On August 28, 2014, the Commission received a Petition for Rulemaking from National Convention PBC regarding the Commission's regulation defining “federal office,” 11 CFR 100.4. The regulation provides that “ Federal office means the office of President or Vice President of the United States, Senator or Representative in, or Delegate or Resident Commissioner to, the Congress of the United States.” The Petition asks the Commission to amend 11 CFR 100.4 to add “a Delegate to a constitutional convention for proposing amendments to the Constitution of the United States.”

The Commission published a Notice of Availability seeking comment on the Petition on October 2, 2014. 79 FR 59459. The Commission received five comments in response to the NOA. Two comments, filed on behalf of a total of four organizations, opposed the Petition, primarily on the grounds that the regulatory change it seeks would be inconsistent with the applicable statutory definition of “federal office.” Three comments from individuals supported the Petition on the grounds that delegates to a constitutional convention should be bound by the campaign finance rules that apply to federal candidates (although one of these comments also objected to certain aspects of National Convention PBC's proposal).

The Commission agrees with the commenters who opposed the Petition. The definition of “federal office” is specifically set by statute: “The term `Federal office' means the office of the President or Vice President, or of Senator or Representative in, or Delegate or Resident Commissioner to, the Congress.” 52 U.S.C. 30101(3) (formerly 2 U.S.C. 431(3)). The Commission's regulatory definition of “federal office” uses materially indistinguishable language, defining a federal office as “the office of President or Vice President of the United States, Senator or Representative in, or Delegate or Resident Commissioner to, the Congress of the United States.” 11 CFR 100.4. The Petition and the commenters who supported it provide certain policy arguments in favor of including delegates to a constitutional convention within the scope of the regulation, but the statutory definition of “federal office” unambiguously omits such delegates. In situations such as this where the statute contains no relevant ambiguity, the Commission “must give effect to the unambiguously expressed intent of Congress.” Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984).

The Commission therefore declines to commence a rulemaking to add delegates to a constitutional convention to the definition of “federal office” in 11 CFR 100.4.

I. Background

In 2013, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) (collectively, the agencies) comprehensively revised and strengthened the capital requirements applicable to banking organizations  1 (regulatory capital framework). 2 Among other changes, the regulatory capital framework revised elements of the advanced approaches risk-based capital requirements (advanced approaches rule) now located at subpart E of the agencies' revised regulatory capital framework. 3

The advanced approaches rule applies to large, internationally active banking organizations, generally those with $250 billion or more in total consolidated assets or $10 billion or more in total on-balance sheet foreign exposure, depository institution subsidiaries of those banking organizations that use the advanced approaches rule, and banking organizations that elect to use the advanced approaches (advanced approaches banking organizations). 4 Before an advanced approaches banking organization may use the advanced approaches rule to determine its risk-based capital requirements, it must conduct a satisfactory trial, or parallel run. 5 During the parallel run period, which must be at least four consecutive calendar quarters, an advanced approaches banking organization must demonstrate to the satisfaction of its primary Federal supervisor that it has implemented risk-measurement and risk-management systems that are consistent with the advanced approaches rule and are appropriate given the banking organization's size and level of complexity. After the primary Federal supervisor determines that the banking organization fully complies with all the qualification requirements, has conducted a satisfactory parallel run, and has an adequate process to ensure ongoing compliance, then the banking organization will be required to use the advanced approaches to calculate its risk-based capital requirements. 6

Consistent with section 171 of the Dodd-Frank Act, 7 an advanced approaches banking organization that is required to calculate its risk-based capital requirements under the advanced approaches rule also must determine its risk-based capital requirements under the generally applicable risk-based capital rule. 8 The lower ratio ( i.e., the more binding ratio) for each risk-based capital requirement is the ratio the banking organization must use to determine its compliance with minimum regulatory capital requirements.

