DISCIPLINARY ACTIONS AGAINST ACCOUNTANTS PERFORMING SECTION 36 AUDIT SERVICES

48256

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

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

part 363 (describing the requirements for

independent audits and reporting for all insured

depository institutions). The statute gives the FDIC

Board of Directors the discretion to establish the

threshold asset size at which a section 36 annual

report is required. That amount is currently set at

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

36 audit is not required of financial institutions

with less than $500 million in total assets, the

Agencies encourage every insured depository

institution, regardless of its size or character, to

have an annual audit of its financial statements

performed by an independent public accountant.

See 12 CFR 363 App. A (Introduction).

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

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

(independent audit and reporting requirements).

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

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).

Dated: August 8, 2003.

A.J. Yates,

Administrator, Agricultural Marketing

Service.

[FR Doc. 03–20688 Filed 8–8–03; 4:36 pm]

BILLING CODE 3410–02–P

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the

Currency

12 CFR Part 19

[Docket No. 03–19]

RIN 1557–AC10

BOARD OF GOVERNORS OF THE

FEDERAL RESERVE SYSTEM

12 CFR Part 263

[Docket No. R–1139]

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Part 308

RIN 3064–AC57

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 513

[No. 2003–33]

RIN 1550–AB53

Removal, Suspension, and Debarment

of Accountants From Performing Audit

Services

AGENCIES: Office of the Comptroller of

the Currency (OCC), Treasury; Board of

Governors of the Federal Reserve

System (Board); Federal Deposit

Insurance Corporation (FDIC); and

Office of Thrift Supervision (OTS),

Treasury.

ACTION: Final rule

of Thrift Supervision

12 CFR Part 513

[No. 2003–33]

RIN 1550–AB53

Removal, Suspension, and Debarment

of Accountants From Performing Audit

Services

AGENCIES: Office of the Comptroller of

the Currency (OCC), Treasury; Board of

Governors of the Federal Reserve

System (Board); Federal Deposit

Insurance Corporation (FDIC); and

Office of Thrift Supervision (OTS),

Treasury.

ACTION: Final rule.

SUMMARY: The OCC, Board, FDIC, and

OTS (each an Agency, and collectively,

the Agencies) are jointly publishing

final rules pursuant to section 36 of the

Federal Deposit Insurance Act (FDIA).

Section 36, as implemented by 12 CFR

part 363, requires that each insured

depository institution with total assets

of $500 million or more obtain an audit

of its financial statements and an

attestation on management’s assertions

concerning internal controls over

financial reporting by an independent

public accountant (accountant). The

insured depository institution must

include the accountant’s audit and

attestation reports in its annual report.

Section 36 authorizes the Agencies to

remove, suspend, or debar accountants

from performing the audit services

required by section 36 if there is good

cause to do so. The final rules establish

rules of practice and procedure to

implement this authority and reflect the

Agencies’ increasing concern with the

quality of audits and internal controls

for financial reporting at insured

depository institutions. Although there

have been few bank and thrift failures

in recent years, the circumstances of the

failures that have occurred illustrate the

importance of maintaining high quality

in the audits of the financial position

and attestations of management

assessments of insured depository

institutions. The final rules enhance the

Agencies’ ability to address misconduct

by accountants who perform annual

audit and attestation services.

EFFECTIVE DATE: October 1, 2003

the circumstances of the

failures that have occurred illustrate the

importance of maintaining high quality

in the audits of the financial position

and attestations of management

assessments of insured depository

institutions. The final rules enhance the

Agencies’ ability to address misconduct

by accountants who perform annual

audit and attestation services.

EFFECTIVE DATE: October 1, 2003.

FOR FURTHER INFORMATION CONTACT:

OCC: Mitchell Plave, Counsel,

Legislative and Regulatory Activities

Division, (202) 874–5090; Richard

Shack, Senior Accountant, Office of the

Chief Accountant, (202) 874–4911; and

Karen Besser, National Bank Examiner,

Special Supervision/Fraud, (202) 874–

4464.

Board: Richard Ashton, Associate

General Counsel, Legal Division, (202)

452–3750; Nina Nichols, Counsel, (202)

452–2961; Arthur Lindo, Project

Manager, (202) 452–2695; and Salome

Tinker, Senior Financial Analyst, (202)

452–3034, Division of Banking

Supervision and Regulation; for users of

Telecommunication Devices for the Deaf

(TDD) only, contact (202) 263–4869.

FDIC: Richard Bogue, Counsel,

Enforcement Unit, (202) 898–3726;

Harrison E. Greene, Jr., Senior Policy

Analyst, Accounting and Securities

Disclosure Section, Division of

Supervision and Consumer Protection,

(202) 898–8905.

OTS: Christine A. Smith, Project

Manager, (202) 906–5740, Supervision

Policy; Teresa A. Scott, Counsel

(Banking & Finance), (202) 906–6478,

Regulations and Legislation Division.

SUPPLEMENTARY INFORMATION:

I. Background

Section 36 of the FDIA (12 U.S.C

r., Senior Policy

Analyst, Accounting and Securities

Disclosure Section, Division of

Supervision and Consumer Protection,

(202) 898–8905.

OTS: Christine A. Smith, Project

Manager, (202) 906–5740, Supervision

Policy; Teresa A. Scott, Counsel

(Banking & Finance), (202) 906–6478,

Regulations and Legislation Division.

SUPPLEMENTARY INFORMATION:

I. Background

Section 36 of the FDIA (12 U.S.C.

1831m), as implemented by FDIC

regulations, requires every large insured

depository institution to submit an

annual report containing its financial

statements and certain management

assessments to the FDIC, the appropriate

Federal banking agency, and any

appropriate state bank supervisor.1

Section 36 of the FDIA also requires that

an independent public accountant audit

the insured depository institution’s

annual financial statements to

determine whether those statements are

presented fairly in accordance with

generally accepted accounting

principles (GAAP) and with the

accounting objectives, standards, and

requirements described in section 37 of

the FDIA. Under section 37, the

accounting principles applicable to

financial statements required to be filed

with the Agencies must be uniform and

consistent with GAAP.2 In addition, the

accountant must attest to and report on

management’s assertions concerning

internal controls over financial

reporting.3 The institution’s annual

report also must contain the

accountant’s audit and attestation

reports.4

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 f

ion 36 for good cause.5 This

authority is in addition to the

enforcement tools the Agencies have

under section 8 of the FDIA, which

enable the Agencies to remove or

prohibit an institution-affiliated party

(IAP), including an accountant, from

further participation in the affairs of an

insured depository institution for

certain types of misconduct.6 Section 36

authority is also distinct from the

Agencies’ authority to remove, suspend,

or debar from practice before an Agency

parties, such as accountants, who

represent others.7

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

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00006

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

48257

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

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

4967, 5075 (January 31, 2003) (technical

corrections).

10 Pub. L. 107–204, 116 Stat 745 (2002). For

further guidance on the obligations of insured

depository institutions under the Sarbanes-Oxley

Act, see OCC Bulletin No. 2003–21, Application of

Recent Corporate Governance Initiatives to Non-

Public Banking Organizations (containing the

Statement on Application of Recent Corporate

Governance Initiatives to Non-Public Banking

Organizations by the Board, OCC, and OTS (May 6,

2003)); Federal Reserve Board SR Letter 03–8,

Statement on Application of Recent Corporate

Governance Initiatives to Non-Public Banking

Organizations (May 5, 2003). See also FDIC

Financial Institution Letter 17–2003 (Corporate

Governance, Audits, and Reporting Requirements)

(March 5, 2003).

insured depository institutions with

total assets of $500 million or more

oard, OCC, and OTS (May 6,

2003)); Federal Reserve Board SR Letter 03–8,

Statement on Application of Recent Corporate

Governance Initiatives to Non-Public Banking

Organizations (May 5, 2003). See also FDIC

Financial Institution Letter 17–2003 (Corporate

Governance, Audits, and Reporting Requirements)

(March 5, 2003).

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.

II. Proposed Rule and Comments

Received

On January 8, 2003, the Agencies

proposed amending their rules of

practice by adding provisions for the

removal, suspension, or debarment of

accountants or accounting firms from

performing the audit services required

by section 36 of the FDIA.9 The

proposed rules defined ‘‘good cause’’ for

such actions and established procedures

for removal, suspension, or debarment

of accountants. The proposals also

contained conforming amendments to

the existing practice rules of the OCC,

Board, and FDIC.

The Agencies received six comments.

One comment was from a major trade

association for community banks;

another was from four large accounting

firms and a major professional

association for the accounting industry;

a third was from three accounting firms

that provide audit services to publicly

held and non-publicly held banks in

one state; the fourth and fifth comments

were from certified public accountants;

and the final comment was from a

banking, management, and economic

consultant. The commenters generally

stated their support for the underlying

goals of section 36 and the proposal—

to bolster the quality of audit services.

One commenter expressed concern

about immediate suspensions

non-publicly held banks in

one state; the fourth and fifth comments

were from certified public accountants;

and the final comment was from a

banking, management, and economic

consultant. The commenters generally

stated their support for the underlying

goals of section 36 and the proposal—

to bolster the quality of audit services.

One commenter expressed concern

about immediate suspensions. The

commenter asked how an insured

depository institution can meet the

deadline for submitting section 36

audits if the institution’s accountant is

subject to an order of immediate

suspension and requested guidance on

the Agencies’ expectations under these

circumstances. Another commenter

questioned why the Agencies are

pursuing this rulemaking, given the role

of the newly constituted Public

Company Accounting Oversight Board

(PCAOB) as a regulator of accountants.

The commenter’s more specific concern

was with the level of due process

associated with immediate and

automatic suspensions. A third

commenter questioned whether the

Agencies have authority to use a

negligence standard of any kind, given

the higher standards elsewhere in the

FDIA for IAPs who are independent

contractors. The commenter also

questioned the authority of the Agencies

to extend sanctions to accounting firms

and offices.

In response to the comments, the

Agencies have revised the proposal, as

discussed in detail below.

III. Final Rule

Below is a more detailed discussion of

the issues raised in response to the

proposal and the Agencies’ responses

thereto. Because each Agency is

codifying the final rules using different

section numbers, this discussion will

follow the order of the proposal, using

captions instead of section numbers for

reference.

Definitions

The proposal defined ‘‘accounting

firm,’’ ‘‘audit services,’’ and

‘‘independent public accountant.’’

Under the proposal, ‘‘accounting firm’’

means a corporation, proprietorship,

partnership, or other business firm

providing audit services

ifferent

section numbers, this discussion will

follow the order of the proposal, using

captions instead of section numbers for

reference.

Definitions

The proposal defined ‘‘accounting

firm,’’ ‘‘audit services,’’ and

‘‘independent public accountant.’’

Under the proposal, ‘‘accounting firm’’

means a corporation, proprietorship,

partnership, or other business firm

providing audit services. ‘‘Audit

services’’ means any service required to

be performed by an independent public

accountant by section 36 of the FDIA

and 12 CFR part 363, including

attestation services. ‘‘Independent

public accountant’’ means any

individual who performs or participates

in providing audit services.

The Agencies did not receive any

comments on the definitions. The final

rule adopts the definitions as proposed.

Removal, Suspension, or Debarment

Good Cause for Removal, Suspension,

or Debarment. The proposed rules

defined ‘‘good cause’’ for removal,

suspension, or debarment of

accountants from providing audit

services required by section 36. Under

the proposal, the Agencies would have

‘‘good cause’’ if the accountant does not

possess the requisite qualifications to

perform audit services; engages in

knowing or reckless conduct that results

in a violation of applicable professional

standards, including those standards

and conflicts of interest provisions

applicable to accountants through the

Sarbanes-Oxley Act of 2002 (Sarbanes-

Oxley Act) 10 and developed by the

PCAOB and the Securities and

Exchange Commission (SEC), as such

standards and provisions become

effective; engages in a single instance of

highly unreasonable conduct that

results in a violation of applicable

professional standards in circumstances

in which an accountant knows, or

should know, that heightened scrutiny

is warranted; or engages in repeated

instances of unreasonable conduct, each

resulting in a violation of applicable

standards, that indicate a lack of

competence to perform annual audit

services

e 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.

Under the proposal, good cause also

included knowingly or recklessly giving

false or misleading information to the

Agencies with respect to any matter

before the Agency; knowingly or

recklessly violating any provision of the

Federal banking or securities laws or

regulations, or any other law, including

the Sarbanes-Oxley Act; and removal,

suspension, or debarment from practice

before any Federal or state agency

regulating the banking, insurance, or

securities industry on grounds relevant

to the provision of audit services, other

than those actions that result in

automatic removal, suspension, and

debarment under the proposed rules.

