[Federal Register Volume 62, Number 83 (Wednesday, April 30, 1997)]
[Rules and Regulations]
[Pages 23337-23339]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11109]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 107


Small Business Investment Companies

AGENCY: Small Business Administration.

ACTION: Final rule.

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SUMMARY: This final rule modifies the examination fees charged to small 
business investment companies (SBICs). The revised fee schedule 
eliminates the disproportionate burden on certain classes of licensees 
(particularly those with the largest amount of total assets) and 
results in fee assessments that more closely reflect the level of 
effort and time associated with the examination process.

DATES: This final rule is effective April 30, 1997.

FOR FURTHER INFORMATION CONTACT: Leonard W. Fagan, Investment Division, 
at (202) 205-7583.

SUPPLEMENTARY INFORMATION: On January 31, 1996, the Small Business 
Administration (SBA) published final regulations which, among other 
things, increased the examination fees charged to SBICs. See 61 FR 
3177. Fees continued to be assessed based on total assets of the 
licensee, but at higher rates. The new fee schedule was designed to 
produce total revenue sufficient to cover the current direct costs to 
SBA of conducting examinations. In response to concerns raised by a 
number of SBICs, SBA proposed on February 11, 1997 to modify the 
examination fee schedule. See 62 FR 6147. This proposed rule is hereby 
adopted in final form.
    The proposed rule was intended to respond to concerns that the 
existing fee schedule resulted in unreasonably high examination fees 
for the group of SBICs with the largest amount of total assets. Many of 
the largest SBICs are bank-owned and do not use federal leverage funds, 
so that fees computed on the basis of total assets do not appropriately 
reflect the level of effort and risk associated with the examination 
process. Similarly, larger SBICs which are not bank-owned and do rely 
on federal funds to supplement private capital have been required to 
pay fees that substantially exceed the amount they pay for financial 
audits, which are generally more extensive than the compliance 
examinations performed by SBA.
    To address these concerns, SBA proposed to revise Sec. 107.692 by 
establishing ``base fees'' for examinations. The base fee increases as 
a licensee's total assets increase, but is capped at $14,000. The base 
fee would be adjusted upward in circumstances where the Agency incurs 
additional cost or burdens in the process because of circumstances 
solely related to the licensee to be examined. Similarly, the base fee 
would be adjusted downward where circumstances solely related to the 
licensee to be examined are such that the Agency's level of effort and 
time are minimized.
    SBA received two comments on the proposed rule, both of which were 
generally supportive. One commenter agreed with the concept of capping 
the base fee, but suggested a $10,000 cap instead of the proposed 
$14,000. The commenter considered the lower fee to be more in line with 
rates charged by independent auditors. The other comment dealt with the 
proposed adjustments to the base fee, suggesting that SBA consider 
additional discounts for those licensees which do not use SBA leverage 
and those with only a limited number of investments which SBA must 
review. The commenter also suggested elimination of the 5 percent 
additional charge for licensees organized as partnerships or limited 
liability companies. The commenter stated that these changes would 
further the goal of tying SBIC examination fees to the level of effort 
and resources expended by SBA in performing the examinations.
    SBA believes that the proposed maximum base fee of $14,000 is 
reasonable relative to the size of the SBICs which will be required to 
pay it (those with total assets greater than $60,000,000). The $14,000 
base represents a significantly reduced rate for most of these larger 
SBICs. For these reasons, SBA has not adopted this suggested change.
    SBA generally supports the concept of linking fees to the risk and 
complexity of the examination. However, the Agency believes that the 
introduction of additional criteria for discounts would result in an 
overly complex fee structure. SBA also believes that the additional 
charge for partnerships is justified because of the complexity of most 
partnership agreements and the need to perform certain examination 
procedures at the level of the general partner as well as the SBIC 
itself.
    SBA is making one editorial change to the table in Sec. 107.692(d), 
so that the language concerning records kept in multiple locations is 
the same in that paragraph as in Sec. 107.692(c)(5). In all other 
respects, the rule is adopted as proposed.

Compliance With Executive Orders, 12612, 12778, and 12866, the 
Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the Paperwork 
Reduction Act (44 U.S.C. Ch. 35)

    SBA certifies that this final rule will not be a significant 
regulatory action for purposes of Executive Order 12866 because it will 
not have an annual effect on the economy of more than $100 million, and 
that it will not have a significant economic impact on a substantial 
number of small entities within the meaning of the Regulatory 
Flexibility Act, 5 U.S.C. 601, et seq. The purpose of the rule is to 
modify the existing regulatory guidance related to SBIC examination 
fees. The rule will provide for more reasonable and equitable 
examination fees. The revised fee structure will more properly reflect 
the level of effort and Agency resources expended to conduct an 
examination, will encourage continued compliance with program 
regulations, and will continue to allow for efficient and effective 
program administration.
    The regulation will have some economic effect. The base fee for 
examinations will continue to be based on total assets of a licensee 
and, for the most part, at the rates previously prescribed. However, no 
licensee will have a base fee greater than $14,000. The regulation will 
provide for