In February 2014, the agencies permitted certain banking organizations to exit parallel run and to begin calculating their risk-based capital requirements using the advanced approaches rule, beginning with the second quarter of 2014. 9 Supervisory review of advanced approaches systems conducted as part of the parallel run exit review process has highlighted certain areas of the advanced approaches rule qualification requirements that would benefit from clarification. In addition, the agencies are proposing to make technical revisions to address typographical errors, such as incorrect references, in the regulatory capital framework. The agencies are also proposing clarifications that are intended to enhance the consistency of the U.S. regulations with international standards for use of the advanced approaches. The proposed amendments in this NPR affect only provisions that apply to advanced approaches banking organizations. The agencies are seeking comment on all aspects of the proposed rule.

Since publishing the regulatory capital framework, the agencies have identified typographical and technical errors in several provisions, including provisions of subpart E of the regulatory capital framework. The agencies have also identified provisions that warrant clarification or updating in light of revisions to other rules. The agencies are, therefore, proposing to revise the regulatory capital framework as described below.

The definition of residential mortgage exposure in section 2 of the regulatory capital framework was intended to provide that, for purposes of the advanced approaches rule, an exposure secured by a first or subsequent lien on one-to-four family residential property must be managed as part of a segment of exposures with homogenous risk characteristics, and not on an individual basis, to be considered a residential mortgage exposure. 10 Under the advanced approaches, for retail exposures, a banking organization must have an internal system that groups retail exposures into the appropriate retail exposure subcategory and groups the retail exposures in each retail exposure subcategory into separate segments with homogenous risk characteristics. 11 As currently written, however, the definition of residential mortgage exposure does not provide that advanced approaches banking organizations must group exposures secured by a first or subsequent lien on one-to-four family residential property into separate segments with homogenous risk characteristics, as required under the retail framework of the advanced approaches. Accordingly, the agencies propose to revise the definition of residential mortgage exposure to provide that, for the purpose of calculating capital requirements under the advanced approaches, any exposure secured by a lien on residential property must be managed as part of a segment of exposures with homogenous risk characteristics, and not on an individual basis, to be considered a residential mortgage exposure. This change would make the definition consistent with the definition used in the 2007 advanced capital adequacy framework implementing Basel II  12 (2007 rule).

The criteria set forth in section 100(b) of the regulatory capital framework, which describe which banking organizations are required to use the advanced approaches rule, include an explanation of how a banking organization determines whether it meets the $10 billion total on-balance sheet foreign exposure threshold. The advanced approaches rule currently references line-item descriptions from a version of the FFIEC 009 Regulatory Report that has since been modified to adjust or rename those line items. The agencies therefore propose to update the methodology for calculating this measure in section 100(b)(ii) to reflect the relevant line-item descriptions and instructions from the most recent version of the FFIEC 009 Regulatory Report. 13

Section 173 of the regulatory capital framework requires advanced approaches banking organizations that have completed the parallel run process and have received notification from their primary Federal supervisor pursuant to section 121(d) of subpart E to provide timely disclosure of the information in the applicable tables in that section.

Table 6 of section 173 of the regulatory capital framework requires firms to explain and review the structure of internal ratings systems and the relation between internal and external ratings. Section 939A of the Dodd-Frank Act generally requires the Federal banking agencies to remove any reference to, or any requirement involving, the reliance on external credit ratings to assess the creditworthiness of a security or money market instrument. As a result, the agencies are proposing to amend table 6 of section 173 to clarify that the use of external ratings is not required for the purpose of an advanced approaches banking organization's internal rating assessment.

For the purpose of the disclosures required in table 6 of section 173, to the extent that the advanced approaches banking organization considers external ratings in its internal ratings process, it must include an explanation of the relation between the internal and external ratings. An advanced approaches banking organization that does not use or consider external ratings would not be required to make such a disclosure.

