[Federal Register Volume 68, Number 156 (Wednesday, August 13, 2003)]
[Rules and Regulations]
[Pages 48256-48274]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-20565]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 19

[Docket No. 03-19]
RIN 1557-AC10

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

12 CFR Part 263

[Docket No. R-1139]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 308

RIN 3064-AC57

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 513

[No. 2003-33]
RIN 1550-AB53


Removal, Suspension, and Debarment of Accountants From Performing 
Audit Services

AGENCIES: Office of the Comptroller of the Currency (OCC), Treasury; 
Board of Governors of the Federal Reserve System (Board); Federal 
Deposit Insurance Corporation (FDIC); and Office of Thrift Supervision 
(OTS), Treasury.

ACTION: Final rule.

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SUMMARY: The OCC, Board, FDIC, and OTS (each an Agency, and 
collectively, the Agencies) are jointly publishing final rules pursuant 
to section 36 of the Federal Deposit Insurance Act (FDIA). Section 36, 
as implemented by 12 CFR part 363, requires that each insured 
depository institution with total assets of $500 million or more obtain 
an audit of its financial statements and an attestation on management's 
assertions concerning internal controls over financial reporting by an 
independent public accountant (accountant). The insured depository 
institution must include the accountant's audit and attestation reports 
in its annual report.
    Section 36 authorizes the Agencies to remove, suspend, or debar 
accountants from performing the audit services required by section 36 
if there is good cause to do so. The final rules establish rules of 
practice and procedure to implement this authority and reflect the 
Agencies' increasing concern with the quality of audits and internal 
controls for financial reporting at insured depository institutions. 
Although there have been few bank and thrift failures in recent years, 
the circumstances of the failures that have occurred illustrate the 
importance of maintaining high quality in the audits of the financial 
position and attestations of management assessments of insured 
depository institutions. The final rules enhance the Agencies' ability 
to address misconduct by accountants who perform annual audit and 
attestation services.

EFFECTIVE DATE: October 1, 2003.

FOR FURTHER INFORMATION CONTACT:
    OCC: Mitchell Plave, Counsel, Legislative and Regulatory Activities 
Division, (202) 874-5090; Richard Shack, Senior Accountant, Office of 
the Chief Accountant, (202) 874-4911; and Karen Besser, National Bank 
Examiner, Special Supervision/Fraud, (202) 874-4464.
    Board: Richard Ashton, Associate General Counsel, Legal Division, 
(202) 452-3750; Nina Nichols, Counsel, (202) 452-2961; Arthur Lindo, 
Project Manager, (202) 452-2695; and Salome Tinker, Senior Financial 
Analyst, (202) 452-3034, Division of Banking Supervision and 
Regulation; for users of Telecommunication Devices for the Deaf (TDD) 
only, contact (202) 263-4869.
    FDIC: Richard Bogue, Counsel, Enforcement Unit, (202) 898-3726; 
Harrison E. Greene, Jr., Senior Policy Analyst, Accounting and 
Securities Disclosure Section, Division of Supervision and Consumer 
Protection, (202) 898-8905.
    OTS: Christine A. Smith, Project Manager, (202) 906-5740, 
Supervision Policy; Teresa A. Scott, Counsel (Banking & Finance), (202) 
906-6478, Regulations and Legislation Division.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 36 of the FDIA (12 U.S.C. 1831m), as implemented by FDIC 
regulations, requires every large insured depository institution to 
submit an annual report containing its financial statements and certain 
management assessments to the FDIC, the appropriate Federal banking 
agency, and any appropriate state bank supervisor.\1\ Section 36 of the 
FDIA also requires that an independent public accountant audit the 
insured depository institution's annual financial statements to 
determine whether those statements are presented fairly in accordance 
with generally accepted accounting principles (GAAP) and with the 
accounting objectives, standards, and requirements described in section 
37 of the FDIA. Under section 37, the accounting principles applicable 
to financial statements required to be filed with the Agencies must be 
uniform and consistent with GAAP.\2\ In addition, the accountant must 
attest to and report on management's assertions concerning internal 
controls over financial reporting.\3\ The institution's annual report 
also must contain the accountant's audit and attestation reports.\4\
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    \1\ 12 U.S.C. 1831m, 1831m(j)(2); see also 12 CFR part 363 
(describing the requirements for independent audits and reporting 
for all insured depository institutions). The statute gives the FDIC 
Board of Directors the discretion to establish the threshold asset 
size at which a section 36 annual report is required. That amount is 
currently set at $500 million. See 12 CFR 363.1(a). While a section 
36 audit is not required of financial institutions with less than 
$500 million in total assets, the Agencies encourage every insured 
depository institution, regardless of its size or character, to have 
an annual audit of its financial statements performed by an 
independent public accountant. See 12 CFR 363 App. A (Introduction).
    \2\ 12 U.S.C. 1831m(d), 1831n.
    \3\ Id. 1831m(c); see also 12 CFR part 363 (independent audit 
and reporting requirements).
    \4\ 12 U.S.C. 1831m(a)(1) and (2).
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    Section 36 of the FDIA gives the Agencies the authority to remove, 
suspend, or bar an accountant from performing the audit services 
required under section 36 for good cause.\5\ This authority is in 
addition to the enforcement tools the Agencies have under section 8 of 
the FDIA, which enable the Agencies to remove or prohibit an 
institution-affiliated party (IAP), including an accountant, from 
further participation in the affairs of an insured depository 
institution for certain types of misconduct.\6\ Section 36 authority is 
also distinct from the Agencies' authority to remove, suspend, or debar 
from practice before an Agency parties, such as accountants, who 
represent others.\7\
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    \5\ Id. 1831m(g)(4)(A).
    \6\ Id. 1813(u)(4), 1818(e)(1).
    \7\ See 12 CFR part 19, subpart K; 12 CFR part 263, subpart F; 
and 12 CFR part 513.
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    Section 36 does not define good cause, but authorizes the Agencies 
to implement section 36 through the joint issuance of rules of 
practice.\8\ A removal, suspension, or debarment under section 36 would 
limit an accountant's or accounting firm's eligibility to provide audit 
services to

[[Page 48257]]

insured depository institutions with total assets of $500 million or 
more. A section 36 action would not restrict the ability of accountants 
and firms to provide audit services to financial institutions with less 
than $500 million in total assets, however, or to provide other types 
of services to all financial institutions.
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    \8\ 12 U.S.C. 1831m(g)(4)(B).
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II. Proposed Rule and Comments Received

    On January 8, 2003, the Agencies proposed amending their rules of 
practice by adding provisions for the removal, suspension, or debarment 
of accountants or accounting firms from performing the audit services 
required by section 36 of the FDIA.\9\ The proposed rules defined 
``good cause'' for such actions and established procedures for removal, 
suspension, or debarment of accountants. The proposals also contained 
conforming amendments to the existing practice rules of the OCC, Board, 
and FDIC.
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    \9\ 68 FR 1116 (January 8, 2003); see also 68 FR 4967, 5075 
(January 31, 2003) (technical corrections).
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    The Agencies received six comments. One comment was from a major 
trade association for community banks; another was from four large 
accounting firms and a major professional association for the 
accounting industry; a third was from three accounting firms that 
provide audit services to publicly held and non-publicly held banks in 
one state; the fourth and fifth comments were from certified public 
accountants; and the final comment was from a banking, management, and 
economic consultant. The commenters generally stated their support for 
the underlying goals of section 36 and the proposal--to bolster the 
quality of audit services.
    One commenter expressed concern about immediate suspensions. The 
commenter asked how an insured depository institution can meet the 
deadline for submitting section 36 audits if the institution's 
accountant is subject to an order of immediate suspension and requested 
guidance on the Agencies' expectations under these circumstances. 
Another commenter questioned why the Agencies are pursuing this 
rulemaking, given the role of the newly constituted Public Company 
Accounting Oversight Board (PCAOB) as a regulator of accountants. The 
commenter's more specific concern was with the level of due process 
associated with immediate and automatic suspensions. A third commenter 
questioned whether the Agencies have authority to use a negligence 
standard of any kind, given the higher standards elsewhere in the FDIA 
for IAPs who are independent contractors. The commenter also questioned 
the authority of the Agencies to extend sanctions to accounting firms 
and offices.
    In response to the comments, the Agencies have revised the 
proposal, as discussed in detail below.

III. Final Rule

    Below is a more detailed discussion of the issues raised in 
response to the proposal and the Agencies' responses thereto. Because 
each Agency is codifying the final rules using different section 
numbers, this discussion will follow the order of the proposal, using 
captions instead of section numbers for reference.

Definitions

    The proposal defined ``accounting firm,'' ``audit services,'' and 
``independent public accountant.'' Under the proposal, ``accounting 
firm'' means a corporation, proprietorship, partnership, or other 
business firm providing audit services. ``Audit services'' means any 
service required to be performed by an independent public accountant by 
section 36 of the FDIA and 12 CFR part 363, including attestation 
services. ``Independent public accountant'' means any individual who 
performs or participates in providing audit services.
    The Agencies did not receive any comments on the definitions. The 
final rule adopts the definitions as proposed.

Removal, Suspension, or Debarment

    Good Cause for Removal, Suspension, or Debarment. The proposed 
rules defined ``good cause'' for removal, suspension, or debarment of 
accountants from providing audit services required by section 36. Under 
the proposal, the Agencies would have ``good cause'' if the accountant 
does not possess the requisite qualifications to perform audit 
services; engages in knowing or reckless conduct that results in a 
violation of applicable professional standards, including those 
standards and conflicts of interest provisions applicable to 
accountants through the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act) 
\10\ and developed by the PCAOB and the Securities and Exchange 
Commission (SEC), as such standards and provisions become effective; 
engages in a single instance of highly unreasonable conduct that 
results in a violation of applicable professional standards in 
circumstances in which an accountant knows, or should know, that 
heightened scrutiny is warranted; or engages in repeated instances of 
unreasonable conduct, each resulting in a violation of applicable 
standards, that indicate a lack of competence to perform annual audit 
services.
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    \10\ Pub. L. 107-204, 116 Stat 745 (2002). For further guidance 
on the obligations of insured depository institutions under the 
Sarbanes-Oxley Act, see OCC Bulletin No. 2003-21, Application of 
Recent Corporate Governance Initiatives to Non-Public Banking 
Organizations (containing the Statement on Application of Recent 
Corporate Governance Initiatives to Non-Public Banking Organizations 
by the Board, OCC, and OTS (May 6, 2003)); Federal Reserve Board SR 
Letter 03-8, Statement on Application of Recent Corporate Governance 
Initiatives to Non-Public Banking Organizations (May 5, 2003). See 
also FDIC Financial Institution Letter 17-2003 (Corporate 
Governance, Audits, and Reporting Requirements) (March 5, 2003).
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    Under the proposal, good cause also included knowingly or 
recklessly giving false or misleading information to the Agencies with 
respect to any matter before the Agency; knowingly or recklessly 
violating any provision of the Federal banking or securities laws or 
regulations, or any other law, including the Sarbanes-Oxley Act; and 
removal, suspension, or debarment from practice before any Federal or 
state agency regulating the banking, insurance, or securities industry 
on grounds relevant to the provision of audit services, other than 
those actions that result in automatic removal, suspension, and 
debarment under the proposed rules.
    Conduct giving rise to good cause under the proposed rules does not 
have to occur in connection with the provision of audit services or in 
connection with services provided to depository institutions. Any 
actions or failures to act by an independent public accountant or 
accounting firm that meet the criteria for good cause set forth in the 
regulation, whether or not related to the banking industry, could 
constitute good cause for Agency action.
    One commenter expressed a variety of reservations about the good 
cause standard. The commenter's broadest suggestion was that the 
Agencies should refer all section 36 actions against accountants to the 
PCAOB and SEC, given the entities' new roles as regulators of 
accountants under the Sarbanes-Oxley Act.
    This comment does not reflect the jurisdictional differences among 
the Agencies, PCAOB, and SEC. The Agencies have enforcement 
jurisdiction that is separate and distinct from the PCAOB's and the 
SEC's enforcement jurisdictions. Congress gave the Agencies discretion 
to suspend or debar accountants from performing annual audit services 
for good cause under section 36 of the FDIA. While an

