices of bank transfer agents and brokers or dealers. For

example, failure to complete any of the standards set forth in the

Supplemental Guidelines may constitute an unsafe or unsound practice

under 12 U.S.C. 1818(b). Action under section 39 and the

Supplemental Guidelines may be taken independently of, in

conjunction with, or in addition to any other remedy, including

enforcement action, available to the OCC.

C. Definitions

1. In general. For purposes of the Supplemental Guidelines the

following definitions apply:

a. Bank transfer agent means a national bank that provides

transfer agent services directly or through an operating subsidiary,

or a Federal branch that is subject to the provisions of section 39

of the FDI Act (12 U.S.C. 1831p-1), if the national bank, operating

subsidiary or Federal branch is a registered transfer agent whose

appropriate regulatory agency, as that term is defined in 15 U.S.C.

78c(a)(34), is the Office of the Comptroller of the Currency. The

term bank transfer agent does not include a transfer agent that

qualifies as an issuer or small transfer agent, as these terms are

defined in 17 CFR 240.17Ad-13(d) (1) and (2).

b. Bank broker or dealer means a national bank that effects

securities brokerage or dealer transactions for customers, or a

Federal branch that is subject to the provisions of section 39 of

the FDI Act (12 U.S.C. 1831p-1). The term bank broker or dealer does

not include operating subsidiaries of national banks. The term bank

broker or dealer does not include a national bank effecting fewer

than 500 securities brokerage transactions per year for customers

during the prior three calendar year period.

c. System means an automated system and related applications

necessary to ensure the prompt and accurate processing of securities

transactions, including order entry, transfer execution, comparison,

allocation, clearance and settlement of securities transactions, the

maintenance of customer accounts, the delivery of funds and

securities, or the production or retention of required records.

d. Business resumption contingency plan means a plan that

describes how a bank transfer agent or bank broker or dealer will

continue to perform transfer agent or broker or dealer functions,

respectively, in the event transfer agent or broker or dealer

systems fail to function because of Year 2000 readiness.

e. Year 2000 ready or readiness with respect to a system means

the system accurately processes, calculates, compares, or sequences

date or time data from, into, or between the 20th and 21st

centuries; and the years 1999 and 2000; and with regard to leap year

calculations.

D. Year 2000 standards for safety and soundness

1. No later than November 1, 1999, each bank transfer agent and

bank broker or dealer shall identify all transfer agent and broker

or dealer systems that are not Year 2000 ready.

2. For each system identified pursuant to section D.1., each

bank transfer agent and bank broker or dealer shall develop and

implement an effective written business resumption contingency plan

by November 15, 1999, that, at a minimum:

a. Defines scenarios for transfer agent and broker or dealer

systems failing to achieve Year 2000 readiness;

b. Evaluates options and selects a reasonable contingency

strategy for those systems; and

c. Provides for independent testing of the business resumption

contingency plan by an objective independent party (such as an

auditor, consultant, or qualified individual from another area of

the insured depository institution who is independent of the plan

under review).

Dated: September 17, 1999.

John D. Hawke, Jr.,

Comptroller of the Currency.

[FR Doc. 99-25442 Filed 9-29-99; 8:45 am]

BILLING CODE 4810-33-P