DISCIPLINARY ACTIONS AGAINST ACCOUNTANTS PERFORMING SECTION 36 AUDIT SERVICES

Wednesday,

January 8, 2003

Part III

Department of the Treasury

Office of the Comptroller of the

Currency

12 CFR Part 19

Board of Governors of the

Federal Reserve System

12 CFR Part 263

Federal Deposit Insurance

Corporation

12 CFR Part 308

Department of the Treasury

Office of Thrift Supervision

12 CFR Part 513

Removal, Suspension, and Debarment of

Accountants From Performing Audit

Services; Proposed Rule

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Federal Register / Vol. 68, No. 5 / Wednesday, January 8, 2003 / Proposed Rules

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the

Currency

12 CFR Part 19

[Docket No. 02–15]

RIN 1557–AB43

BOARD OF GOVERNORS OF THE

FEDERAL RESERVE SYSTEM

12 CFR Part 263

[Docket No. R–1139]

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Part 308

RIN 3064–AC57

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 513

[No. 2002–58]

RIN 1550–AB53

Removal, Suspension, and Debarment

of Accountants From Performing Audit

Services

AGENCIES: Office of the Comptroller of

the Currency (OCC), Treasury; Board of

Governors of the Federal Reserve

System (Board); Federal Deposit

Insurance Corporation (FDIC); and

Office of Thrift Supervision (OTS),

Treasury.

ACTION: Joint notice of proposed

rulemaking.

SUMMARY: The OCC, Board, FDIC, and

OTS (each an Agency, and collectively,

the Agencies) propose to revise their

respective rules of practice pursuant to

section 36 of the Federal Deposit

Insurance Act (FDIA) (12 U.S.C. 1831m).

Section 36, as implemented by 12 CFR

part 363, requires that each insured

depository institution with total assets

of $500 million or more produce an

annual report containing the

institution’s financial statements and

certain management assessments. The

depository institution must provide the

report to the FDIC, the appropriate

Federal banking agency, and any

appropriate state bank supervisor

on 36, as implemented by 12 CFR

part 363, requires that each insured

depository institution with total assets

of $500 million or more produce an

annual report containing the

institution’s financial statements and

certain management assessments. The

depository institution must provide the

report to the FDIC, the appropriate

Federal banking agency, and any

appropriate state bank supervisor.

Section 36 also requires that the

depository institution obtain an audit of

its financial statements and an

attestation on management’s assertions

concerning internal controls over

financial reporting by an independent

public accountant (accountant) and

include the accountant’s audit and

attestation reports in its annual report.

Congress gave the Agencies authority

to remove, suspend, or debar

accountants from performing the audit

services required by section 36 if there

is good cause to do so. This proposal

would amend the Agencies’ rules to

establish rules of practice and procedure

for the removal, suspension, and

debarment of accountants and their

firms from performing section 36 audit

services for insured depository

institutions. The proposal reflects the

Agencies’ increasing concern with the

quality of audits and internal controls

for financial reporting at insured

depository institutions. Although there

have been few bank and thrift failures

in recent years, the circumstances of the

failures that have occurred illustrate the

importance of maintaining high quality

in the audits of the financial position

and attestations of management

assessments of insured depository

institutions. The proposed regulations

enhance the Agencies’ ability to address

misconduct by accountants who

perform annual audit and attestation

services.

DATES: Comments must be received by

March 10, 2003.

ADDRESSES:

OCC: Please direct comments to:

Public Information Room, Office of the

Comptroller of the Currency, 250 E

Street, SW, Mailstop 1–5, Washington,

DC 20219, Attention Docket No. 02–15

ns. The proposed regulations

enhance the Agencies’ ability to address

misconduct by accountants who

perform annual audit and attestation

services.

DATES: Comments must be received by

March 10, 2003.

ADDRESSES:

OCC: Please direct comments to:

Public Information Room, Office of the

Comptroller of the Currency, 250 E

Street, SW, Mailstop 1–5, Washington,

DC 20219, Attention Docket No. 02–15.

Comments are available for inspection

and photocopying at that address. You

can make an appointment to inspect the

comments by calling (202) 874–5043. In

addition, comments may be sent by

facsimile transmission to (202) 874–

4448, or by electronic mail to

regs.comments@occ.treas.gov. Due to

delays in paper mail delivery in the

Washington area, commenters are

encouraged to use fax or e-mail delivery,

if possible.

Board: Comments should refer to

Docket No. R–1139 and may be mailed

to Secretary, Board of Governors of the

Federal Reserve System, 20th Street and

Constitution Avenue, NW., Washington,

DC 20551; sent by FAX to (202) 452–

3819 or (202) 452–3102; or sent by e-

mail to

regs.comments@federalreserve.gov.

Members of the public may inspect

comments in Room MP–500 between 9

a.m. and 5 p.m. on weekdays pursuant

to section 261.12 (except as provided in

section 261.14) of the Board’s Rules

Regarding Availability of Information,

12 CFR 261.12 and 261.14.

FDIC: Written comments should be

addressed to Robert E. Feldman,

Executive Secretary, Attention:

Comments, Federal Deposit Insurance

Corporation, 550 17th Street, NW,

Washington, DC 20429. Commenters are

encouraged to submit comments by

facsimile transmission to FAX number

provided in

section 261.14) of the Board’s Rules

Regarding Availability of Information,

12 CFR 261.12 and 261.14.

FDIC: Written comments should be

addressed to Robert E. Feldman,

Executive Secretary, Attention:

Comments, Federal Deposit Insurance

Corporation, 550 17th Street, NW,

Washington, DC 20429. Commenters are

encouraged to submit comments by

facsimile transmission to FAX number

(202) 898–3838 or by electronic mail to

Comments@FDIC.gov. Comments also

may be hand delivered to the guard

station at the rear of the 550 17th Street

Building (located on F Street), on

business days between 8:30 am and 5

p.m. Comments may be inspected and

photocopied in the FDIC Public

Information Center, Room 100, 801 17th

Street, NW, Washington, DC, between 9

am and 4:30 p.m. on business days.

OTS: Mail: Send comments to

Regulation Comments, Chief Counsel’s

Office, Office of Thrift Supervision,

1700 G Street, NW., Washington, DC

20552, Attention No. 2002–58.

Delivery: Hand deliver comments to

the Guard’s Desk, East Lobby Entrance,

1700 G Street, N.W. from 9 a.m. to 4

p.m. on business days, Attention:

Regulation Comments, Chief Counsel’s

Office, Attention No. 2002–58.

Facsimiles: Send facsimile

transmissions to FAX Number (202)

906–6518, Attention Docket No. 2002–

58.

E-mail: Send e-mails to

<regs.comments@ots.treas.gov>,

Attention Docket No. 2002–58 and

include your name and telephone

number. Due to temporary disruptions

in mail service in the Washington, D.C.

area, commenters are encouraged to

send comments by fax or e-mail if

possible.

Public Inspection: Interested persons

may inspect comments at the Public

Reading Room, 1700 G St. NW., from 10

a.m. until 4 p.m. on business days by

appointment or obtain comments and/or

an index of comments by facsimile by

telephoning the Public Reading Room at

ptions

in mail service in the Washington, D.C.

area, commenters are encouraged to

send comments by fax or e-mail if

possible.

Public Inspection: Interested persons

may inspect comments at the Public

Reading Room, 1700 G St. NW., from 10

a.m. until 4 p.m. on business days by

appointment or obtain comments and/or

an index of comments by facsimile by

telephoning the Public Reading Room at

(202) 906–5922 from 9 a.m. until 5 p.m.

on business days. Comments and the

related index will also be posted on the

OTS Internet site at <http://

www.ots.treas.gov>.

FOR FURTHER INFORMATION CONTACT:

OCC: Mitchell Plave, Counsel,

Legislative and Regulatory Activities

Division, (202) 874–5090; Richard

Shack, Senior Accountant, Office of

the Chief Accountant, (202) 874–4911;

and Karen Besser, National Bank

Examiner, Special Supervision/Fraud,

(202) 874–4464.

Board: Richard Ashton, Associate

General Counsel, (202) 452–3750; Nina

Nichols, Counsel, (202) 452–2961;

Arthur Lindo, Project Manager, (202)

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Federal Register / Vol. 68, No. 5 / Wednesday, January 8, 2003 / Proposed Rules

1 12 U.S.C. 1831m, 1831m(j)(2); see also 12 CFR

part 363 (describing the requirements for

independent audits and reporting for all insured

depository institutions). The statute gives the FDIC

Board of Directors the discretion to establish the

threshold asset size at which a section 36 annual

report is required. That amount is currently set at

$500 million. See 12 CFR 363.1(a). While a section

36 audit is not required of financial institutions

with less than $500 million in total assets, the

Agencies encourage every insured depository

institution, regardless of its size or character, to

have an annual audit of its financial statements

performed by an independent public accountant.

See 12 CFR part 363 App. A (Introduction).

2 12 U.S.C. 1831m(d), 1831n.

3 Id

3.1(a). While a section

36 audit is not required of financial institutions

with less than $500 million in total assets, the

Agencies encourage every insured depository

institution, regardless of its size or character, to

have an annual audit of its financial statements

performed by an independent public accountant.

See 12 CFR part 363 App. A (Introduction).

2 12 U.S.C. 1831m(d), 1831n.

3 Id. 1831m(c): see also 12 CFR part 363

(independent audit and reporting requirements).

4 12 U.S.C. 1831m(a)(1) and (2).

5 Id. 1831m(g)(4)(A).

6 Id. 1813(u)(4), 1818(e)(1).

7 See 12 CFR part 19, subpart K; 12 CFR part 263,

subpart F; and 12 CFR part 513.

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

9 The Sarbanes-Oxley Act of 2002, Pub. L. 107–

204, 116 Stat 745 (2002).

10 For the Board and OTS, ‘‘audit services’’ also

includes services provided to a bank holding

company or thrift holding company that satisfy the

audit requirements under section 36 of a subsidiary

bank or thrift of that holding company.

11 The FDIC’s Guidelines and Interpretations

concerning annual independent audits and

reporting requirements, see 12 CFR part 363 app.

A, at para. 14, call for accountants who perform

audit and attestation services to comply with the

American Institute of Certified Public Accountants’

Code of Professional Conduct and meet the

independence requirements and interpretations of

the SEC and its staff. Title II of the Sarbanes-Oxley

Act amended the Securities and Exchange Act of

1934 by adding new auditor indepdence provisions.

Continued

452–2695; and Salome Tinker, Senior

Financial Analyst, (202) 452–3034,

Division of Banking Supervision and

Regulation; for users of

Telecommunication Devices for the Deaf

(TDD) only, contact (202) 263–4869.

FDIC: Richard Bogue, Counsel,

Enforcement Unit, (202) 898–3726;

Robert F. Storch, Chief, Accounting and

Securities Disclosure Section, (202)

898–8906.

OTS: Christine A. Smith, Project

Manager, (202) 906–5740, Supervision

Policy; Teresa A

202) 452–3034,

Division of Banking Supervision and

Regulation; for users of

Telecommunication Devices for the Deaf

(TDD) only, contact (202) 263–4869.

FDIC: Richard Bogue, Counsel,

Enforcement Unit, (202) 898–3726;

Robert F. Storch, Chief, Accounting and

Securities Disclosure Section, (202)

898–8906.

OTS: Christine A. Smith, Project

Manager, (202) 906–5740, Supervision

Policy; Teresa A. Scott, Counsel

(Banking & Finance), (202) 906–6478,

Regulations and Legislation Division,

Office of Thrift Supervision, 1700 G

Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

Section 36 of the FDIA, as

implemented by FDIC regulations,

requires every large insured depository

institution to submit an annual report

containing its financial statements and

certain management assessments to the

FDIC, the appropriate Federal banking

agency, and any appropriate state bank

supervisor.1 Section 36 of the FDIA also

requires that an independent public

accountant audit such insured

depository institution’s annual financial

statements to determine whether those

statements are presented fairly in

accordance with generally accepted

accounting principles (GAAP) and with

the accounting objectives, standards,

and requirements described in section

37 of the FDIA.