[[Page 48258]]

enforcement action by the PCAOB or the SEC could provide good cause for 
section 36 actions, neither the PCAOB nor the SEC has statutory 
authority under the FDIA to suspend or debar an accountant from 
performing annual audit services. Even if the PCAOB or the SEC could 
accomplish this outcome indirectly, by barring an accountant from 
associating with an accounting firm, neither the PCAOB nor the SEC has 
authority to take action against an accountant who performs services 
for an institution that is not publicly held. Accordingly, the Agencies 
are not adopting the commenter's suggestion that all section 36 cases 
be referred to the PCAOB or the SEC.
    The commenter further asserted that there might be potential 
inconsistencies between the good cause standards in the proposed rules 
and those the PCAOB may establish in the future. To address these 
potential problems, the commenter suggested that the Agencies should, 
as stated above, defer to the PCAOB and the SEC, or at a minimum 
coordinate with them before taking suspension or debarment actions 
against accountants.
    The Agencies intend to coordinate with the PCAOB and the SEC in 
section 36 cases under appropriate circumstances. However, the Agencies 
do not believe that the proposed rule creates a conflict in 
professional or substantive standards for accountants among the 
Agencies, the PCAOB, and the SEC. The proposed rule did not suggest new 
standards for accountants. Rather, it incorporated accountants' 
existing responsibility to adhere to applicable professional standards, 
such as generally accepted auditing standards and generally accepted 
standards for attestation engagements, and existing SEC and Agency 
standards, into the definition of good cause. The proposed rules were 
also consistent with the Sarbanes-Oxley Act and anticipated future 
actions by the SEC and PCAOB to enforce standards set by those 
agencies. The proposed rules were also drafted to accommodate the new 
standards that will be adopted by the SEC and the PCAOB.
    The commenter's next point concerned the possibility that conduct 
at non-depository institutions could provide the basis for an action 
against an accountant. The commenter questioned whether the Agencies 
have the capability to evaluate the relevance of suspensions and 
debarments of accountants in non-banking contexts, e.g., suspensions or 
debarments by regulators of different types of businesses. The 
commenter opposed using suspensions by non-banking agencies to serve as 
good cause for suspensions or debarments in the banking industry.
    The proposal was consistent with the Agencies' current authority 
under section 8(e)(1)(A)(ii) of the FDIA, which allows the Agencies to 
take into account unsafe business practices in connection not only with 
any insured depository institution, but more broadly, any business 
institution.\11\ The Agencies continue to believe that there may be 
cases in which misconduct by accountants at non-depository institutions 
could raise serious questions about the ability of the accountant to 
provide audit services for an insured depository institution. Under the 
final rule, therefore, the Agencies can consider as ``good cause'' 
suspensions and debarments of accountants in non-depository institution 
contexts that come to the attention of the Agencies.
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    \11\ 12 U.S.C. 1818(e)(1)(A)(ii); see also Hendrickson v. FDIC, 
113 F.3d 98 (7th Cir. 1997).
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    Another commenter questioned whether the Agencies have the 
authority to use negligence as a basis for a removal, suspension, or 
debarment of an accountant. The commenter argued that the negligence 
standard is not consistent with remedies available now to the Agencies 
against independent contractor IAPs under section 8 of the FDIA.\12\
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    \12\ See 12 U.S.C. 1818, 1813(u)(4).
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    In response, the Agencies note that section 36 of the FDIA broadly 
refers to ``good cause'' as grounds for section 36 enforcement actions. 
There is no limitation in the statute on the use of negligence as a 
basis for action, nor does section 36 tie ``good cause'' to existing 
section 8 standards. On the contrary, section 36 of the FDIA states 
that the good cause enforcement remedies are in addition to those 
available under section 8.\13\ The commenter's position would 
essentially require this clause to be eliminated from section 36 of the 
statute. Also, the negligence standard is one the SEC has used for many 
years in its suspension and debarment actions against accountants. 
Congress recently codified this standard for the SEC in the Sarbanes-
Oxley Act.
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    \13\ Id. 1831m(g)(4).
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    For the foregoing reasons, the Agencies are adopting in the final 
rules the good cause standard from the proposed rules.
    Removal, Suspension, or Debarment of Accounting Firms or Offices of 
Firms. The proposed rules provided that if an Agency determines that 
there is good cause for the removal, suspension, or debarment of a 
member or an employee of an accounting firm, the Agency ``also may 
remove, suspend, or debar such firm or one or more offices of such 
firm.'' The proposed rule listed five illustrative factors that the 
Agency may consider when deciding (a) whether to remove, suspend, or 
debar a firm or one or more offices of such firm, and (b) the term of 
any sanction imposed.
    Some of the commenters questioned the authority of the Agencies to 
take action against accounting firms or offices of firms. One commenter 
noted that section 36(g)(4) of the FDIA specifically permits removal, 
suspension, or debarment of ``an independent public accountant.'' The 
commenter then asserted ``[t]here is no mention in the statute of the 
possible extension of those sanctions to accounting firms or offices, 
or of extended or vicarious liability in any other way or of any 
kind.'' The commenter concluded that the Agencies lack authority to 
implement this aspect of their proposal.
    Another commenter did not specifically question the authority of 
the Agencies to propose rules permitting the removal, suspension, or 
debarment of an accounting firm or office thereof. Rather, the 
commenter quoted a portion of the legislative history of the Financial 
Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), 
Pub. L. 101-73, 103 Stat. 183 (1989), to the effect that enforcement 
actions should usually be limited to the individuals who participated 
in the wrongful action to ``prevent unintended consequences or economic 
harm to innocent third parties.'' \14\ The commenter argued that the 
rules should include an explicit presumption against taking action 
against an entire firm, that this sanction should only be available in 
the most egregious circumstances, specifically articulated in the 
rules, and that a sanction against a firm should only be permissible 
after the affected firm has had the opportunity for a meaningful 
hearing before an independent trier of fact.
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    \14\ H.R. Rep. No. 54(I), 101st Cong., 1st Sess., at 467 (1989), 
reprinted in 1989 U.S.C.C.A.N. 86,263.
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    The Agencies believe that the proposed rules, as they pertain to 
actions against accounting firms and offices, are well within the 
Agencies' statutory authority. As noted in the preamble to the proposed 
rule, under the current practice regulations, the Agencies may 
``remove, suspend, or debar a firm by naming each member of the firm or 
office in the order * * *.'' Thus, the proposal also employed this 
scope and provided guidance on when a firm sanction might be 
appropriate. In

[[Page 48259]]

addition, there is no indication that in using the term ``independent 
public accountant'' Congress intended to restrict removals, 
suspensions, or debarments solely to natural persons. The term 
``independent public accountant'' is used throughout section 36 and its 
implementing regulation, 12 CFR part 363, not just in the section 
36(g)(4) provision relating to removal, suspension, or debarment. 
Indeed, section 36 specifically provides that all required audit 
services must be performed by an ``independent public accountant'' who 
has agreed to provide requested work papers and has received an 
acceptable peer review. All required audit and other reports are 
universally signed by accounting firms, not individual accountants,\15\ 
and peer reviews are performed at the firm level. Thus, the Agencies 
believe that enforcement action at the firm level in appropriate 
circumstances is entirely consistent with the section 36 statutory 
scheme.\16\
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    \15\ Section AU 508.08 of the AICPA's Professional Standards 
describes the basic elements of the auditor's standard report on 
audited financial statements. These elements include ``i. The manual 
or printed signature of the auditor's firm.'' Similarly, Section AT 
501.47 of these standards states that a practitioner's examination 
report on the effectiveness of an entity's internal control over 
financial reporting should include ``j. The manual or printed 
signature of the practitioner's firm.'' In addition, Section AU 
9339.06 of the Professional Standards presents an example of a 
letter that an auditor should consider submitting to a regulator 
prior to allowing the regulator access to audit work papers. This 
letter ends with ``Firm signature.''
    \16\ The Agencies realize that the final rule includes 
definitions of both independent public accountant (individuals who 
provide audit services) and accounting firm (business entities that 
provide auditing services). The dual definitions are required 
because of the additional criteria, beyond those applicable to 
individual accountants, that the Agencies may assess in determining 
whether to take action against a firm. The Agencies continue to 
believe that the statutory term independent public accountant 
encompasses both regulatory definitions.
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    With respect to the legislative history quoted by the commenter, we 
note that the history is from FIRREA, not the Federal Deposit Insurance 
Corporation Improvement Act of 1991 (FDICIA),\17\ which added section 
36 to the FDIA, so it is not directly relevant to our construction of 
section 36. Even if this legislative history were applicable to section 
36, the commenter quoted only a portion of the relevant legislative 
history material--the section not quoted supports the view that, in 
extending Agency enforcement jurisdiction to independent contractors, 
including ``any attorney, appraiser, or accountant,'' \18\ Congress 
intended such enforcement jurisdiction to extend to business 
organizations under appropriate circumstances. In this regard, the 
House Banking Committee's Report on FIRREA, H.R. Rep. No. 54(I), at 
466-67, states:
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    \17\ Pub. L. 102-242, 105 Stat. 2236 (1991).
    \18\ 12 U.S.C. 1813(u)(4).

    [T]he Committee strongly believes that the agencies should have 
the power to proceed against such entities (corporation, firm or 
partnership) if most or many of the managing partners or senior 
officers of the entity have participated in some way in the 
egregious misconduct. For example, a removal and prohibition order 
might be justified against the local office of a national accounting 
firm if it could be shown that a majority of the managing partners 
or senior supervisory staff participated directly or indirectly in 
the serious misconduct to an extent sufficient to give rise to an 
order. Such an order might well be inappropriate if it was taken 
against the entire national firm or other geographic units of the 
firm, unless the headquarters of these units were shown to have also 
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participated, even if only in a reviewing capacity.

    Accordingly, the similar reference in section 36 to ``independent 
public accountant'' can reasonably be read to reach firms as well.
    The Agencies understand that severe economic consequences may 
result from action barring an accounting firm from performing section 
36 audit services. The Agencies are also sensitive to the consequences 
that barring a firm might have on innocent third parties not directly 
involved in the misconduct at issue. While the Agencies have had the 
authority since FIRREA to pursue enforcement actions against entire 
firms of professionals, such authority has been used only a handful of 
times and only in the most egregious circumstances. In addition, the 
Agencies believe that the five factors specified in the proposed rule 
appropriately focus the inquiry on whether sufficient involvement of 
firm management is present to justify action against the entire firm. 
Accordingly, the Agencies see no reason to amend the proposal to 
include an explicit presumption against action at the firm or office 
level. The comment concerning the need for a prior hearing before 
action at the firm or office level will be addressed in the sections 
discussing automatic and immediate suspensions.
    Proceedings to Remove, Suspend, or Debar. Under the proposed rules, 
the Agencies would hold formal hearings on removals, suspensions, and 
debarments under rules that are consistent with the Agencies' Uniform 
Rules of Practice and Procedure (Uniform Rules).\19\ The Uniform Rules 
provide, among other things, for written notice to the respondent of 
the intended Agency action and the opportunity for a public hearing 
before an administrative law judge. The administrative law judge would 
refer a recommended decision to the Agency, which would issue a final 
decision and order. Each Agency would have the discretion to limit an 
order of removal, suspension, or debarment so that it applied solely to 
audit services provided to specified insured depository institutions, 
rather than to all insured depository institutions supervised by the 
issuing Agency. This was referred to in the proposed rules as a 
``limited scope order.'' \20\
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    \19\ See 12 CFR part 19, subpart A (OCC); 12 CFR part 263, 
subpart A (Board); 12 CFR part 308, subpart A (FDIC); 12 CFR part 
509, subpart A (OTS).
    \20\ The Agencies will also have the discretion to issue 
suspension orders where the duration of the suspension would be 
dependent on the satisfactory completion of remedial action.
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    The procedures in the proposed rules for removal, suspension, and 
debarment were drawn principally from the Agencies' existing practice 
rules. The Agencies did not receive comment on these procedures. 
Therefore, the Agencies are adopting the procedures as proposed.
    Immediate Suspension from Performing Audit Services. The proposed 
rule implemented the authority in section 36 to ``suspend'' an 
independent public accountant by providing that an Agency may issue a 
notice immediately suspending an accountant or a firm subject to a 
notice of intention to remove, suspend, or debar if the Agency 
determines that immediate suspension is necessary for the protection of 
an insured depository institution, or its depositors, or for the 
protection of the insured depository system as a whole. In making this 
proposal, the Agencies stated that the authority to immediately suspend 
an accountant or firm could prevent seriously harmful conduct relating 
to accounting matters at an insured depository institution from being 
repeated or escalating while the administrative proceedings relating to 
a permanent removal, suspension, or debarment order are pending.
    One commenter asked for guidance to insured depository institutions 
on what to do if their accountant were suspended immediately, more 
specifically, how to meet the deadlines for filing annual audits. The 
commenter was concerned that there would not be sufficient time to 
complete the audit, given the time it would take for a new accountant 
to become familiar with the facts.
    The Agencies understand that an immediate suspension may cause 
disruption to an institution and make it

[[Page 48260]]

difficult to meet the deadlines for submitting annual audits. The 
Agencies expect that immediate suspensions would only be issued in 
compelling situations. In the case where an Agency head imposed an 
immediate suspension, the Agency will make appropriate adjustments to 
the filing deadlines, if warranted, at the institution's request.
    Another commenter expressed a variety of objections to the proposed 
procedures for contesting an immediate suspension. The commenter 
generally stated that the proposed procedures do not comport with due 
process and suggested that the Agencies modify the proposed procedures 
in a number of areas to follow more closely those procedures governing 
issuance of temporary cease-and-desist orders by the SEC. Except for 
the modifications explained below, the Agencies do not believe that the 
proposed procedures should be conformed to the procedures applicable to 
temporary cease-and-desist orders issued under the securities laws. 
With regard to the protection of the nation's banking system, judicial 
decisions have recognized that there is a compelling governmental 
interest that can justify regulatory action with abbreviated procedures 
when necessary.\21\ The Agencies expect that the immediate suspension 
remedy would be used only in circumstances where serious harm to a 
depository institution, its depositors, or to the depository system as 
a whole would occur unless immediate enforcement action is taken.
    The commenter also had more specific suggestions for revisions to 
the proposal. First, the commenter stated that the Agencies' proposed 
procedures should allow for a quicker agency decisionmaking process. 
The commenter noted that, under the time frames contained in the 
proposed rules, an accountant or a firm that petitions the Agency to 
stay a notice of immediate suspension may not receive a decision with 
respect to the petition until 70 days after the immediate suspension 
becomes effective. The commenter noted that, under the SEC Rules of 
Practice, a final agency decision on a challenge to a temporary cease-
and-desist order issued by the SEC without a prior hearing is required 
within 20 days.\22\
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    \21\ See, e.g., Fahey v. Mallonee, 322 U.S. 245 (1947).
    \22\ 17 CFR 201.513(c).
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    The Agencies believe that the proposed maximum time period 
permitted for an Agency decision on a stay petition is consistent with 
due process requirements. The Agencies note that the Supreme Court has 
approved a procedural framework allowing up to 90 days for a final 
decision by the Agencies on a challenge to an ex parte suspension order 
issued by the Agencies against an IAP of a depository institution who 
has been indicted for certain types of crimes. FDIC v. Mallen, 486 U.S. 
230 (1988).
    The maximum time limits in the proposed rules were designed by the 
Agencies to permit a sufficient period for the creation of a meaningful 
record with regard to a stay petition and for careful and deliberate 
review of that record by the Agency decision maker, consistent with the 
recognized necessity for prompt administrative action on such a 
petition. As with the post-deprivation Agency hearing at issue in the 
Mallen decision, a stay petition could necessitate resolution of 
factual disputes that would require at least some examination of 
relevant evidence.
    The Agencies intend that an administrative decision on a stay 
petition under the rules should be made at the earliest practicable 
time. Thus, the time limits imposed in the rules are intended to 
establish only the maximum period allowable for issuing a decision and 
a decision is expected to be made more promptly whenever feasible. 
Nevertheless, in order to further minimize concerns about undue delay 
in the decision on a stay petition, the Agencies believe that the date 
by which a hearing on a petition to stay is ordered can be shortened 
without unduly impairing the administrative decisionmaking process. 
Accordingly, the final rules require that an Agency must order a 
hearing on a petition to stay to be held 10 days after receipt of the 
petition, rather than within 30 days as proposed.
    As the commenter pointed out, the Supreme Court's approval of a 90-
day agency decisionmaking period in the Mallen decision depended in 
part on the fact that, under the statutory framework at issue, the 
suspension of an IAP may be issued only after the individual involved 
has been indicted by an independent entity, like a grand jury. 
According to the Court, the indictment serves to reduce the likelihood 
that the banking agency suspension is unjustified. Under the proposed 
rules, an immediate suspension notice may be issued by an Agency 
without any similar action by a third party. In the Agencies' view, 
however, the lack of an independent triggering event by a third party 
for accountant suspensions does not mean that the maximum time limits 
in the final rules would result in the denial of a prompt and 
meaningful hearing before the Agency on the propriety of the 
suspension. The Agencies intend that, under the final rules, an 
immediate suspension could be issued only where there is probative 
evidence that substantial harm to an insured depository institution, 
its depositors, or to the depository system as a whole is likely to 
occur prior to completion of the proceedings on a permanent order of 
removal, suspension, or debarment. In addition, under the final rules, 
the maximum time period permitted for a decision on a stay petition (50 
days) is only slightly longer than half the maximum time limit approved 
in the Mallen case for an agency decision on an indictment-triggered 
suspension. In the Agencies' judgment, the maximum time for decision in 
the final rules represents the shortest realistic period necessary for 
adequate consideration of the suspended party's opposition to the 
suspension.\23\ As the Supreme Court noted in Mallen, the public has a 
strong interest in seeing that the ultimate agency decision with 
respect to a suspension is made in a ``considered and deliberate 
manner.'' \24\
---------------------------------------------------------------------------