Table 9 in section 173 of the regulatory capital framework describes information related to securitization exposures that certain advanced approaches banking organizations are required to disclose. In the regulatory capital framework, the agencies revised the risk-based capital treatment of these items, but did not revise Table 9 to reflect the revisions. The agencies propose to update line (i)(2) under quantitative disclosures to appropriately reflect the current treatment under the regulatory capital framework of credit-enhancing interest only strips (CEIOs) and after-tax gain-on-sale resulting from a securitization. Specifically, under the regulatory capital framework, an after-tax gain-on-sale resulting from a securitization is deducted from common equity tier 1 capital, rather than from tier 1 capital as was the case under the 2007 rule. Also, under the regulatory capital framework, CEIOs that do not constitute after-tax gain-on-sale are risk-weighted at 1,250 percent, rather than deducted from total capital, as was the case under the 2007 rule.

Sections 133(b)(4)(ii) and 133(c)(4)(ii) of the regulatory capital framework require a clearing member client banking organization or a clearing member banking organization, respectively, to calculate a risk-weighted asset amount for any collateral provided to a central counterparty (CCP), clearing member, or custodian in connection with a cleared transaction in accordance with the requirements under section 131. The agencies note that section 131 only provides for the risk-weighting of wholesale and retail exposures whereas collateral posted to a CCP, clearing member, or custodian may also be in the form of a securitization exposure, equity exposure, or a covered position. Therefore, the agencies are proposing to amend sections 133(b)(4)(ii) and 133(c)(4)(ii) to replace the cross reference to section 131 with a broader cross reference, as applicable, to subpart E, which provides the risk-weighting methodology for wholesale, retail, securitization and equity exposures, or subpart F, which provides the risk weighting methodology for covered positions, so that the clearing member client banking organization and clearing member banking organization can determine the correct risk weight for the collateral provided.

Under the regulatory capital framework, a clearing member banking organization must assign a 2 percent risk weight to the trade exposure amount for a cleared transaction with a qualifying central counterparty (QCCP) and a risk weight according to section 32 to the trade exposure amount for a cleared transaction with a CCP that is not a QCCP. The definition of cleared transaction includes a derivative contract or repo-style transaction between a CCP and a clearing member banking organization where the banking organization is acting as a financial intermediary on behalf of its clearing member client and the transaction offsets a derivative contract or repo-style transaction between the clearing member banking organization and its client that meets the requirements of section 3(a) of the regulatory capital framework. The agencies are proposing, consistent with the Basel Committee's capital requirements for bank exposures to central counterparties capital framework, 14 to permit clearing member banking organizations to assign a zero percent risk weight under subpart E to the trade exposure amount of a cleared transaction that arises when a clearing member banking organization does not guarantee the performance of the CCP and has no payment obligation to the clearing member client in the event of a CCP default. In these circumstances, requiring the clearing member banking organization to include a trade exposure amount to the CCP in credit risk-weighted assets would generally result in an overstatement of its total risk-weighted assets under the advanced approaches rule. However, if a clearing member banking organization does guarantee the performance of the CCP to the clearing member client, then a clearing member banking organization would assign a risk weight of 2 percent to its trade exposure amount for a cleared transaction with a QCCP or a risk weight according to section 32 of the regulatory capital framework to its trade exposure amount (as defined in section 133) for a cleared transaction with a CCP that is not a QCCP.

This proposed approach would align the risk-based capital requirements for client-cleared transactions with recently finalized revisions to the treatment of those transactions under the agencies' supplementary leverage ratio rule. 15 When calculating the supplementary leverage ratio, the agencies do not require a clearing member banking organization to include the exposure to the CCP for a client-cleared transaction in total leverage exposure if the clearing member banking organization does not guarantee the performance of the CCP to the clearing member client.

Section 10(c) of the regulatory capital framework requires advanced approaches banking organizations that have completed the parallel run process to calculate the supplementary leverage ratio as described under section 10(c)(4). 16 The agencies are proposing to clarify in this rulemaking that the supplementary leverage ratio described in section 10(c)(4) applies to a banking organization that becomes subject to the advanced approaches pursuant to section 100(b)(1), regardless of the status of its parallel run process. Specifically, the supplementary leverage ratio described in section 10(c)(4) would apply to a banking organization immediately following the quarter in which the banking organization become subject to the advanced approaches pursuant to section 100(b)(1).