Conduct giving rise to good cause

under the proposed rules does not have

to occur in connection with the

provision of audit services or in

connection with services provided to

depository institutions. Any actions or

failures to act by an independent public

accountant or accounting firm that meet

the criteria for good cause set forth in

the regulation, whether or not related to

the banking industry, could constitute

good cause for Agency action.

One commenter expressed a variety of

reservations about the good cause

standard. The commenter’s broadest

suggestion was that the Agencies should

refer all section 36 actions against

accountants to the PCAOB and SEC,

given the entities’ new roles as

regulators of accountants under the

Sarbanes-Oxley Act.

This comment does not reflect the

jurisdictional differences among the

Agencies, PCAOB, and SEC

r expressed a variety of

reservations about the good cause

standard. The commenter’s broadest

suggestion was that the Agencies should

refer all section 36 actions against

accountants to the PCAOB and SEC,

given the entities’ new roles as

regulators of accountants under the

Sarbanes-Oxley Act.

This comment does not reflect the

jurisdictional differences among the

Agencies, PCAOB, and SEC. The

Agencies have enforcement jurisdiction

that is separate and distinct from the

PCAOB’s and the SEC’s enforcement

jurisdictions. Congress gave the

Agencies discretion to suspend or debar

accountants from performing annual

audit services for good cause under

section 36 of the FDIA. While an

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00007

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

48258

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

11 12 U.S.C. 1818(e)(1)(A)(ii); see also

Hendrickson v. FDIC, 113 F.3d 98 (7th Cir. 1997).

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

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

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

467 (1989), reprinted in 1989 U.S.C.C.A.N. 86,263.

enforcement action by the PCAOB or the

SEC could provide good cause for

section 36 actions, neither the PCAOB

nor the SEC has statutory authority

under the FDIA to suspend or debar an

accountant from performing annual

audit services. Even if the PCAOB or the

SEC could accomplish this outcome

indirectly, by barring an accountant

from associating with an accounting

firm, neither the PCAOB nor the SEC

has authority to take action against an

accountant who performs services for an

institution that is not publicly held.

Accordingly, the Agencies are not

adopting the commenter’s suggestion

that all section 36 cases be referred to

the PCAOB or the SEC.

The commenter further asserted that

there might be potential inconsistencies

between the good cause standards in the

proposed rules and those the PCAOB

may establish in the future

ccountant who performs services for an

institution that is not publicly held.

Accordingly, the Agencies are not

adopting the commenter’s suggestion

that all section 36 cases be referred to

the PCAOB or the SEC.

The commenter further asserted that

there might be potential inconsistencies

between the good cause standards in the

proposed rules and those the PCAOB

may establish in the future. To address

these potential problems, the

commenter suggested that the Agencies

should, as stated above, defer to the

PCAOB and the SEC, or at a minimum

coordinate with them before taking

suspension or debarment actions against

accountants.

The Agencies intend to coordinate

with the PCAOB and the SEC in section

36 cases under appropriate

circumstances. However, the Agencies

do not believe that the proposed rule

creates a conflict in professional or

substantive standards for accountants

among the Agencies, the PCAOB, and

the SEC. The proposed rule did not

suggest new standards for accountants.

Rather, it incorporated accountants’

existing responsibility to adhere to

applicable professional standards, such

as generally accepted auditing standards

and generally accepted standards for

attestation engagements, and existing

SEC and Agency standards, into the

definition of good cause. The proposed

rules were also consistent with the

Sarbanes-Oxley Act and anticipated

future actions by the SEC and PCAOB

to enforce standards set by those

agencies. The proposed rules were also

drafted to accommodate the new

standards that will be adopted by the

SEC and the PCAOB.

The commenter’s next point

concerned the possibility that conduct

at non-depository institutions could

provide the basis for an action against

an accountant. The commenter

questioned whether the Agencies have

the capability to evaluate the relevance

of suspensions and debarments of

accountants in non-banking contexts,

e.g., suspensions or debarments by

regulators of different types of

businesses

nter’s next point

concerned the possibility that conduct

at non-depository institutions could

provide the basis for an action against

an accountant. The commenter

questioned whether the Agencies have

the capability to evaluate the relevance

of suspensions and debarments of

accountants in non-banking contexts,

e.g., suspensions or debarments by

regulators of different types of

businesses. The commenter opposed

using suspensions by non-banking

agencies to serve as good cause for

suspensions or debarments in the

banking industry.

The proposal was consistent with the

Agencies’ current authority under

section 8(e)(1)(A)(ii) of the FDIA, which

allows the Agencies to take into account

unsafe business practices in connection

not only with any insured depository

institution, but more broadly, any

business institution.11 The Agencies

continue to believe that there may be

cases in which misconduct by

accountants at non-depository

institutions could raise serious

questions about the ability of the

accountant to provide audit services for

an insured depository institution. Under

the final rule, therefore, the Agencies

can consider as ‘‘good cause’’

suspensions and debarments of

accountants in non-depository

institution contexts that come to the

attention of the Agencies.

Another commenter questioned

whether the Agencies have the authority

to use negligence as a basis for a

removal, suspension, or debarment of an

accountant. The commenter argued that

the negligence standard is not consistent

with remedies available now to the

Agencies against independent

contractor IAPs under section 8 of the

FDIA.12

In response, the Agencies note that

section 36 of the FDIA broadly refers to

‘‘good cause’’ as grounds for section 36

enforcement actions. There is no

limitation in the statute on the use of

negligence as a basis for action, nor does

section 36 tie ‘‘good cause’’ to existing

section 8 standards

ailable now to the

Agencies against independent

contractor IAPs under section 8 of the

FDIA.12

In response, the Agencies note that

section 36 of the FDIA broadly refers to

‘‘good cause’’ as grounds for section 36

enforcement actions. There is no

limitation in the statute on the use of

negligence as a basis for action, nor does

section 36 tie ‘‘good cause’’ to existing

section 8 standards. On the contrary,

section 36 of the FDIA states that the

good cause enforcement remedies are in

addition to those available under

section 8.13 The commenter’s position

would essentially require this clause to

be eliminated from section 36 of the

statute. Also, the negligence standard is

one the SEC has used for many years in

its suspension and debarment actions

against accountants. Congress recently

codified this standard for the SEC in the

Sarbanes-Oxley Act.

For the foregoing reasons, the

Agencies are adopting in the final rules

the good cause standard from the

proposed rules.

Removal, Suspension, or Debarment

of Accounting Firms or Offices of Firms.

The proposed rules provided that if an

Agency determines that there is good

cause for the removal, suspension, or

debarment of a member or an employee

of an accounting firm, the Agency ‘‘also

may remove, suspend, or debar such

firm or one or more offices of such

firm.’’ The proposed rule listed five

illustrative factors that the Agency may

consider when deciding (a) whether to

remove, suspend, or debar a firm or one

or more offices of such firm, and (b) the

term of any sanction imposed.

Some of the commenters questioned

the authority of the Agencies to take

action against accounting firms or

offices of firms

firm or one or more offices of such

firm.’’ The proposed rule listed five

illustrative factors that the Agency may

consider when deciding (a) whether to

remove, suspend, or debar a firm or one

or more offices of such firm, and (b) the

term of any sanction imposed.

Some of the commenters questioned

the authority of the Agencies to take

action against accounting firms or

offices of firms. One commenter noted

that section 36(g)(4) of the FDIA

specifically permits removal,

suspension, or debarment of ‘‘an

independent public accountant.’’ The

commenter then asserted ‘‘[t]here is no

mention in the statute of the possible

extension of those sanctions to

accounting firms or offices, or of

extended or vicarious liability in any

other way or of any kind.’’ The

commenter concluded that the Agencies

lack authority to implement this aspect

of their proposal.

Another commenter did not

specifically question the authority of the

Agencies to propose rules permitting the

removal, suspension, or debarment of an

accounting firm or office thereof. Rather,

the commenter quoted a portion of the

legislative history of the Financial

Institutions Reform, Recovery, and

Enforcement Act of 1989 (FIRREA), Pub.

L. 101–73, 103 Stat. 183 (1989), to the

effect that enforcement actions should

usually be limited to the individuals

who participated in the wrongful action

to ‘‘prevent unintended consequences or

economic harm to innocent third

parties.’’ 14 The commenter argued that

the rules should include an explicit

presumption against taking action

against an entire firm, that this sanction

should only be available in the most

egregious circumstances, specifically

articulated in the rules, and that a

sanction against a firm should only be

permissible after the affected firm has

had the opportunity for a meaningful

hearing before an independent trier of

fact

hat

the rules should include an explicit

presumption against taking action

against an entire firm, that this sanction

should only be available in the most

egregious circumstances, specifically

articulated in the rules, and that a

sanction against a firm should only be

permissible after the affected firm has

had the opportunity for a meaningful

hearing before an independent trier of

fact.

The Agencies believe that the

proposed rules, as they pertain to

actions against accounting firms and

offices, are well within the Agencies’

statutory authority. As noted in the

preamble to the proposed rule, under

the current practice regulations, the

Agencies may ‘‘remove, suspend, or

debar a firm by naming each member of

the firm or office in the order * * *.’’

Thus, the proposal also employed this

scope and provided guidance on when

a firm sanction might be appropriate. In

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00008

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

48259

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

15 Section AU 508.08 of the AICPA’s Professional

Standards describes the basic elements of the

auditor’s standard report on audited financial

statements. These elements include ‘‘i. The manual

or printed signature of the auditor’s firm.’’

Similarly, Section AT 501.47 of these standards

states that a practitioner’s examination report on the

effectiveness of an entity’s internal control over

financial reporting should include ‘‘j. The manual

or printed signature of the practitioner’s firm.’’ In

addition, Section AU 9339.06 of the Professional

Standards presents an example of a letter that an

auditor should consider submitting to a regulator

prior to allowing the regulator access to audit work

papers

s examination report on the

effectiveness of an entity’s internal control over

financial reporting should include ‘‘j. The manual

or printed signature of the practitioner’s firm.’’ In

addition, Section AU 9339.06 of the Professional

Standards presents an example of a letter that an

auditor should consider submitting to a regulator

prior to allowing the regulator access to audit work

papers. This letter ends with ‘‘Firm signature.’’

16 The Agencies realize that the final rule

includes definitions of both independent public

accountant (individuals who provide audit services)

and accounting firm (business entities that provide

auditing services). The dual definitions are required

because of the additional criteria, beyond those

applicable to individual accountants, that the

Agencies may assess in determining whether to take

action against a firm. The Agencies continue to

believe that the statutory term independent public

accountant encompasses both regulatory

definitions.

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

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

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

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

subpart A (FDIC); 12 CFR part 509, subpart A

(OTS).

20 The Agencies will also have the discretion to

issue suspension orders where the duration of the

suspension would be dependent on the satisfactory

completion of remedial action.

addition, there is no indication that in

using the term ‘‘independent public

accountant’’ Congress intended to

restrict removals, suspensions, or

debarments solely to natural persons.

The term ‘‘independent public

accountant’’ is used throughout section

36 and its implementing regulation, 12

CFR part 363, not just in the section

36(g)(4) provision relating to removal,

suspension, or debarment. Indeed,

section 36 specifically provides that all

required audit services must be

performed by an ‘‘independent public

accountant’’ who has agreed to provide

requested work papers and has received

an acceptable peer review

used throughout section

36 and its implementing regulation, 12

CFR part 363, not just in the section

36(g)(4) provision relating to removal,

suspension, or debarment. Indeed,

section 36 specifically provides that all

required audit services must be

performed by an ‘‘independent public

accountant’’ who has agreed to provide

requested work papers and has received

an acceptable peer review. All required

audit and other reports are universally

signed by accounting firms, not

individual accountants,15 and peer

reviews are performed at the firm level.

Thus, the Agencies believe that

enforcement action at the firm level in

appropriate circumstances is entirely

consistent with the section 36 statutory

scheme.16

With respect to the legislative history

quoted by the commenter, we note that

the history is from FIRREA, not the

Federal Deposit Insurance Corporation

Improvement Act of 1991 (FDICIA),17

which added section 36 to the FDIA, so

it is not directly relevant to our

construction of section 36. Even if this

legislative history were applicable to

section 36, the commenter quoted only

a portion of the relevant legislative

history material—the section not quoted

supports the view that, in extending

Agency enforcement jurisdiction to

independent contractors, including

‘‘any attorney, appraiser, or

accountant,’’ 18 Congress intended such

enforcement jurisdiction to extend to

business organizations under

appropriate circumstances. In this

regard, the House Banking Committee’s

Report on FIRREA, H.R. Rep. No. 54(I),

at 466–67, states:

[T]he Committee strongly believes that the

agencies should have the power to proceed

against such entities (corporation, firm or

partnership) if most or many of the managing

partners or senior officers of the entity have

participated in some way in the egregious

misconduct

ircumstances. In this

regard, the House Banking Committee’s

Report on FIRREA, H.R. Rep. No. 54(I),

at 466–67, states:

[T]he Committee strongly believes that the

agencies should have the power to proceed

against such entities (corporation, firm or

partnership) if most or many of the managing

partners or senior officers of the entity have

participated in some way in the egregious

misconduct. For example, a removal and

prohibition order might be justified against

the local office of a national accounting firm

if it could be shown that a majority of the

managing partners or senior supervisory staff

participated directly or indirectly in the

serious misconduct to an extent sufficient to

give rise to an order. Such an order might

well be inappropriate if it was taken against

the entire national firm or other geographic

units of the firm, unless the headquarters of

these units were shown to have also

participated, even if only in a reviewing

capacity.