    \23\ The proposed and final rules permit a suspended accountant 
or firm to elect to seek review of the presiding officer's decision 
on a stay petition by the Agency. However, the appeal to the Agency 
is not mandatory.
    \24\ 486 U.S. at 244.
---------------------------------------------------------------------------

    The commenter's second objection to the procedures was to the 
proposed provisions under which the decision on a petition to stay an 
immediate suspension is made by a presiding officer designated by the 
Agency. According to the commenter, the stay petition should be decided 
by an administrative law judge, who by statute has some independence 
from the agency whose cases the judge hears.
    The Agencies do not believe that an administrative law judge must 
be designated as the decisionmaking official with regard to a petition 
to stay the immediate suspension of an accountant or firm. The Agencies 
note that under their existing rules of practice, a similar type of 
decision on an interim order, namely the decision with respect to 
whether a suspension of an IAP who has been indicted should be lifted 
pending completion of the criminal trial, is made by a presiding 
officer, not by an administrative law judge.\25\ A court decision that 
prescribed the minimum procedures required by due process for these 
suspensions did not suggest that the agency decision on lifting the 
suspension had to be made by

[[Page 48261]]

an administrative law judge in order to meet constitutional 
requirements.\26\
---------------------------------------------------------------------------

    \25\ 12 CFR 19.112(b) (OCC); 12 CFR 263.73(a) (Board); 12 CFR 
308.164(b) (FDIC); and 12 CFR 508.6(a) (OTS).
    \26\ Feinberg v. FDIC, 420 F. Supp. 109, 120 (D.D.C. 1976).
---------------------------------------------------------------------------

    The Agencies recognize, however, that it may be useful to clarify 
that the presiding officer who decides a petition to stay an immediate 
suspension must be insulated from the Agency staff responsible for 
prosecuting the charges against the suspended accountant or firm. The 
provisions of the proposed rules relating to the hearing on a stay 
petition are therefore being modified to add a new sentence, which 
follows the requirements of the Administrative Procedure Act \27\ for 
formal agency adjudications. The final rules explicitly state that an 
Agency employee engaged in investigative or prosecuting functions for 
the Agency in a particular action against an accountant or a firm, or 
in a factually related action, may not serve as the presiding officer 
or otherwise participate or advise in the decision with respect to a 
petition to stay the immediate suspension.
---------------------------------------------------------------------------

    \27\ 5 U.S.C. 554.
---------------------------------------------------------------------------

    The commenter's third suggestion was that the proposed immediate 
suspension provisions be modified to make clear that, except in unusual 
cases, an accountant or firm should be suspended immediately only after 
prior notice and opportunity for the party involved to contest the 
suspension. In the Agencies' judgment, the modification to the proposed 
procedures advocated by the commenter is neither necessary nor 
appropriate. There is nothing in section 36 that requires prior notice 
and opportunity for hearing before a suspension under that provision 
may be issued. Moreover, the courts have long recognized that the 
strong governmental interest in protecting depositors and preserving 
confidence in the financial system can justify immediate action by the 
regulatory agencies prior to notice and the opportunity for 
hearing.\28\
---------------------------------------------------------------------------

    \28\ See, e.g., Fahey v. Mallonee, 332 U.S. at 253; Mallen, 486 
U.S. at 240-41; Feinberg, 420 F. Supp. at 119.
---------------------------------------------------------------------------

    Fourth, the commenter asserted that, like the SEC Rules of 
Practice, the Agencies' procedures should require a showing that 
irreparable harm would result before authorizing an immediate 
suspension. Contrary to this comment, there is no requirement in 
section 36 that the Agencies show ``irreparable harm.'' Nor are the 
agencies aware of any authority that requires a finding by the 
Government of irreparable harm in order to satisfy minimum 
constitutional standards of due process before immediate action can be 
taken. The Agencies further note that the suspension procedures in the 
proposed rules and the finding that must be made by the Agencies to 
justify an immediate suspension are very similar to those prescribed in 
section 8(e)(3) of the FDIA, which govern the suspension of an IAP of 
an insured depository institution pending completion of administrative 
proceedings concerning a proposed permanent order of removal or 
prohibition.\29\ Nevertheless, to better express the immediate 
suspension standard, the rule has been revised to require ``immediate 
harm'' to an insured depository institution, its depositors, or to the 
depository system as a whole.
---------------------------------------------------------------------------

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

    The commenter's fifth criticism of the proposed rule was that it 
did not establish a procedure for judicial review of immediate 
suspensions imposed by the Agencies. However, section 36 contains no 
specific provision for review by the courts of any action taken by the 
Agencies under the authority of that provision. Administrative agencies 
have no authority to create a right to judicial review of agency 
action.\30\ Any right to judicial review of an immediate suspension 
must be based on some statutory authority.
---------------------------------------------------------------------------

    \30\ Final agency action would, however, be reviewable by a 
court under the Administrative Procedures Act.
---------------------------------------------------------------------------

    The commenter's sixth point concerned immediate suspensions of 
accounting firms. The commenter stated that the Agencies' authority 
under the proposal to immediately suspend a firm from providing audit 
services is too broad and subjective and any firm subject to an 
immediate suspension should have greater procedural protections than 
what is provided in the proposed rules.
    The Agencies recognize that the immediate suspension of an entire 
firm could have a serious effect on the firm as well as on the insured 
depository institutions that may be relying on the firm for audit 
services. However, as explained above, the Agencies intend that the 
immediate suspension sanction would be applied to a firm only when 
clearly necessary to protect a depository institution or the depository 
system and when the factors specified in the rules for applying 
disciplinary action to a firm support such a regulatory response. 
Because the Agencies believe that these circumstances, though unusual, 
warrant disciplinary action against an entire accounting firm should 
they occur, the Agencies have retained that authority in the final 
rule. The procedural protections afforded an immediately suspended 
party in the final rules, whether an individual or a firm, represent an 
appropriate balance between protecting the banking system and 
protecting the rights of affected parties.
    Automatic Removal, Suspension, and Debarment. The proposed rule 
provided that accountants or firms subject to certain specified 
disciplinary actions would automatically be prohibited from providing 
audit services. No further proceedings or hearings by the Agency would 
be required in these instances. Under each Agency's proposed rule, the 
actions giving rise to such an automatic bar include: (1) A final order 
of removal, suspension, or debarment under section 36 (other than a 
limited scope order) issued by any of the other Agencies; (2) certain 
actions by the PCAOB (specifically, a temporary suspension or permanent 
revocation of registration or a temporary or permanent suspension or 
debarment from further association with a registered public accounting 
firm); (3) certain actions by the SEC (specifically, an order of 
suspension or a denial of the privilege of appearing or practicing 
before the SEC); and (4) suspension or debarment for cause from 
practice as an accountant by the licensing authority of any state, 
possession, commonwealth, or the District of Columbia.
    Under the proposed rules, disciplinary actions not giving rise to 
an automatic bar could still serve as grounds for an Agency to take 
action against an accountant or a firm. In this respect, grounds for 
Agency action set forth in the proposal specifically include removal, 
suspension, or debarment by any Federal or state agency regulating the 
banking, insurance, or securities industries. If such an action were 
grounds for an Agency proceeding, however, the full array of hearings 
and procedures in the proposed rules would be required.
    One commenter objected to the proposed rules' approach to the 
automatic bar, contending that it was too broad in scope because the 
reasons for an action by the SEC, PCAOB, or a state might be irrelevant 
to the provision of audit services under the rules. The commenter 
argued that, to prevent an unwarranted automatic bar, an accountant or 
a firm should in all cases have the opportunity for a hearing before an 
Agency considering removal, suspension, or debarment, and that the 
Agency should be required to conduct an independent analysis. The 
commenter also asserted that the SEC's automatic suspension provisions 
are more limited and generally require license revocation, criminal 
conviction, or prior action by the SEC. Finally, the commenter urged 
the Agencies to include in the final rule an expedited

[[Page 48262]]

review process for an automatic removal, suspension, or debarment.
    The Agencies believe that the automatic bar provisions are 
generally appropriate, notwithstanding certain differences from the 
SEC's practice, and that the protections granted in the rule are 
adequate. In a case where another Agency has taken disciplinary action 
against an accountant or a firm under section 36, the Agency has 
resolved issues that are relevant to the provision of audit services 
throughout the banking system. If an accountant or a firm were entitled 
to a separate hearing before each Agency, four separate hearings would 
be required to prevent an accountant or firm from providing audit 
services under the rules, notwithstanding the similarity of the issues. 
Such a requirement would essentially result in duplicative proceedings 
to implement a single action, and the Agencies do not believe that the 
repetitive proceedings would result in any significant additional 
protection for the accountant or firm. The Agencies believe it is 
appropriate and within the statutory direction of section 36 for the 
joint rules to provide that each Agency will defer to the proceedings 
of the other federal banking supervisors.
    It should be noted that the automatic bar resulting from an action 
by another Agency does not apply in a case where the other Agency has 
issued a limited scope order effective only with respect to audit 
services provided to one or more specified institutions. If another 
Agency sought to remove, suspend, or debar an accountant subject to a 
limited scope order, it would have to provide the accountant with the 
hearings and procedures set forth in the rule. Moreover, in the event 
that the particular facts and circumstances of a removal, suspension, 
or debarment justify an exception from the automatic, industry-wide 
bar, each Agency's proposed rule provided that the Agency has 
discretion to override the automatic bar with respect to the 
institutions it supervises. An accountant or firm would be entitled to 
make such a request in any case, and the Agency could grant written 
permission.
    One commenter suggested that the Agencies should include in the 
rule substantive standards for when they will override the automatic 
bar. In response, we note that the general standard for suspension or 
debarment under section 36--``good cause''--would apply to the decision 
of whether or not to override an automatic bar. It is impossible to 
predict all the situations in which the facts will support an override 
of an automatic suspension or debarment. A bright-line test could have 
the effect of limiting an Agency's flexibility to give the relief 
sought by the accountant or firm. Accordingly, the final rule retains 
the provision permitting the accountant or firm to request that an 
Agency grant an exception from the automatic bar.
    With regard to SEC and PCAOB actions as a predicate for the 
automatic bar, the Agencies believe that the SEC's and PCAOB's 
expertise and jurisdiction in this area warrant recognition by the 
Agencies of their actions against an accountant or firm. While there 
are differences between insured depository institutions and 
institutions under the primary jurisdiction of the SEC, the conduct 
giving rise to suspension or debarment by the SEC is likely to be of 
equally significant concern to the banking regulators. In the rare case 
where an action by the SEC or the PCAOB is based on conduct that is 
unrelated to the provision of audit services to an insured institution, 
the Agencies retain override authority, and an accountant or firm would 
be able to request Agency permission to provide audit services 
notwithstanding SEC or PCAOB action.
    The final trigger for an automatic bar in the proposed rule was 
suspension or debarment for cause by a state licensing authority. The 
Agencies have further considered the potential effects of this 
provision in light of the comments received and agree that there are 
likely to be instances in which a state's action is not relevant to the 
provision of audit services--there may be a wide range of ``for cause'' 
grounds for suspension or debarment under various state laws. In 
addition, the procedural protections afforded to accountants in state 
proceedings may not be as uniform and as broad as those provided by the 
Agencies, the SEC, and the PCAOB. Accordingly, the Agencies have 
determined that suspension or debarment of an accountant for cause by a 
state licensing authority should properly be treated as grounds for 
discretionary Agency removal, suspension, or debarment, rather than as 
a trigger for the automatic prohibition on the provision of audit 
services. The final rule amends both the automatic bar section and the 
section on grounds for Agency action to reflect this change.
    One commenter raised a concern about whether the automatic bar 
provision of the proposed rule could violate an accountant's or a 
firm's right to due process by imposing a penalty without allowing 
opportunity for a hearing. As set forth above, the automatic bar only 
applies in instances where the accountant or a firm has already 
received due process protections in proceedings before another Agency, 
the SEC, or the PCAOB. Moreover, an accountant or a firm may petition 
an Agency to perform audit services for a bank or savings association. 
The Agencies believe that these procedures will provide ample 
opportunity for an accountant or firm to obtain a fair hearing that 
comports with due process protections of the Constitution.
    Notice of Removal, Suspension, or Debarment. The proposed rules 
required the Agencies to make public any final order of removal, 
suspension, or debarment against an accountant or accounting firm and 
notify the other Agencies of such orders. This was consistent with the 
presumption in favor of public notice for enforcement actions in the 
FDIA.\31\ The proposed rules also contained notification provisions for 
accountants and firms.
---------------------------------------------------------------------------