Advanced approaches banking organizations are subject to supplementary leverage ratio disclosure requirements described in sections 172 and 173 of the regulatory capital framework. 17 The agencies propose to revise sections 172 and 173 of the regulatory capital framework, consistent with the revisions proposed for section 10(c)(4). Specifically, the agencies are proposing to amend section 172(d) to clarify that the supplementary leverage ratio disclosure requirements described in section 172 apply without regard to whether the banking organization has completed the parallel run process. Under this proposal, any banking organization that becomes an advanced approaches banking organization pursuant to section 100(b)(1) before January 1, 2015, must publicly disclose its supplementary leverage ratio and the components thereof (that is, tier 1 capital and total leverage exposure) quarterly, beginning with the first quarter in 2015. A banking organizations that becomes an advanced approaches banking organization pursuant to section 100(b)(1) on or after January 1, 2015, must publicly disclose its supplementary leverage ratio and components thereof, beginning with the calendar quarter immediately following the calendar quarter in which the banking organization becomes an advanced approaches banking organization. For example, a banking organization that becomes subject to the advanced approaches because it has $250 billion or more in consolidated total assets as of year-end 2015 pursuant to section 100(b)(1)(i) would begin disclosing its supplementary leverage ratio as of March 31, 2016.

In addition, the agencies are proposing to revise section 173 to clarify that a top-tier  18 advanced approaches banking organization, regardless of its parallel run status, is required to publicly disclose Table 13 for twelve consecutive quarters or a shorter period, as applicable, beginning on January 1, 2015. For example, for a banking organization that becomes subject to the supplementary leverage ratio disclosure requirements on January 1, 2015, reporting for the first quarter of 2015 would include data for one quarter, reporting for the second quarter of 2015 would include data for two quarters, and reporting for the fourth quarter of 2017 would include data for 12 quarters.

Under subpart E of the regulatory capital framework, an advanced approaches banking organization that has received supervisory approval to calculate exposure at default (EAD) for derivative contracts using the internal models methodology (IMM) is permitted to reduce effective expected positive exposure (effective EPE) by the CVA recognized on the advanced approaches banking organization's balance sheet to reflect the fair value adjustment for counterparty credit risk in the valuation of a group of over-the-counter (OTC) derivative transactions in a netting set. The recognized CVA on the OTC derivative netting set deducted from effective EPE must not include any adjustments made by the advanced approaches banking organization to common equity tier 1 capital attributable to changes in the fair value of the banking organization's liabilities that are due to changes in its own credit risk since the inception of the derivative transaction with the counterparty. Similarly, the agencies are proposing to allow advanced approaches banking organizations to reduce the EAD for OTC derivative contracts calculated according to the current exposure methodology in section 132(c) for the purpose of calculating advanced approaches total risk-weighted assets. The agencies note that in determining the fair value of a derivative on a banking organization's balance sheet, the recognized CVA on the netting set of OTC derivative contracts is intended to reflect the credit quality of the counterparty.

As noted in the preamble to the regulatory capital framework, the CVA capital charge in section 132(e) addresses fair value losses resulting from the deterioration of a counterparty's credit quality short of default. The proposal to permit advanced approaches banking organizations to reduce EAD by the recognized CVA on an OTC derivative netting set would prevent the double counting of the counterparty credit risk, which is already included in advanced approaches total risk-weighted assets through the CVA capital charge. Consistent with the Basel Committee's Basel III capital standards and the treatment of recognized CVA in the calculation of EAD for OTC derivatives according to the IMM, the agencies are proposing to amend section 132(c)(1) to permit an advanced approaches banking organization to reduce the EAD calculated according to the current exposure methodology by the recognized CVA on the OTC derivative netting set. The agencies note that, for the purpose of calculating standardized total risk-weighted assets, advanced approaches banking organizations would not be permitted to reduce the EAD calculated according to the current exposure methodology because the standardized total risk-weighted assets calculation does not include the CVA capital charge calculated in section 132(e).