Under section 37, the accounting

principles applicable to financial

statements required to be filed with the

Agencies must be uniform and

consistent with GAAP.2 In addition, the

accountant must attest to and report on

management’s assertions concerning

internal controls over financial

reporting.3 The institution’s annual

report also must contain the

accountant’s audit and attestation

reports.4 Section 36 of the FDIA gives

the Agencies the authority to remove,

suspend, or bar an accountant from

performing the audit services required

under section 36 for good cause.5 This

authority is in addition to the

enforcement tools the Agencies have

under section 8 of the FDIA, which

enable the Agencies to remove or

prohi

also must contain the

accountant’s audit and attestation

reports.4 Section 36 of the FDIA gives

the Agencies the authority to remove,

suspend, or bar an accountant from

performing the audit services required

under section 36 for good cause.5 This

authority is in addition to the

enforcement tools the Agencies have

under section 8 of the FDIA, which

enable the Agencies to remove or

prohibit an institution-affiliated party

(IAP), including an accountant, from

further participation in the affairs of an

insured depository institution for

certain types of misconduct.6 Section 36

authority is also distinct from the

Agency’s capability to remove, suspend,

or debar from practice before the

Agency parties, such as accountants,

who represent others.7

Section 36 does not define good

cause, but authorizes the Agencies to

implement section 36 through the joint

issuance of rules of practice.8 A

removal, suspension, or debarment

under section 36 would limit an

accountant’s or accounting firm’s

eligibility to provide audit services to

insured depository institutions with

total assets of $500 million or more. A

section 36 action would not restrict the

ability of accountants and firms to

provide audit services to financial

institutions with less than $500 million

in total assets, however, or to provide

other types of services to all financial

institutions.

The Agencies have jointly prepared

proposed rules of practice to implement

the provisions of section 36. The texts

of the Agencies’ proposed regulations

are substantively identical and differ

with respect to conforming changes

each Agency is making to its existing

rules. These proposed rules do not

create independent professional

standards or obligations for accountants

or firms. Rather, they are consistent

with an accountant’s existing

responsibility to adhere to applicable

professional standards such as generally

accepted auditing standards and

generally accepted standards for

attestation engagements

hanges

each Agency is making to its existing

rules. These proposed rules do not

create independent professional

standards or obligations for accountants

or firms. Rather, they are consistent

with an accountant’s existing

responsibility to adhere to applicable

professional standards such as generally

accepted auditing standards and

generally accepted standards for

attestation engagements. The proposed

rules are also consistent with the

Sarbanes-Oxley Act of 2002 (Sarbanes-

Oxley Act),9 which, among other things,

provides for significant reforms in the

oversight of the accounting industry.

The discussion that follows refers more

specifically to the provisions of the

Sarbanes-Oxley Act that are relevant to

this proposal.

II. Discussion of the Proposal and

Request for Comment

The proposal would amend the

Agencies’ rules of practice by adding

provisions for removal, suspension, or

debarment of accountants or accounting

firms from performing the audit services

required by section 36 of the FDIA. The

proposed rules would define ‘‘good

cause’’ to remove, suspend, or debar an

accountant or firm from performing

audit services and establish procedures

for removal, suspension, or debarment

of accountants or firms if the ‘‘good

cause’’ standards are satisfied.

The first part of the discussion that

follows describes the common elements

of the proposed rules. The second part

explains proposed technical and

conforming changes to the existing rules

of the OCC, Board, and FDIC. The

Agencies invite comment on all aspects

of the proposed rules.

A. Proposed Additions to the Rules of

All the Agencies

1. Audit Services

The proposed rules define ‘‘audit

services’’ as any service required to be

performed under section 36 of the FDIA

(12 U.S.C. 1831m) and 12 CFR part 363,

including attestation services.10

2. Good Cause for Agency Action

The proposed rules define good cause

for removal, suspension, or debarment

of accountants from providing audit

services required by section 36

e Agencies

1. Audit Services

The proposed rules define ‘‘audit

services’’ as any service required to be

performed under section 36 of the FDIA

(12 U.S.C. 1831m) and 12 CFR part 363,

including attestation services.10

2. Good Cause for Agency Action

The proposed rules define good cause

for removal, suspension, or debarment

of accountants from providing audit

services required by section 36. Under

the proposal, the Agencies would have

‘‘good cause’’ if the accountant does not

possess the requisite qualifications to

perform audit services; engages in

knowing or reckless conduct that results

in a violation of applicable professional

standards, including those standards

and conflicts of interest provisions

applicable to accountants through the

Sarbanes-Oxley Act and developed by

the Public Company Accounting

Oversight Board (Accounting Oversight

Board) and the Securities and Exchange

Commission (SEC), as such standards

and provisions become effective;11

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Federal Register / Vol. 68, No. 5 / Wednesday, January 8, 2003 / Proposed Rules

Title II also requires that the SEC promulgate

regulations, within 180 days after enactment of the

Act, or by January 23, 2003, to implement these

provisions. See Sarbanes-Oxley Act, section 208.

Most of the provisions, however, are not effective

until after an accountant is required to register with

the Accounting Oversight Board created by this

legislation. This requirement will not be effective

until later in 2003. Therefore, accountants who

perform section 36 annual audits and attestation

services for insured depository institutions,

regardless of whether the institution or its holding

company is an issuer directly subject to the

Sarbanes-Oxley Act, must comply with the SEC’s

upcoming regulations on auditor independence,

once those regulations become effective for

registered public accounts under the Sarbanes-

Oxley Act

s who

perform section 36 annual audits and attestation

services for insured depository institutions,

regardless of whether the institution or its holding

company is an issuer directly subject to the

Sarbanes-Oxley Act, must comply with the SEC’s

upcoming regulations on auditor independence,

once those regulations become effective for

registered public accounts under the Sarbanes-

Oxley Act.

12 See 17 CFR 201.102(e) (SEC’s rules on

suspension and debarment of those who practice

before the Commission, including accountants).

Congress recently codified the SEC’s suspension

and debarment rules in section 602 of the Sarbanes-

Oxley Act.

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

part 263, subpart A (Board); 12 CFR part 308,

subpart A (FDIC); 12 CFR 509, supart A (OTS).

14 The Agencies will also have the discretion to

issue suspension orders where the duration of the

suspension would be dependent on the satisfactory

completion of remedial action.

15 12 U.S.C. 1831m(g)(4)(A).

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.

Good cause also includes knowingly

or recklessly giving false or misleading

information to the Agencies with

respect to any matter before the Agency;

knowingly or recklessly materially

violating any provision of the Federal

banking or securities laws or

regulations, or any other law, including

the Sarbanes-Oxley Act; and removal,

suspension, or debarment from practice

before any Federal or state agency

regulating the banking, insurance, or

securities industries on grounds

relevant to the provision of audit

services, other than those actions that

result in automatic removal, suspension,

and debarment under the

nking or securities laws or

regulations, or any other law, including

the Sarbanes-Oxley Act; and removal,

suspension, or debarment from practice

before any Federal or state agency

regulating the banking, insurance, or

securities industries on grounds

relevant to the provision of audit

services, other than those actions that

result in automatic removal, suspension,

and debarment under the proposed

rules.

Conduct giving rise to good cause

under the proposed rules does not have

to occur in connection with the

provision of audit services or in

connection with services provided to

depository institutions. Any actions or

failures to act by an independent public

accountant or accounting firm that meet

the criteria for good cause set forth in

the regulation, whether or not related to

the banking industry, could constitute

good cause for Agency action. The

standards in the proposed rules for

removal, suspension, and debarment are

drawn principally from the Agencies’

existing practice rules and from the

practice rules of the SEC.12 The

proposal thus promotes consistency

with respect to professional standards

for accountants.

3. Removal, Suspension, or Debarment

of Accounting Firms or Offices of Firms

The proposed rules provide for the

removal, suspension, or debarment of

accounting firms as a whole and

identify factors the Agencies may

consider in determining the appropriate

remedy. Under current regulations

governing practice before the Agencies,

the Agencies generally can remove,

suspend, or debar a firm by naming each

member of the firm or office in the order

of suspension or debarment. The

proposal retains this flexibility and

provides guidance on conduct that may

result in a firm-wide sanction

ors the Agencies may

consider in determining the appropriate

remedy. Under current regulations

governing practice before the Agencies,

the Agencies generally can remove,

suspend, or debar a firm by naming each

member of the firm or office in the order

of suspension or debarment. The

proposal retains this flexibility and

provides guidance on conduct that may

result in a firm-wide sanction.

The proposed rules provide that, in

considering whether to take action

against a firm and the severity of the

sanction against a firm, the Agencies

may assess the gravity, scope, or

repetition of the act or failure to act; the

adequacy of and adherence to

applicable policies, practices, or

procedures for the firm’s conduct of its

business and the performance of audit

services; the selection, training,

supervision, and conduct of members or

employees of the firm involved in the

performance of audit services; the extent

to which managing partners or senior

officers of the firm participated, directly

or indirectly through oversight or

review, in the act or failure to act; and

the extent to which the firm has, since

the occurrence of the act or failure to

act, implemented corrective internal

controls to prevent its recurrence. This

is not an exclusive list of factors the

Agencies may consider, and

circumstances may present other facts

that the Agencies will take into account

in determining whether to take an

action against a firm.

The Agencies anticipate that there

may be circumstances in which it will

not be appropriate to remove, suspend,

or debar an entire firm, but that action

should be taken against a particular

office or offices of a firm. The proposed

rules permit that more limited action.

4

present other facts

that the Agencies will take into account

in determining whether to take an

action against a firm.

The Agencies anticipate that there

may be circumstances in which it will

not be appropriate to remove, suspend,

or debar an entire firm, but that action

should be taken against a particular

office or offices of a firm. The proposed

rules permit that more limited action.

4. Removal, Suspension, and Debarment

Procedures

Under the proposed rules, the

Agencies would hold hearings on

removals, suspensions, and debarments

under rules that are consistent with the

Agencies’ Uniform Rules of Practice and

Procedure (Uniform Rules).13 The

Uniform Rules provide, among other

things, for written notice to the

respondent of the intended Agency

action and the opportunity for a public

hearing before an administrative law

judge. The administrative law judge

would refer a recommended decision to

the Agency, which would issue a final

decision and order. Each Agency would

have the discretion to limit an order of

removal, suspension, or debarment from

providing audit services to a limited

number of insured depository

institutions, rather than to all insured

depository institutions supervised by

the issuing Agency. This is referred to

in the proposed regulations as a

‘‘limited scope order.’’ 14

The Agencies do not intend the

proposed rules to create any new or

different procedural mechanisms for

Agency removal, suspension, or

debarment of accountants. Rather, the

Agencies generally intend to apply to

these proceedings established rules and

practices.

5

nstitutions supervised by

the issuing Agency. This is referred to

in the proposed regulations as a

‘‘limited scope order.’’ 14

The Agencies do not intend the

proposed rules to create any new or

different procedural mechanisms for

Agency removal, suspension, or

debarment of accountants. Rather, the

Agencies generally intend to apply to

these proceedings established rules and

practices.

5. Immediate Suspensions

Section 36 of the FDIA provides that

the appropriate Federal banking agency

may ‘‘remove, suspend, or bar’’ an

independent public accountant from

performing audit services.15 The

proposed rules would implement the

authority to suspend by providing that

an Agency may issue a notice of

immediate suspension when an Agency

has a reasonable basis to believe that an

accountant or accounting firm is

engaged in conduct that would

constitute grounds for an order of

removal, suspension, or debarment and

if immediate suspension is necessary for

the protection of an insured depository

institution, its depositors, or the

depository system as a whole. The

discretion to impose immediate

suspensions can be critical to the safety

and soundness of one or more insured

depository institutions. For example,

once misconduct is identified,

immediate suspensions would prevent

additional or escalating instances of

misconduct.