Accordingly, the similar reference in

section 36 to ‘‘independent public

accountant’’ can reasonably be read to

reach firms as well.

The Agencies understand that severe

economic consequences may result from

action barring an accounting firm from

performing section 36 audit services.

The Agencies are also sensitive to the

consequences that barring a firm might

have on innocent third parties not

directly involved in the misconduct at

issue. While the Agencies have had the

authority since FIRREA to pursue

enforcement actions against entire firms

of professionals, such authority has

been used only a handful of times and

only in the most egregious

circumstances. In addition, the Agencies

believe that the five factors specified in

the proposed rule appropriately focus

the inquiry on whether sufficient

involvement of firm management is

present to justify action against the

entire firm. Accordingly, the Agencies

see no reason to amend the proposal to

include an explicit presumption against

action at the firm or office level

egregious

circumstances. In addition, the Agencies

believe that the five factors specified in

the proposed rule appropriately focus

the inquiry on whether sufficient

involvement of firm management is

present to justify action against the

entire firm. Accordingly, the Agencies

see no reason to amend the proposal to

include an explicit presumption against

action at the firm or office level. The

comment concerning the need for a

prior hearing before action at the firm or

office level will be addressed in the

sections discussing automatic and

immediate suspensions.

Proceedings to Remove, Suspend, or

Debar. Under the proposed rules, the

Agencies would hold formal hearings on

removals, suspensions, and debarments

under rules that are consistent with the

Agencies’ Uniform Rules of Practice and

Procedure (Uniform Rules).19 The

Uniform Rules provide, among other

things, for written notice to the

respondent of the intended Agency

action and the opportunity for a public

hearing before an administrative law

judge. The administrative law judge

would refer a recommended decision to

the Agency, which would issue a final

decision and order. Each Agency would

have the discretion to limit an order of

removal, suspension, or debarment so

that it applied solely to audit services

provided to specified insured

depository institutions, rather than to all

insured depository institutions

supervised by the issuing Agency. This

was referred to in the proposed rules as

a ‘‘limited scope order.’’ 20

The procedures in the proposed rules

for removal, suspension, and debarment

were drawn principally from the

Agencies’ existing practice rules. The

Agencies did not receive comment on

these procedures. Therefore, the

Agencies are adopting the procedures as

proposed.

Immediate Suspension from

Performing Audit Services

was referred to in the proposed rules as

a ‘‘limited scope order.’’ 20

The procedures in the proposed rules

for removal, suspension, and debarment

were drawn principally from the

Agencies’ existing practice rules. The

Agencies did not receive comment on

these procedures. Therefore, the

Agencies are adopting the procedures as

proposed.

Immediate Suspension from

Performing Audit Services. The

proposed rule implemented the

authority in section 36 to ‘‘suspend’’ an

independent public accountant by

providing that an Agency may issue a

notice immediately suspending an

accountant or a firm subject to a notice

of intention to remove, suspend, or

debar if the Agency determines that

immediate suspension is necessary for

the protection of an insured depository

institution, or its depositors, or for the

protection of the insured depository

system as a whole. In making this

proposal, the Agencies stated that the

authority to immediately suspend an

accountant or firm could prevent

seriously harmful conduct relating to

accounting matters at an insured

depository institution from being

repeated or escalating while the

administrative proceedings relating to a

permanent removal, suspension, or

debarment order are pending.

One commenter asked for guidance to

insured depository institutions on what

to do if their accountant were

suspended immediately, more

specifically, how to meet the deadlines

for filing annual audits. The commenter

was concerned that there would not be

sufficient time to complete the audit,

given the time it would take for a new

accountant to become familiar with the

facts.

The Agencies understand that an

immediate suspension may cause

disruption to an institution and make it

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00009

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

48260

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

21 See, e.g., Fahey v. Mallonee, 322 U.S. 245

become familiar with the

facts.

The Agencies understand that an

immediate suspension may cause

disruption to an institution and make it

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00009

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

48260

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

21 See, e.g., Fahey v. Mallonee, 322 U.S. 245

(1947).

22 17 CFR 201.513(c).

23 The proposed and final rules permit a

suspended accountant or firm to elect to seek

review of the presiding officer’s decision on a stay

petition by the Agency. However, the appeal to the

Agency is not mandatory.

24 486 U.S. at 244.

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

(Board); 12 CFR 308.164(b) (FDIC); and 12 CFR

508.6(a) (OTS).

difficult to meet the deadlines for

submitting annual audits. The Agencies

expect that immediate suspensions

would only be issued in compelling

situations. In the case where an Agency

head imposed an immediate

suspension, the Agency will make

appropriate adjustments to the filing

deadlines, if warranted, at the

institution’s request.

Another commenter expressed a

variety of objections to the proposed

procedures for contesting an immediate

suspension. The commenter generally

stated that the proposed procedures do

not comport with due process and

suggested that the Agencies modify the

proposed procedures in a number of

areas to follow more closely those

procedures governing issuance of

temporary cease-and-desist orders by

the SEC. Except for the modifications

explained below, the Agencies do not

believe that the proposed procedures

should be conformed to the procedures

applicable to temporary cease-and-

desist orders issued under the securities

laws

gencies modify the

proposed procedures in a number of

areas to follow more closely those

procedures governing issuance of

temporary cease-and-desist orders by

the SEC. Except for the modifications

explained below, the Agencies do not

believe that the proposed procedures

should be conformed to the procedures

applicable to temporary cease-and-

desist orders issued under the securities

laws. With regard to the protection of

the nation’s banking system, judicial

decisions have recognized that there is

a compelling governmental interest that

can justify regulatory action with

abbreviated procedures when

necessary.21 The Agencies expect that

the immediate suspension remedy

would be used only in circumstances

where serious harm to a depository

institution, its depositors, or to the

depository system as a whole would

occur unless immediate enforcement

action is taken.

The commenter also had more

specific suggestions for revisions to the

proposal. First, the commenter stated

that the Agencies’ proposed procedures

should allow for a quicker agency

decisionmaking process. The

commenter noted that, under the time

frames contained in the proposed rules,

an accountant or a firm that petitions

the Agency to stay a notice of immediate

suspension may not receive a decision

with respect to the petition until 70

days after the immediate suspension

becomes effective. The commenter

noted that, under the SEC Rules of

Practice, a final agency decision on a

challenge to a temporary cease-and-

desist order issued by the SEC without

a prior hearing is required within 20

days.22

The Agencies believe that the

proposed maximum time period

permitted for an Agency decision on a

stay petition is consistent with due

process requirements

pension

becomes effective. The commenter

noted that, under the SEC Rules of

Practice, a final agency decision on a

challenge to a temporary cease-and-

desist order issued by the SEC without

a prior hearing is required within 20

days.22

The Agencies believe that the

proposed maximum time period

permitted for an Agency decision on a

stay petition is consistent with due

process requirements. The Agencies

note that the Supreme Court has

approved a procedural framework

allowing up to 90 days for a final

decision by the Agencies on a challenge

to an ex parte suspension order issued

by the Agencies against an IAP of a

depository institution who has been

indicted for certain types of crimes.

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

The maximum time limits in the

proposed rules were designed by the

Agencies to permit a sufficient period

for the creation of a meaningful record

with regard to a stay petition and for

careful and deliberate review of that

record by the Agency decision maker,

consistent with the recognized necessity

for prompt administrative action on

such a petition. As with the post-

deprivation Agency hearing at issue in

the Mallen decision, a stay petition

could necessitate resolution of factual

disputes that would require at least

some examination of relevant evidence.

The Agencies intend that an

administrative decision on a stay

petition under the rules should be made

at the earliest practicable time. Thus,

the time limits imposed in the rules are

intended to establish only the maximum

period allowable for issuing a decision

and a decision is expected to be made

more promptly whenever feasible.

Nevertheless, in order to further

minimize concerns about undue delay

in the decision on a stay petition, the

Agencies believe that the date by which

a hearing on a petition to stay is ordered

can be shortened without unduly

impairing the administrative

decisionmaking process

m

period allowable for issuing a decision

and a decision is expected to be made

more promptly whenever feasible.

Nevertheless, in order to further

minimize concerns about undue delay

in the decision on a stay petition, the

Agencies believe that the date by which

a hearing on a petition to stay is ordered

can be shortened without unduly

impairing the administrative

decisionmaking process. Accordingly,

the final rules require that an Agency

must order a hearing on a petition to

stay to be held 10 days after receipt of

the petition, rather than within 30 days

as proposed.

As the commenter pointed out, the

Supreme Court’s approval of a 90-day

agency decisionmaking period in the

Mallen decision depended in part on the

fact that, under the statutory framework

at issue, the suspension of an IAP may

be issued only after the individual

involved has been indicted by an

independent entity, like a grand jury.

According to the Court, the indictment

serves to reduce the likelihood that the

banking agency suspension is

unjustified. Under the proposed rules,

an immediate suspension notice may be

issued by an Agency without any

similar action by a third party. In the

Agencies’ view, however, the lack of an

independent triggering event by a third

party for accountant suspensions does

not mean that the maximum time limits

in the final rules would result in the

denial of a prompt and meaningful

hearing before the Agency on the

propriety of the suspension. The

Agencies intend that, under the final

rules, an immediate suspension could

be issued only where there is probative

evidence that substantial harm to an

insured depository institution, its

depositors, or to the depository system

as a whole is likely to occur prior to

completion of the proceedings on a

permanent order of removal,

suspension, or debarment

e

propriety of the suspension. The

Agencies intend that, under the final

rules, an immediate suspension could

be issued only where there is probative

evidence that substantial harm to an

insured depository institution, its

depositors, or to the depository system

as a whole is likely to occur prior to

completion of the proceedings on a

permanent order of removal,

suspension, or debarment. In addition,

under the final rules, the maximum time

period permitted for a decision on a stay

petition (50 days) is only slightly longer

than half the maximum time limit

approved in the Mallen case for an

agency decision on an indictment-

triggered suspension. In the Agencies’

judgment, the maximum time for

decision in the final rules represents the

shortest realistic period necessary for

adequate consideration of the

suspended party’s opposition to the

suspension.23 As the Supreme Court

noted in Mallen, the public has a strong

interest in seeing that the ultimate

agency decision with respect to a

suspension is made in a ‘‘considered

and deliberate manner.’’ 24

The commenter’s second objection to

the procedures was to the proposed

provisions under which the decision on

a petition to stay an immediate

suspension is made by a presiding

officer designated by the Agency.

According to the commenter, the stay

petition should be decided by an

administrative law judge, who by statute

has some independence from the agency

whose cases the judge hears.

The Agencies do not believe that an

administrative law judge must be

designated as the decisionmaking

official with regard to a petition to stay

the immediate suspension of an

accountant or firm

d by the Agency.

According to the commenter, the stay

petition should be decided by an

administrative law judge, who by statute

has some independence from the agency

whose cases the judge hears.

The Agencies do not believe that an

administrative law judge must be

designated as the decisionmaking

official with regard to a petition to stay

the immediate suspension of an

accountant or firm. The Agencies note

that under their existing rules of

practice, a similar type of decision on an

interim order, namely the decision with

respect to whether a suspension of an

IAP who has been indicted should be

lifted pending completion of the

criminal trial, is made by a presiding

officer, not by an administrative law

judge.25 A court decision that prescribed

the minimum procedures required by

due process for these suspensions did

not suggest that the agency decision on

lifting the suspension had to be made by

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00010

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

48261

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

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

1976).

27 5 U.S.C. 554.

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

Mallen, 486 U.S. at 240–41; Feinberg, 420 F. Supp.

at 119.