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

    The proposal required that an accountant or accounting firm 
performing section 36 audit services for any insured depository 
institution must provide the Agencies with written notice of any 
currently effective disciplinary sanction against the accountant or 
firm issued by the PCAOB under sections 105(c)(4)(A) or (B) of the 
Sarbanes-Oxley Act, relating to revocation of registration and 
association with a public accounting firm or issuer; any current 
suspension or denial of the privilege of appearing or practicing before 
the SEC; or any suspensions or debarments for cause from practice as an 
accountant by any duly constituted licensing authority of any state, 
possession, commonwealth, or the District of Columbia. Written notice 
under the proposed rules is also required of any removal, suspension, 
or debarment from practice before any Federal or state (non-licensing) 
agency regulating the banking, insurance, or securities industry on 
grounds relevant to the provision of audit services; and any action by 
the PCAOB under sections 105(c)(4)(C) or (G) of the Sarbanes-Oxley Act, 
relating to limitations on the activities of accountants and accounting 
firms and any other appropriate sanction provided in the rules of the 
PCAOB. Written notice must be given no later than 15 calendar days 
following the effective date of an order or action, or 15 calendar days 
before an accountant or accounting firm accepts an engagement to 
provide audit services, whichever date is earlier.
    The Agencies did not receive any comments on the notice provisions. 
The Agencies are therefore adopting the

[[Page 48263]]

provisions as proposed, although there are technical changes to 
accommodate changes to the good cause and automatic suspension 
provisions described above.
    Petition for Reinstatement. Under the proposal, a removed, 
suspended, or debarred ``independent public accountant or accounting 
firm'' may request reinstatement by the Agency that issued the order. 
The individual or firm would be able to request reinstatement at any 
time more than one year after the effective date of the order and, 
thereafter, at any time more than one year after the most recent 
request for reinstatement.
    One commenter asked that the Agencies revise the proposal to permit 
a firm to petition for reinstatement of individual offices that have 
been removed, suspended or debarred, in addition to permitting 
petitions for reinstatement of individual accountants or the firm as a 
whole. The Agencies did not intend in the proposed rule to prohibit 
offices of a firm that have been removed, suspended, or debarred from 
petitioning for reinstatement. The proposed reinstatement provision, 
therefore, has been revised in the final rule to clarify that a 
removed, suspended, or debarred office of a firm may petition for 
reinstatement.
    Another commenter urged the Agencies to state factors that the 
Agencies would consider in evaluating a reinstatement request so that 
affected parties would know what type of information the Agencies need 
to make a decision. The Agencies understand that petitioners will wish 
to tailor their reinstatement requests in a manner that they believe 
will yield them success in obtaining the relief they seek. In the past 
and in other contexts, the Agencies have looked at various factors in 
reviewing reinstatement petitions. These factors included: (1) The 
nature, extent, and duration of the conduct that led to the issuance of 
the order; (2) the period of time that an order has been outstanding, 
as well as any prior requests made by the petitioner; (3) activities of 
the petitioner since the order was issued, including evidence of 
rehabilitation; (4) the nature of the position or proposed action the 
requestor is seeking, and the scope of relief sought; (5) the 
likelihood of future misconduct giving good cause for removing, 
suspending, or debarring the petitioner; and (6) the views and opinions 
of other Federal banking agencies, when applicable. The Agencies will 
include these factors in their evaluations of petitions for 
reinstatement.
    Second, the commenter asserted that the Agencies failed to explain 
the necessity for a one-year waiting period before a suspended, 
removed, or debarred party could seek reinstatement. The commenter 
argued in favor of a case-by-case approach. In addition, the commenter 
argued that the Agencies' requirement of a one-year period is 
inconsistent with the SEC's rules, which permit a petitioner to file 
for reinstatement at any time.
    The Agencies believe that the proposed rule made room for a case-
by-case approach to reinstatement by providing that, ``unless otherwise 
ordered'' by the appropriate agency decision maker, the one-year 
waiting period would apply. Under the proposed rule, if a petitioner 
believed that the circumstances merited review prior to the expiration 
of the one-year period, the petitioner could seek an order from the 
Agency decision maker permitting the petitioner to seek such earlier 
review. Given the Agencies' intention, as reflected in the proposed 
rule, that the one-year waiting period for reinstatement have some 
flexibility and considering the comments received, the Agencies have 
amended the final rule to permit persons, firms, and offices to 
petition for reinstatement at any time.
    The proposal reflected the view of the Agencies that petitions for 
reinstatement filed close in time, either to the Agency's decision or 
the last petition for reinstatement, are unlikely to present new issues 
or bases for reinstatement and would waste Agency resources. Thus, 
although the final rule permits a petition for reinstatement at any 
time, it will be unusual for the Agencies to grant such relief within 
one year of a removal, suspension or debarment order.\32\
---------------------------------------------------------------------------

    \32\ Also, in the case of a suspension, it will be unusual for 
the Agencies to grant reinstatement prior to the expiration of the 
suspension period.
---------------------------------------------------------------------------

IV. Conforming and Technical Changes to the Rules of the Agencies

OCC

    The OCC proposed adding ``recklessness'' to its description of 
``disreputable conduct'' that may lead to removal, suspension, or 
debarment of parties or their representatives who practice or appear 
before the OCC.\33\ This change would conform the OCC's general rules 
of practice with the standards in the proposal for removal, suspension, 
or debarment of accountants from performance of section 36-required 
audit services, which in turn reflects the addition of the recklessness 
standard to the SEC's rules of practice by the Sarbanes-Oxley Act. The 
purpose of adding the recklessness standard was to clarify that conduct 
more culpable than incompetence, but less culpable than willful or 
knowing action, may form the basis for a suspension or debarment.
---------------------------------------------------------------------------

    \33\ See 12 CFR 19.196 (describing disreputable conduct).
---------------------------------------------------------------------------

    The OCC also proposed broadening the scope of ``disreputable 
conduct'' to allow the OCC to consider suspensions or debarments of 
accountants--for any reason--by the other Agencies, the SEC, the 
Commodity Futures Trading Commission, or any other Federal agency. This 
change would remove the requirement in the current Sec.  19.196(g) that 
suspensions by other agencies concern ``matters relating to the 
supervisory responsibilities of the OCC.'' This change takes into 
account the possibility that a suspension of an accountant by another 
agency, relating to the professional conduct of an accountant, could be 
grounds for removal, suspension, or debarment by the OCC, even if the 
suspension by the other agency did not relate to a banking matter.
    Unlike the other amendments in the proposal, which would address an 
accountant's or a firm's ability to perform section 36-required audits, 
this part of the proposal concerned who may practice before the OCC in 
other capacities, such as in adjudications, or through preparation of 
documents for submission to the OCC. Under the proposed rule, the OCC 
also revised a number of sections within part 19 to make conforming and 
technical changes to implement section 36 of the FDIA and bring 
procedural aspects of part 19 up to date.
    The OCC did not receive any comments on these proposed changes. 
Accordingly, the conforming and technical changes are adopted in the 
final rule as proposed.

Board

    The Board proposed to amend its Rules of Practice Before the Board 
(12 CFR 263, subpart F) to expand the type of conduct for which an 
individual may be censured, debarred, or suspended from practice before 
the Board. In particular, the Board proposed to revise the description 
of the conduct that would warrant sanctions to include reckless 
violations, or reckless aiding and abetting violations, of specified 
laws and the reckless provision of false or misleading information, or 
reckless participation in the provision of false or misleading 
information, to the Board. The regulation currently provides for 
sanctions only for willful misconduct. The purpose of this proposed 
amendment was to clarify that conduct more culpable than incompetence, 
but less culpable than willful or knowing

[[Page 48264]]

action, may form the basis for a suspension or debarment from practice 
before the Board. This change also reflected the modification made to 
the SEC's rules of practice by the Sarbanes-Oxley Act.
    The Board did not receive any comments on these proposed changes. 
Accordingly, the conforming and technical changes are adopted in the 
final rule as proposed.

FDIC

    The FDIC proposed making a clarifying and conforming amendment to 
12 CFR 308.109, which deals with the suspension and disbarment of the 
right of any counsel to appear or practice before the FDIC, to specify 
that an application for reinstatement must comply with the general 
filing procedures established by part 303. The amendment would add a 
new sentence before the current last sentence of section 308.109(b)(3) 
to read as follows: ``The application shall comply with the 
requirements of 12 CFR 303.3.''
    The FDIC did not receive any comments on these proposed changes. 
Accordingly, the conforming and technical changes are adopted in the 
final rule as proposed.

V. Regulatory Analysis

A. Regulatory Flexibility Act

    OCC: Under section 605(b) of the Regulatory Flexibility Act, 5 
U.S.C. 605(b) (RFA), the appropriate Federal banking agencies must 
either provide a Final Regulatory Flexibility Analysis for a final rule 
or certify that the rule will not have a significant economic impact on 
a substantial number of small entities. For purposes of this Regulatory 
Flexibility Analysis and final regulation, the OCC defines ``small 
entities'' to be those national banks with less than $150 million in 
total assets. For other entities that could be affected by this rule, 
such as accountants and accounting firms, a small entity is defined as 
an accounting office with $7 million or less in annual receipts.
    We have reviewed the impact this final rule will have on small 
banks. Based on that review, we certify that the final rule will not 
have a significant economic impact on a substantial number of small 
entities. The basis for the certification is that the requirement for 
audits does not apply to national banks with less than $500 million in 
total assets. In addition, only a limited number of small accounting 
firms provide section 36 audit services to national banks. For these 
reasons, the OCC does not anticipate that the proposal will affect a 
substantial number of small entities.
    Board: Pursuant to section 605(b) of the RFA, 5 U.S.C. 605(b), the 
Board certifies that the suspension and debarment amendments in this 
final rulemaking will not have a significant adverse economic impact on 
a substantial number of small entities. For purposes of this Regulatory 
Flexibility Analysis, the Board defines ``small entity'' as (1) any 
insured state member bank with less than $150 million in total assets, 
or (2) any bank holding company with a subsidiary insured state member 
bank with less than $150 million in total assets. For other entities 
that could be affected by this rule, such as accountants and accounting 
firms, a small entity is defined as an accounting office with $7 
million or less in annual receipts. The basis for the Board's 
certification is that the final rule will not apply to state member 
banks that have less than $500 million in total assets. In addition, 
only a limited number of small accounting firms provide section 36 
audit services to institutions that are regulated by the Federal 
Reserve.
    FDIC: The FDIC certifies, pursuant to section 605(b) of the RFA, 5 
U.S.C. 605(b), that the final suspension and debarment amendments will 
not have a significant economic impact on a substantial number of small 
entities. The basis for the certification is that the rule will not 
apply to insured depository institutions that have less than $150 
million in total assets. Furthermore, only a limited number of small 
accounting firms provide section 36 audit services to insured 
depository institutions for which the FDIC is the appropriate Federal 
banking agency.
    OTS: Under the RFA, OTS must either provide a Final Regulatory 
Flexibility Analysis, or certify that the rule will not have a 
significant economic impact on a substantial number of small entities. 
For purposes of this RFA analysis, the OTS defines ``small banks'' to 
be those savings associations with less than $150 million in total 
assets.
    Pursuant to section 605(b) of the RFA, 5 U.S.C. 605(b) certifies 
that this final rule will not have a significant economic impact on a 
substantial number of small entities. The basis of this certification 
is that this rule does not apply to savings associations with less than 
$500 million in assets.

B. Paperwork Reduction Act

    The Agencies have determined that this proposed rule does not 
involve a collection of information pursuant to the provisions of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501, et seq.).

C. Executive Order 12866

    The OCC and OTS have determined that this final rule is not a 
significant regulatory action under Executive Order 12866.

D. Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency 
prepare a budgetary impact statement before promulgating any rule 
likely to result in a Federal mandate that may result in the 
expenditure by state, local, and tribal governments, in the aggregate, 
or by the private sector of $100 million or more in any one year. If a 
budgetary impact statement is required, section 205 of the Unfunded 
Mandates Act also requires an agency to identify and consider a 
reasonable number of regulatory alternatives before promulgating a 
rule. The OCC and OTS have determined that the final rule will not 
result in expenditures by state, local, and tribal governments, or by 
the private sector, of $100 million or more in any one year. 
Accordingly, this rulemaking requires no further analysis under the 
Unfunded Mandates Act.

List of Subjects

12 CFR Part 19

    Administrative practice and procedure, Crime, Equal access to 
justice, Investigations, National banks, Penalties, Securities.

12 CFR Part 263

    Administrative practice and procedure, Claims, Crime, Equal access 
to justice, Federal Reserve System, Lawyers, Penalties.

12 CFR Part 308

    Administrative practice and procedure, Bank deposit insurance, 
Banks, banking, Claims, Crime, Equal access to justice, Investigations, 
Lawyers, Penalties, State nonmember banks.

12 CFR Part 513

    Accountants, Administrative practice and procedure, Lawyers.

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

0
For reasons set out in the joint preamble, part 19 of chapter I of 
title 12

[[Page 48265]]

of the Code of Federal Regulations is amended to read as follows:

PART 19--RULES OF PRACTICE AND PROCEDURE

0
1. The authority citation for part 19 is revised to read as follows:

    Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 93(b), 93a, 164, 
505, 1817, 1818, 1820, 1831m, 1831o, 1972, 3102, 3108(a), 3909 and 
4717; 15 U.S.C. 78(h) and (i), 78o-4(c), 78o-5, 78q-1, 78s, 78u, 
78u-2, 78u-3, and 78w; 28 U.S.C. 2461 note; 31 U.S.C. 330, 5321; and 
42 U.S.C. 4012a.