Under the proposed rules, a notice of

immediate suspension would remain in

effect until the Agency dismisses the

charges in the notice or issues a final

order of removal, suspension, or

debarment. The proposals establish a

system for expedited review of a notice

of immediate suspension. The

accountant or accounting firm has the

right to petition for a stay of a notice of

immediate suspension within 10

calendar days after receiving service of

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l, suspension, or

debarment. The proposals establish a

system for expedited review of a notice

of immediate suspension. The

accountant or accounting firm has the

right to petition for a stay of a notice of

immediate suspension within 10

calendar days after receiving service of

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16 Id. 1818(g).

17 See FDIC v. Mallen, 486 U.S. 230 (1988).

18 Section 105(c)(4)(A) of the Sarbanes-Oxley Act

allows the Accounting Oversight Board to revoke

the registration of an accounting firm for violation

of the Act or other laws or regulations cited. Section

105(c)(4)(B) gives the Accounting Oversight Board

authority to suspend or bar a person from further

association with any registered public accounting

firm.

19 12 U.S.C. 1818(u)(1).

20 See 12 CFR 19.196 (describing disreputable

conduct).

the notice. A presiding officer appointed

by the Agency would hold a hearing on

the stay petition not more than 30 days

after receipt of the petition. The

presiding officer would be required to

issue a decision within 30 days of the

hearing. The presiding officer could

grant a stay of an immediate suspension

upon a demonstration that a substantial

likelihood exists of the accountant’s or

firm’s success on the issues raised by

the notice and that, absent such relief,

the accountant or firm would suffer

immediate and irreparable injury, loss,

or damage. Any party may appeal the

presiding officer’s decision to the

Agency.

The Agencies modeled the procedures

set out in the proposed rules for

imposing an immediate suspension of

an accountant or accounting firm

pending completion of a formal

removal, suspension, or debarment

administrative hearing after the

procedures that apply to other types of

temporary suspensions by regulatory

agencies

y party may appeal the

presiding officer’s decision to the

Agency.

The Agencies modeled the procedures

set out in the proposed rules for

imposing an immediate suspension of

an accountant or accounting firm

pending completion of a formal

removal, suspension, or debarment

administrative hearing after the

procedures that apply to other types of

temporary suspensions by regulatory

agencies. In particular, the proposed

immediate suspension procedures are

substantially the same as those in

section 8(g) of the FDIA governing the

suspension by a Federal banking agency

of an institution-affiliated party who has

been charged with a felony.16 The courts

have upheld the procedures established

in section 8(g) as meeting constitutional

due process requirements.17

Nevertheless, the Agencies invite

comment on whether additional

procedures should be provided to

ensure that parties have adequate due

process protections when they are

suspended prior to a hearing on the

charges made by an Agency.

6. Automatic Removal, Suspension, and

Debarment

Under the proposed rules, an

accountant or accounting firm that is

subject to a final order of removal,

suspension, or debarment issued by one

Agency would be automatically

precluded from performing audit

services for insured depository

institutions regulated by the other

Agencies. In addition, automatic

removal, suspension, or debarment

would result from a final order of

suspension or denial of the privilege of

appearing or practicing before the

Securities and Exchange Commission, a

currently effective disciplinary sanction

by the Accounting Oversight Board

under sections 105(c)(4)(A) or (B) of the

Sarbanes-Oxley Act,18 or a suspension

or debarment from practice for cause by

a state, possession, commonwealth, or

District of Columbia licensing authority

f

suspension or denial of the privilege of

appearing or practicing before the

Securities and Exchange Commission, a

currently effective disciplinary sanction

by the Accounting Oversight Board

under sections 105(c)(4)(A) or (B) of the

Sarbanes-Oxley Act,18 or a suspension

or debarment from practice for cause by

a state, possession, commonwealth, or

District of Columbia licensing authority.

Each Agency would have the

discretion to waive the automatic

suspension on a case-by-case basis with

respect to an institution it supervises by

issuing written permission to the

accountant or accounting firm. The

Agencies intend that neither a limited

scope order nor a notice of immediate

suspension would bar an accountant or

accounting firm from performing audit

services for insured depository

institutions outside the scope of that

order or notice.

7. Notice

The proposed rules would require the

Agencies to make public any final order

of removal, suspension, or debarment

against an accountant or accounting

firm and notify the other Agencies of

such orders. This is consistent with the

presumption in favor of public notice

for enforcement actions in the FDIA.19

The rules also contain notification

provisions for accountants and firms.

The proposal would require that an

accountant or accounting firm that

performs section 36 audit services for

any insured depository institution

provide the Agencies with written

notice of any currently effective

disciplinary sanction against the

accountant or firm issued by the

Accounting Oversight Board under

sections 105(c)(4)(A) or (B) of the

Sarbanes-Oxley Act, relating to

revocation of registration and

association with a public accounting

firm or issuer; any current suspension or

denial of the privilege of appearing or

practicing before the SEC; or any

suspensions or debarments for cause

from practice as an accountant by any

duly constituted licensing authority of

any state, possession, commonwealth,

or the District of Columbia

anes-Oxley Act, relating to

revocation of registration and

association with a public accounting

firm or issuer; any current suspension or

denial of the privilege of appearing or

practicing before the SEC; or any

suspensions or debarments for cause

from practice as an accountant by any

duly constituted licensing authority of

any state, possession, commonwealth,

or the District of Columbia. Written

notice is also required respecting any

removal, suspension, or debarment from

practice before any Federal or state

agency regulating the banking,

insurance, or securities industries on

grounds relevant to the provision of

audit services; and any action by the

Accounting Oversight Board under

sections 105(c)(4)(C) or (G) of the

Sarbanes-Oxley Act, relating to

limitations on the activities of

accountants and accounting firms and

any other appropriate sanction provided

in the rules of the Accounting Oversight

Board. Written notice must be given no

later than 15 calendar days following

the effective date of an order or action,

or 15 calendar days before an

accountant or accounting firm accepts

an engagement to provide audit

services, whichever date is earlier.

8. Reinstatement

The Agencies would have the

discretion to grant an accountant’s or

accounting firm’s request for

reinstatement. Under the proposals, a

removed, suspended, or debarred

individual or firm would be able to

request reinstatement by the Agency

that issued the order. The individual or

firm would be able to request

reinstatement at any time more than one

year after the effective date of the order

and, thereafter, at any time more than

one year after the most recent request

for reinstatement.

B. Conforming and Technical Changes

to the Rules of the Agencies

1

individual or firm would be able to

request reinstatement by the Agency

that issued the order. The individual or

firm would be able to request

reinstatement at any time more than one

year after the effective date of the order

and, thereafter, at any time more than

one year after the most recent request

for reinstatement.

B. Conforming and Technical Changes

to the Rules of the Agencies

1. OCC

The OCC proposes to add

‘‘recklessness’’ to its description of

‘‘disreputable conduct’’ that may lead to

removal, suspension, or debarment of

parties or their representatives who

practice or appear before the OCC.20

This change would conform the OCC’s

general rules of practice with the

standards in the proposal for removal,

suspension, or debarment of

accountants from performance of

section 36-required audit services,

which in turn reflects the addition of

the recklessness standard to the SEC’s

rules of practice by the Sarbanes-Oxley

Act. The purpose of adding the

recklessness standard is to clarify that

conduct more culpable than

incompetence, but less culpable than

willful or knowing action, may form the

basis for a suspension or debarment.

The OCC also proposes to broaden the

scope of ‘‘disreputable conduct’’ to

allow the OCC to consider suspensions

or debarments of accountants—for any

reason—by the other Agencies, the SEC,

the Commodity Futures Trading

Commission, or any other Federal

agency. This change would remove the

requirement in the current section

19.196(g) that suspensions by other

agencies concern ‘‘matters relating to

the supervisory responsibilities of the

OCC.’’ This change takes into account

the possibility that a suspension of an

accountant by another agency, relating

to the professional conduct of an

accountant, could be grounds for

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sions 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

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removal, suspension, or debarment by

the OCC, even if the suspension by the

other agency did not relate to a banking

matter.

Unlike the other amendments in the

proposal, which would address an

accountant’s or firm’s ability to perform

section 36-required audits, this part of

the proposal concerns who may practice

before the OCC in other capacities, such

as in adjudications, or through

preparation of documents for

submission to the OCC.

The OCC would also revise a number

of sections within part 19 to make

conforming and technical changes to

implement section 36 of the FDIA and

bring procedural aspects of part 19 up

to date.

2. Board

The Board proposes to amend its

Rules of Practice Before the Board (12

CFR part 263, subpart F) to expand the

type of conduct for which an individual

may be censured, debarred, or

suspended from practice before the

Agency. In particular, the Board

proposes to revise the description of the

conduct that would warrant sanctions to

include reckless violations, or reckless

aiding and abetting violations, of

specified laws and the reckless

provision of false or misleading

information, or reckless participation in

the provision of false or misleading

information, to the Board. The

regulation currently provides for

sanctions only for willful misconduct

vise the description of the

conduct that would warrant sanctions to

include reckless violations, or reckless

aiding and abetting violations, of

specified laws and the reckless

provision of false or misleading

information, or reckless participation in

the provision of false or misleading

information, to the Board. The

regulation currently provides for

sanctions only for willful misconduct.

The purpose of this proposed

amendment is to clarify that conduct

more culpable than incompetence, but

less culpable than willful or knowing

action, may form the basis for a

suspension or debarment from practice

before the Agency. This change also

reflects the modification made to the

SEC’s rules of practice by the Sarbanes-

Oxley Act.

3. FDIC

The FDIC proposes to make a

clarifying and conforming amendment

to 12 CFR 308.109, which deals with the

suspension and disbarment of the right

of any counsel to appear or practice

before the FDIC, to specify that an

application for reinstatement must

comply with the general filing

procedures established by part 303. The

amendment would add a new sentence

before the current last sentence of

section 308.109(b)(3) to read as follows:

‘‘The application shall comply with the

requirements of 12 CFR 303.3.’’

C. Comment Solicitation

The Agencies ask for comment on all

aspects of the proposed rules. Section

722 of the Gramm-Leach-Bliley Act,

Pub. L. 106–102, sec. 722, 113 Stat.

1338, 1471 (Nov. 12. 1999), requires the

Federal banking agencies to use plain

language in all proposed and final rules

published after January 1, 2000. We

invite your comments on how to make

this proposal easier to understand

ent Solicitation

The Agencies ask for comment on all

aspects of the proposed rules. Section

722 of the Gramm-Leach-Bliley Act,

Pub. L. 106–102, sec. 722, 113 Stat.

1338, 1471 (Nov. 12. 1999), requires the

Federal banking agencies to use plain

language in all proposed and final rules

published after January 1, 2000. We

invite your comments on how to make

this proposal easier to understand. For

example:

• Have we organized the material to

suit your needs? If not, how could this

material be better organized?

• Are the requirements in the

proposed regulation clearly stated? If

not, how could the regulation be more

clearly stated?

• Does the proposed regulation

contain language or jargon that is not

clear? If so, which language requires

clarification?

• Would a different format (grouping

and order of sections, use of headings,

paragraphing) make the regulation

easier to understand? If so, what

changes to the format would make the

regulation easier to understand?

• What else could we do to make the

regulation easier to understand?

D. Community Bank Comment Request

The Agencies invite comment on the

impact of this proposal on community

banks. The Agencies recognize that

community banks operate with more

limited resources than larger

institutions and may present a different

risk profile. Thus, we specifically

request comments on the impact of this

proposal on community banks’ current

resources and available personnel with

the requisite expertise, and whether the

goals of the proposed regulation could

be achieved, for community banks,

through an alternative approach.