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

30 Final agency action would, however, be

reviewable by a court under the Administrative

Procedures Act.

an administrative law judge in order to

meet constitutional requirements.26

The Agencies recognize, however,

that it may be useful to clarify that the

presiding officer who decides a petition

to stay an immediate suspension must

be insulated from the Agency staff

responsible for prosecuting the charges

against the suspended accountant or

firm

court under the Administrative

Procedures Act.

an administrative law judge in order to

meet constitutional requirements.26

The Agencies recognize, however,

that it may be useful to clarify that the

presiding officer who decides a petition

to stay an immediate suspension must

be insulated from the Agency staff

responsible for prosecuting the charges

against the suspended accountant or

firm. The provisions of the proposed

rules relating to the hearing on a stay

petition are therefore being modified to

add a new sentence, which follows the

requirements of the Administrative

Procedure Act 27 for formal agency

adjudications. The final rules explicitly

state that an Agency employee engaged

in investigative or prosecuting functions

for the Agency in a particular action

against an accountant or a firm, or in a

factually related action, may not serve

as the presiding officer or otherwise

participate or advise in the decision

with respect to a petition to stay the

immediate suspension.

The commenter’s third suggestion was

that the proposed immediate suspension

provisions be modified to make clear

that, except in unusual cases, an

accountant or firm should be suspended

immediately only after prior notice and

opportunity for the party involved to

contest the suspension. In the Agencies’

judgment, the modification to the

proposed procedures advocated by the

commenter is neither necessary nor

appropriate. There is nothing in section

36 that requires prior notice and

opportunity for hearing before a

suspension under that provision may be

issued

suspended

immediately only after prior notice and

opportunity for the party involved to

contest the suspension. In the Agencies’

judgment, the modification to the

proposed procedures advocated by the

commenter is neither necessary nor

appropriate. There is nothing in section

36 that requires prior notice and

opportunity for hearing before a

suspension under that provision may be

issued. Moreover, the courts have long

recognized that the strong governmental

interest in protecting depositors and

preserving confidence in the financial

system can justify immediate action by

the regulatory agencies prior to notice

and the opportunity for hearing.28

Fourth, the commenter asserted that,

like the SEC Rules of Practice, the

Agencies’ procedures should require a

showing that irreparable harm would

result before authorizing an immediate

suspension. Contrary to this comment,

there is no requirement in section 36

that the Agencies show ‘‘irreparable

harm.’’ Nor are the agencies aware of

any authority that requires a finding by

the Government of irreparable harm in

order to satisfy minimum constitutional

standards of due process before

immediate action can be taken. The

Agencies further note that the

suspension procedures in the proposed

rules and the finding that must be made

by the Agencies to justify an immediate

suspension are very similar to those

prescribed in section 8(e)(3) of the

FDIA, which govern the suspension of

an IAP of an insured depository

institution pending completion of

administrative proceedings concerning a

proposed permanent order of removal or

prohibition.29 Nevertheless, to better

express the immediate suspension

standard, the rule has been revised to

require ‘‘immediate harm’’ to an insured

depository institution, its depositors, or

to the depository system as a whole.

The commenter’s fifth criticism of the

proposed rule was that it did not

establish a procedure for judicial review

of immediate suspensions imposed by

the Agencies

ibition.29 Nevertheless, to better

express the immediate suspension

standard, the rule has been revised to

require ‘‘immediate harm’’ to an insured

depository institution, its depositors, or

to the depository system as a whole.

The commenter’s fifth criticism of the

proposed rule was that it did not

establish a procedure for judicial review

of immediate suspensions imposed by

the Agencies. However, section 36

contains no specific provision for

review by the courts of any action taken

by the Agencies under the authority of

that provision. Administrative agencies

have no authority to create a right to

judicial review of agency action.30 Any

right to judicial review of an immediate

suspension must be based on some

statutory authority.

The commenter’s sixth point

concerned immediate suspensions of

accounting firms. The commenter stated

that the Agencies’ authority under the

proposal to immediately suspend a firm

from providing audit services is too

broad and subjective and any firm

subject to an immediate suspension

should have greater procedural

protections than what is provided in the

proposed rules.

The Agencies recognize that the

immediate suspension of an entire firm

could have a serious effect on the firm

as well as on the insured depository

institutions that may be relying on the

firm for audit services. However, as

explained above, the Agencies intend

that the immediate suspension sanction

would be applied to a firm only when

clearly necessary to protect a depository

institution or the depository system and

when the factors specified in the rules

for applying disciplinary action to a

firm support such a regulatory response.

Because the Agencies believe that these

circumstances, though unusual, warrant

disciplinary action against an entire

accounting firm should they occur, the

Agencies have retained that authority in

the final rule

otect a depository

institution or the depository system and

when the factors specified in the rules

for applying disciplinary action to a

firm support such a regulatory response.

Because the Agencies believe that these

circumstances, though unusual, warrant

disciplinary action against an entire

accounting firm should they occur, the

Agencies have retained that authority in

the final rule. The procedural

protections afforded an immediately

suspended party in the final rules,

whether an individual or a firm,

represent an appropriate balance

between protecting the banking system

and protecting the rights of affected

parties.

Automatic Removal, Suspension, and

Debarment. The proposed rule provided

that accountants or firms subject to

certain specified disciplinary actions

would automatically be prohibited from

providing audit services. No further

proceedings or hearings by the Agency

would be required in these instances.

Under each Agency’s proposed rule, the

actions giving rise to such an automatic

bar include: (1) A final order of removal,

suspension, or debarment under section

36 (other than a limited scope order)

issued by any of the other Agencies; (2)

certain actions by the PCAOB

(specifically, a temporary suspension or

permanent revocation of registration or

a temporary or permanent suspension or

debarment from further association with

a registered public accounting firm); (3)

certain actions by the SEC (specifically,

an order of suspension or a denial of the

privilege of appearing or practicing

before the SEC); and (4) suspension or

debarment for cause from practice as an

accountant by the licensing authority of

any state, possession, commonwealth,

or the District of Columbia.

Under the proposed rules,

disciplinary actions not giving rise to an

automatic bar could still serve as

grounds for an Agency to take action

against an accountant or a firm

ilege of appearing or practicing

before the SEC); and (4) suspension or

debarment for cause from practice as an

accountant by the licensing authority of

any state, possession, commonwealth,

or the District of Columbia.

Under the proposed rules,

disciplinary actions not giving rise to an

automatic bar could still serve as

grounds for an Agency to take action

against an accountant or a firm. In this

respect, grounds for Agency action set

forth in the proposal specifically

include removal, suspension, or

debarment by any Federal or state

agency regulating the banking,

insurance, or securities industries. If

such an action were grounds for an

Agency proceeding, however, the full

array of hearings and procedures in the

proposed rules would be required.

One commenter objected to the

proposed rules’ approach to the

automatic bar, contending that it was

too broad in scope because the reasons

for an action by the SEC, PCAOB, or a

state might be irrelevant to the provision

of audit services under the rules. The

commenter argued that, to prevent an

unwarranted automatic bar, an

accountant or a firm should in all cases

have the opportunity for a hearing

before an Agency considering removal,

suspension, or debarment, and that the

Agency should be required to conduct

an independent analysis. The

commenter also asserted that the SEC’s

automatic suspension provisions are

more limited and generally require

license revocation, criminal conviction,

or prior action by the SEC. Finally, the

commenter urged the Agencies to

include in the final rule an expedited

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00011

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

analysis. The

commenter also asserted that the SEC’s

automatic suspension provisions are

more limited and generally require

license revocation, criminal conviction,

or prior action by the SEC. Finally, the

commenter urged the Agencies to

include in the final rule an expedited

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00011

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

48262

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

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

review process for an automatic

removal, suspension, or debarment.

The Agencies believe that the

automatic bar provisions are generally

appropriate, notwithstanding certain

differences from the SEC’s practice, and

that the protections granted in the rule

are adequate. In a case where another

Agency has taken disciplinary action

against an accountant or a firm under

section 36, the Agency has resolved

issues that are relevant to the provision

of audit services throughout the banking

system. If an accountant or a firm were

entitled to a separate hearing before

each Agency, four separate hearings

would be required to prevent an

accountant or firm from providing audit

services under the rules,

notwithstanding the similarity of the

issues. Such a requirement would

essentially result in duplicative

proceedings to implement a single

action, and the Agencies do not believe

that the repetitive proceedings would

result in any significant additional

protection for the accountant or firm.

The Agencies believe it is appropriate

and within the statutory direction of

section 36 for the joint rules to provide

that each Agency will defer to the

proceedings of the other federal banking

supervisors.

It should be noted that the automatic

bar resulting from an action by another

Agency does not apply in a case where

the other Agency has issued a limited

scope order effective only with respect

to audit services provided to one or

more specified institutions

section 36 for the joint rules to provide

that each Agency will defer to the

proceedings of the other federal banking

supervisors.

It should be noted that the automatic

bar resulting from an action by another

Agency does not apply in a case where

the other Agency has issued a limited

scope order effective only with respect

to audit services provided to one or

more specified institutions. If another

Agency sought to remove, suspend, or

debar an accountant subject to a limited

scope order, it would have to provide

the accountant with the hearings and

procedures set forth in the rule.

Moreover, in the event that the

particular facts and circumstances of a

removal, suspension, or debarment

justify an exception from the automatic,

industry-wide bar, each Agency’s

proposed rule provided that the Agency

has discretion to override the automatic

bar with respect to the institutions it

supervises. An accountant or firm

would be entitled to make such a

request in any case, and the Agency

could grant written permission.

One commenter suggested that the

Agencies should include in the rule

substantive standards for when they

will override the automatic bar. In

response, we note that the general

standard for suspension or debarment

under section 36—‘‘good cause’’—

would apply to the decision of whether

or not to override an automatic bar. It

is impossible to predict all the

situations in which the facts will

support an override of an automatic

suspension or debarment. A bright-line

test could have the effect of limiting an

Agency’s flexibility to give the relief

sought by the accountant or firm.

Accordingly, the final rule retains the

provision permitting the accountant or

firm to request that an Agency grant an

exception from the automatic bar

dict all the

situations in which the facts will

support an override of an automatic

suspension or debarment. A bright-line

test could have the effect of limiting an

Agency’s flexibility to give the relief

sought by the accountant or firm.

Accordingly, the final rule retains the

provision permitting the accountant or

firm to request that an Agency grant an

exception from the automatic bar.

With regard to SEC and PCAOB

actions as a predicate for the automatic

bar, the Agencies believe that the SEC’s

and PCAOB’s expertise and jurisdiction

in this area warrant recognition by the

Agencies of their actions against an

accountant or firm. While there are

differences between insured depository

institutions and institutions under the

primary jurisdiction of the SEC, the

conduct giving rise to suspension or

debarment by the SEC is likely to be of

equally significant concern to the

banking regulators. In the rare case

where an action by the SEC or the

PCAOB is based on conduct that is

unrelated to the provision of audit

services to an insured institution, the

Agencies retain override authority, and

an accountant or firm would be able to

request Agency permission to provide

audit services notwithstanding SEC or

PCAOB action.

The final trigger for an automatic bar

in the proposed rule was suspension or

debarment for cause by a state licensing

authority. The Agencies have further

considered the potential effects of this

provision in light of the comments

received and agree that there are likely

to be instances in which a state’s action

is not relevant to the provision of audit

services—there may be a wide range of

‘‘for cause’’ grounds for suspension or

debarment under various state laws. In

addition, the procedural protections

afforded to accountants in state

proceedings may not be as uniform and

as broad as those provided by the

Agencies, the SEC, and the PCAOB

ere are likely

to be instances in which a state’s action

is not relevant to the provision of audit

services—there may be a wide range of

‘‘for cause’’ grounds for suspension or

debarment under various state laws. In

addition, the procedural protections

afforded to accountants in state

proceedings may not be as uniform and

as broad as those provided by the

Agencies, the SEC, and the PCAOB.

Accordingly, the Agencies have

determined that suspension or

debarment of an accountant for cause by

a state licensing authority should

properly be treated as grounds for

discretionary Agency removal,

suspension, or debarment, rather than as

a trigger for the automatic prohibition

on the provision of audit services. The

final rule amends both the automatic bar

section and the section on grounds for

Agency action to reflect this change.

One commenter raised a concern

about whether the automatic bar

provision of the proposed rule could

violate an accountant’s or a firm’s right

to due process by imposing a penalty

without allowing opportunity for a

hearing. As set forth above, the

automatic bar only applies in instances

where the accountant or a firm has

already received due process

protections in proceedings before

another Agency, the SEC, or the PCAOB.

Moreover, an accountant or a firm may

petition an Agency to perform audit

services for a bank or savings

association. The Agencies believe that

these procedures will provide ample

opportunity for an accountant or firm to

obtain a fair hearing that comports with

due process protections of the

Constitution.

Notice of Removal, Suspension, or

Debarment. The proposed rules required

the Agencies to make public any final

order of removal, suspension, or

debarment against an accountant or

accounting firm and notify the other

Agencies of such orders

res will provide ample

opportunity for an accountant or firm to

obtain a fair hearing that comports with

due process protections of the

Constitution.