Subpart B--[Amended]

0
2. Section 19.100 of subpart B is revised to read as follows:


Sec.  19.100  Filing documents.

    All materials required to be filed with or referred to the 
Comptroller or the administrative law judge in any proceeding under 
this part must be filed with the Hearing Clerk, Office of the 
Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219. 
Filings to be made with the Hearing Clerk include the notice and 
answer; motions and responses to motions; briefs; the record filed by 
the administrative law judge after the issuance of a recommended 
decision; the recommended decision filed by the administrative law 
judge following a motion for summary disposition (except that in 
removal and prohibition cases instituted pursuant to 12 U.S.C. 1818, 
the administrative law judge will file the record and the recommended 
decision with the Board of Governors of the Federal Reserve System); 
referrals by the administrative law judge of motions for interlocutory 
review; exceptions and requests for oral argument; and any other papers 
required to be filed with the Comptroller or the administrative law 
judge under this part.

Subpart C--[Amended]

0
3. In Sec.  19.111 of subpart C, the section heading and the fourth and 
fifth sentences are revised to read as follows:


Sec.  19.111  Suspension, removal, or prohibition.

    * * * The written request must be sent by certified mail to, or 
served personally with a signed receipt on, the District Deputy 
Comptroller in the OCC district in which the bank, accountant, or 
accounting firm in question is located, or, if the bank is supervised 
by Large Bank Supervision, to the appropriate Deputy Comptroller for 
Large Bank Supervision for the Office of the Comptroller of the 
Currency, or if the bank is supervised by Mid-Size/Community Bank 
Supervision, to the Senior Deputy Comptroller for Mid-Size/Community 
Bank Supervision for the Office of the Comptroller of the Currency, 
Washington, DC 20219. The request must state specifically the relief 
desired and the grounds on which that relief is based.

Subpart K--[Amended]

0
4. In Sec.  19.196 of subpart K, the introductory text and paragraphs 
(a), (b), and (g) are revised to read as follows:


Sec.  19.196  Disreputable conduct.

    Disreputable conduct for which an individual may be censured, 
debarred, or suspended from practice before the OCC includes:
    (a) Willfully or recklessly violating or willfully or recklessly 
aiding and abetting the violation of any provision of the Federal 
banking or applicable securities laws or the rules and regulations 
thereunder or conviction of any offense involving dishonesty or breach 
of trust;
    (b) Knowingly or recklessly giving false or misleading information, 
or participating in any way in the giving of false information to the 
OCC or any officer or employee thereof, or to any tribunal authorized 
to pass upon matters administered by the OCC in connection with any 
matter pending or likely to be pending before it. The term 
``information'' includes facts or other statements contained in 
testimony, financial statements, applications for enrollment, 
affidavits, declarations, or any other document or written or oral 
statement;
* * * * *
    (g) Suspension, debarment or removal from practice before the Board 
of Governors, the FDIC, the OTS, the Securities and Exchange 
Commission, the Commodity Futures Trading Commission, or any other 
Federal or state agency; and
* * * * *

0
5. A new subpart P is added to read as follows:

Subpart P--Removal, Suspension, and Debarment of Accountants From 
Performing Audit Services

Sec.
19.241 Scope.
19.242 Definitions.
19.243 Removal, suspension, or debarment.
19.244 Automatic removal, suspension, or debarment.
19.245 Notice of removal, suspension, or debarment.
19.246 Petition for reinstatement.


Sec.  19.241  Scope.

    This subpart, which implements section 36(g)(4) of the Federal 
Deposit Insurance Act (FDIA) (12 U.S.C. 1831m(g)(4)), provides rules 
and procedures for the removal, suspension, or debarment of independent 
public accountants and their accounting firms from performing 
independent audit and attestation services required by section 36 of 
the FDIA (12 U.S.C. 1831m) for insured national banks, District of 
Columbia banks, and Federal branches and agencies of foreign banks.


Sec.  19.242  Definitions.

    As used in this subpart, the following terms shall have the meaning 
given below unless the context requires otherwise:
    (a) Accounting firm means a corporation, proprietorship, 
partnership, or other business firm providing audit services.
    (b) Audit services means any service required to be performed by an 
independent public accountant by section 36 of the FDIA and 12 CFR part 
363, including attestation services.
    (c) Independent public accountant (accountant) means any individual 
who performs or participates in providing audit services.


Sec.  19.243  Removal, suspension, or debarment.

    (a) Good cause for removal, suspension, or debarment.
    (1) Individuals. The Comptroller may remove, suspend, or debar an 
independent public accountant from performing audit services for 
insured national banks that are subject to section 36 of the FDIA if, 
after service of a notice of intention and opportunity for hearing in 
the matter, the Comptroller finds that the accountant:
    (i) Lacks the requisite qualifications to perform audit services;
    (ii) Has knowingly or recklessly engaged in conduct that results in 
a violation of applicable professional standards, including those 
standards and conflicts of interest provisions applicable to 
accountants through the Sarbanes-Oxley Act of 2002, Pub. L. 107-204, 
116 Stat. 745 (2002) (Sarbanes-Oxley Act), and developed by the Public 
Company Accounting Oversight Board and the Securities and Exchange 
Commission;
    (iii) Has engaged in negligent conduct in the form of:
    (A) A single instance of highly unreasonable conduct that results 
in a violation of applicable professional standards in circumstances in 
which an accountant knows, or should know, that heightened scrutiny is 
warranted; or

[[Page 48266]]

    (B) Repeated instances of unreasonable conduct, each resulting in a 
violation of applicable professional standards, that indicate a lack of 
competence to perform audit services;
    (iv) Has knowingly or recklessly given false or misleading 
information, or knowingly or recklessly participated in any way in the 
giving of false or misleading information, to the OCC or any officer or 
employee of the OCC;
    (v) Has engaged in, or aided and abetted, a material and knowing or 
reckless violation of any provision of the Federal banking or 
securities laws or the rules and regulations thereunder, or any other 
law;
    (vi) Has been removed, suspended, or debarred from practice before 
any Federal or state agency regulating the banking, insurance, or 
securities industries, other than by an action listed in Sec.  19.244, 
on grounds relevant to the provision of audit services; or
    (vii) Is suspended or debarred for cause from practice as an 
accountant by any duly constituted licensing authority of any state, 
possession, commonwealth, or the District of Columbia.
    (2) Accounting firms. If the Comptroller determines that there is 
good cause for the removal, suspension, or debarment of a member or 
employee of an accounting firm under paragraph (a)(1) of this section, 
the Comptroller also may remove, suspend, or debar such firm or one or 
more offices of such firm. In considering whether to remove, suspend, 
or debar a firm or an office thereof, and the term of any sanction 
against a firm under this section, the Comptroller may consider, for 
example:
    (i) The gravity, scope, or repetition of the act or failure to act 
that constitutes good cause for the removal, suspension, or debarment;
    (ii) The adequacy of, and adherence to, applicable policies, 
practices, or procedures for the accounting firm's conduct of its 
business and the performance of audit services;
    (iii) The selection, training, supervision, and conduct of members 
or employees of the accounting firm involved in the performance of 
audit services;
    (iv) The extent to which managing partners or senior officers of 
the accounting firm have participated, directly, or indirectly through 
oversight or review, in the act or failure to act; and
    (v) The extent to which the accounting firm has, since the 
occurrence of the act or failure to act, implemented corrective 
internal controls to prevent its recurrence.
    (3) Limited scope orders. An order of removal, suspension 
(including an immediate suspension), or debarment may, at the 
discretion of the Comptroller, be made applicable to a particular 
national bank or class of national banks.
    (4) Remedies not exclusive. The remedies provided in this subpart 
are in addition to any other remedies the OCC may have under any other 
applicable provisions of law, rule, or regulation.
    (b) Proceedings to remove, suspend, or debar.
    (1) Initiation of formal removal, suspension, or debarment 
proceedings. The Comptroller may initiate a proceeding to remove, 
suspend, or debar an accountant or accounting firm from performing 
audit services by issuing a written notice of intention to take such 
action that names the individual or firm as a respondent and describes 
the nature of the conduct that constitutes good cause for such action.
    (2) Hearings under paragraph (b) of this section. An accountant or 
firm named as a respondent in the notice issued under paragraph (b)(1) 
of this section may request a hearing on the allegations in the notice. 
Hearings conducted under this paragraph shall be conducted in the same 
manner as other hearings under the Uniform Rules of Practice and 
Procedure (12 CFR part 19, subpart A).
    (c) Immediate suspension from performing audit services.
    (1) In general. If the Comptroller serves a written notice of 
intention to remove, suspend, or debar an accountant or accounting firm 
from performing audit services, the Comptroller may, with due regard 
for the public interest and without a preliminary hearing, immediately 
suspend such accountant or firm from performing audit services for 
insured national banks, if the Comptroller:
    (i) Has a reasonable basis to believe that the accountant or firm 
has engaged in conduct (specified in the notice served on the 
accountant or firm under paragraph (b) of this section) that would 
constitute grounds for removal, suspension, or debarment under 
paragraph (a) of this section;
    (ii) Determines that immediate suspension is necessary to avoid 
immediate harm to an insured depository institution or its depositors 
or to the depository system as a whole; and
    (iii) Serves such respondent with written notice of the immediate 
suspension.
    (2) Procedures. An immediate suspension notice issued under this 
paragraph will become effective upon service. Such suspension will 
remain in effect until the date the Comptroller dismisses the charges 
contained in the notice of intention, or the effective date of a final 
order of removal, suspension, or debarment issued by the Comptroller to 
the respondent.
    (3) Petition for stay. Any accountant or firm immediately suspended 
from performing audit services in accordance with paragraph (c)(1) of 
this section may, within 10 calendar days after service of the notice 
of immediate suspension, file with the Office of the Comptroller of the 
Currency, Washington, DC 20219 for a stay of such immediate suspension. 
If no petition is filed within 10 calendar days, the immediate 
suspension shall remain in effect.
    (4) Hearing on petition. Upon receipt of a stay petition, the 
Comptroller will designate a presiding officer who shall fix a place 
and time (not more than 10 calendar days after receipt of the petition, 
unless extended at the request of petitioner) at which the immediately 
suspended party may appear, personally or through counsel, to submit 
written materials and oral argument. Any OCC employee engaged in 
investigative or prosecuting functions for the OCC in a case may not, 
in that or a factually related case, serve as a presiding officer or 
participate or advise in the decision of the presiding officer or of 
the OCC, except as witness or counsel in the proceeding. In the sole 
discretion of the presiding officer, upon a specific showing of 
compelling need, oral testimony of witnesses may also be presented. In 
hearings held pursuant to this paragraph there shall be no discovery 
and the provisions of Sec. Sec.  19.6 through 19.12, 19.16, and 19.21 
of this part shall apply.
    (5) Decision on petition. Within 30 calendar days after the 
hearing, the presiding officer shall issue a decision. The presiding 
officer will grant a stay upon a demonstration that a substantial 
likelihood exists of the respondent's success on the issues raised by 
the notice of intention and that, absent such relief, the respondent 
will suffer immediate and irreparable injury, loss, or damage. In the 
absence of such a demonstration, the presiding officer will notify the 
parties that the immediate suspension will be continued pending the 
completion of the administrative proceedings pursuant to the notice.
    (6) Review of presiding officer's decision. The parties may seek 
review of the presiding officer's decision by filing a petition for 
review with the presiding officer within 10 calendar days after service 
of the decision. Replies must be filed within 10 calendar days after 
the petition filing date. Upon receipt of a petition for review and any 
reply, the

[[Page 48267]]

presiding officer shall promptly certify the entire record to the 
Comptroller. Within 60 calendar days of the presiding officer's 
certification, the Comptroller shall issue an order notifying the 
affected party whether or not the immediate suspension should be 
continued or reinstated. The order shall state the basis of the 
Comptroller's decision.


Sec.  19.244  Automatic removal, suspension, and debarment.

    (a) An independent public accountant or accounting firm may not 
perform audit services for insured national banks if the accountant or 
firm:
    (1) Is subject to a final order of removal, suspension, or 
debarment (other than a limited scope order) issued by the Board of 
Governors of the Federal Reserve System, the Federal Deposit Insurance 
Corporation, or the Office of Thrift Supervision under section 36 of 
the FDIA.
    (2) Is subject to a temporary suspension or permanent revocation of 
registration or a temporary or permanent suspension or bar from further 
association with any registered public accounting firm issued by the 
Public Company Accounting Oversight Board or the Securities and 
Exchange Commission under sections 105(c)(4)(A) or (B) of the Sarbanes-
Oxley Act (15 U.S.C. 7215(c)(4)(A) or (B)); or
    (3) Is subject to an order of suspension or denial of the privilege 
of appearing or practicing before the Securities and Exchange 
Commission.
    (b) Upon written request, the Comptroller, for good cause shown, 
may grant written permission to such accountant or firm to perform 
audit services for national banks. The request shall contain a concise 
statement of the action requested. The Comptroller may require the 
applicant to submit additional information.


Sec.  19.245  Notice of removal, suspension or debarment.

    (a) Notice to the public. Upon the issuance of a final order for 
removal, suspension, or debarment of an independent public accountant 
or accounting firm from providing audit services, the Comptroller shall 
make the order publicly available and provide notice of the order to 
the other Federal banking agencies.
    (b) Notice to the Comptroller by accountants and firms. An 
accountant or accounting firm that provides audit services to a 
national bank must provide the Comptroller with written notice of:
    (1) Any currently effective order or other action described in 
Sec. Sec.  19.243(a)(1)(vi) through (a)(1)(vii) or Sec. Sec.  
19.244(a)(2) through (a)(3); and
    (2) Any currently effective action by the Public Company Accounting 
Oversight Board under sections 105(c)(4)(C) or (G) of the Sarbanes-
Oxley Act) (15 U.S.C. 7215(c)(4)(C) or (G)).
    (c) Timing of notice. Written notice required by this paragraph 
shall be given no later than 15 calendar days following the effective 
date of an order or action, or 15 calendar days before an accountant or 
firm accepts an engagement to provide audit services, whichever date is 
earlier.