Section 132(d)(5)(iii)(B) of the regulatory capital framework includes upward adjustments to the margin period of risk in the IMM for large netting sets, netting sets involving illiquid collateral or OTC derivatives that cannot easily be replaced, or netting sets with two or more margin disputes with the counterparty over the previous two quarters that last for a certain length of time. The regulatory capital framework inadvertently required an upward adjustment to the margin period of risk for cleared transactions based solely on the fact that they are part of a large netting set. The agencies are therefore proposing to amend this provision to clarify that cleared transactions that are part of a netting set subject to a collateral agreement that exceeds 5,000 trades at any time during the previous quarter are not subject to the twenty business day margin-period-of-risk requirement unless the netting set contains illiquid collateral, OTC derivatives that cannot easily be replaced, or the banking organization had two or more margin disputes with the counterparty over the previous two quarters that last for a certain length of time. As noted in the preamble to the regulatory capital framework, the 5,000 trade threshold is one indicator that a set of transactions may require a lengthy period to close out in the event of a default of a counterparty. The agencies believe that unlike a large netting set of over-the-counter derivatives, a large netting set of cleared transactions would not require a lengthy period to close out in the event of a default of the CCP. In addition, the proposed amendment would conform the provision to the similar provision in section 37 of subpart D. However, for any netting set that involves illiquid collateral or OTC derivatives that cannot easily be replaced, or that has two or more margin disputes within a netting set over the previous two quarters that last for a certain length of time, the margin period of risk would require adjustments, as specified under section 132(d)(5)(iii)(B), regardless of whether the netting set consists of cleared transactions.

In February, 2014, the OCC and Board granted permission to a number of banking organizations to begin calculating their risk-based capital requirements under the advanced approaches. 19 During the parallel run evaluation process, the agencies concluded that several areas of the advanced approaches rule should be revised to (1) clarify the qualification requirements and mechanics for calculating risk-weighted assets under the advanced approaches rule and (2) promote international consistency by more clearly aligning the U.S. regulations with international standards for use of the advanced approaches rule.

Sections 122 and 131 of the regulatory capital framework set forth the qualification requirements for the internal ratings-based approach (IRB) for advanced approaches banking organizations and describe the mechanics for calculating risk-weighted assets for wholesale and retail exposures under the advanced approaches. When the agencies initially adopted the advanced approaches rule in the 2007 rule, they viewed certain elements of the international Basel framework as being more akin to supervisory guidance, and therefore incorporated these elements into the supervisory review process rather than the advanced approaches rule. However, the agencies believe elements of sections 122 and 131 of the regulatory capital framework should be clarified to ensure that advanced approaches banking organizations appropriately: (i) Obtain and consider all relevant and material information to estimate probability of default (PD), loss given default (LGD), and EAD; (ii) quantify risk parameters for wholesale and retail exposures; and (iii) establish internal requirements for collateral and risk management processes.

Accordingly, the agencies are proposing language to add specificity and enhance transparency regarding the qualification process for the IRB approach, as well as the mechanics used to calculate total wholesale and retail risk-weighted assets. More specifically, the NPR would amend sections 122 and 131 of the regulatory capital framework to clarify requirements associated with: (i) The frequency for reviewing risk rating systems, (ii) the independence of the systems' development, design, and implementation, (iii) time horizons for default and loss data when estimating risk parameters, (iv) changes in banking organizations' lending, payment processing, and account monitoring practices, (v) the use of all relevant available data for assigning risk ratings, and (vi) the need for internal requirements for collateral management and risk management processes. These modifications are consistent with the current overarching principles in sections 122 and 131 of the regulatory capital framework that advanced approaches banking organizations must have an internal risk rating and segmentation system that accurately and reliably differentiates among degrees of credit risk for wholesale and retail exposures, as well as a comprehensive risk-parameter quantification process that produces accurate, timely, and reliable risk-parameter estimates. The agencies emphasize that the proposed revisions are intended to clarify, but not change, existing requirements. In fact, many of these clarifications are already included in agency guidance or examination materials. Therefore, because they have demonstrated that they comply with the existing requirements, the agencies would expect that advanced approaches banking organizations that have already exited parallel run have demonstrated that they would meet the proposed requirements.