Notice of Removal, Suspension, or

Debarment. The proposed rules required

the Agencies to make public any final

order of removal, suspension, or

debarment against an accountant or

accounting firm and notify the other

Agencies of such orders. This was

consistent with the presumption in

favor of public notice for enforcement

actions in the FDIA.31 The proposed

rules also contained notification

provisions for accountants and firms.

The proposal required that an

accountant or accounting firm

performing section 36 audit services for

any insured depository institution must

provide the Agencies with written

notice of any currently effective

disciplinary sanction against the

accountant or firm issued by the PCAOB

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

Sarbanes-Oxley Act, relating to

revocation of registration and

association with a public accounting

firm or issuer; any current suspension or

denial of the privilege of appearing or

practicing before the SEC; or any

suspensions or debarments for cause

from practice as an accountant by any

duly constituted licensing authority of

any state, possession, commonwealth,

or the District of Columbia. Written

notice under the proposed rules is also

required of any removal, suspension, or

debarment from practice before any

Federal or state (non-licensing) agency

regulating the banking, insurance, or

securities industry on grounds relevant

to the provision of audit services; and

any action by the PCAOB under sections

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

Act, relating to limitations on the

activities of accountants and accounting

firms and any other appropriate

sanction provided in the rules of the

PCAOB

ederal or state (non-licensing) agency

regulating the banking, insurance, or

securities industry on grounds relevant

to the provision of audit services; and

any action by the PCAOB under sections

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

Act, relating to limitations on the

activities of accountants and accounting

firms and any other appropriate

sanction provided in the rules of the

PCAOB. Written notice must be given

no later than 15 calendar days following

the effective date of an order or action,

or 15 calendar days before an

accountant or accounting firm accepts

an engagement to provide audit

services, whichever date is earlier.

The Agencies did not receive any

comments on the notice provisions. The

Agencies are therefore adopting the

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00012

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

48263

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

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

unusual for the Agencies to grant reinstatement

prior to the expiration of the suspension period.

33 See 12 CFR 19.196 (describing disreputable

conduct).

provisions as proposed, although there

are technical changes to accommodate

changes to the good cause and

automatic suspension provisions

described above.

Petition for Reinstatement. Under the

proposal, a removed, suspended, or

debarred ‘‘independent public

accountant or accounting firm’’ may

request reinstatement by the Agency

that issued the order. The individual or

firm would be able to request

reinstatement at any time more than one

year after the effective date of the order

and, thereafter, at any time more than

one year after the most recent request

for reinstatement

he

proposal, a removed, suspended, or

debarred ‘‘independent public

accountant or accounting firm’’ may

request reinstatement by the Agency

that issued the order. The individual or

firm would be able to request

reinstatement at any time more than one

year after the effective date of the order

and, thereafter, at any time more than

one year after the most recent request

for reinstatement.

One commenter asked that the

Agencies revise the proposal to permit

a firm to petition for reinstatement of

individual offices that have been

removed, suspended or debarred, in

addition to permitting petitions for

reinstatement of individual accountants

or the firm as a whole. The Agencies did

not intend in the proposed rule to

prohibit offices of a firm that have been

removed, suspended, or debarred from

petitioning for reinstatement. The

proposed reinstatement provision,

therefore, has been revised in the final

rule to clarify that a removed,

suspended, or debarred office of a firm

may petition for reinstatement.

Another commenter urged the

Agencies to state factors that the

Agencies would consider in evaluating

a reinstatement request so that affected

parties would know what type of

information the Agencies need to make

a decision. The Agencies understand

that petitioners will wish to tailor their

reinstatement requests in a manner that

they believe will yield them success in

obtaining the relief they seek. In the past

and in other contexts, the Agencies have

looked at various factors in reviewing

reinstatement petitions

that affected

parties would know what type of

information the Agencies need to make

a decision. The Agencies understand

that petitioners will wish to tailor their

reinstatement requests in a manner that

they believe will yield them success in

obtaining the relief they seek. In the past

and in other contexts, the Agencies have

looked at various factors in reviewing

reinstatement petitions. These factors

included: (1) The nature, extent, and

duration of the conduct that led to the

issuance of the order; (2) the period of

time that an order has been outstanding,

as well as any prior requests made by

the petitioner; (3) activities of the

petitioner since the order was issued,

including evidence of rehabilitation; (4)

the nature of the position or proposed

action the requestor is seeking, and the

scope of relief sought; (5) the likelihood

of future misconduct giving good cause

for removing, suspending, or debarring

the petitioner; and (6) the views and

opinions of other Federal banking

agencies, when applicable. The

Agencies will include these factors in

their evaluations of petitions for

reinstatement.

Second, the commenter asserted that

the Agencies failed to explain the

necessity for a one-year waiting period

before a suspended, removed, or

debarred party could seek

reinstatement. The commenter argued in

favor of a case-by-case approach. In

addition, the commenter argued that the

Agencies’ requirement of a one-year

period is inconsistent with the SEC’s

rules, which permit a petitioner to file

for reinstatement at any time.

The Agencies believe that the

proposed rule made room for a case-by-

case approach to reinstatement by

providing that, ‘‘unless otherwise

ordered’’ by the appropriate agency

decision maker, the one-year waiting

period would apply

argued that the

Agencies’ requirement of a one-year

period is inconsistent with the SEC’s

rules, which permit a petitioner to file

for reinstatement at any time.

The Agencies believe that the

proposed rule made room for a case-by-

case approach to reinstatement by

providing that, ‘‘unless otherwise

ordered’’ by the appropriate agency

decision maker, the one-year waiting

period would apply. Under the

proposed rule, if a petitioner believed

that the circumstances merited review

prior to the expiration of the one-year

period, the petitioner could seek an

order from the Agency decision maker

permitting the petitioner to seek such

earlier review. Given the Agencies’

intention, as reflected in the proposed

rule, that the one-year waiting period for

reinstatement have some flexibility and

considering the comments received, the

Agencies have amended the final rule to

permit persons, firms, and offices to

petition for reinstatement at any time.

The proposal reflected the view of the

Agencies that petitions for reinstatement

filed close in time, either to the

Agency’s decision or the last petition for

reinstatement, are unlikely to present

new issues or bases for reinstatement

and would waste Agency resources.

Thus, although the final rule permits a

petition for reinstatement at any time, it

will be unusual for the Agencies to grant

such relief within one year of a removal,

suspension or debarment order.32

IV

filed close in time, either to the

Agency’s decision or the last petition for

reinstatement, are unlikely to present

new issues or bases for reinstatement

and would waste Agency resources.

Thus, although the final rule permits a

petition for reinstatement at any time, it

will be unusual for the Agencies to grant

such relief within one year of a removal,

suspension or debarment order.32

IV. Conforming and Technical Changes

to the Rules of the Agencies

OCC

The OCC proposed adding

‘‘recklessness’’ to its description of

‘‘disreputable conduct’’ that may lead to

removal, suspension, or debarment of

parties or their representatives who

practice or appear before the OCC.33

This change would conform the OCC’s

general rules of practice with the

standards in the proposal for removal,

suspension, or debarment of

accountants from performance of

section 36-required audit services,

which in turn reflects the addition of

the recklessness standard to the SEC’s

rules of practice by the Sarbanes-Oxley

Act. The purpose of adding the

recklessness standard was to clarify that

conduct more culpable than

incompetence, but less culpable than

willful or knowing action, may form the

basis for a suspension or debarment.

The OCC also proposed broadening

the scope of ‘‘disreputable conduct’’ to

allow the OCC to consider suspensions

or debarments of accountants—for any

reason—by the other Agencies, the SEC,

the Commodity Futures Trading

Commission, or any other Federal

agency. This change would remove the

requirement in the current § 19.196(g)

that suspensions by other agencies

concern ‘‘matters relating to the

supervisory responsibilities of the

OCC.’’ This change takes into account

the possibility that a suspension of an

accountant by another agency, relating

to the professional conduct of an

accountant, could be grounds for

removal, suspension, or debarment by

the OCC, even if the suspension by the

other agency did not relate to a banking

matter

er agencies

concern ‘‘matters relating to the

supervisory responsibilities of the

OCC.’’ This change takes into account

the possibility that a suspension of an

accountant by another agency, relating

to the professional conduct of an

accountant, could be grounds for

removal, suspension, or debarment by

the OCC, even if the suspension by the

other agency did not relate to a banking

matter.

Unlike the other amendments in the

proposal, which would address an

accountant’s or a firm’s ability to

perform section 36-required audits, this

part of the proposal concerned who may

practice before the OCC in other

capacities, such as in adjudications, or

through preparation of documents for

submission to the OCC. Under the

proposed rule, the OCC also revised a

number of sections within part 19 to

make conforming and technical changes

to implement section 36 of the FDIA

and bring procedural aspects of part 19

up to date.

The OCC did not receive any

comments on these proposed changes.

Accordingly, the conforming and

technical changes are adopted in the

final rule as proposed.

Board

The Board proposed to amend its

Rules of Practice Before the Board (12

CFR 263, subpart F) to expand the type

of conduct for which an individual may

be censured, debarred, or suspended

from practice before the Board. In

particular, the Board proposed to revise

the description of the conduct that

would warrant sanctions to include

reckless violations, or reckless aiding

and abetting violations, of specified

laws and the reckless provision of false

or misleading information, or reckless

participation in the provision of false or

misleading information, to the Board.

The regulation currently provides for

sanctions only for willful misconduct.

The purpose of this proposed

amendment was to clarify that conduct

more culpable than incompetence, but

less culpable than willful or knowing

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00013

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

ovision of false or

misleading information, to the Board.

The regulation currently provides for

sanctions only for willful misconduct.

The purpose of this proposed

amendment was to clarify that conduct

more culpable than incompetence, but

less culpable than willful or knowing

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00013

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

48264

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

action, may form the basis for a

suspension or debarment from practice

before the Board. This change also

reflected the modification made to the

SEC’s rules of practice by the Sarbanes-

Oxley Act.

The Board did not receive any

comments on these proposed changes.

Accordingly, the conforming and

technical changes are adopted in the

final rule as proposed.

FDIC

The FDIC proposed making a

clarifying and conforming amendment

to 12 CFR 308.109, which deals with the

suspension and disbarment of the right

of any counsel to appear or practice

before the FDIC, to specify that an

application for reinstatement must

comply with the general filing

procedures established by part 303. The

amendment would add a new sentence

before the current last sentence of

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

‘‘The application shall comply with the

requirements of 12 CFR 303.3.’’

The FDIC did not receive any

comments on these proposed changes.

Accordingly, the conforming and

technical changes are adopted in the

final rule as proposed.

V. Regulatory Analysis

A. Regulatory Flexibility Act

OCC: Under section 605(b) of the

Regulatory Flexibility Act, 5 U.S.C.

605(b) (RFA), the appropriate Federal

banking agencies must either provide a

Final Regulatory Flexibility Analysis for

a final rule or certify that the rule will

not have a significant economic impact

on a substantial number of small

entities

final rule as proposed.

V. Regulatory Analysis

A. Regulatory Flexibility Act

OCC: Under section 605(b) of the

Regulatory Flexibility Act, 5 U.S.C.

605(b) (RFA), the appropriate Federal

banking agencies must either provide a

Final Regulatory Flexibility Analysis for

a final rule or certify that the rule will

not have a significant economic impact

on a substantial number of small

entities. For purposes of this Regulatory

Flexibility Analysis and final regulation,

the OCC defines ‘‘small entities’’ to be

those national banks with less than $150

million in total assets. For other entities

that could be affected by this rule, such

as accountants and accounting firms, a

small entity is defined as an accounting

office with $7 million or less in annual

receipts.

We have reviewed the impact this

final rule will have on small banks.

Based on that review, we certify that the

final rule will not have a significant

economic impact on a substantial

number of small entities. The basis for

the certification is that the requirement

for audits does not apply to national

banks with less than $500 million in

total assets. In addition, only a limited

number of small accounting firms

provide section 36 audit services to

national banks. For these reasons, the

OCC does not anticipate that the

proposal will affect a substantial

number of small entities.

Board: Pursuant to section 605(b) of

the RFA, 5 U.S.C. 605(b), the Board

certifies that the suspension and

debarment amendments in this final

rulemaking will not have a significant

adverse economic impact on a

substantial number of small entities. For

purposes of this Regulatory Flexibility

Analysis, the Board defines ‘‘small

entity’’ as (1) any insured state member

bank with less than $150 million in total

assets, or (2) any bank holding company

with a subsidiary insured state member

bank with less than $150 million in total

assets

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 final rule will

not apply to state member banks that

have less than $500 million in total

assets. In addition, only a limited

number of small accounting firms

provide section 36 audit services to

institutions that are regulated by the

Federal Reserve.