E. Regulatory Flexibility Act

OCC: Under section 605(b) of the

Regulatory Flexibility Act, 5 U.S.C. 601

et seq. (RFA), the appropriate Federal

banking agencies must either provide an

Initial Regulatory Flexibility Analysis

(IRFA) with a proposed rule or certify

that the rule would not have a

significant economic impact on a

substantial number of small entities

gh an alternative approach.

E. Regulatory Flexibility Act

OCC: Under section 605(b) of the

Regulatory Flexibility Act, 5 U.S.C. 601

et seq. (RFA), the appropriate Federal

banking agencies must either provide an

Initial Regulatory Flexibility Analysis

(IRFA) with a proposed rule or certify

that the rule would not have a

significant economic impact on a

substantial number of small entities. For

purposes of this Regulatory Flexibility

Analysis and proposed regulation, the

OCC defines ‘‘small entities’’ to be those

national banks with less than $150

million in total assets. For other entities

that could be affected by this rule, such

as accountants and accounting firms, a

small entity is defined as an accounting

office with $7 million or less in annual

receipts.

We have reviewed the impact this

proposed rule will have on small banks.

Based on that review, we certify that the

proposed rule will not have a significant

economic impact on a substantial

number of small entities. The basis for

the certification is that the requirement

for audits does not apply to national

banks with less than $500 million in

total assets. In addition, only a limited

number of small accounting firms

provide section 36 audit services to

national banks. For these reasons, the

OCC does not anticipate that the

proposal will affect a substantial

number of small entities.

Board: Pursuant to section 605(b) of

the Regulatory Flexibility Act (5 U.S.C.

605(b)), the Board certifies that the

suspension and debarment amendments

proposed in this rulemaking will not

have a significant adverse economic

impact on a substantial number of small

entities. For purposes of this Regulatory

Flexibility Analysis, the Board defines

‘‘small entity’’ as (1) any insured state

member bank with less than $150

million in total assets, or (2) any bank

holding company with a subsidiary

insured state member bank with less

than $150 million in total assets

king will not

have a significant adverse economic

impact on a substantial number of small

entities. For purposes of this Regulatory

Flexibility Analysis, the Board defines

‘‘small entity’’ as (1) any insured state

member bank with less than $150

million in total assets, or (2) any bank

holding company with a subsidiary

insured state member bank with less

than $150 million in total assets. For

other entities that could be affected by

this rule, such as accountants and

accounting firms, a small entity is

defined as an accounting office with $7

million or less in annual receipts. The

basis for the Board’s certification is that

the rule will not apply to state member

banks that have less than $500 million

in total assets. In addition, only a

limited number of small accounting

firms provide section 36 audit services

to institutions that are regulated by the

Federal Reserve.

FDIC: The rule proposes and requests

comment on amendments to the FDIC’s

rules of practice (12 CFR part 308).

These amendments would add rules of

practice and standards of conduct with

regard to accountants and accounting

firms engaged by State nonmember

banks. The FDIC hereby certifies,

pursuant to section 605(b) of the RFA,

5 U.S.C. 605(b), that the proposed

suspension and debarment amendments

will not, if promulgated through a final

rule, have a significant economic impact

on a substantial number of small

entities. The basis for the certification is

that the rule will not apply to insured

depository institutions that have less

than $150 million in total assets.

Furthermore, only a limited number of

small accounting firms provide section

36 audit services to insured depository

institutions for which the FDIC is the

appropriate Federal banking agency.

OTS: Under the RFA, OTS must either

provide an IRFA with this proposed

rule, or certify that the rule would not

have a significant economic impact on

a substantial number of small entities

l assets.

Furthermore, only a limited number of

small accounting firms provide section

36 audit services to insured depository

institutions for which the FDIC is the

appropriate Federal banking agency.

OTS: Under the RFA, OTS must either

provide an IRFA with this proposed

rule, or certify that the rule would not

have a significant economic impact on

a substantial number of small entities.

For purposes of this RFA analysis and

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proposed regulation, the OTS defines

‘‘small banks’’ to be those savings

associations with less than $150 million

in total assets.

Pursuant to section 605(b) of the RFA,

OTS certifies that this proposed rule

would not have a significant economic

impact on a substantial number of small

entities. The basis of this certification is

that this rule does not apply to savings

associations with less than $500 million

in assets.

F. Executive Order 12866

The OCC and OTS have determined

that this proposal is not a significant

regulatory action under Executive Order

12866.

G. Unfunded Mandates Reform Act of

1995

Section 202 of the Unfunded

Mandates Reform Act of 1995, Pub. L.

104–4 (2 U.S.C. 1532) (Unfunded

Mandates Act), requires that an agency

prepare a budgetary impact statement

before promulgating any rule likely to

result in a Federal mandate that may

result in the expenditure by state, local,

and tribal governments, in the aggregate,

or by the private sector of $100 million

or more in any one year. If a budgetary

impact statement is required, section

205 of the Unfunded Mandates Act also

requires an agency to identify and

consider a reasonable number of

regulatory alternatives before

promulgating a rule

in a Federal mandate that may

result in the expenditure by state, local,

and tribal governments, in the aggregate,

or by the private sector of $100 million

or more in any one year. If a budgetary

impact statement is required, section

205 of the Unfunded Mandates Act also

requires an agency to identify and

consider a reasonable number of

regulatory alternatives before

promulgating a rule. The OCC and OTS

have determined that the proposed rule

will not result in expenditures by state,

local, and tribal governments, or by the

private sector, of $100 million or more

in any one year. Accordingly, this

rulemaking requires no further analysis

under the Unfunded Mandates Act.

H. Paperwork Reduction Act

The Agencies have determined that

this proposed rule does not involve a

collection of information pursuant to

the provisions of the Paperwork

Reduction Act of 1995 (44 U.S.C. 3501,

et seq.).

List of Subjects

12 CFR Part 19

Administrative practice and

procedure, Crime, Equal access to

justice, Investigations, National banks,

Penalties, Securities.

12 CFR Part 263

Administrative practice and

procedure, Claims, Crime, Equal access

to justice, Federal Reserve System,

Lawyers, Penalties.

12 CFR Part 308

Administrative practice and

procedure, Bank deposit insurance,

Banks, banking, Claims, Crime, Equal

access to justice, investigations,

Lawyers, Penalties, State nonmember

banks.

12 CFR Part 513

Accountants, Administrative practice

and procedure, Lawyers.

Deparment of the Treasury

Office of the Comptroller of the

Currency

12 CFR Chapter I

Authority and Issuance

For reasons set out in the joint

preamble, the OCC proposes to amend

part 19 of chapter I of title 12 of the

Code of Federal Regulations to read as

follows:

PART 19—RULES OF PRACTICE AND

PROCEDURE

1. The authority citation for part 19 is

amended to read as follows:

Authority: 5 U.S.C. 504, 554–557; 12

U.S.C. 93(b), 93a, 164, 505, 1817, 1818, 1820,

1831m, 1831o, 1972, 3102, 3108(a), 3909 and

4717; 15 U.S.C

t in the joint

preamble, the OCC proposes to amend

part 19 of chapter I of title 12 of the

Code of Federal Regulations to read as

follows:

PART 19—RULES OF PRACTICE AND

PROCEDURE

1. The authority citation for part 19 is

amended to read as follows:

Authority: 5 U.S.C. 504, 554–557; 12

U.S.C. 93(b), 93a, 164, 505, 1817, 1818, 1820,

1831m, 1831o, 1972, 3102, 3108(a), 3909 and

4717; 15 U.S.C. 78(h) and (i), 78o–4(c), 78o–

5, 78q–1, 78s, 78u, 78u–2, 78u–3, and 78w;

28 U.S.C. 2461 note; 31 U.S.C. 330, 5321; and

42 U.S.C. 4012a.

2. Section 19.100 of subpart B is

revised to read as follows:

§ 19.100

Filing documents.

All materials required to be filed with

or referred to the Comptroller or the

administrative law judge in any

proceeding under this part must be filed

with the Hearing Clerk, Office of the

Comptroller of the Currency, 250 E

Street, SW, Washington, DC 20219.

Filings to be made with the Hearing

Clerk include the notice and answer;

motions and responses to motions;

briefs; the record filed by the

administrative law judge after the

issuance of a recommended decision;

the recommended decision filed by the

administrative law judge following a

motion for summary disposition (except

that in removal and prohibition cases

instituted pursuant to 12 U.S.C. 1818,

the administrative law judge will file

the record and the recommended

decision with the Board of Governors of

the Federal Reserve System); referrals by

the administrative law judge of motions

for interlocutory review; exceptions and

requests for oral argument; and any

other papers required to be filed with

the Comptroller or the administrative

law judge under this part.

3. In § 19.111 of subpart C, the section

heading and the fourth and fifth

sentences are revised to read as follows:

§ 19.111

Suspension, removal, or

prohibition

rrals by

the administrative law judge of motions

for interlocutory review; exceptions and

requests for oral argument; and any

other papers required to be filed with

the Comptroller or the administrative

law judge under this part.

3. In § 19.111 of subpart C, the section

heading and the fourth and fifth

sentences are revised to read as follows:

§ 19.111

Suspension, removal, or

prohibition.

* * * The written request must be

sent by certified mail to, or served

personally with a signed receipt on, the

District Deputy Comptroller in the OCC

district in which the bank, accountant,

or accounting firm in question is

located, or, if the bank is supervised by

the Large Bank Supervision Department,

to the appropriate Deputy Comptroller

for Large Bank Supervision for the

Office of the Comptroller of the

Currency, or if the bank is supervised by

the Mid-Size/Community Banks

Department, to the Deputy Comptroller

for Mid-Size/Community Banks for

Office of the Comptroller of the

Currency, Washington, DC 20219. The

request must state specifically the relief

desired and the grounds on which that

relief is based.

4. In § 19.196 of subpart K, the

introductory text and paragraphs (a), (b),

and (g) are revised to read as follows:

§ 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;

onduct for which an

individual may be censured, debarred,

or suspended from practice before the

OCC includes:

(a) Willfully or recklessly violating or

willfully or recklessly aiding and

abetting the violation of any provision

of the Federal banking or applicable

securities laws or the rules and

regulations thereunder or conviction of

any offense involving dishonesty or

breach of trust;

(b) Knowingly or recklessly giving

false or misleading information, or

participating in any way in the giving of

false information to the OCC or any

officer or employee thereof, or to any

tribunal authorized to pass upon matters

administered by the OCC in connection

with any matter pending or likely to be

pending before it. The term

‘‘information’’ includes facts or other

statements contained in testimony,

financial statements, applications for

enrollment, affidavits, declarations, or

any other document or written or oral

statement;

*

*

*

*

*

(g) Suspension, debarment or removal

from practice before the Board of

Governors, the FDIC, the OTS, the

Securities and Exchange Commission,

the Commodity Futures Trading

Commission, or any other Federal or

state agency; and

*

*

*

*

*

5. A new subpart P is added to read

as follows:

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Subpart P—Removal, Suspension, and

Debarment of Accountants From

Performing Audit Services

Sec.

19.241

Scope.

19.242

Definitions.

19.243

Removal, suspension, or debarment.

19.244

Automatic removal, suspension, or

debarment.

19.245

Notice of removal, suspension, or

debarment.

19.246

Petition for reinstatement.

Subpart P—Removal, Suspension, and

Debarment of Accountants From

Performing Audit Services

§ 19.241

Scope.

This subpart, which implements

section 36(g)(4) of the Federal Deposit

Insurance Act (FDIA) (12 U.S.C

19.243

Removal, suspension, or debarment.

19.244

Automatic removal, suspension, or

debarment.

19.245

Notice of removal, suspension, or

debarment.

19.246

Petition for reinstatement.

Subpart P—Removal, Suspension, and

Debarment of Accountants From

Performing Audit Services

§ 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.

§ 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.

§ 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:

ebarment.