Section 22 of the regulatory capital framework requires a banking organization to adjust its common equity tier 1 capital for changes in the fair value of liabilities due to changes in the banking organization's own credit risk. The adjustment is made by deducting from common equity tier 1 capital any net gain and adding to common equity tier 1 capital any net loss to offset the capital effect of the changes in fair value of liabilities due to changes in the banking organization's own credit risk. 20 Additionally, the regulatory capital framework requires advanced approaches banking organizations to deduct the credit spread premium over the risk-free rate for derivatives that are liabilities.

The agencies recognize that the regulatory capital framework is unclear as to whether the deduction of the credit spread premium for advanced approaches banking organizations is in addition to the adjustment for net gains or losses associated with changes in the value of liabilities attributed to changes in the banking organization's own credit risk. Therefore, the agencies are clarifying that for derivative liabilities, an advanced approaches banking organization would make the deduction of the credit spread premium over the risk-free rate as the adjustment for changes in the fair value of those derivative liabilities due to changes in the banking organization's own credit risk.

In addition to the revisions discussed above, the proposed rule would also make certain technical corrections. Most of the proposed corrections to these technical errors are self-explanatory and, therefore, do not warrant specific discussion in this preamble. In addition, there are several reference errors that the agencies propose to correct in an effort to better clarify the rule requirements. For example, the proposed rule would correct the following internal cross-references in the regulatory capital framework.

• In section 131(e)(3)(vi), amendments to reference section 22(d) and not section 22(a)(7);

• In Table 1 of section 132, amendments to the reference in the column heading to state that “Non-sovereign issuers risk weight under this section (in percent)” and “Sovereign issuers risk weight under this section (in percent)” actually are found in section 32.

• In section 132(d)(7)(iv)(B), amendments to reference section 132(b)(2) and not section 131(b)(2);

• In section 132(d)(9)(ii), amendments to reference section 132(e)(6) and not section 132(e)(3);

• In section 133(b)(3)(i)(B), amendments to reference section 133(b)(3)(i)(A) and not section 132(b)(3)(i)(A); and

• In section 136(e)(2)(i) and 136(e)(2)(ii), amendments to reference section 136(e)(1) and (e)(2) and not section 135(e)(1) and (e)(2).

In accordance with the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) (PRA), the agencies may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. The agencies reviewed the proposed rule and determined that it would not introduce any new collection of information pursuant to the PRA.

OCC: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA), requires an agency, in connection with a proposed rule, to prepare an Initial Regulatory Flexibility Analysis describing the impact of the proposed rule on small entities (defined by the Small Business Administration for purposes of the RFA to include banking entities with total assets of $550 million or less) or to certify that the proposed rule would not have a significant economic impact on a substantial number of small entities.

Using the SBA's size standards, as of December 31, 2013, the OCC supervised 1,231 small entities. 21

As described in the Supplementary Information section of the preamble, the proposed rule would apply only to advanced approaches banking organizations. Advanced approaches banking organization is defined to include a national bank or Federal savings association that has, or is a subsidiary of, a bank holding company or savings and loan holding company that has total consolidated assets of $250 billion or more, total consolidated on-balance sheet foreign exposure of $10 billion or more, or that has elected to use the advanced approaches framework. After considering the SBA's size standards and General Principles of Affiliation to identify small entities, the OCC determined that no small national banks or Federal savings associations are advanced approaches banking organizations. Because the proposed rule would apply only to advanced approaches banking organizations, it would not impact any OCC-supervised small entities. Therefore, the OCC certifies that the proposed rule would not have a significant economic impact on a substantial number of OCC-supervised small entities.

FDIC: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA), requires an agency, in connection with a notice of proposed rulemaking, to prepare an Initial Regulatory Flexibility Act analysis describing the impact of the proposed rule on small entities (defined by the Small Business Administration for purposes of the RFA to include banking entities with total assets of $550 million or less) or to certify that the proposed rule will not have a significant economic impact on a substantial number of small entities.