FDIC: The FDIC certifies, pursuant to

section 605(b) of the RFA, 5 U.S.C.

605(b), that the final suspension and

debarment amendments will not have a

significant economic impact on a

substantial number of small entities.

The basis for the certification is that the

rule will not apply to insured

depository institutions that have less

than $150 million in total assets.

Furthermore, only a limited number of

small accounting firms provide section

36 audit services to insured depository

institutions for which the FDIC is the

appropriate Federal banking agency.

OTS: Under the RFA, OTS must either

provide a Final Regulatory Flexibility

Analysis, or certify that the rule will not

have a significant economic impact on

a substantial number of small entities.

For purposes of this RFA analysis, the

OTS defines ‘‘small banks’’ to be those

savings associations with less than $150

million in total assets.

Pursuant to section 605(b) of the RFA,

5 U.S.C. 605(b) certifies that this final

rule will not have a significant

economic impact on a substantial

number of small entities

a significant economic impact on

a substantial number of small entities.

For purposes of this RFA analysis, the

OTS defines ‘‘small banks’’ to be those

savings associations with less than $150

million in total assets.

Pursuant to section 605(b) of the RFA,

5 U.S.C. 605(b) certifies that this final

rule will not have a significant

economic impact on a substantial

number of small entities. The basis of

this certification is that this rule does

not apply to savings associations with

less than $500 million in assets.

B. Paperwork Reduction Act

The Agencies have determined that

this proposed rule does not involve a

collection of information pursuant to

the provisions of the Paperwork

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

et seq.).

C. Executive Order 12866

The OCC and OTS have determined

that this final rule is not a significant

regulatory action under Executive Order

12866.

D. Unfunded Mandates Reform Act of

1995

Section 202 of the Unfunded

Mandates Reform Act of 1995, Pub. L.

104–4 (2 U.S.C. 1532) (Unfunded

Mandates Act), requires that an agency

prepare a budgetary impact statement

before promulgating any rule likely to

result in a Federal mandate that may

result in the expenditure by state, local,

and tribal governments, in the aggregate,

or by the private sector of $100 million

or more in any one year. If a budgetary

impact statement is required, section

205 of the Unfunded Mandates Act also

requires an agency to identify and

consider a reasonable number of

regulatory alternatives before

promulgating a rule. The OCC and OTS

have determined that the final rule will

not result in expenditures by state,

local, and tribal governments, or by the

private sector, of $100 million or more

in any one year. Accordingly, this

rulemaking requires no further analysis

under the Unfunded Mandates Act.

List of Subjects

12 CFR Part 19

Administrative practice and

procedure, Crime, Equal access to

justice, Investigations, National banks,

Penalties, Securities

e will

not result in expenditures by state,

local, and tribal governments, or by the

private sector, of $100 million or more

in any one year. Accordingly, this

rulemaking requires no further analysis

under the Unfunded Mandates Act.

List of Subjects

12 CFR Part 19

Administrative practice and

procedure, Crime, Equal access to

justice, Investigations, National banks,

Penalties, Securities.

12 CFR Part 263

Administrative practice and

procedure, Claims, Crime, Equal access

to justice, Federal Reserve System,

Lawyers, Penalties.

12 CFR Part 308

Administrative practice and

procedure, Bank deposit insurance,

Banks, banking, Claims, Crime, Equal

access to justice, Investigations,

Lawyers, Penalties, State nonmember

banks.

12 CFR Part 513

Accountants, Administrative practice

and procedure, Lawyers.

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the

Currency

12 CFR Chapter I

Authority and Issuance

I For reasons set out in the joint

preamble, part 19 of chapter I of title 12

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00014

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

48265

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

of the Code of Federal Regulations is

amended to read as follows:

PART 19—RULES OF PRACTICE AND

PROCEDURE

I 1. The authority citation for part 19 is

revised to read as follows:

Authority: 5 U.S.C. 504, 554–557; 12

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

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

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

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

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

42 U.S.C. 4012a.

Subpart B—[Amended]

I 2. Section 19.100 of subpart B is

revised to read as follows:

§ 19.100

Filing documents

ows:

Authority: 5 U.S.C. 504, 554–557; 12

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

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

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

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

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

42 U.S.C. 4012a.

Subpart B—[Amended]

I 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.

Subpart C—[Amended]

I 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

trative law judge of motions

for interlocutory review; exceptions and

requests for oral argument; and any

other papers required to be filed with

the Comptroller or the administrative

law judge under this part.

Subpart C—[Amended]

I 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

Large Bank Supervision, to the

appropriate Deputy Comptroller for

Large Bank Supervision for the Office of

the Comptroller of the Currency, or if

the bank is supervised by Mid-Size/

Community Bank Supervision, to the

Senior Deputy Comptroller for Mid-

Size/Community Bank Supervision for

the Office of the Comptroller of the

Currency, Washington, DC 20219. The

request must state specifically the relief

desired and the grounds on which that

relief is based.

Subpart K—[Amended]

I 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

*

*

*

*

*

I 5. A new subpart P is added to read as

follows:

Subpart P—Removal, Suspension, and

Debarment of Accountants From

Performing Audit Services

Sec.

19.241

Scope.

19.242

Definitions.

19.243

Removal, suspension, or debarment.

19.244

Automatic removal, suspension, or

debarment.

19.245

Notice of removal, suspension, or

debarment.

19.246

Petition for reinstatement.

§ 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

n for reinstatement.

§ 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:

barment.

(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

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00015

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

48266

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

(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; or

(vii) Is suspended or debarred for

cause from practice as an accountant by

any duly constituted licensing authority

of any state, possession, commonwealth,

or the District of Columbia.

(2) Accounting firms. If the

Comptroller determines that there is

good cause for the removal, suspension,

or debarment of a member or employee

of an accounting firm under paragraph

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

also may remove, suspend, or debar

such firm or one or more offices of such

firm. In considering whether to remove,

suspend, or debar a firm or an office

thereof, and the term of any sanction

against a firm under this section, the

Comptroller may consider, for example:

ion,

or debarment of a member or employee

of an accounting firm under paragraph

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

also may remove, suspend, or debar

such firm or one or more offices of such

firm. In considering whether to remove,

suspend, or debar a firm or an office

thereof, and the term of any sanction

against a firm under this section, the

Comptroller may consider, for example:

(i) The gravity, scope, or repetition of

the act or failure to act that constitutes

good cause for the removal, suspension,

or debarment;

(ii) The adequacy of, and adherence

to, applicable policies, practices, or

procedures for the accounting firm’s

conduct of its business and the

performance of audit services;

(iii) The selection, training,

supervision, and conduct of members or

employees of the accounting firm

involved in the performance of audit

services;

(iv) The extent to which managing

partners or senior officers of the

accounting firm have participated,

directly, or indirectly through oversight

or review, in the act or failure to act;

and

(v) The extent to which the

accounting firm has, since the

occurrence of the act or failure to act,

implemented corrective internal

controls to prevent its recurrence.

(3) Limited scope orders. An order of

removal, suspension (including an

immediate suspension), or debarment

may, at the discretion of the

Comptroller, be made applicable to a

particular national bank or class of

national banks.

(4) Remedies not exclusive. The

remedies provided in this subpart are in

addition to any other remedies the OCC

may have under any other applicable

provisions of law, rule, or regulation.

n order of

removal, suspension (including an

immediate suspension), or debarment

may, at the discretion of the

Comptroller, be made applicable to a

particular national bank or class of

national banks.

(4) Remedies not exclusive. The

remedies provided in this subpart are in

addition to any other remedies the OCC

may have under any other applicable

provisions of law, rule, or regulation.

(b) Proceedings to remove, suspend,

or debar.

(1) Initiation of formal removal,

suspension, or debarment proceedings.

The Comptroller may initiate a

proceeding to remove, suspend, or debar

an accountant or accounting firm from

performing audit services by issuing a

written notice of intention to take such

action that names the individual or firm

as a respondent and describes the nature

of the conduct that constitutes good

cause for such action.

(2) Hearings under paragraph (b) of

this section. An accountant or firm

named as a respondent in the notice

issued under paragraph (b)(1) of this

section may request a hearing on the

allegations in the notice. Hearings

conducted under this paragraph shall be

conducted in the same manner as other

hearings under the Uniform Rules of

Practice and Procedure (12 CFR part 19,

subpart A).

(c) Immediate suspension from

performing audit services.

(1) In general. If the Comptroller

serves a written notice of intention to

remove, suspend, or debar an

accountant or accounting firm from

performing audit services, the

Comptroller may, with due regard for

the public interest and without a

preliminary hearing, immediately

suspend such accountant or firm from

performing audit services for insured

national banks, if the Comptroller:

ces.

(1) In general. If the Comptroller

serves a written notice of intention to

remove, suspend, or debar an

accountant or accounting firm from

performing audit services, the

Comptroller may, with due regard for

the public interest and without a

preliminary hearing, immediately

suspend such accountant or firm from

performing audit services for insured

national banks, if the Comptroller:

(i) Has a reasonable basis to believe

that the accountant or firm has engaged

in conduct (specified in the notice

served on the accountant or firm under

paragraph (b) of this section) that would

constitute grounds for removal,

suspension, or debarment under

paragraph (a) of this section;

(ii) Determines that immediate

suspension is necessary to avoid

immediate harm to an insured

depository institution or its depositors

or to the depository system as a whole;

and

(iii) Serves such respondent with

written notice of the immediate

suspension.

(2) Procedures. An immediate

suspension notice issued under this

paragraph will become effective upon

service. Such suspension will remain in

effect until the date the Comptroller

dismisses the charges contained in the

notice of intention, or the effective date

of a final order of removal, suspension,

or debarment issued by the Comptroller

to the respondent.

(3) Petition for stay. Any accountant

or firm immediately suspended from

performing audit services in accordance

with paragraph (c)(1) of this section

may, within 10 calendar days after

service of the notice of immediate

suspension, file with the Office of the

Comptroller of the Currency,

Washington, DC 20219 for a stay of such

immediate suspension. If no petition is

filed within 10 calendar days, the

immediate suspension shall remain in

effect.

pended from

performing audit services in accordance

with paragraph (c)(1) of this section

may, within 10 calendar days after

service of the notice of immediate

suspension, file with the Office of the

Comptroller of the Currency,

Washington, DC 20219 for a stay of such

immediate suspension. If no petition is

filed within 10 calendar days, the

immediate suspension shall remain in

effect.

(4) Hearing on petition. Upon receipt

of a stay petition, the Comptroller will

designate a presiding officer who shall

fix a place and time (not more than 10

calendar days after receipt of the

petition, unless extended at the request

of petitioner) at which the immediately

suspended party may appear, personally

or through counsel, to submit written

materials and oral argument. Any OCC

employee engaged in investigative or

prosecuting functions for the OCC in a

case may not, in that or a factually

related case, serve as a presiding officer

or participate or advise in the decision

of the presiding officer or of the OCC,

except as witness or counsel in the

proceeding. In the sole discretion of the

presiding officer, upon a specific

showing of compelling need, oral

testimony of witnesses may also be

presented. In hearings held pursuant to

this paragraph there shall be no

discovery and the provisions of §§ 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.

spondent’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

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00016

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

48267

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

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.

(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.

ountant

or accounting firm may not perform

audit services for insured national banks

if the accountant or firm:

(1) Is subject to a final order of

removal, suspension, or debarment

(other than a limited scope order) issued

by the Board of Governors of the Federal

Reserve System, the Federal Deposit

Insurance Corporation, or the Office of

Thrift Supervision under section 36 of

the FDIA.

(2) Is subject to a temporary

suspension or permanent revocation of

registration or a temporary or permanent

suspension or bar from further

association with any registered public

accounting firm issued by the Public

Company Accounting Oversight Board

or the Securities and Exchange

Commission under sections 105(c)(4)(A)

or (B) of the Sarbanes-Oxley Act (15

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

(3) Is subject to an order of suspension

or denial of the privilege of appearing or

practicing before the Securities and

Exchange Commission.

(b) Upon written request, the

Comptroller, for good cause shown, may

grant written permission to such

accountant or firm to perform audit

services for national banks. The request

shall contain a concise statement of the

action requested. The Comptroller may

require the applicant to submit

additional information.

§ 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.

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) through (a)(1)(vii) or

§§ 19.244(a)(2) through (a)(3); and

(2) Any currently effective action by

the Public Company Accounting

Oversight Board under sections

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

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

(c) Timing of notice. Written notice

required by this paragraph shall be

given no later than 15 calendar days

following the effective date of an order

or action, or 15 calendar days before an

accountant or firm accepts an

engagement to provide audit services,

whichever date is earlier.