(a) Good cause for removal,

suspension, or debarment—(1)

Individuals. The Comptroller may

remove, suspend, or debar an

independent public accountant from

performing audit services for insured

national banks that are subject to section

36 of the FDIA if, after service of a

notice of intention and opportunity for

hearing in the matter, the Comptroller

finds that the accountant:

(i) Lacks the requisite qualifications to

perform audit services;

(ii) Has knowingly or recklessly

engaged in conduct that results in a

violation of applicable professional

standards, including those standards

and conflicts of interest provisions

applicable to accountants through the

Sarbanes-Oxley Act of 2002, Pub. L.

107–204, 116 Stat. 745 (2002) (Sarbanes-

Oxley Act), and developed by the Public

Company Accounting Oversight Board

and the Securities and Exchange

Commission;

(iii) Has engaged in negligent conduct

in the form of:

(A) A single instance of highly

unreasonable conduct that results in a

violation of applicable professional

standards in circumstances in which an

accountant knows, or should know, that

heightened scrutiny is warranted; or

(B) Repeated instances of

unreasonable conduct, each resulting in

a violation of applicable professional

standards, that indicate a lack of

competence to perform audit services;

(iv) Has knowingly or recklessly given

false or misleading information, or

knowingly or recklessly participated in

any way in the giving of false or

misleading information, to the OCC or

any officer or employee of the OCC;

d 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 § 19.244, on grounds relevant to the

provision of audit services.

(2) Accounting firms. If the

Comptroller determines that there is

good cause for the removal, suspension,

or debarment of a member or employee

of an accounting firm under paragraph

(a)(1) of this section, the Comptroller

also may remove, suspend, or debar

such firm or one or more offices of such

firm. In considering whether to remove,

suspend, or debar a firm or an office

thereof, and the term of any sanction

against a firm under this section, the

Comptroller may consider, for example:

(i) The gravity, scope, or repetition of

the act or failure to act that constitutes

good cause for the removal, suspension,

or debarment;

(ii) The adequacy of, and adherence

to, applicable policies, practices, or

procedures for the accounting firm’s

conduct of its business and the

performance of audit services;

(iii) The selection, training,

supervision, and conduct of members or

employees of the accounting firm

involved in the performance of audit

services;

stitutes

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.

of formal

removal, suspension, or debarment

proceedings. The Comptroller may

initiate a proceeding to remove,

suspend, or debar an accountant or

accounting firm from performing audit

services by issuing a written notice of

intention to take such action that names

the individual or firm as a respondent

and describes the nature of the conduct

that constitutes good cause for such

action.

(2) Hearings under paragraph (b) of

this section. An accountant or firm

named as a respondent in the notice

issued under paragraph (b)(1) of this

section may request a hearing on the

allegations in the notice. Hearings

conducted under this paragraph shall be

conducted in the same manner as other

hearings under the Uniform Rules of

Practice and Procedure (12 CFR part 19,

subpart A.)

(c) Immediate suspension from

performing audit services—(1) In

general. If the Comptroller serves a

written notice of intention to remove,

suspend, or debar an accountant or

accounting firm from performing audit

services, the Comptroller may, with due

regard for the public interest and

without a preliminary hearing,

immediately suspend such accountant

or firm from performing audit services

for insured national banks, if the

Comptroller:

(i) Has a reasonable basis to believe

that the accountant or firm has engaged

in conduct (specified in the notice

served on the accountant or firm under

paragraph (b) of this section) that would

constitute grounds for removal,

suspension, or debarment under

paragraph (a) of this section;

(ii) Determines that immediate

suspension is necessary for the

protection of an insured depository

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Federal Register / Vol. 68, No. 5 / Wednesday, January 8, 2003 / Proposed Rules

institution or its depositors or for the

protection of the depository system as a

whole; and

(iii) Serves such respondent with

written notice of the immediate

suspension.

n insured depository

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institution or its depositors or for the

protection of the depository system as a

whole; and

(iii) Serves such respondent with

written notice of the immediate

suspension.

(2) Procedures. An immediate

suspension notice issued under this

paragraph will become effective upon

service. Such suspension will remain in

effect until the date the Comptroller

dismisses the charges contained in the

notice of intention, or the effective date

of a final order of removal, suspension,

or debarment issued by the Comptroller

to the respondent.

(3) Petition for stay. Any accountant

or firm immediately suspended from

performing audit services in accordance

with paragraph (c)(1) of this section

may, within 10 calendar days after

service of the notice of immediate

suspension, file with the Office of the

Comptroller of the Currency,

Washington, DC 20219 for a stay of such

immediate suspension. If no petition is

filed within 10 calendar days, the

immediate suspension shall remain in

effect.

(4) Hearing on petition. Upon receipt

of a stay petition, the Comptroller will

designate a presiding officer who shall

fix a place and time (not more than 30

calendar days after receipt of the

petition, unless extended at the request

of petitioner) at which the immediately

suspended party may appear, personally

or through counsel, to submit written

materials and oral argument. In the sole

discretion of the presiding officer, upon

a specific showing of compelling need,

oral testimony of witnesses may also be

presented. In hearings held pursuant to

this paragraph there shall be no

discovery and the provisions of §§ 19.6

through 19.12, 19.16, and 19.21 of this

part shall apply.

appear, personally

or through counsel, to submit written

materials and oral argument. In the sole

discretion of the presiding officer, upon

a specific showing of compelling need,

oral testimony of witnesses may also be

presented. In hearings held pursuant to

this paragraph there shall be no

discovery and the provisions of §§ 19.6

through 19.12, 19.16, and 19.21 of this

part shall apply.

(5) Decision on petition. Within 30

calendar days after the hearing, the

presiding officer shall issue a decision.

The presiding officer will grant a stay

upon a demonstration that a substantial

likelihood exists of the respondent’s

success on the issues raised by the

notice of intention and that, absent such

relief, the respondent will suffer

immediate and irreparable injury, loss,

or damage. In the absence of such a

demonstration, the presiding officer will

notify the parties that the immediate

suspension will be continued pending

the completion of the administrative

proceedings pursuant to the notice.

(6) Review of presiding officer’s

decision. The parties may seek review of

the presiding officer’s decision by filing

a petition for review with the presiding

officer within 10 calendar days after

service of the decision. Replies must be

filed within 10 calendar days after the

petition filing date. Upon receipt of a

petition for review and any reply, the

presiding officer shall promptly certify

the entire record to the Comptroller.

Within 60 calendar days of the

presiding officer’s certification, the

Comptroller shall issue an order

notifying the affected party whether or

not the immediate suspension should be

continued or reinstated. The order shall

state the basis of the Comptroller’s

decision.

§ 19.244

Automatic removal, suspension,

and debarment.

cer 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.

§ 19.244

Automatic removal, suspension,

and debarment.

(a) An independent public accountant

or accounting firm may not perform

audit services for insured national banks

if the accountant or firm:

(1) Is subject to a final order of

removal, suspension, or debarment

(other than a limited scope order) issued

by the Board of Governors of the Federal

Reserve System, the Federal Deposit

Insurance Corporation, or the Office of

Thrift Supervision under section 36 of

the FDIA.

(2) Is subject to a temporary

suspension or permanent revocation of

registration or a temporary or permanent

suspension or bar from further

association with any registered public

accounting firm issued by the Public

Company Accounting Oversight Board

under sections 105(c)(4)(A) or (B) of the

Sarbanes-Oxley Act (15 U.S.C.

7215(c)(4)(A) or (B));

(3) Is subject to an order of suspension

or denial of the privilege of appearing or

practicing before the Securities and

Exchange Commission; or

(4) Is suspended or debarred for cause

from practice as an accountant by any

duly constituted licensing authority of

any state, possession, commonwealth,

or the District of Columbia.

(b) Upon written request, the

Comptroller, for good cause shown, may

grant written permission to such

accountant or firm to perform audit

services for national banks. The request

shall contain a concise statement of the

action requested. The Comptroller may

require the applicant to submit

additional information.

§ 19.245

Notice of removal, suspension or

debarment.

District of Columbia.

(b) Upon written request, the

Comptroller, for good cause shown, may

grant written permission to such

accountant or firm to perform audit

services for national banks. The request

shall contain a concise statement of the

action requested. The Comptroller may

require the applicant to submit

additional information.

§ 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

§ 19.243(a)(1)(vi) or §§ 19.244(a)(2)

through (a)(4); or

(2) Any currently effective action by

the Public Company Accounting

Oversight Board under sections

105(c)(4)(C) or (G) of the Sarbanes-Oxley

Act) (15 U.S.C. 7215(c)(4)(C) or (G)).

(c) Timing of notice. Written notice

required by this paragraph shall be

given no later than 15 calendar days

following the effective date of an order

or action, or 15 calendar days before an

accountant or firm accepts an

engagement to provide audit services,

whichever date is earlier.

§ 19.246

Petition for reinstatement.

r (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.

§ 19.246

Petition for reinstatement.

(a) Form of petition. Unless otherwise

ordered by the Comptroller, a petition

for reinstatement by an independent

public accountant or accounting firm

removed, suspended, or debarred under

§ 19.243 may be made in writing at any

time one year after the effective date of

the order of removal, suspension, or

debarment and, thereafter, at any time

more than one year after the

accountant’s or firm’s most recent

petition for reinstatement. The request

shall contain a concise statement of the

action requested. The Comptroller may

require the applicant to submit

additional information.

(b) Procedure. A petitioner for

reinstatement under this section may, in

the sole discretion of the Comptroller,

be afforded a hearing. The accountant or

firm shall bear the burden of going

forward with a petition and proving the

grounds asserted in support of the

petition. In reinstatement proceedings,

the person seeking reinstatement shall

bear the burden of going forward with

an application and proving the grounds

asserted in support of the application.

The Comptroller may, in his sole

discretion, direct that any reinstatement

proceeding be limited to written

submissions. The removal, suspension,

or debarment shall continue until the

Comptroller, for good cause shown, has

reinstated the petitioner or until the

suspension period has expired. The

filing of a petition for reinstatement

shall not stay the effectiveness of the

removal, suspension, or debarment of an

accountant or firm.

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08JAP3

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.

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1124

Federal Register / Vol. 68, No. 5 / Wednesday, January 8, 2003 / Proposed Rules

Dated: November 27, 2002.

John D. Hawke, Jr.,

Comptroller of the Currency.

Federal Reserve System

12 CFR Chapter II

Authority and Issuance

For the reasons set out in the joint

preamble, the Board proposes to amend

part 263, chapter II, title 12 of the Code

of Federal Regulations as follows:

PART 263—RULES OF PRACTICE FOR

HEARINGS

1. The authority citation for part 263

is revised to read as follows:

Authority: 5 U.S.C. 504; 12 U.S.C. 248,

324, 504, 506, 1817(j), 1818, 1828(c), 1831m,

1831o, 1831p–1, 1847(b), 1847(d), 1884(b),

1972(2)(F), 3105, 3107, 3108, 3907, 3909; 15

U.S.C. 21, 78o–4, 78o–5, 78u–2, 6801, 6805;

and 28 U.S.C. 2461 note.

2. In § 263.94, paragraphs (a) and (b)

are revised to read as follows:

§ 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;

.94, paragraphs (a) and (b)

are revised to read as follows:

§ 263.94

Conduct warranting sanctions.

*

*

*

*

*

(a) Willfully or recklessly violating or

willfully or recklessly aiding and

abetting the violation of any provision

of the Federal banking or applicable

securities laws or the rules and

regulations thereunder or conviction of

any offense involving dishonesty or

breach of trust;

(b) Knowingly or recklessly giving

false or misleading information, or

participating in any way in the giving of

false information to the Board or to any

Board officer or employee, or to any

tribunal authorized to pass upon matters

administered by the Board in

connection with any matter pending or

likely to be pending before it. The term

‘‘information’’ includes facts or other

statements contained in testimony,

financial statements, applications,

affidavits, declarations, or any other

document or written or oral statement;

*

*

*

*

*

3. A new subpart J is added as

follows:

Subpart J—Removal, Suspension, and

Debarment of Accountants From

Performing Audit Services

Sec.