Sec.  19.246  Petition for reinstatement.

    (a) Form of petition. Unless otherwise ordered by the Comptroller, 
a petition for reinstatement by an independent public accountant, an 
accounting firm, or an office of a firm that was removed, suspended, or 
debarred under Sec.  19.243 may be made in writing at any time. The 
request shall contain a concise statement of the action requested. The 
Comptroller may require the applicant to submit additional information.
    (b) Procedure. A petitioner for reinstatement under this section 
may, in the sole discretion of the Comptroller, be afforded a hearing. 
The accountant or firm shall bear the burden of going forward with a 
petition and proving the grounds asserted in support of the petition. 
In reinstatement proceedings, the person seeking reinstatement shall 
bear the burden of going forward with an application and proving the 
grounds asserted in support of the application. The Comptroller may, in 
his sole discretion, direct that any reinstatement proceeding be 
limited to written submissions. The removal, suspension, or debarment 
shall continue until the Comptroller, for good cause shown, has 
reinstated the petitioner or until the suspension period has expired. 
The filing of a petition for reinstatement shall not stay the 
effectiveness of the removal, suspension, or debarment of an accountant 
or firm.

    Dated: July 23, 2003.
John D. Hawke, Jr.,
Comptroller of the Currency.

FEDERAL RESERVE SYSTEM

12 CFR Chapter II

Authority and Issuance

0
For the reasons set out in the joint preamble, part 263, chapter II, 
title 12 of the Code of Federal Regulations is amended as follows:

PART 263--RULES OF PRACTICE FOR HEARINGS

0
1. The authority citation for part 263 is revised to read as follows:

    Authority: 5 U.S.C. 504; 12 U.S.C. 248, 324, 504, 506, 1817(j), 
1818, 1828(c), 1831m, 1831o, 1831p-1, 1847(b), 1847(d), 1884(b), 
1972(2)(F), 3105, 3107, 3108, 3907, 3909; 15 U.S.C. 21, 78o-4, 78o-
5, 78u-2, 6801, 6805; and 28 U.S.C. 2461 note.

Subpart F--[Amended]

0
2. In Sec.  263.94, paragraphs (a) and (b) are revised to read as 
follows:


Sec.  263.94  Conduct warranting sanctions.

* * * * *
    (a) Willfully or recklessly violating or willfully or recklessly 
aiding and abetting the violation of any provision of the Federal 
banking or applicable securities laws or the rules and regulations 
thereunder or conviction of any offense involving dishonesty or breach 
of trust;
    (b) Knowingly or recklessly giving false or misleading information, 
or participating in any way in the giving of false information to the 
Board or to any Board officer or employee, or to any tribunal 
authorized to pass upon matters administered by the Board in connection 
with any matter pending or likely to be pending before it. The term 
``information'' includes facts or other statements contained in 
testimony, financial statements, applications, affidavits, 
declarations, or any other document or written or oral statement;
* * * * *

0
3. A new subpart J is added as follows:

Subpart J--Removal, Suspension, and Debarment of Accountants From 
Performing Audit Services

Sec.
263.400 Scope.
263.401 Definitions.
263.402 Removal, suspension, or debarment.
263.403 Automatic removal, suspension, and debarment.
263.404 Notice of removal, suspension, or debarment.
263.405 Petition for reinstatement.

Subpart J--Removal, Suspension, and Debarment of Accountants From 
Performing Audit Services


Sec.  263.400  Scope.

    This subpart, which implements section 36(g)(4) of the Federal 
Deposit Insurance Act (FDIA)(12 U.S.C. 1831m(g)(4)), provides rules and 
procedures for the removal, suspension, or debarment of independent 
public accountants and their accounting firms from performing 
independent audit and attestation services for insured state member 
banks and for bank holding companies required by section 36 of the FDIA 
(12 U.S.C. 1831m).

[[Page 48268]]

Sec.  263.401  Definitions.

    As used in this subpart, the following terms shall have the meaning 
given below unless the context requires otherwise:
    (a) Accounting firm means a corporation, proprietorship, 
partnership, or other business firm providing audit services.
    (b) Audit services means any service required to be performed by an 
independent public accountant by section 36 of the FDIA and 12 CFR part 
363, including attestation services. Audit services include any service 
performed with respect to the holding company of an insured bank that 
is used to satisfy requirements imposed by section 36 or part 363 on 
that bank.
    (c) Banking organization means an insured state member bank or a 
bank holding company that obtains audit services that are used to 
satisfy requirements imposed by section 36 or part 363 on an insured 
subsidiary bank of that holding company.
    (d) Independent public accountant (accountant) means any individual 
who performs or participates in providing audit services.


Sec.  263.402  Removal, suspension, or debarment.

    (a) Good cause for removal, suspension, or debarment.
    (1) Individuals. The Board may remove, suspend, or debar an 
independent public accountant from performing audit services for 
banking organizations that are subject to section 36 of the FDIA, if, 
after notice of and opportunity for hearing in the matter, the Board 
finds that the accountant:
    (i) Lacks the requisite qualifications to perform audit services;
    (ii) Has knowingly or recklessly engaged in conduct that results in 
a violation of applicable professional standards, including those 
standards and conflict of interest provisions applicable to accountants 
through the Sarbanes-Oxley Act of 2002, Pub. L. 107-204, 116 Stat. 745 
(2002) (Sarbanes-Oxley Act), and developed by the Public Company 
Accounting Oversight Board and the Securities and Exchange Commission;
    (iii) Has engaged in negligent conduct in the form of:
    (A) A single instance of highly unreasonable conduct that results 
in a violation of applicable professional standards in circumstances in 
which an accountant knows, or should know, that heightened scrutiny is 
warranted; or
    (B) Repeated instances of unreasonable conduct, each resulting in a 
violation of applicable professional standards, that indicate a lack of 
competence to perform audit services;
    (iv) Has knowingly or recklessly given false or misleading 
information, or knowingly or recklessly participated in any way in the 
giving of false or misleading information, to the Board or any officer 
or employee of the Board;
    (v) Has engaged in, or aided and abetted, a material and knowing or 
reckless violation of any provision of the Federal banking or 
securities laws or the rules and regulations thereunder, or any other 
law;
    (vi) Has been removed, suspended, or debarred from practice before 
any Federal or state agency regulating the banking, insurance, or 
securities industries, other than by an action listed in Sec.  263.403, 
on grounds relevant to the provision of audit services; or
    (vii) Is suspended or debarred for cause from practice as an 
accountant by any duly constituted licensing authority of any state, 
possession, commonwealth, or the District of Columbia.
    (2) Accounting firms. If the Board determines that there is good 
cause for the removal, suspension, or debarment of a member or employee 
of an accounting firm under paragraph (a)(1) of this section, the Board 
also may remove, suspend, or debar such firm or one or more offices of 
such firm. In considering whether to remove, suspend, or debar a firm 
or an office thereof, and the term of any sanction against a firm under 
this section, the Board may consider, for example:
    (i) The gravity, scope, or repetition of the act or failure to act 
that constitutes good cause for removal, suspension, or debarment;
    (ii) The adequacy of, and adherence to, applicable policies, 
practices, or procedures for the accounting firm's conduct of its 
business and the performance of audit services;
    (iii) The selection, training, supervision, and conduct of members 
or employees of the accounting firm involved in the performance of 
audit services;
    (iv) The extent to which managing partners or senior officers of 
the accounting firm have participated, directly, or indirectly through 
oversight or review, in the act or failure to act; and
    (v) The extent to which the accounting firm has, since the 
occurrence of the act or failure to act, implemented corrective 
internal controls to prevent its recurrence.
    (3) Limited scope orders. An order of removal, suspension 
(including an immediate suspension), or debarment may, at the 
discretion of the Board, be made applicable to a particular banking 
organization or class of banking organizations.
    (4) Remedies not exclusive. The remedies provided in this subpart 
are in addition to any other remedies the Board may have under any 
other applicable provisions of law, rule, or regulation.
    (b) Proceedings to remove, suspend, or debar.
    (1) Initiation of formal removal, suspension, or debarment 
proceedings. The Board may initiate a proceeding to remove, suspend, or 
debar an accountant or accounting firm from performing audit services 
by issuing a written notice of intention to take such action that names 
the individual or firm as a respondent and describes the nature of the 
conduct that constitutes good cause for such action.
    (2) Hearing under paragraph (b) of this section. An accountant or 
firm named as a respondent in the notice issued under paragraph (b)(1) 
of this section may request a hearing on the allegations in the notice. 
Hearings conducted under this paragraph shall be conducted in the same 
manner as other hearings under the Uniform Rules of Practice and 
Procedure (12 CFR part 263, subpart A).
    (c) Immediate suspension from performing audit services. (1) In 
general. If the Board serves a written notice of intention to remove, 
suspend, or debar an accountant or accounting firm from performing 
audit services, the Board may, with due regard for the public interest 
and without a preliminary hearing, immediately suspend such accountant 
or firm from performing audit services for banking organizations, if 
the Board:
    (i) Has a reasonable basis to believe that the accountant or firm 
has engaged in conduct (specified in the notice served on the 
accountant or firm under paragraph (b) of this section) that would 
constitute grounds for removal, suspension, or debarment under 
paragraph (a) of this section;
    (ii) Determines that immediate suspension is necessary to avoid 
immediate harm to an insured depository institution or its depositors 
or to the depository system as a whole; and
    (iii) Serves such respondent with written notice of the immediate 
suspension.
    (2) Procedures. An immediate suspension notice issued under this 
paragraph will become effective upon service. Such suspension will 
remain in effect until the date the Board dismisses the charges 
contained in the notice of intention, or the effective date of a final 
order of removal, suspension, or

[[Page 48269]]

debarment issued by the Board to the respondent.
    (3) Petition to stay. Any accountant or firm immediately suspended 
from performing audit services in accordance with paragraph (c)(1) of 
this section may, within 10 calendar days after service of the notice 
of immediate suspension, file with the Secretary, Board of Governors of 
the Federal Reserve System, Washington, DC 20551 for a stay of such 
immediate suspension. If no petition is filed within 10 calendar days, 
the immediate suspension shall remain in effect.
    (4) Hearing on petition. Upon receipt of a stay petition, the 
Secretary will designate a presiding officer who shall fix a place and 
time (not more than 10 calendar days after receipt of the petition, 
unless extended at the request of petitioner) at which the immediately 
suspended party may appear, personally or through counsel, to submit 
written materials and oral argument. Any Board employee engaged in 
investigative or prosecuting functions for the Board in a case may not, 
in that or a factually related case, serve as a presiding officer or 
participate or advise in the decision of the presiding officer or of 
the Board, except as witness or counsel in the proceeding. In the sole 
discretion of the presiding officer, upon a specific showing of 
compelling need, oral testimony of witnesses may also be presented. In 
hearings held pursuant to this paragraph there shall be no discovery 
and the provisions of Sec. Sec.  263.6 through 263.12, 263.16, and 
263.21 of this part shall apply.
    (5) Decision on petition. Within 30 calendar days after the 
hearing, the presiding officer shall issue a decision. The presiding 
officer will grant a stay upon a demonstration that a substantial 
likelihood exists of the respondent's success on the issues raised by 
the notice of intention and that, absent such relief, the respondent 
will suffer immediate and irreparable injury, loss, or damage. In the 
absence of such a demonstration, the presiding officer will notify the 
parties that the immediate suspension will be continued pending the 
completion of the administrative proceedings pursuant to the notice.
    (6) Review of presiding officer's decision. The parties may seek 
review of the presiding officer's decision by filing a petition for 
review with the presiding officer within 10 calendar days after service 
of the decision. Replies must be filed within 10 calendar days after 
the petition filing date. Upon receipt of a petition for review and any 
reply, the presiding officer shall promptly certify the entire record 
to the Board. Within 60 calendar days of the presiding officer's 
certification, the Board shall issue an order notifying the affected 
party whether or not the immediate suspension should be continued or 
reinstated. The order shall state the basis of the Board's decision.


Sec.  263.403  Automatic removal, suspension, and debarment.

    (a) An independent public accountant or accounting firm may not 
perform audit services for banking organizations if the accountant or 
firm:
    (1) Is subject to a final order of removal, suspension, or 
debarment (other than a limited scope order) issued by the Federal 
Deposit Insurance Corporation, the Office of the Comptroller of the 
Currency, or the Office of Thrift Supervision under section 36 of the 
FDIA;
    (2) Is subject to a temporary suspension or permanent revocation of 
registration or a temporary or permanent suspension or bar from further 
association with any registered public accounting firm issued by the 
Public Company Accounting Oversight Board or the Securities and 
Exchange Commission under sections 105(c)(4)(A) or (B) of the Sarbanes-
Oxley Act of 2002 (15 U.S.C. 7215(c)(4)(A) or (B)); or
    (3) Is subject to an order of suspension or denial of the privilege 
of appearing or practicing before the Securities and Exchange 
Commission.
    (b) Upon written request, the Board, for good cause shown, may 
grant written permission to such accountant or firm to perform audit 
services for banking organizations. The request shall contain a concise 
statement of the action requested. The Board may require the applicant 
to submit additional information.


Sec.  263.404  Notice of removal, suspension, or debarment.

    (a) Notice to the public. Upon the issuance of a final order for 
removal, suspension, or debarment of an independent public accountant 
or accounting firm from providing audit services, the Board shall make 
the order publicly available and provide notice of the order to the 
other Federal banking agencies.
    (b) Notice to the Board by accountants and firms. An accountant or 
accounting firm that provides audit services to a banking organization 
must provide the Board with written notice of:
    (1) Any currently effective order or other action described in 
Sec. Sec.  263.402(a)(1)(vi) through (a)(1)(vii) or Sec. Sec.  
263.403(a)(2) through (a)(3); and
    (2) Any currently effective action by the Public Company Accounting 
Oversight Board under sections 105(c)(4)(C) or (G) of the Sarbanes-
Oxley Act of 2002 (15 U.S.C. 7215(c)(4)(C) or (G)).
    (c) Timing of notice. Written notice required by this paragraph 
shall be given no later than 15 calendar days following the effective 
date of an order or action, or 15 calendar days before an accountant or 
firm accepts an engagement to provide audit services, whichever date is 
earlier.