§ 19.246

Petition for reinstatement.

(a) Form of petition. Unless otherwise

ordered by the Comptroller, a petition

for reinstatement by an independent

public accountant, an accounting firm,

or an office of a firm that was removed,

suspended, or debarred under § 19.243

may be made in writing at any time. The

request shall contain a concise

statement of the action requested. The

Comptroller may require the applicant

to submit additional information.

ess otherwise

ordered by the Comptroller, a petition

for reinstatement by an independent

public accountant, an accounting firm,

or an office of a firm that was removed,

suspended, or debarred under § 19.243

may be made in writing at any time. The

request shall contain a concise

statement of the action requested. The

Comptroller may require the applicant

to submit additional information.

(b) Procedure. A petitioner for

reinstatement under this section may, in

the sole discretion of the Comptroller,

be afforded a hearing. The accountant or

firm shall bear the burden of going

forward with a petition and proving the

grounds asserted in support of the

petition. In reinstatement proceedings,

the person seeking reinstatement shall

bear the burden of going forward with

an application and proving the grounds

asserted in support of the application.

The Comptroller may, in his sole

discretion, direct that any reinstatement

proceeding be limited to written

submissions. The removal, suspension,

or debarment shall continue until the

Comptroller, for good cause shown, has

reinstated the petitioner or until the

suspension period has expired. The

filing of a petition for reinstatement

shall not stay the effectiveness of the

removal, suspension, or debarment of an

accountant or firm.

Dated: July 23, 2003.

John D. Hawke, Jr.,

Comptroller of the Currency.

FEDERAL RESERVE SYSTEM

12 CFR Chapter II

Authority and Issuance

I For the reasons set out in the joint

preamble, part 263, chapter II, title 12 of

the Code of Federal Regulations is

amended as follows:

PART 263—RULES OF PRACTICE FOR

HEARINGS

I 1. The authority citation for part 263 is

revised to read as follows:

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

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

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

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

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

and 28 U.S.C. 2461 note.

Subpart F—[Amended]

I 2

ed as follows:

PART 263—RULES OF PRACTICE FOR

HEARINGS

I 1. The authority citation for part 263 is

revised to read as follows:

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

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

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

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

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

and 28 U.S.C. 2461 note.

Subpart F—[Amended]

I 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;

(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;

*

*

*

*

*

I 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

02

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).

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00017

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

48268

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

§ 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.

n 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:

(i) Lacks the requisite qualifications to

perform audit services;

(ii) Has knowingly or recklessly

engaged in conduct that results in a

violation of applicable professional

standards, including those standards

and conflict of interest provisions

applicable to accountants through the

Sarbanes-Oxley Act of 2002, Pub. L.

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

Oxley Act), and developed by the Public

Company Accounting Oversight Board

and the Securities and Exchange

Commission;

(iii) Has engaged in negligent conduct

in the form of:

(A) A single instance of highly

unreasonable conduct that results in a

violation of applicable professional

standards in circumstances in which an

accountant knows, or should know, that

heightened scrutiny is warranted; or

(B) Repeated instances of

unreasonable conduct, each resulting in

a violation of applicable professional

standards, that indicate a lack of

competence to perform audit services;

(iv) Has knowingly or recklessly given

false or misleading information, or

knowingly or recklessly participated in

any way in the giving of false or

misleading information, to the Board or

any officer or employee of the Board;

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;

(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; or

(vii) Is suspended or debarred for

cause from practice as an accountant by

any duly constituted licensing authority

of any state, possession, commonwealth,

or the District of Columbia.

(2) Accounting firms. If the Board

determines that there is good cause for

the removal, suspension, or debarment

of a member or employee of an

accounting firm under paragraph (a)(1)

of this section, the Board also may

remove, suspend, or debar such firm or

one or more offices of such firm. In

considering whether to remove,

suspend, or debar a firm or an office

thereof, and the term of any sanction

against a firm under this section, the

Board may consider, for example:

oval, suspension, or debarment

of a member or employee of an

accounting firm under paragraph (a)(1)

of this section, the Board also may

remove, suspend, or debar such firm or

one or more offices of such firm. In

considering whether to remove,

suspend, or debar a firm or an office

thereof, and the term of any sanction

against a firm under this section, the

Board may consider, for example:

(i) The gravity, scope, or repetition of

the act or failure to act that constitutes

good cause for removal, suspension, or

debarment;

(ii) The adequacy of, and adherence

to, applicable policies, practices, or

procedures for the accounting firm’s

conduct of its business and the

performance of audit services;

(iii) The selection, training,

supervision, and conduct of members or

employees of the accounting firm

involved in the performance of audit

services;

(iv) The extent to which managing

partners or senior officers of the

accounting firm have participated,

directly, or indirectly through oversight

or review, in the act or failure to act;

and

(v) The extent to which the

accounting firm has, since the

occurrence of the act or failure to act,

implemented corrective internal

controls to prevent its recurrence.

(3) Limited scope orders. An order of

removal, suspension (including an

immediate suspension), or debarment

may, at the discretion of the Board, be

made applicable to a particular banking

organization or class of banking

organizations.

(4) Remedies not exclusive. The

remedies provided in this subpart are in

addition to any other remedies the

Board may have under any other

applicable provisions of law, rule, or

regulation.

removal, suspension (including an

immediate suspension), or debarment

may, at the discretion of the Board, be

made applicable to a particular banking

organization or class of banking

organizations.

(4) Remedies not exclusive. The

remedies provided in this subpart are in

addition to any other remedies the

Board may have under any other

applicable provisions of law, rule, or

regulation.

(b) Proceedings to remove, suspend,

or debar.

(1) Initiation of formal removal,

suspension, or debarment proceedings.

The Board may initiate a proceeding to

remove, suspend, or debar an

accountant or accounting firm from

performing audit services by issuing a

written notice of intention to take such

action that names the individual or firm

as a respondent and describes the nature

of the conduct that constitutes good

cause for such action.

(2) Hearing under paragraph (b) of

this section. An accountant or firm

named as a respondent in the notice

issued under paragraph (b)(1) of this

section may request a hearing on the

allegations in the notice. Hearings

conducted under this paragraph shall be

conducted in the same manner as other

hearings under the Uniform Rules of

Practice and Procedure (12 CFR part

263, subpart A).

(c) Immediate suspension from

performing audit services. (1) In general.

If the Board serves a written notice of

intention to remove, suspend, or debar

an accountant or accounting firm from

performing audit services, the Board

may, with due regard for the public

interest and without a preliminary

hearing, immediately suspend such

accountant or firm from performing

audit services for banking organizations,

if the Board:

forming audit services. (1) In general.

If the Board serves a written notice of

intention to remove, suspend, or debar

an accountant or accounting firm from

performing audit services, the Board

may, with due regard for the public

interest and without a preliminary

hearing, immediately suspend such

accountant or firm from performing

audit services for banking organizations,

if the Board:

(i) Has a reasonable basis to believe

that the accountant or firm has engaged

in conduct (specified in the notice

served on the accountant or firm under

paragraph (b) of this section) that would

constitute grounds for removal,

suspension, or debarment under

paragraph (a) of this section;

(ii) Determines that immediate

suspension is necessary to avoid

immediate harm to an insured

depository institution or its depositors

or to the depository system as a whole;

and

(iii) Serves such respondent with

written notice of the immediate

suspension.

(2) Procedures. An immediate

suspension notice issued under this

paragraph will become effective upon

service. Such suspension will remain in

effect until the date the Board dismisses

the charges contained in the notice of

intention, or the effective date of a final

order of removal, suspension, or

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00018

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

48269

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

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.

rming audit services in accordance

with paragraph (c)(1) of this section

may, within 10 calendar days after

service of the notice of immediate

suspension, file with the Secretary,

Board of Governors of the Federal

Reserve System, Washington, DC 20551

for a stay of such immediate suspension.

If no petition is filed within 10 calendar

days, the immediate suspension shall

remain in effect.

(4) Hearing on petition. Upon receipt

of a stay petition, the Secretary will

designate a presiding officer who shall

fix a place and time (not more than 10

calendar days after receipt of the

petition, unless extended at the request

of petitioner) at which the immediately

suspended party may appear, personally

or through counsel, to submit written

materials and oral argument. Any Board

employee engaged in investigative or

prosecuting functions for the Board in a

case may not, in that or a factually

related case, serve as a presiding officer

or participate or advise in the decision

of the presiding officer or of the Board,

except as witness or counsel in the

proceeding. In the sole discretion of the

presiding officer, upon a specific

showing of compelling need, oral

testimony of witnesses may also be

presented. In hearings held pursuant to

this paragraph there shall be no

discovery and the provisions of §§ 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.

spondent’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.

(a) An independent public accountant

or accounting firm may not perform

audit services for banking organizations

if the accountant or firm:

(1) Is subject to a final order of

removal, suspension, or debarment

(other than a limited scope order) issued

by the Federal Deposit Insurance

Corporation, the Office of the

Comptroller of the Currency, or the

Office of Thrift Supervision under

section 36 of the FDIA;

(2) Is subject to a temporary

suspension or permanent revocation of

registration or a temporary or permanent

suspension or bar from further

association with any registered public

accounting firm issued by the Public

Company Accounting Oversight Board

or the Securities and Exchange

Commission under sections 105(c)(4)(A)

or (B) of the Sarbanes-Oxley Act of 2002

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

bject to a temporary

suspension or permanent revocation of

registration or a temporary or permanent

suspension or bar from further

association with any registered public

accounting firm issued by the Public

Company Accounting Oversight Board

or the Securities and Exchange

Commission under sections 105(c)(4)(A)

or (B) of the Sarbanes-Oxley Act of 2002

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

(3) Is subject to an order of suspension

or denial of the privilege of appearing or

practicing before the Securities and

Exchange Commission.

(b) Upon written request, the Board,

for good cause shown, may grant written

permission to such accountant or firm to

perform audit services for banking

organizations. The request shall contain

a concise statement of the action

requested. The Board may require the

applicant to submit additional

information.

§ 263.404

Notice of removal, suspension,

or debarment.

(a) Notice to the public. Upon the

issuance of a final order for removal,

suspension, or debarment of an

independent public accountant or

accounting firm from providing audit

services, the Board shall make the order

publicly available and provide notice of

the order to the other Federal banking

agencies.

(b) Notice to the Board by accountants

and firms. An accountant or accounting

firm that provides audit services to a

banking organization must provide the

Board with written notice of:

(1) Any currently effective order or

other action described in

§§ 263.402(a)(1)(vi) through (a)(1)(vii) or

§§ 263.403(a)(2) through (a)(3); and

(2) Any currently effective action by

the Public Company Accounting

Oversight Board under sections

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

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

(G)).

ganization must provide the

Board with written notice of:

(1) Any currently effective order or

other action described in

§§ 263.402(a)(1)(vi) through (a)(1)(vii) or

§§ 263.403(a)(2) through (a)(3); and

(2) Any currently effective action by

the Public Company Accounting

Oversight Board under sections

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

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

(G)).

(c) Timing of notice. Written notice

required by this paragraph shall be

given no later than 15 calendar days

following the effective date of an order

or action, or 15 calendar days before an

accountant or firm accepts an

engagement to provide audit services,

whichever date is earlier.

§ 263.405

Petition for reinstatement.

(a) Form of petition. Unless otherwise

ordered by the Board, a petition for

reinstatement by an independent public

accountant, an accounting firm, or an

office of a firm that was removed,

suspended, or debarred under § 263.402

may be made in writing at any time. The

request shall contain a concise

statement of the action requested. The

Board may require the petitioner to

submit additional information.

(b) Procedure. A petitioner for

reinstatement under this section may, in

the sole discretion of the Board, be

afforded a hearing. The accountant or

firm shall bear the burden of going

forward with a petition and proving the

grounds asserted in support of the

petition. The Board may, in its sole

discretion, direct that any reinstatement

proceeding be limited to written

submissions. The removal, suspension,

or debarment shall continue until the

Board, for good cause shown, has

reinstated the petitioner or until the

suspension period has expired. The

filing of a petition for reinstatement

shall not stay the effectiveness of the

removal, suspension, or debarment of an

accountant or firm.

By order of the Board of Governors of the

Federal Reserve System.

Dated: August 6, 2003.

Jennifer J. Johnson,

Secretary of the Board

until the

Board, for good cause shown, has

reinstated the petitioner or until the

suspension period has expired. The

filing of a petition for reinstatement

shall not stay the effectiveness of the

removal, suspension, or debarment of an

accountant or firm.

By order of the Board of Governors of the

Federal Reserve System.

Dated: August 6, 2003.

Jennifer J. Johnson,

Secretary of the Board.