263.400

Scope.

263.401

Definitions.

263.402

Removal, suspension, or

debarment.

263.403

Automatic removal, suspension,

and debarment

263.404

Notice of removal, suspension, or

debarment.

263.405

Petition for reinstatement.

Subpart J—Removal, Suspension, and

Debarment of Accountants From

Performing Audit Services

§ 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).

§ 263.401

Definitions.

As used in this subpart, the following

terms shall have the meaning given

below unless the context requires

otherwise:

r 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).

§ 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.

§ 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:

263.402

Removal, suspension, or

debarment.

(a) Good cause for removal,

suspension, or debarment—

(1) Individuals. The Board may

remove, suspend, or debar an

independent public accountant from

performing audit services for banking

organizations that are subject to section

36 of the FDIA, if, after notice of and

opportunity for hearing in the matter,

the Board finds that the accountant:

(i) Lacks the requisite qualifications to

perform audit services;

(ii) Has knowingly or recklessly

engaged in conduct that results in a

violation of applicable professional

standards, including those standards

and conflict of interest provisions

applicable to accountants through the

Sarbanes-Oxley Act of 2002, Pub. L. No.

107–204, 116 Stat. 745 (2002) (Sarbanes-

Oxley Act), and developed by the Public

Company Accounting Oversight Board

and the Securities and Exchange

Commission;

(iii) Has engaged in negligent conduct

in the form of:

(A) A single instance of highly

unreasonable conduct that results in a

violation of applicable professional

standards in circumstances in which an

accountant knows, or should know, that

heightened scrutiny is warranted; or

(B) Repeated instances of

unreasonable conduct, each resulting in

a violation of applicable professional

standards, that indicate a lack of

competence to perform audit services;

(iv) Has knowingly or recklessly given

false or misleading information, or

knowingly or recklessly participated in

any way in the giving of false or

misleading information, to the Board or

any officer or employee of the Board;

stances of

unreasonable conduct, each resulting in

a violation of applicable professional

standards, that indicate a lack of

competence to perform audit services;

(iv) Has knowingly or recklessly given

false or misleading information, or

knowingly or recklessly participated in

any way in the giving of false or

misleading information, to the Board or

any officer or employee of the Board;

(v) Has engaged in, or aided and

abetted, a material and knowing or

reckless violation of any provision of

the Federal banking or securities laws or

the rules and regulations thereunder, or

any other law; or

(vi) Has been removed, suspended, or

debarred from practice before any

Federal or state agency regulating the

banking, insurance, or securities

industries, other than by an action listed

in § 263.403, on grounds relevant to the

provision of audit services.

(2) Accounting firms. If the Board

determines that there is good cause for

the removal, suspension, or debarment

of a member or employee of an

accounting firm under paragraph (a)(1)

of this section, the Board also may

remove, suspend, or debar such firm or

one or more offices of such firm. In

considering whether to remove, suspend

or debar a firm or an office thereof, and

the term of any sanction against a firm

under this section, the Board may

consider, for example:

(i) The gravity, scope, or repetition of

the act or failure to act that constitutes

good cause for removal, suspension, or

debarment;

(ii) The adequacy of, and adherence

to, applicable policies, practices, or

procedures for the accounting firm’s

conduct of its business and the

performance of audit services;

(iii) The selection, training,

supervision, and conduct of members or

employees of the accounting firm

involved in the performance of audit

services;

t 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

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Federal Register / Vol. 68, No. 5 / Wednesday, January 8, 2003 / Proposed Rules

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.

tiation of formal

removal, suspension, or debarment

proceedings. The Board may initiate a

proceeding to remove, suspend, or debar

an accountant or accounting firm from

performing audit services by issuing a

written notice of intention to take such

action that names the individual or firm

as a respondent and describes the nature

of the conduct that constitutes good

cause for such action.

(2) Hearing under paragraph (b) of

this section. An accountant or firm

named as a respondent in the notice

issued under paragraph (b)(2) of this

section may request a hearing on the

allegations in the notice. Hearings

conducted under this paragraph shall be

conducted in the same manner as other

hearings under the Uniform Rules of

Practice and Procedure (12 CFR part

263, subpart A).

(c) Immediate suspension from

performing audit services—(1) In

general. If the Board serves a written

notice of intention to remove, suspend,

or debar an accountant or accounting

firm from performing audit services, the

Board may, with due regard for the

public interest and without a

preliminary hearing, immediately

suspend such accountant or firm from

performing audit services for banking

organizations, if the Board:

(i) Has a reasonable basis to believe

that the accountant or firm has engaged

in conduct (specified in the notice

served on the accountant or firm under

paragraph (b) of this section) that would

constitute grounds for removal,

suspension, or debarment under

paragraph (a) of this section;

(ii) Determines that immediate

suspension is necessary for the

protection of an insured depository

institution or its depositors or for the

protection of the depository system as a

whole; and

(iii) Serves such respondent with

written notice of the immediate

suspension.

his section) that would

constitute grounds for removal,

suspension, or debarment under

paragraph (a) of this section;

(ii) Determines that immediate

suspension is necessary for the

protection of an insured depository

institution or its depositors or for the

protection of the depository system as a

whole; and

(iii) Serves such respondent with

written notice of the immediate

suspension.

(2) Procedures. An immediate

suspension notice issued under this

paragraph will become effective upon

service. Such suspension will remain in

effect until the date the Board dismisses

the charges contained in the notice of

intention, or the effective date of a final

order of removal, suspension, or

debarment issued by the Board to the

respondent.

(3) Petition to stay. Any accountant or

firm immediately suspended from

performing audit services in accordance

with paragraph (c)(1) of this section

may, within 10 calendar days after

service of the notice of immediate

suspension, file with the Secretary,

Board of Governors of the Federal

Reserve System, Washington, DC 20551

for a stay of such immediate suspension.

If no petition is filed within 10 calendar

days, the immediate suspension shall

remain in effect.

(4) Hearing on petition. Upon receipt

of a stay petition, the Secretary will

designate a presiding officer who shall

fix a place and time (not more than 30

calendar days after receipt of the

petition, unless extended at the request

of petitioner) at which the immediately

suspended party may appear, personally

or through counsel, to submit written

materials and oral argument. In the sole

discretion of the presiding officer, upon

a specific showing of compelling need,

oral testimony of witnesses may also be

presented. In hearings held pursuant to

this paragraph there shall be no

discovery and the provisions of §§ 263.6

through 263.12, 263.16, and 263.21 of

this part shall apply.

ar, personally

or through counsel, to submit written

materials and oral argument. In the sole

discretion of the presiding officer, upon

a specific showing of compelling need,

oral testimony of witnesses may also be

presented. In hearings held pursuant to

this paragraph there shall be no

discovery and the provisions of §§ 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.

§ 263.403

Automatic removal, suspension,

and debarment.

he

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.

§ 263.403

Automatic removal, suspension,

and debarment.

(a) An independent public accountant

or accounting firm may not perform

audit services for banking organizations

if the accountant or firm:

(1) Is subject to a final order of

removal, suspension, or debarment

(other than a limited scope order) issued

by the Federal Deposit Insurance

Corporation, the Office of the

Comptroller of the Currency, or the

Office of Thrift Supervision under

section 36 of the FDIA;

(2) Is subject to a temporary

suspension or permanent revocation of

registration or a temporary or permanent

suspension or bar from further

association with any registered public

accounting firm issued by the Public

Company Accounting Oversight Board

under sections 105(c)(4)(A) or (B) of the

Sarbanes-Oxley Act of 2002 (15 U.S.C.

7215(c)(4)(A) or (B));

(3) Is subject to an order of suspension

or denial of the privilege of appearing or

practicing before the Securities and

Exchange Commission; or

(4) Is suspended or debarred for cause

from practice as an accountant by any

duly constituted licensing authority of

any state, possession, commonwealth,

or the District of Columbia.

(b) Upon written request, the Board,

for good cause shown, may grant written

permission to such accountant or firm to

perform audit services for banking

organizations. The request shall contain

a concise statement of the action

requested. The Board may require the

applicant to submit additional

information.

§ 263.404.

Notice of removal, suspension,

or debarment.

he District of Columbia.

(b) Upon written request, the Board,

for good cause shown, may grant written

permission to such accountant or firm to

perform audit services for banking

organizations. The request shall contain

a concise statement of the action

requested. The Board may require the

applicant to submit additional

information.

§ 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:

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(1) Any currently effective order or

other action described in

§ 263.402(a)(1)(vi) or §§ 263.403(a)(2)

through (a)(4); or

(2) Any currently effective action by

the Public Company Accounting

Oversight Board under sections

105(c)(4)(C) or (G) of the Sarbanes-Oxley

Act of 2002 (15 U.S.C. 7215(c)(4)(C) or

(G)).

(c) Timing of notice. Written notice

required by this paragraph shall be

given no later than 15 calendar days

following the effective date of an order

or action, or 15 calendar days before an

accountant or firm accepts an

engagement to provide audit services,

whichever date is earlier.

§ 263.405

Petition for reinstatement.

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.

§ 263.405

Petition for reinstatement.

(a) Form of petition. Unless otherwise

ordered by the Board, a petition for

reinstatement by an independent public

accountant or accounting firm removed,

suspended, or debarred under § 263.402

may be made in writing at any time one

year after the effective date of the order

of removal, suspension, or debarment

and, thereafter, at any time more than

one year after the accountant’s or firm’s

most recent petition for reinstatement.

The request shall contain a concise

statement of the action requested. The

Board may require the petitioner to

submit additional information.

(b) Procedure. A petitioner for

reinstatement under this section may, in

the sole discretion of the Board, be

afforded a hearing. The accountant or

firm shall bear the burden of going

forward with a petition and proving the

grounds asserted in support of the

petition. The Board may, in its sole

discretion, direct that any reinstatement

proceeding be limited to written

submissions. The removal, suspension,

or debarment shall continue until the

Board, for good cause shown, has

reinstated the petitioner or until the

suspension period has expired. The

filing of a petition for reinstatement

shall not stay the effectiveness of the

removal, suspension, or debarment of an

accountant or firm.

By order of the Board of Governors of the

Federal Reserve System, December 17, 2002.

Jennifer J. Johnson,

Secretary of the Board.

Federal Deposit Insurance Corporation

PART 308—RULES OF PRACTICE AND

PROCEDURE

1.The authority citation for part 308 is

revised to read as follows:

Authority: 5 U.S.C. 504, 554–557; 12

U.S.C

ess of the

removal, suspension, or debarment of an

accountant or firm.

By order of the Board of Governors of the

Federal Reserve System, December 17, 2002.

Jennifer J. Johnson,

Secretary of the Board.

Federal Deposit Insurance Corporation

PART 308—RULES OF PRACTICE AND

PROCEDURE

1.The authority citation for part 308 is

revised to read as follows:

Authority: 5 U.S.C. 504, 554–557; 12

U.S.C. 93(b), 164, 505, 1815(e), 1817, 1818,

1820, 1828, 1829, 1829b, 1831i, 1831m(g)(4),

1831o, 1831p–1, 1832(c), 1884(b), 1972,

3102, 3108(a), 3349, 3909, 4717; 15 U.S.C.

78(h) and (i), 78o–4(c), 78o–5, 78q–1, 78s,

78u, 78u–2, 78u–3 and 78w, 6801(b),

6805(b)(1); 28 U.S.C. 2461 note; 31 U.S.C.

330, 5321; 42 U.S.C. 4012a; Sec. 3100(s), Pub.

L. 104–134, 110 Stat. 1321–358.

2. Section 308.109(b)(3) is amended to

add a new sentence before the last

sentence to read as follows:

§ 308.109

Suspension and disbarment

*

*

*

*

*

(b) * * *

(3) * * * The application must

comply with the requirements of § 303.3

of this chapter. * * *

*

*

*

*

*

3. A new Subpart U is added to read

as follows:

Subpart U—Removal, Suspension, and

Debarment of Accountants From

Performing Audit Service

Sec.