Sec.  263.405  Petition for reinstatement.

    (a) Form of petition. Unless otherwise ordered by the Board, a 
petition for reinstatement by an independent public accountant, an 
accounting firm, or an office of a firm that was removed, suspended, or 
debarred under Sec.  263.402 may be made in writing at any time. The 
request shall contain a concise statement of the action requested. The 
Board may require the petitioner to submit additional information.
    (b) Procedure. A petitioner for reinstatement under this section 
may, in the sole discretion of the Board, be afforded a hearing. The 
accountant or firm shall bear the burden of going forward with a 
petition and proving the grounds asserted in support of the petition. 
The Board may, in its sole discretion, direct that any reinstatement 
proceeding be limited to written submissions. The removal, suspension, 
or debarment shall continue until the Board, for good cause shown, has 
reinstated the petitioner or until the suspension period has expired. 
The filing of a petition for reinstatement shall not stay the 
effectiveness of the removal, suspension, or debarment of an accountant 
or firm.

    By order of the Board of Governors of the Federal Reserve 
System.
    Dated: August 6, 2003.
Jennifer J. Johnson,
Secretary of the Board.

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 308

Authority and Issuance

0
For the reasons set out in the joint preamble, part 308, chapter III, 
title 12 of the Code of Federal Regulations is amended as follows:

PART 308--RULES OF PRACTICE AND PROCEDURE

0
 1. The authority citation for part 308 is revised to read as follows:

    Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 93(b), 164, 505, 
1815(e), 1817, 1818, 1820, 1828, 1829, 1829b, 1831i, 1831m(g)(4), 
1831o, 1831p-1, 1832(c), 1884(b), 1972, 3102, 3108(a), 3349, 3909, 
4717; 15 U.S.C.

[[Page 48270]]

78(h) and (i), 78o-4(c), 78o-5, 78q-1, 78s, 78u, 78u-2, 78u-3 and 
78w, 6801(b), 6805(b)(1); 28 U.S.C. 2461 note; 31 U.S.C. 330, 5321; 
42 U.S.C. 4012a; Sec. 3100(s), Pub. L. 104-134, 110 Stat. 1321-358.


0
2. Section 308.109(b)(3) is amended to add a new sentence before the 
last sentence to read as follows:


Sec.  308.109  Suspension and disbarment.

* * * * *
    (b) * * *
    (3) * * * The application must comply with the requirements of 
Sec.  303.3 of this chapter. * * *
* * * * *

0
3. A new Subpart U is added to read as follows:

Subpart U--Removal, Suspension, and Debarment of Accountants From 
Performing Audit Services

Sec.
308.600 Scope.
308.601 Definitions.
308.602 Removal, suspension, or debarment.
308.603 Automatic removal, suspension, and debarment.
308.604 Notice of removal, suspension, or debarment.
308.605 Application for reinstatement.


Sec.  308.600  Scope.

    This subpart, which implements section 36(g)(4) of the FDIA (12 
U.S.C. 1831m(g)(4)), provides rules and procedures for the removal, 
suspension, or debarment of independent public accountants and 
accounting firms from performing independent audit and attestation 
services required by section 36 of the FDIA (12 U.S.C. 1831m) for 
insured depository institutions for which the FDIC is the appropriate 
Federal banking agency.


Sec.  308.601  Definitions.

    As used in this subpart, the following terms shall have the meaning 
given below unless the context requires otherwise:
    (a) Accounting firm means a corporation, proprietorship, 
partnership, or other business firm providing audit services.
    (b) Audit services means any service required to be performed by an 
independent public accountant by section 36 of the FDIA and 12 CFR part 
363, including attestation services.
    (c) Independent public accountant (accountant) means any individual 
who performs or participates in providing audit services.


Sec.  308.602  Removal, suspension, or debarment.

    (a) Good cause for removal, suspension, or debarment.
    (1) Individuals. The Board of Directors may remove, suspend, or 
debar an independent public accountant under section 36 of the FDIA 
from performing audit services for insured depository institutions for 
which the FDIC is the appropriate Federal banking agency if, after 
service of a notice of intention and opportunity for hearing in the 
matter, the Board of Directors finds that the accountant:
    (i) Lacks the requisite qualifications to perform audit services;
    (ii) Has knowingly or recklessly engaged in conduct that results in 
a violation of applicable professional standards, including those 
standards and conflicts of interest provisions applicable to 
accountants through the Sarbanes-Oxley Act of 2002 (Pub. L. 107-204, 
116 Stat. 745 (2002)) (Sarbanes-Oxley Act) and developed by the Public 
Company Accounting Oversight Board and the Securities and Exchange 
Commission;
    (iii) Has engaged in negligent conduct in the form of:
    (A) A single instance of highly unreasonable conduct that results 
in a violation of applicable professional standards in circumstances in 
which an accountant knows, or should know, that heightened scrutiny is 
warranted; or
    (B) Repeated instances of unreasonable conduct, each resulting in a 
violation of applicable professional standards, that indicate a lack of 
competence to perform audit services;
    (iv) Has knowingly or recklessly given false or misleading 
information, or knowingly or recklessly participated in any way in the 
giving of false or misleading information, to the FDIC or any officer 
or employee of the FDIC;
    (v) Has engaged in, or aided and abetted, a material and knowing or 
reckless violation of any provision of the Federal banking or 
securities laws or the rules and regulations thereunder, or any other 
law;
    (vi) Has been removed, suspended, or debarred from practice before 
any Federal or state agency regulating the banking, insurance, or 
securities industries, other than by an action listed in Sec.  308.603, 
on grounds relevant to the provision of audit services; or
    (vii) Is suspended or debarred for cause from practice as an 
accountant by any duly constituted licensing authority of any state, 
possession, commonwealth, or the District of Columbia.
    (2) Accounting firms. If the Board of Directors determines that 
there is good cause for the removal, suspension, or debarment of a 
member or employee of an accounting firm under paragraph (a)(1) of this 
section, the Board of Directors also may remove, suspend, or debar such 
firm or one or more offices of such firm. In considering whether to 
remove, suspend, or debar an accounting firm or an office thereof, and 
the term of any sanction against an accounting firm under this section, 
the Board of Directors may consider, for example:
    (i) The gravity, scope, or repetition of the act or failure to act 
that constitutes good cause for the removal, suspension, or debarment;
    (ii) The adequacy of, and adherence to, applicable policies, 
practices, or procedures for the accounting firm's conduct of its 
business and the performance of audit services;
    (iii) The selection, training, supervision, and conduct of members 
or employees of the accounting firm involved in the performance of 
audit services;
    (iv) The extent to which managing partners or senior officers of 
the accounting firm have participated, directly, or indirectly through 
oversight or review, in the act or failure to act; and
    (v) The extent to which the accounting firm has, since the 
occurrence of the act or failure to act, implemented corrective 
internal controls to prevent its recurrence.
    (3) Limited scope orders. An order of removal, suspension 
(including an immediate suspension), or debarment may, at the 
discretion of the Board of Directors, be made applicable to a limited 
number of insured depository institutions for which the FDIC is the 
appropriate Federal banking agency.
    (4) Remedies not exclusive. The remedies provided in this subpart 
are in addition to any other remedies the FDIC may have under any other 
applicable provision of law, rule, or regulation.
    (b) Proceedings to remove, suspend or debar. (1) Initiation of 
formal removal, suspension, or debarment proceedings. The Board of 
Directors may initiate a proceeding to remove, suspend, or debar an 
accountant or accounting firm from performing audit services by issuing 
a written notice of intention to take such action that names the 
individual or firm as a respondent and describes the nature of the 
conduct that constitutes good cause for such action.
    (2) Hearings under paragraph (b) of this section. An accountant or 
firm named as a respondent in the notice issued under paragraph (b)(1) 
of this section may request a hearing on the allegations contained in 
the notice. Hearings conducted under this paragraph shall be conducted 
in the same manner as other hearings under the Uniform Rules of 
Practice and

[[Page 48271]]

Procedure (12 CFR part 308, subpart A) (Uniform Rules).
    (c) Immediate suspension from performing audit services.
    (1) In general. If the Board of Directors serves a written notice 
of intention to remove, suspend, or debar an accountant or accounting 
firm from performing audit services, the Board of Directors may, with 
due regard for the public interest and without a preliminary hearing, 
immediately suspend such accountant or firm from performing audit 
services for insured depository institutions for which the FDIC is the 
appropriate Federal banking agency if the Board of Directors:
    (i) Has a reasonable basis to believe that the accountant or 
accounting firm has engaged in conduct (specified in the notice served 
upon the accountant or accounting firm under paragraph (b)(1) of this 
section) that would constitute grounds for removal, suspension, or 
debarment under paragraph (a) of this section;
    (ii) Determines that immediate suspension is necessary to avoid 
immediate harm to an insured depository institution or its depositors 
or to the depository system as a whole; and
    (iii) Serves such respondent with written notice of the immediate 
suspension.
    (2) Procedures. An immediate suspension notice issued under this 
paragraph will become effective upon service. Such suspension will 
remain in effect until the date the Board of Directors dismisses the 
charges contained in the notice of intention, or the effective date of 
a final order of removal, suspension, or debarment issued by the Board 
of Directors to the respondent.
    (3) Petition to stay. Any accountant or accounting firm immediately 
suspended from performing audit services in accordance with paragraph 
(c)(1) of this section may, within 10 calendar days after service of 
the notice of immediate suspension, file a petition with the Executive 
Secretary for a stay of such immediate suspension. If no petition is 
filed within 10 calendar days, the immediate suspension shall remain in 
effect.
    (4) Hearing on petition. Upon receipt of a stay petition, the 
Executive Secretary will designate a presiding officer who will fix a 
place and time (not more than 10 calendar days after receipt of the 
petition, unless extended at the request of petitioner) at which the 
immediately suspended party may appear, personally or through counsel, 
to submit written materials and oral argument. Any FDIC employee 
engaged in investigative or prosecuting functions for the FDIC in a 
case may not, in that or a factually related case, serve as a presiding 
officer or participate or advise in the decision of the presiding 
officer or of the FDIC, except as witness or counsel in the proceeding. 
In the sole discretion of the presiding officer, upon a specific 
showing of compelling need, oral testimony of witnesses also may be 
presented. Enforcement counsel may represent the agency at the hearing. 
In hearings held pursuant to this paragraph there shall be no 
discovery, and the provisions of Sec. Sec.  308.6 through 308.12, Sec.  
308.16, and Sec.  308.21 of the Uniform Rules will apply.
    (5) Decision on petition. Within 30 calendar days after the 
hearing, the presiding officer will issue a decision. The presiding 
officer will grant a stay upon a demonstration that a substantial 
likelihood exists of the respondent's success on the issues raised by 
the notice of intention and that, absent such relief, the respondent 
will suffer immediate and irreparable injury, loss, or damage. In the 
absence of such a demonstration, the presiding officer will notify the 
parties that the immediate suspension will be continued pending the 
completion of the administrative proceedings pursuant to the notice of 
intention. The presiding officer will serve a copy of the decision on, 
and simultaneously certify the record to, the Executive Secretary.
    (6) Review of presiding officer's decision. The parties may seek 
review of the presiding officer's decision by filing a petition for 
review with the Executive Secretary within 10 calendar days after 
service of the decision. Replies must be filed within 10 calendar days 
after the petition filing date. Upon receipt of a petition for review 
and any reply, the Executive Secretary will promptly certify the entire 
record to the Board of Directors. Within 60 calendar days of the 
Executive Secretary's certification, the Board of Directors will issue 
an order notifying the affected party whether or not the immediate 
suspension should be continued or reinstated. The order will state the 
basis of the Board's decision.


Sec.  308.603  Automatic removal, suspension, and debarment.

    (a) An independent public accountant or accounting firm may not 
perform audit services for insured depository institutions for which 
the FDIC is the appropriate Federal banking agency if the accountant or 
firm:
    (1) Is subject to a final order of removal, suspension, or 
debarment (other than a limited scope order) issued by the Board of 
Governors of the Federal Reserve System, the Office of the Comptroller 
of the Currency, or the Office of Thrift Supervision under section 36 
of the FDIA;
    (2) Is subject to a temporary suspension or permanent revocation of 
registration or a temporary or permanent suspension or bar from further 
association with any registered public accounting firm issued by the 
Public Company Accounting Oversight Board or the Securities and 
Exchange Commission under sections 105(c)(4)(A) or (B) of the Sarbanes-
Oxley Act (15 U.S.C. 7215(c)(4)(A) or (B)); or
    (3) Is subject to an order of suspension or denial of the privilege 
of appearing or practicing before the Securities and Exchange 
Commission.
    (b) Upon written request, the FDIC, for good cause shown, may grant 
written permission to such accountant or firm to perform audit services 
for insured depository institutions for which the FDIC is the 
appropriate Federal banking agency. The written request must comply 
with the requirements of Sec.  303.3 of this chapter.


Sec.  308.604  Notice of removal, suspension, or debarment.

    (a) Notice to the public. Upon the issuance of a final order for 
removal, suspension, or debarment of an independent public accountant 
or accounting firm from providing audit services, the FDIC will make 
the order publicly available and provide notice of the order to the 
other Federal banking agencies.
    (b) Notice to the FDIC by accountants and firms. An accountant or 
accounting firm that provides audit services to any insured depository 
institution for which the FDIC is the appropriate Federal banking 
agency must provide the FDIC with written notice of:
    (1) any currently effective order or other action described in 
Sec. Sec.  308.602(a)(1)(vi) through (a)(1)(vii) or Sec. Sec.  
308.603(a)(2) through (a)(3); and
    (2) any currently effective action by the Public Company Accounting 
Oversight Board under sections 105(c)(4)(C) or (G) of the Sarbanes-
Oxley Act (15 U.S.C. 7215(c)(4)(C) or (G)).
    (c) Timing of notice. Written notice required by this paragraph 
shall be given no later than 15 calendar days following the effective 
date of an order or action, or 15 calendar days before an accountant or 
accounting firm accepts an engagement to provide audit services, 
whichever date is earlier.