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Part 308

Authority and Issuance

I For the reasons set out in the joint

preamble, part 308, chapter III, title 12 of

the Code of Federal Regulations is

amended as follows:

PART 308—RULES OF PRACTICE AND

PROCEDURE

I 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.

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00019

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

48270

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

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.

I 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.

*

*

*

*

*

st 13, 2003 / Rules and Regulations

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.

I 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. * * *

*

*

*

*

*

I 3. A new Subpart U is added to read

as follows:

Subpart U—Removal, Suspension, and

Debarment of Accountants From

Performing Audit Services

Sec.

308.600

Scope.

308.601

Definitions.

308.602

Removal, suspension, or

debarment.

308.603

Automatic removal, suspension,

and debarment.

308.604

Notice of removal, suspension, or

debarment.

308.605

Application for reinstatement.

§ 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.

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.

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 under

section 36 of the FDIA from performing

audit services for insured depository

institutions for which the FDIC is the

appropriate Federal banking agency if,

after service of a notice of intention and

opportunity for hearing in the matter,

the Board of Directors finds that the

accountant:

(i) Lacks the requisite qualifications to

perform audit services;

(ii) Has knowingly or recklessly

engaged in conduct that results in a

violation of applicable professional

standards, including those standards

and conflicts of interest provisions

applicable to accountants through the

Sarbanes-Oxley Act of 2002 (Pub. L.

107–204, 116 Stat. 745 (2002))

(Sarbanes-Oxley Act) and developed by

the Public Company Accounting

Oversight Board and the Securities and

Exchange Commission;

(iii) Has engaged in negligent conduct

in the form of:

(A) A single instance of highly

unreasonable conduct that results in a

violation of applicable professional

standards in circumstances in which an

accountant knows, or should know, that

heightened scrutiny is warranted; or

(B) Repeated instances of

unreasonable conduct, each resulting in

a violation of applicable professional

standards, that indicate a lack of

competence to perform audit services;

e instance of highly

unreasonable conduct that results in a

violation of applicable professional

standards in circumstances in which an

accountant knows, or should know, that

heightened scrutiny is warranted; or

(B) Repeated instances of

unreasonable conduct, each resulting in

a violation of applicable professional

standards, that indicate a lack of

competence to perform audit services;

(iv) Has knowingly or recklessly given

false or misleading information, or

knowingly or recklessly participated in

any way in the giving of false or

misleading information, to the FDIC or

any officer or employee of the FDIC;

(v) Has engaged in, or aided and

abetted, a material and knowing or

reckless violation of any provision of

the Federal banking or securities laws or

the rules and regulations thereunder, or

any other law;

(vi) Has been removed, suspended, or

debarred from practice before any

Federal or state agency regulating the

banking, insurance, or securities

industries, other than by an action listed

in § 308.603, on grounds relevant to the

provision of audit services; or

(vii) Is suspended or debarred for

cause from practice as an accountant by

any duly constituted licensing authority

of any state, possession, commonwealth,

or the District of Columbia.

(2) Accounting firms. If the Board of

Directors determines that there is good

cause for the removal, suspension, or

debarment of a member or employee of

an accounting firm under paragraph

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

Directors also may remove, suspend, or

debar such firm or one or more offices

of such firm. In considering whether to

remove, suspend, or debar an

accounting firm or an office thereof, and

the term of any sanction against an

accounting firm under this section, the

Board of Directors may consider, for

example:

ee of

an accounting firm under paragraph

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

Directors also may remove, suspend, or

debar such firm or one or more offices

of such firm. In considering whether to

remove, suspend, or debar an

accounting firm or an office thereof, and

the term of any sanction against an

accounting firm under this section, the

Board of Directors may consider, for

example:

(i) The gravity, scope, or repetition of

the act or failure to act that constitutes

good cause for the removal, suspension,

or debarment;

(ii) The adequacy of, and adherence

to, applicable policies, practices, or

procedures for the accounting firm’s

conduct of its business and the

performance of audit services;

(iii) The selection, training,

supervision, and conduct of members or

employees of the accounting firm

involved in the performance of audit

services;

(iv) The extent to which managing

partners or senior officers of the

accounting firm have participated,

directly, or indirectly through oversight

or review, in the act or failure to act;

and

(v) The extent to which the

accounting firm has, since the

occurrence of the act or failure to act,

implemented corrective internal

controls to prevent its recurrence.

(3) Limited scope orders. An order of

removal, suspension (including an

immediate suspension), or debarment

may, at the discretion of the Board of

Directors, be made applicable to a

limited number of insured depository

institutions for which the FDIC is the

appropriate Federal banking agency.

(4) Remedies not exclusive. The

remedies provided in this subpart are in

addition to any other remedies the FDIC

may have under any other applicable

provision of law, rule, or regulation.

), 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

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00020

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

48271

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

Procedure (12 CFR part 308, subpart A)

(Uniform Rules).

onducted under this

paragraph shall be conducted in the

same manner as other hearings under

the Uniform Rules of Practice and

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00020

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

48271

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

Procedure (12 CFR part 308, subpart A)

(Uniform Rules).

(c) Immediate suspension from

performing audit services.

(1) In general. If the Board of Directors

serves a written notice of intention to

remove, suspend, or debar an

accountant or accounting firm from

performing audit services, the Board of

Directors may, with due regard for the

public interest and without a

preliminary hearing, immediately

suspend such accountant or firm from

performing audit services for insured

depository institutions for which the

FDIC is the appropriate Federal banking

agency if the Board of Directors:

(i) Has a reasonable basis to believe

that the accountant or accounting firm

has engaged in conduct (specified in the

notice served upon the accountant or

accounting firm under paragraph (b)(1)

of this section) that would constitute

grounds for removal, suspension, or

debarment under paragraph (a) of this

section;

(ii) Determines that immediate

suspension is necessary to avoid

immediate harm to an insured

depository institution or its depositors

or to the depository system as a whole;

and

(iii) Serves such respondent with

written notice of the immediate

suspension.

(2) Procedures. An immediate

suspension notice issued under this

paragraph will become effective upon

service. Such suspension will remain in

effect until the date the Board of

Directors dismisses the charges

contained in the notice of intention, or

the effective date of a final order of

removal, suspension, or debarment

issued by the Board of Directors to the

respondent.

suspension.

(2) Procedures. An immediate

suspension notice issued under this

paragraph will become effective upon

service. Such suspension will remain in

effect until the date the Board of

Directors dismisses the charges

contained in the notice of intention, or

the effective date of a final order of

removal, suspension, or debarment

issued by the Board of Directors to the

respondent.

(3) Petition to stay. Any accountant or

accounting firm immediately suspended

from performing audit services in

accordance with paragraph (c)(1) of this

section may, within 10 calendar days

after service of the notice of immediate

suspension, file a petition with the

Executive Secretary for a stay of such

immediate suspension. If no petition is

filed within 10 calendar days, the

immediate suspension shall remain in

effect.

(4) Hearing on petition. Upon receipt

of a stay petition, the Executive

Secretary will designate a presiding

officer who will fix a place and time

(not more than 10 calendar days after

receipt of the petition, unless extended

at the request of petitioner) at which the

immediately suspended party may

appear, personally or through counsel,

to submit written materials and oral

argument. Any FDIC employee engaged

in investigative or prosecuting functions

for the FDIC in a case may not, in that

or a factually related case, serve as a

presiding officer or participate or advise

in the decision of the presiding officer

or of the FDIC, except as witness or

counsel in the proceeding. In the sole

discretion of the presiding officer, upon

a specific showing of compelling need,

oral testimony of witnesses also may be

presented. Enforcement counsel may

represent the agency at the hearing. In

hearings held pursuant to this paragraph

there shall be no discovery, and the

provisions of §§ 308.6 through 308.12,

§ 308.16, and § 308.21 of the Uniform

Rules will apply.

ceeding. 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.

(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.

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;

(2) Is subject to a temporary

suspension or permanent revocation of

registration or a temporary or permanent

suspension or bar from further

association with any registered public

accounting firm issued by the Public

Company Accounting Oversight Board

or the Securities and Exchange

Commission under sections 105(c)(4)(A)

or (B) of the Sarbanes-Oxley Act (15

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

(3) Is subject to an order of suspension

or denial of the privilege of appearing or

practicing before the Securities and

Exchange Commission.

(b) Upon written request, the FDIC,

for good cause shown, may grant written

permission to such accountant or firm to

perform audit services for insured

depository institutions for which the

FDIC is the appropriate Federal banking

agency. The written request must

comply with the requirements of § 303.3

of this chapter.

§ 308.604

Notice of removal, suspension,

or debarment.

ge Commission.

(b) Upon written request, the FDIC,

for good cause shown, may grant written

permission to such accountant or firm to

perform audit services for insured

depository institutions for which the

FDIC is the appropriate Federal banking

agency. The written request must

comply with the requirements of § 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) through (a)(1)(vii) or

§§ 308.603(a)(2) through (a)(3); and

(2) any currently effective action by

the Public Company Accounting

Oversight Board under sections

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

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

(c) Timing of notice. Written notice

required by this paragraph shall be

given no later than 15 calendar days

following the effective date of an order

or action, or 15 calendar days before an

accountant or accounting firm accepts

an engagement to provide audit

services, whichever date is earlier.

§ 308.605

Application for reinstatement.

arbanes-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

VerDate jul<14>2003

15:39 Aug 12, 2003

Jkt 200001

PO 00000

Frm 00021

Fmt 4700

Sfmt 4700

E:\FR\FM\13AUR1.SGM

13AUR1

48272

Federal Register / Vol. 68, No. 156 / Wednesday, August 13, 2003 / Rules and Regulations

independent public accountant, an

accounting firm, or an office of a firm

that was removed, suspended, or

debarred under § 308.602 may be made

in writing at any time. 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.

By order of the Board of Directors of the

Federal Deposit Insurance Corporation.

Dated: August 4, 2003.

Valerie J. Best,

Assistant Executive Secretary

or good

cause shown, has reinstated the

applicant or until the suspension period

has expired. The filing of an application

for reinstatement will not stay the

effectiveness of the removal,

suspension, or debarment of an

accountant or firm.

By order of the Board of Directors of the

Federal Deposit Insurance Corporation.

Dated: August 4, 2003.

Valerie J. Best,

Assistant Executive Secretary.

OFFICE OF THRIFT SUPERVISION

12 CFR Chapter V

Authority and Issuance

PART 513—PRACTICE BEFORE THE

OFFICE

I For the reasons set out in the joint

preamble, part 513 of chapter V of title

12 of the Code of Federal Regulations is

amended as follows:

I 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.

I 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 companies.

(b) Definitions. As used in this

section, the following terms have the

meaning given below unless the context

requires otherwise:

(1) Accounting firm. The term

accounting firm means a corporation,

proprietorship, partnership, or other

business firm providing audit services.

section 36 of the

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

savings associations and savings and

loan holding companies.

(b) Definitions. As used in this

section, the following terms have the

meaning given below unless the context

requires otherwise:

(1) Accounting firm. The term

accounting firm means a corporation,

proprietorship, partnership, or other

business firm providing audit services.

(2) Audit services. The term audit

services means any service required to

be performed by an independent public

accountant by section 36 of the FDIA

Act and 12 CFR part 363, including

attestation services. Audit services

include any service performed with

respect to a savings and loan holding

company of a savings association that is

used to satisfy requirements imposed by

section 36 or part 363 on that savings

association.

(3) Independent public accountant.

The term independent public

accountant means any individual who

performs or participates in providing

audit services.

(c) Removal, suspension, or

debarment of independent public

accountants. The Office may remove,

suspend, or debar an independent

public accountant from performing

audit services for savings associations

that are subject to section 36 of the FDIA

if, after service of a notice of intention

and opportunity for hearing in the

matter, the Office finds that the

independent public accountant:

(1) Lacks the requisite qualifications

to perform audit services;

(2) Has knowingly or recklessly

engaged in conduct that results in a

violation of applicable professional

standards, including those standards

and conflicts of interest provisions

applicable to independent public

accountants through the Sarbanes-Oxley

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

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

developed by the Public Company

Accounting Oversight Board and the

Securities and Exchange Commission;

conduct that results in a

violation of applicable professional

standards, including those standards

and conflicts of interest provisions

applicable to independent public

accountants through the Sarbanes-Oxley

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

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

developed by the Public Company

Accounting Oversight Board and the

Securities and Exchange Commission;

(3) Has engaged in negligent conduct

in the form of: (i) A single instance of

highly unreasonable conduct that

results in a violation of applicable

professional standards in circumstances

in which an independent public

accountant knows, or should know, that

heightened scrutiny is warranted; or

(ii) Repeated instances of

unreasonable conduct,

This text is long and has been trimmed here. Open the source document for the complete record.