308.600

Scope.

308.601

Definitions.

308.602

Removal, suspension, or

debarment.

308.603

Automatic removal, suspension,

and debarment.

308.604

Notice of removal, suspension, or

debarment.

308.605

Application for reinstatement.

Subpart U—Removal, Suspension, and

Debarment of Accountants From

Performing Audit Service

§ 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.

§ 308.601

Definitions

e 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.

§ 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.

§ 308.602

Removal, suspension, or

debarment.

(a) Good cause for removal,

suspension, or debarment—(1)

Individuals. The Board of Directors may

remove, suspend, or debar an

independent public accountant from

performing audit services for insured

depository institutions for which the

FDIC is the appropriate Federal banking

agency under section 36 of the FDIA if,

after service of a notice of intention and

opportunity for hearing in the matter,

the Board of Directors finds that the

accountant:

dividuals. The Board of Directors may

remove, suspend, or debar an

independent public accountant from

performing audit services for insured

depository institutions for which the

FDIC is the appropriate Federal banking

agency under section 36 of the FDIA if,

after service of a notice of intention and

opportunity for hearing in the matter,

the Board of Directors finds that the

accountant:

(i) Lacks the requisite qualifications to

perform audit services;

(ii) Has knowingly or recklessly

engaged in conduct that results in a

violation of applicable professional

standards, including those standards

and conflicts of interest provisions

applicable to accountants through the

Sarbanes-Oxley Act of 2002 (Pub. L.

107–204, 116 Stat. 745 (2002))

(Sarbanes-Oxley Act) and developed by

the Public Company Accounting

Oversight Board and the Securities and

Exchange Commission;

(iii) Has engaged in negligent conduct

in the form of:

(A) A single instance of highly

unreasonable conduct that results in a

violation of applicable professional

standards in circumstances in which an

accountant knows, or should know, that

heightened scrutiny is warranted; or

(B) Repeated instances of

unreasonable conduct, each resulting in

a violation of applicable professional

standards, that indicate a lack of

competence to perform audit services;

(iv) Has knowingly or recklessly given

false or misleading information, or

knowingly or recklessly participated in

any way in the giving of false or

misleading information, to the FDIC or

any officer or employee of the FDIC;

instances of

unreasonable conduct, each resulting in

a violation of applicable professional

standards, that indicate a lack of

competence to perform audit services;

(iv) Has knowingly or recklessly given

false or misleading information, or

knowingly or recklessly participated in

any way in the giving of false or

misleading information, to the FDIC or

any officer or employee of the FDIC;

(v) Has engaged in, or aided and

abetted, a material and knowing or

reckless violation of any provision of

the Federal banking or securities laws or

the rules and regulations thereunder, or

any other law; or

(vi) Has been removed, suspended, or

debarred from practice before any

Federal or state agency regulating the

banking, insurance, or securities

industries, other than by an action listed

in § 308.603, on grounds relevant to the

provision of audit services.

(2) Accounting firms. If the Board of

Directors determines that there is good

cause for the removal, suspension, or

debarment of a member or employee of

an accounting firm under paragraph

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(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:

dnesday, January 8, 2003 / Proposed Rules

(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.

n), or debarment

may, at the discretion of the Board of

Directors, be made applicable to a

limited number of insured depository

institutions for which the FDIC is the

appropriate Federal banking agency.

(4) Remedies not exclusive. The

remedies provided in this subpart are in

addition to any other remedies the FDIC

may have under any other applicable

provision of law, rule, or regulation.

(b) Proceedings to remove, suspend or

debar— (1) Initiation of formal removal,

suspension, or debarment proceedings.

The Board of Directors may initiate a

proceeding to remove, suspend, or debar

an accountant or accounting firm from

performing audit services by issuing a

written notice of intention to take such

action that names the individual or firm

as a respondent and describes the nature

of the conduct that constitutes good

cause for such action.

(2) Hearings under paragraph (b) of

this section. An accountant or firm

named as a respondent in the notice

issued under paragraph (b)(1) of this

section may request a hearing on the

allegations contained in the notice.

Hearings conducted under this

paragraph shall be conducted in the

same manner as other hearings under

the Uniform Rules of Practice and

Procedure (12 CFR part 308, subpart A)

(Uniform Rules).

(c) Immediate suspension from

performing audit service— (1) In

general. If the Board of Directors serves

a written notice of intention to remove,

suspend, or debar an accountant or

accounting firm from performing audit

services, the Board of Directors may,

with due regard for the public interest

and without a preliminary hearing,

immediately suspend such accountant

or firm from performing audit services

for insured depository institutions for

which the FDIC is the appropriate

Federal banking agency if the Board of

Directors:

ve,

suspend, or debar an accountant or

accounting firm from performing audit

services, the Board of Directors may,

with due regard for the public interest

and without a preliminary hearing,

immediately suspend such accountant

or firm from performing audit services

for insured depository institutions for

which the FDIC is the appropriate

Federal banking agency if the Board of

Directors:

(i) Has a reasonable basis to believe

that the accountant or accounting firm

has engaged in conduct (specified in the

notice served upon the accountant or

accounting firm under paragraph (b)(1)

of this section) that would constitute

grounds for removal, suspension, or

debarment under paragraph (a) of this

section;

(ii) Determines that immediate

suspension is necessary for the

protection of an insured depository

institution or its depositors or for the

protection of the depository system as a

whole; and

(iii) Serves such respondent with

written notice of the immediate

suspension.

(2) Procedures. An immediate

suspension notice issued under this

paragraph will become effective upon

service. Such suspension will remain in

effect until the date the Board of

Directors dismisses the charges

contained in the notice of intention, or

the effective date of a final order of

removal, suspension, or debarment

issued by the Board of Directors to the

respondent.

(3) Petition to stay. Any accountant or

accounting firm immediately suspended

from performing audit services in

accordance with paragraph (c)(1) of this

section may, within 10 calendar days

after service of the notice of immediate

suspension, file a petition with the

Executive Secretary for a stay of such

immediate suspension. If no petition is

filed within 10 calendar days, the

immediate suspension will remain in

effect.

or

accounting firm immediately suspended

from performing audit services in

accordance with paragraph (c)(1) of this

section may, within 10 calendar days

after service of the notice of immediate

suspension, file a petition with the

Executive Secretary for a stay of such

immediate suspension. If no petition is

filed within 10 calendar days, the

immediate suspension will remain in

effect.

(4) Hearing on petition. Upon receipt

of a stay petition, the Executive

Secretary will designate a presiding

officer who will fix a place and time

(not more than 30 calendar days after

receipt of the petition, unless extended

at the request of petitioner) at which the

immediately suspended party may

appear, personally or through counsel,

to submit written materials and oral

argument. In the sole discretion of the

presiding officer, upon a specific

showing of compelling need, oral

testimony of witnesses also may be

presented. Enforcement counsel may

represent the agency at the hearing. In

hearings held pursuant to this paragraph

there shall be no discovery, and the

provisions of §§ 308.6 through 308.12,

§ 308.16, and § 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.

reparable 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.

§ 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;

ository

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

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registration or a temporary or permanent

suspension or bar from further

association with any registered public

accounting firm issued by the Public

Company Accounting Oversight Board

under sections 105(c)(4)(A) or (B) of the

Sarbanes-Oxley Act (15 U.S.C.

7215(c)(4)(A) or (B));

(3) Is subject to an order of suspension

or denial of the privilege of appearing or

practicing before the Securities and

Exchange Commission; or

(4) Is suspended or debarred for cause

from practice as an accountant by any

duly constituted licensing authority of

any state, possession, commonwealth,

or the District of Columbia.

(b) Upon written request, the FDIC,

for good cause shown, may grant written

permission to such accountant or firm to

perform audit services for insured

depository institutions for which the

FDIC is the appropriate Federal banking

agency. The written request must

comply with the requirements of § 303.3

of this chapter.

§ 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.

s of § 303.3

of this chapter.

§ 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

§ 308.602(a)(1)(vi) or §§ 308.603(b)

through (d); or

(2) any currently effective action by

the Public Company Accounting

Oversight Board under sections

105(c)(4)(C) or (G) of the Sarbanes-Oxley

Act (15 U.S.C. 7215(c)(4)(C) or (G)).

(c) Timing of Notice. Written notice

required by this paragraph shall be

given no later than 15 calendar days

following the effective date of an order

or action, or 15 calendar days before an

accountant or accounting firm accepts

an engagement to provide audit

services, whichever date is earlier.

§ 308.605

Application for reinstatement.

(a) Form of petition. Unless otherwise

ordered by the Board of Directors, an

application for reinstatement by an

independent public accountant or

accounting firm removed, suspended, or

debarred under § 308.602 may be made

in writing at any time more than one

year after the effective date of the

removal, suspension, or debarment and,

thereafter, at any time more than one

year after the accountant’s or accounting

firm’s most recent application for

reinstatement. The application must

comply with the requirements of § 303.3

of this chapter.

ing firm removed, suspended, or

debarred under § 308.602 may be made

in writing at any time more than one

year after the effective date of the

removal, suspension, or debarment and,

thereafter, at any time more than one

year after the accountant’s or accounting

firm’s most recent application for

reinstatement. The application must

comply with the requirements of § 303.3

of this chapter.

(b) Procedure. An applicant for

reinstatement under this section may, in

the sole discretion of the Board of

Directors, be afforded a hearing. In

reinstatement proceedings, the person

seeking reinstatement shall bear the

burden of going forward with an

application and proving the grounds

asserted in support of the application,

and the Board of Directors may, in its

sole discretion, direct that any

reinstatement proceeding be limited to

written submissions. The removal,

suspension, or debarment shall continue

until the Board of Directors, for good

cause shown, has reinstated the

applicant or until the suspension period

has expired. The filing of an application

for reinstatement will not stay the

effectiveness of the removal,

suspension, or debarment of an

accountant or firm.

Dated: December 17, 2002.

By order of the Board of Directors of the

Federal Deposit Insurance Corporation.

Robert Feldman,

Executive Secretary.

Office of Thrift Supervision

12 CFR Chapter V

Authority and Issuance

For the reasons set out in the

preamble, the Office of Thrift

Supervision proposes to amend part 513

of chapter V of title 12 of the Code of

Federal Regulations as follows:

1. The authority citation for part 513

is revised to read as follows:

Authority: 12 U.S.C. 1462a, 1463, 1464,

1467a, 1813, 1831m, and 15 U.S.C. 78.

2. Add § 513.8 to read as follows:

§ 513.8

Removal, suspension, or

debarment of independent public

accountants and accounting firms

performing audit services.

end part 513

of chapter V of title 12 of the Code of

Federal Regulations as follows:

1. The authority citation for part 513

is revised to read as follows:

Authority: 12 U.S.C. 1462a, 1463, 1464,

1467a, 1813, 1831m, and 15 U.S.C. 78.

2. Add § 513.8 to read as follows:

§ 513.8

Removal, suspension, or

debarment of independent public

accountants and accounting firms

performing audit services.

(a) Scope. This subpart, which

implements section 36(g)(4) of the

Federal Deposit Insurance Act (FDIA)

(12 U.S.C. 1831m(g)(4)), provides rules

and procedures for the removal,

suspension, or debarment of

independent public accountants and

their accounting firms from performing

independent audit and attestation

services required by section 36 of the

FDIA (12 U.S.C. 1831m) for insured

savings associations and savings and

loan holding.

(b) Definitions. As used in this

section, the following terms have the

meaning given below unless the context

requires otherwise:

(1) Accounting firm. The term

accounting firm means a corporation,

proprietorship, partnership, or other

business firm providing audit services.