Sec.  308.605  Application for reinstatement.

    (a) Form of petition. Unless otherwise ordered by the Board of 
Directors, an application for reinstatement by an

[[Page 48272]]

independent public accountant, an accounting firm, or an office of a 
firm that was removed, suspended, or debarred under Sec.  308.602 may 
be made in writing at any time. The application must comply with the 
requirements of Sec.  303.3 of this chapter.
    (b) Procedure. An applicant for reinstatement under this section 
may, in the sole discretion of the Board of Directors, be afforded a 
hearing. In reinstatement proceedings, the person seeking reinstatement 
shall bear the burden of going forward with an application and proving 
the grounds asserted in support of the application, and the Board of 
Directors may, in its sole discretion, direct that any reinstatement 
proceeding be limited to written submissions. The removal, suspension, 
or debarment shall continue until the Board of Directors, for good 
cause shown, has reinstated the applicant or until the suspension 
period has expired. The filing of an application for reinstatement will 
not stay the effectiveness of the removal, suspension, or debarment of 
an accountant or firm.

    By order of the Board of Directors of the Federal Deposit 
Insurance Corporation.

    Dated: August 4, 2003.
Valerie J. Best,
Assistant Executive Secretary.

OFFICE OF THRIFT SUPERVISION

12 CFR Chapter V

Authority and Issuance

PART 513--PRACTICE BEFORE THE OFFICE

0
For the reasons set out in the joint preamble, part 513 of chapter V of 
title 12 of the Code of Federal Regulations is amended as follows:
0
1. The authority citation for part 513 is revised to read as follows:

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1813, 1831m, and 
15 U.S.C. 78.

0
2. Add Sec.  513.8 to read as follows:


Sec.  513.8  Removal, suspension, or debarment of independent public 
accountants and accounting firms performing audit services.

    (a) Scope. This subpart, which implements section 36(g)(4) of the 
Federal Deposit Insurance Act (FDIA) (12 U.S.C. 1831m(g)(4)), provides 
rules and procedures for the removal, suspension, or debarment of 
independent public accountants and their accounting firms from 
performing independent audit and attestation services required by 
section 36 of the FDIA (12 U.S.C. 1831m) for insured savings 
associations and savings and loan holding companies.
    (b) Definitions. As used in this section, the following terms have 
the meaning given below unless the context requires otherwise:
    (1) Accounting firm. The term accounting firm means a corporation, 
proprietorship, partnership, or other business firm providing audit 
services.
    (2) Audit services. The term audit services means any service 
required to be performed by an independent public accountant by section 
36 of the FDIA Act and 12 CFR part 363, including attestation services. 
Audit services include any service performed with respect to a savings 
and loan holding company of a savings association that is used to 
satisfy requirements imposed by section 36 or part 363 on that savings 
association.
    (3) Independent public accountant. The term independent public 
accountant means any individual who performs or participates in 
providing audit services.
    (c) Removal, suspension, or debarment of independent public 
accountants. The Office may remove, suspend, or debar an independent 
public accountant from performing audit services for savings 
associations that are subject to section 36 of the FDIA if, after 
service of a notice of intention and opportunity for hearing in the 
matter, the Office finds that the independent public accountant:
    (1) Lacks the requisite qualifications to perform audit services;
    (2) Has knowingly or recklessly engaged in conduct that results in 
a violation of applicable professional standards, including those 
standards and conflicts of interest provisions applicable to 
independent public accountants through the Sarbanes-Oxley Act of 2002, 
Pub. L. 107-204, 116 Stat. 745 (2002) (Sarbanes-Oxley Act), and 
developed by the Public Company Accounting Oversight Board and the 
Securities and Exchange Commission;
    (3) Has engaged in negligent conduct in the form of: (i) A single 
instance of highly unreasonable conduct that results in a violation of 
applicable professional standards in circumstances in which an 
independent public accountant knows, or should know, that heightened 
scrutiny is warranted; or
    (ii) Repeated instances of unreasonable conduct, each resulting in 
a violation of applicable professional standards, that indicate a lack 
of competence to perform audit services;
    (4) Has knowingly or recklessly given false or misleading 
information or knowingly or recklessly participated in any way in the 
giving of false or misleading information to the Office or any officer 
or employee of the Office;
    (5) Has engaged in, or aided and abetted, a material and knowing or 
reckless violation of any provision of the Federal banking or 
securities laws or the rules and regulations thereunder, or any other 
law;
    (6) Has been removed, suspended, or debarred from practice before 
any federal or state agency regulating the banking, insurance, or 
securities industries, other than by action listed in paragraph (j) of 
this section, on grounds relevant to the provision of audit services; 
or
    (7) Is suspended or debarred for cause from practice as an 
accountant by any duly constituted licensing authority of any state, 
possession, commonwealth, or the District of Columbia.
    (d) Removal, suspension or debarment of an accounting firm. If the 
Office determines that there is good cause for the removal, suspension, 
or debarment of a member or employee of an accounting firm under 
paragraph (c) of this section, the Office also may remove, suspend, or 
debar such firm or one or more offices of such firm. In considering 
whether to remove, suspend, or debar an accounting firm or office 
thereof, and the term of any sanction against an accounting firm under 
this section, the Office may consider, for example:
    (1) The gravity, scope, or repetition of the act or failure to act 
that constitutes good cause for the removal, suspension, or debarment;
    (2) The adequacy of, and adherence to, applicable policies, 
practices, or procedures for the accounting firm's conduct of its 
business and the performance of audit services;
    (3) The selection, training, supervision, and conduct of members or 
employees of the accounting firm involved in the performance of audit 
services;
    (4) The extent to which managing partners or senior officers of the 
accounting firm have participated, directly or indirectly through 
oversight or review, in the act or failure to act; and
    (5) The extent to which the accounting firm has, since the 
occurrence of the act or failure to act, implemented corrective 
internal controls to prevent its recurrence.
    (e) Remedies. The remedies provided in this section are in addition 
to any other remedies the Office may have under any other applicable 
provisions of law, rule, or regulation.
    (f) Proceedings to remove, suspend, or debar. (1) The Office may 
initiate a proceeding to remove, suspend, or debar

[[Page 48273]]

an independent public accountant or accounting firm from performing 
audit services by issuing a written notice of intention to take such 
action that names the individual or firm as a respondent and describes 
the nature of the conduct that constitutes good cause for such action.
    (2) An independent public accountant or accounting firm named as a 
respondent in the notice issued under paragraph (f)(1) of this section 
may request a hearing on the allegations in the notice. Hearings 
conducted under this paragraph shall be conducted in the same manner as 
other hearings under the Uniform Rules of Practice and Procedure (12 
CFR part 509).
    (g) Immediate suspension from performing audit services. (1) If the 
Office serves written notice of intention to remove, suspend, or debar 
an independent public accountant or accounting firm from performing 
audit services, the Office may, with due regard for the public interest 
and without preliminary hearing, immediately suspend an independent 
public accountant or accounting firm from performing audit services for 
savings associations, if the Office:
    (i) Has a reasonable basis to believe that the independent public 
accountant or accounting firm engaged in conduct (specified in the 
notice served upon the independent public accountant or accounting firm 
under paragraph (f) of this section) that would constitute grounds for 
removal, suspension, or debarment under paragraph (c) or (d) of this 
section;
    (ii) Determines that immediate suspension is necessary to avoid 
immediate harm to an insured depository institution or its depositors 
or to the depository system as a whole; and
    (iii) Serves such independent public accountant or accounting firm 
with written notice of the immediate suspension.
    (2) An immediate suspension notice issued under this paragraph will 
become effective upon service. Such suspension will remain in effect 
until the date the Office dismisses the charges contained in the notice 
of intention, or the effective date of a final order of removal, 
suspension, or debarment issued by the Office to the independent public 
accountant or accounting firm.
    (h) Petition to stay. (1) Any independent public accountant or 
accounting firm immediately suspended from performing audit services in 
accordance with paragraph (g) of this section may, within 10 calendar 
days after service of the notice of immediate suspension, file a 
petition with the Office for a stay of such suspension. If no petition 
is filed within 10 calendar days, the immediate suspension shall remain 
in effect.
    (2) Upon receipt of a stay petition, the Office will designate a 
presiding officer who shall fix a place and time (not more than 10 
calendar days after receipt of such petition, unless extended at the 
request of the petitioner), at which the immediately suspended party 
may appear, personally or through counsel, to submit written materials 
and oral argument. Any OTS employee engaged in investigative or 
prosecuting functions for the OTS in a case may not, in that or a 
factually related case, serve as a presiding officer or participate or 
advise in the decision of the presiding officer or of the OTS, except 
as witness or counsel in the proceeding. In the sole discretion of the 
presiding officer, upon a specific showing of compelling need, oral 
testimony of witnesses may also be presented. In hearings held pursuant 
to this paragraph, there will be no discovery and the provisions of 
Sec. Sec.  509.6 through 509.12, 509.16, and 509.21 of the Uniform 
Rules will apply.
    (3) Within 30 calendar days after the hearing, the presiding 
officer shall issue a decision. The presiding officer will grant a stay 
upon a demonstration that a substantial likelihood exists of the 
respondent's success on the issues raised by the notice of intention 
and that, absent such relief, the respondent will suffer immediate and 
irreparable injury, loss, or damage. In the absence of such a 
demonstration, the presiding officer will notify the parties that the 
immediate suspension will be continued pending the completion of the 
administrative proceedings pursuant to the notice.
    (4) The parties may seek review of the presiding officer's decision 
by filing a petition for review with the presiding officer within 10 
calendar days after service of the decision. Replies must be filed 
within 10 calendar days after the petition filing date. Upon receipt of 
a petition for review and any reply, the presiding officer must 
promptly certify the entire record to the Director. Within 60 calendar 
days of the presiding officer's certification, the Director shall issue 
an order notifying the affected party whether or not the immediate 
suspension should be continued or reinstated. The order shall state the 
basis of the Director's decision.
    (i) Scope of any order of removal, suspension, or debarment. (1) 
Except as provided in paragraph (i)(2), any independent public 
accountant or accounting firm that has been removed, suspended 
(including an immediate suspension), or debarred from performing audit 
services by the Office may not, while such order is in effect, perform 
audit services for any savings association.
    (2) An order of removal, suspension (including an immediate 
suspension), or debarment may, at the discretion of the Office, be made 
applicable to a limited number of savings associations or savings and 
loan holding companies (limited scope order).
    (j) Automatic removal, suspension, and debarment. (1) An 
independent public accountant or accounting firm may not perform audit 
services for a savings association if the independent public accountant 
or accounting firm:
    (i) Is subject to a final order of removal, suspension, or 
debarment (other than a limited scope order) issued by the Board of 
Governors of the Federal Reserve System, the Federal Deposit Insurance 
Corporation, or the Office of the Comptroller of the Currency under 
section 36 of the FDIA;
    (ii) Is subject to a temporary suspension or permanent revocation 
of registration or a temporary or permanent suspension or bar from 
further association with any registered public accounting firm issued 
by the Public Company Accounting Oversight Board or the Securities and 
Exchange Commission under sections 105(c)(4)(A) or (B) of the Sarbanes-
Oxley Act (15 U.S.C. 7215(c)(4)(A) or (B)); or
    (iii) Is subject to an order of suspension or denial of the 
privilege of appearing or practicing before the Securities and Exchange 
Commission.
    (2) Upon written request, the Office, for good cause shown, may 
grant written permission to an independent public accountant or 
accounting firm to perform audit services for savings associations. The 
request must contain a concise statement of action requested. The 
Office may require the applicant to submit additional information.
    (k) Notice of removal, suspension, or debarment. (1) Upon issuance 
of a final order for removal, suspension, or debarment of an 
independent public accountant or accounting firm from providing audit 
services, the Office shall make the order publicly available and 
provide notice of the order to the other Federal banking agencies.
    (2) An independent public accountant or accounting firm that 
provides audit services to a savings association must provide the 
Office with written notice of:
    (i) Any currently effective order or other action described in 
paragraphs (c)(6) through (c)(7) or paragraphs (j)(1)(ii) through 
(j)(1)(iii) of this section; and

[[Page 48274]]

    (ii) Any currently effective action by the Public Company 
Accounting Oversight Board under sections 105(c)(4)(C) or (G) of the 
Sarbanes-Oxley Act (15 U.S.C. 7215(c)(4)(C) or (G)).
    (3) Written notice required by this paragraph shall be given no 
later than 15 calendar days following the effective date of an order or 
action or 15 calendar days before an independent public accountant or 
accounting firm accepts an engagement to provide audit services, 
whichever date is earlier.
    (l) Application for reinstatement. (1) Unless otherwise ordered by 
the Office, an independent public accountant, accounting firm, or 
office of a firm that was removed, suspended or debarred under this 
section may apply for reinstatement in writing at any time. The request 
shall contain a concise statement of action requested. The Office may 
require the applicant to submit additional information.
    (2) An applicant for reinstatement under paragraph (l)(1) of this 
section may, in the Office's sole discretion, be afforded a hearing. 
The independent public accountant or accounting firm shall bear the 
burden of going forward with an application and the burden of proving 
the grounds supporting the application. The Office may, in its sole 
discretion, direct that any reinstatement proceeding be limited to 
written submissions. The removal, suspension, or debarment shall 
continue until the Office, for good cause shown, has reinstated the 
applicant or until, in the case of a suspension, the suspension period 
has expired. The filing of a petition for reinstatement shall not stay 
the effectiveness of the removal, suspension, or debarment of an 
independent public accountant or accounting firm.

    Dated: August 5, 2003.

    By the Office of Thrift Supervision.
James Gilleran,
Director.
[FR Doc. 03-20565 Filed 8-12-03; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6720-01-P