[[Page 23338]]

discounts of the base examination fee for: (1) Licensees with no 
outstanding regulatory violations at the time of the examination and no 
violations noted as a result of the most recent prior examination; and 
(2) licensees that are cooperative with SBA examination personnel by 
being fully responsive to the letter of notification of examination. 
Similarly, the regulation will provide increases to the base 
examination fee for a licensee that: (1) Is organized as a partnership 
or limited liability company; (2) is authorized to issue Participating 
Securities; and/or (3) maintains its records/files in multiple 
locations.
    The largest licensees, those with total assets exceeding $60 
million, will realize substantial fee decreases. The examination base 
fee of all licensees potentially could be increased or decreased. 
Therefore, all licensees with total assets below $60 million may 
experience a 5% to 25% increase or a 10% to 25% decrease in the cost of 
an annual examination. The economic impact in either case is 
inconsequential given the total number of licensees and the base fees 
applicable to the majority of the licensees. Further, even assuming the 
maximum increases provided for in the proposed regulations, most 
licensees with total assets greater than $60 million will realize 
significant examination fee reductions.
    For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA 
certifies that this final rule contains no new reporting or 
recordkeeping requirements that have not already been approved by the 
Office of Management and Budget.
    For purposes of Executive Order 12612, SBA certifies that this rule 
does not have any federalism implications warranting the preparation of 
a Federalism Assessment.
    For purposes of Executive Order 12778, SBA certifies that this rule 
is drafted, to the extent practicable, in accordance with the standards 
set forth in Section 2 of that Order.

List of Subjects in 13 CFR Part 107

    Investment companies, Loan programs--business, Reporting and 
recordkeeping requirements, Small businesses.

    For the reasons set forth above, SBA hereby amends part 107 of 
title 13 of the Code of Federal Regulations as follows:

PART 107--SMALL BUSINESS INVESTMENT COMPANIES

    1. The authority citation for part 107 continues to read as 
follows:

    Authority: 15 U.S.C. 681 et seq., 683, 687(c), 687b, 687d, 687g 
and 687m, Pub. L. 104-208.

    2. Section 107.692 is revised to read as follows:


Sec. 107.692  Examination fees.

    (a) General. SBA will assess fees for examinations in accordance 
with this Sec. 107.692. Unless SBA determines otherwise on a case by 
case basis, SBA will not assess fees for special examinations to obtain 
specific information.
    (b) Base fee. A base fee will be assessed based on your total 
assets (at cost) as of the date of your latest certified financial 
statement or a more recent interim statement requested by and submitted 
to SBA in connection with the examination. The base fee table is as 
follows:

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      Total assets of licensee          Base fee                      Plus, percent of assets                   
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$0 to $1,500,000....................       $3,500  +0%                                                          
$1,500,001 to $5,000,000............        3,700  +.065% of the amount over $1,500,000                         
$5,000,001 to $10,000,000...........        6,000  +.02% of the amount over $5,000,000                          
$10,000,001 to $15,000,000..........        7,000  +.01% of the amount over $10,000,000                         
$15,000,001 to $25,000,000..........        7,700  +.015% of the amount over $15,000,000                        
$25,000,001 to $50,000,000..........        9,200  +.015% of the amount over $25,000,000                        
$50,000,001 to $60,000,000..........       13,000  +.01% of the amount over $50,000,000                         
$60,000,001 and above...............       14,000  +0%                                                          
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    (c) Adjustments to base fee. Your base fee, as determined by the 
table in paragraph (b) of this section, will be adjusted (increased or 
decreased) based on the following criteria:
    (1) If you have no outstanding regulatory violations at the time of 
the commencement of the examination and SBA did not identify any 
violations as a result of the most recent prior examination, you will 
receive a 15% discount on your base fee;
    (2) If you were fully responsive to the letter of notification of 
examination (that is, you provided all requested documents and 
information within the time period stipulated in the notification 
letter in a complete and accurate manner, and you prepared and had 
available all information requested by the examiner for on-site 
review), you will receive a 10% discount on your base fee;
    (3) If you are organized as a partnership or limited liability 
company, you will pay an additional charge equal to 5% of your base 
fee;
    (4) If you are a Licensee authorized to issue Participating 
Securities, you will pay an additional charge equal to 10% of your base 
fee; and
    (5) If you maintain your records/files in multiple locations (as 
permitted under Sec. 107.600(b)), you will pay an additional charge 
equal to 10% of your base fee.
    (d) Fee discounts and additions table. The following table 
summarizes the discounts and additions noted in paragraph (c) of this 
section:

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                                                 Amount of                                            Amount of 
                                                discount--%                                          Addition--%
           Examination fee discounts              of base           Examination fee additions          of base  
                                                examination                                          examination
                                                    fee                                                  fee    
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No prior violations...........................         15    Partnership or limited liability                5  
                                                              company.                                          
Responsiveness................................         10    Participating Security Licensee.......         10  

[[Page 23339]]

                                                                                                                
                                                             Records/files at multiple locations...         10  
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    (e) Delay fee. If, in the judgement of SBA, the time required to 
complete your examination is delayed due to your lack of cooperation or 
the condition of your records, SBA may assess an additional fee of up 
to $500 per day.

    Dated: April 17, 1997.
Aida Alvarez,
Administrator.
[FR Doc. 97-11109 Filed 4-29-97; 8:45 am]
BILLING CODE 8025-01-P