(2) Audit services. The term audit

services means any service required to

be performed by an independent public

accountant by section 36 of the FDIA

Act and 12 CFR part 363, including

attestation services. Audit services

include any service performed with

respect to a savings and loan holding

company of a savings association that is

used to satisfy requirements imposed by

section 36 or part 363 on that savings

association.

(3) Independent public accountant.

The term independent public

accountant means any individual who

performs or participates in providing

audit services.

tion services. Audit services

include any service performed with

respect to a savings and loan holding

company of a savings association that is

used to satisfy requirements imposed by

section 36 or part 363 on that savings

association.

(3) Independent public accountant.

The term independent public

accountant means any individual who

performs or participates in providing

audit services.

(c) Removal, suspension, or

debarment of independent public

accountants. The Office may remove,

suspend, or debar an independent

public accountant from performing

audit services for savings associations

that are subject to section 36 of the FDIA

if, after service of a notice of intention

and opportunity for hearing in the

matter, the Office finds that the

independent public accountant:

(1) Lacks the requisite qualifications

to perform audit services;

(2) Has knowingly or recklessly

engaged in conduct that results in a

violation of applicable professional

standards, including those standards

and conflicts of interest provisions

applicable to independent public

accountants through the Sarbanes-Oxley

Act of 2002, Pub. L. 107–204, 116 Stat.

745 (2002) (Sarbanes-Oxley Act), and

developed by the Public Company

Oversight Board and the Securities and

Exchange Commission;

(3) Has engaged in negligent conduct

in the form of:

(i) A single instance of highly

unreasonable conduct that results in a

violation of applicable professional

standards in circumstances in which an

independent public accountant knows,

or should know, that heightened

scrutiny is warranted; or

(ii) Repeated instances of

unreasonable conduct, each resulting in

a violation of applicable professional

standards, that indicate a lack of

competence to perform audit services;

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

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any way in the giving of false or

misleading information to the Office or

any officer or employee of the Office;

(5) Has engaged in, or aided and

abetted, a material and knowing or

reckless violation of any provision of

the Federal banking or securities laws or

the rules and regulations thereunder, or

any other law; or

(6) Has been removed, suspended, or

debarred from practice before any

federal or state agency regulating the

banking, insurance, or securities

industries, other than by action listed in

paragraph (j) of this section, on grounds

relevant to the provision of audit

services.

(d) Removal, suspension or

debarment of an accounting firm. If the

Office determines that there is good

cause for the removal, suspension, or

debarment of a member or employee of

an accounting firm under paragraph (c)

of this section, the Office also may

remove, suspend, or debar such firm or

one or more offices of such firm. In

considering whether to remove,

suspend, or debar an accounting firm or

office thereof, and the term of any

sanction against an accounting firm

under this section, the Office may

consider, for example:

(1) The gravity, scope, or repetition of

the act or failure to act that constitutes

good cause for the removal, suspension,

or debarment;

such firm or

one or more offices of such firm. In

considering whether to remove,

suspend, or debar an accounting firm or

office thereof, and the term of any

sanction against an accounting firm

under this section, the Office may

consider, for example:

(1) The gravity, scope, or repetition of

the act or failure to act that constitutes

good cause for the removal, suspension,

or debarment;

(2) The adequacy of, and adherence

to, applicable policies, practices, or

procedures for the accounting firm’s

conduct of its business and the

performance of audit services;

(3) The selection, training,

supervision, and conduct of members or

employees of the accounting firm

involved in the performance of audit

services;

(4) The extent to which managing

partners or senior officers of the

accounting firm have participated,

directly or indirectly through oversight

or review, in the act or failure to act;

and

(5) The extent to which the

accounting firm has, since the

occurrence of the act or failure to act,

implemented corrective internal

controls to prevent its recurrence.

(e) Remedies. The remedies provided

in this section are in addition to any

other remedies the Office may have

under any other applicable provisions of

law, rule, or regulation.

(f) Proceedings to remove, suspend, or

debar. (1) The Office may initiate a

proceeding to remove, suspend, or debar

an independent public accountant or

accounting firm from performing audit

services by issuing a written notice of

intention to take such action that names

the individual or firm as a respondent

and describes the nature of the conduct

that constitutes good cause for such

action.

roceedings to remove, suspend, or

debar. (1) The Office may initiate a

proceeding to remove, suspend, or debar

an independent public accountant or

accounting firm from performing audit

services by issuing a written notice of

intention to take such action that names

the individual or firm as a respondent

and describes the nature of the conduct

that constitutes good cause for such

action.

(2) An independent public accountant

or accounting firm named as a

respondent in the notice issued under

paragraph (f)(1) of this section may

request a hearing on the allegations in

the notice. Hearings conducted under

this paragraph shall be conducted in the

same manner as other hearings under

the Uniform Rules of Practice and

Procedure (12 CFR part 509).

(g) Immediate suspension from

performing audit services. (1) If the

Office serves written notice of intention

to remove, suspend, or debar an

independent public accountant or

accounting firm from performing audit

services, the Office may, with due

regard for the public interest and

without preliminary hearing,

immediately suspend an independent

public accountant or accounting firm

from performing audit services for

savings associations, if the Office:

(i) Has a reasonable basis to believe

that the independent public accountant

or accounting firm engaged in conduct

(specified in the notice served upon the

independent public accountant or

accounting firm under paragraph (f) of

this section) that would constitute

grounds for removal, suspension, or

debarment under paragraph (c) or (d) of

this section;

(ii) Determines that immediate

suspension is necessary for the

protection of an insured depository

institution or its depositors or for the

protection of the depository system as a

whole; and

(iii) Serves such independent public

accountant or accounting firm with

written notice of the immediate

suspension.

or removal, suspension, or

debarment under paragraph (c) or (d) of

this section;

(ii) Determines that immediate

suspension is necessary for the

protection of an insured depository

institution or its depositors or for the

protection of the depository system as a

whole; and

(iii) Serves such independent public

accountant or accounting firm with

written notice of the immediate

suspension.

(2) An immediate suspension notice

issued under this paragraph will

become effective upon service. Such

suspension will remain in effect until

the date the Office dismisses the charges

contained in the notice of intention, or

the effective date of a final order of

removal, suspension, or debarment

issued by the Office to the independent

public accountant or accounting firm.

(h) Petition to stay. (1) Any

independent public accountant or

accounting firm immediately suspended

from performing audit services in

accordance with paragraph (g) of this

section may, within 10 calendar days

after service of the notice of immediate

suspension, file a petition with the

Office for a stay of such suspension. If

no petition is filed within 10 calendar

days, the immediate suspension will

remain in effect.

(2) Upon receipt of a stay petition, the

Office will designate a presiding officer

who shall fix a place and time (not more

than 30 calendar days after receipt of

such petition, unless extended at the

request of the petitioner), at which the

immediately suspended party may

appear, personally or through counsel,

to submit written materials and oral

argument. In the sole discretion of the

presiding officer, upon a specific

showing of compelling need, oral

testimony of witnesses may also be

presented. In hearings held pursuant to

this paragraph, there will be no

discovery and the provisions of §§ 509.6

through 509.12, 509.16, and 509.21 of

the Uniform Rules will apply.

sonally or through counsel,

to submit written materials and oral

argument. In the sole discretion of the

presiding officer, upon a specific

showing of compelling need, oral

testimony of witnesses may also be

presented. In hearings held pursuant to

this paragraph, there will be no

discovery and the provisions of §§ 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.

eceipt 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).

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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:

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(j) Automatic removal, suspension,

and debarment. (1) An independent

public accountant or accounting firm

may not perform audit services for a

savings association if the independent

public accountant or accounting firm:

(i) Is subject to a final order of

removal, suspension, or debarment

(other than a limited scope order) issued

by the Board of Governors of the Federal

Reserve System, the Federal Deposit

Insurance Corporation, or the Office of

the Comptroller of the Currency under

section 36 of the FDIA;

(ii) Is subject to a temporary

suspension or permanent revocation of

registration or a temporary or permanent

suspension or bar from further

association with any registered public

accounting firm issued by the Public

Company Accounting Oversight Board

under sections 105(c)(4)(A) or (B) of the

Sarbanes-Oxley Act (15 U.S.C.

7215(c)(4)(A) or (B));

(iii) Is subject to an order of

suspension or denial of the privilege of

appearing or practicing before the

Securities and Exchange Commission;

and

(iv) Is suspended or debarred for

cause from practice as an accountant by

any duly constituted licensing authority

of any state, possession, commonwealth,

or the District of Columbia.

(2) Upon written request, the Office,

for good cause shown, may grant written

permission to an independent public

accountant or accounting firm to

perform audit services for savings

associations. The request must contain a

concise statement of action requested.

The Office may require the applicant to

submit additional information.

, possession, commonwealth,

or the District of Columbia.

(2) Upon written request, the Office,

for good cause shown, may grant written

permission to an independent public

accountant or accounting firm to

perform audit services for savings

associations. The request must contain a

concise statement of action requested.

The Office may require the applicant to

submit additional information.

(k) Notice of removal, suspension, or

debarment. (1) Upon issuance of a final

order for removal, suspension, or

debarment of an independent public

accountant or accounting firm from

providing audit services, the Office shall

make the order publicly available and

provide notice of the order to the other

Federal banking agencies.

(2) An independent public accountant

or accounting firm that provides audit

services to a savings association must

provide the Office with written notice

of:

(i) Any currently effective order or

other action described in paragraph

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

(j)(1)(iv) of this section; or

(ii) Any currently effective action by

the Public Company Accounting

Oversight Board under sections

105(c)(4)(C) or (G) of the Sarbanes-Oxley

Act (15 U.S.C. 7215(c)(4)(C) or (G)).

(3) Written notice required by this

paragraph shall be given no later than

15 calendar days following the effective

date of an order or action or 15 calendar

days before an independent public

accountant or accounting firm accepts

an engagement to provide audit

services, whichever date is earlier.

er sections

105(c)(4)(C) or (G) of the Sarbanes-Oxley

Act (15 U.S.C. 7215(c)(4)(C) or (G)).

(3) Written notice required by this

paragraph shall be given no later than

15 calendar days following the effective

date of an order or action or 15 calendar

days before an independent public

accountant or accounting firm accepts

an engagement to provide audit

services, whichever date is earlier.

(l) Application for reinstatement. (1)

Unless otherwise ordered by the Office,

an independent public accountant or

accounting firm removed, suspended or

debarred under this section may apply

for reinstatement in writing at any time

one year after the effective date of the

order of removal, suspension, or

debarment and, thereafter, at any time

more than one year after the

independent public accountant’s or

accounting firm’s most recent

application for reinstatement. The

request shall contain a concise

statement of action requested. The

Office may require the applicant to

submit additional information.

(2) An applicant for reinstatement

under paragraph (l)(1) of this section

may, in the Office’s sole discretion, be

afforded a hearing. The independent

public accountant or accounting firm

shall bear the burden of going forward

with an application and the burden of

proving the grounds supporting the

application. The Office may, in its sole

discretion, direct that any reinstatement

proceeding be limited to written

submissions. The removal, suspension,

or debarment shall continue until the

Office, for good cause shown, has

reinstated the applicant or until, in the

case of a suspension, the suspension

period has expired. The filing of a

petition for reinstatement shall not stay

the effectiveness of the removal,

suspension, or debarment of an

independent public accountant or

accounting firm.

Dated: December 2, 2002.

By the Office of Thrift Supervision.

James Gilleran,

Director.

[FR Doc

good cause shown, has

reinstated the applicant or until, in the

case of a suspension, the suspension

period has expired. The filing of a

petition for reinstatement shall not stay

the effectiveness of the removal,

suspension, or debarment of an

independent public accountant or

accounting firm.

Dated: December 2, 2002.

By the Office of Thrift Supervision.

James Gilleran,

Director.

[FR Doc. 03–98 Filed 1–7–03; 8:45 am]

BILLING CODE 4810–33–P, 6210–01–P, 6714–01–P,

6720–01–P

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