Using the SBA's size standards, as of June 30, 2014, the FDIC supervised 3,573 small entities. As described in the Supplementary Information section of the preamble, however, the proposed rule would apply only to advanced approaches banking organizations. Advanced approaches banking organization is defined to include a state nonmember bank or a state savings association that has, or is a subsidiary of, a bank holding company or savings and loan holding company that has total consolidated assets of $250 billion or more, total consolidated on-balance sheet foreign exposure of $10 billion or more, or that has elected to use the advanced approaches framework. As of June 30, 2014, based on a $550 million threshold, 2 (out of 3,267) small state nonmember banks and no (out of 306) small state savings associations were under the advanced approaches framework. Therefore, the FDIC does not believe that the proposed rule will result in a significant economic impact on a substantial number of small entities under its supervisory jurisdiction.

The FDIC certifies that the proposed rule would not have a significant economic impact on a substantial number of small FDIC-supervised institutions.

Board: The Board is providing an initial regulatory flexibility analysis with respect to this proposed rule. As discussed above, this proposed rule would clarify, correct, and update aspects of the agencies' regulatory capital framework applicable to banking organizations that are subject to the advanced approaches. The proposed revisions are largely driven by observations made by the agencies during the parallel-run review process of advanced approaches banking organizations as well as a recent assessment of the regulatory capital framework.

Under regulations issued by the Small Business Administration, a small entity includes a depository institution, bank holding company, or savings and loan holding company with total assets of $550 million or less (a small banking organization). 22 As of June 30, 2014, there were approximately 657 small state member banks, 3,719 small bank holding companies, and 254 small savings and loan holding companies.

The proposed rule would apply only to advanced approaches banking organizations, which, generally, are banking organizations with total consolidated assets of $250 billion or more, that have total consolidated on-balance sheet foreign exposure of $10 billion or more, are a subsidiary of an advanced approaches depository institution, or that elect to use the advanced approaches framework. Currently, no small top-tier bank holding company, top-tier savings and loan holding company, or state member bank is an advanced approaches banking organization, so there would be no additional projected compliance requirements imposed on small bank holding companies, savings and loan holding companies, or state member banks. The Board expects that any small bank holding company, savings and loan holding company, or state member bank that would be covered by this proposed rule would rely on its parent banking organization for compliance and would not bear additional costs.

The Board is aware of no other federal rules that duplicate, overlap, or conflict with the proposed rule. The Board believes that the proposed rule will not have a significant economic impact on small banking organizations supervised by the Board and therefore believes that there are no significant alternatives to the proposed rule that would reduce the economic impact on small banking organizations supervised by the Board.

The Board welcomes comment on all aspects of its analysis. A final regulatory flexibility analysis will be conducted after consideration of comments received during the public comment period.

The OCC has analyzed the notice of proposed rulemaking under the factors set forth in the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532). Under this analysis, the OCC considered whether the proposed rule includes 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 (adjusted annually for inflation).

The proposed rule includes clarifications, corrections, and updates for certain aspects of the agencies' regulatory capital rules applicable to national banks and Federal savings associations subject to the OCC's advanced approaches risk-based capital rule.

Because the proposed rule is designed to clarify, correct, and update existing rules, and does not introduce any new requirements, the OCC has determined that it would not result in expenditures by State, local, and Tribal governments, or by the private sector, of $100 million or more. Accordingly, the OCC has not prepared a written statement to accompany its proposed rule.

Section 722 of the Gramm-Leach-Bliley Act requires the Federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The agencies have sought to present the proposed rule in a simple and straightforward manner, and invite comment on the use of plain language. For example:

• Have the agencies organized the material to suit your needs? If not, how could they present the proposed rule more clearly?

• Are the requirements in the proposed rule clearly stated? If not, how could the proposed rule be more clearly stated?

• Do the regulations contain technical language or jargon that is not clear? If so, which language requires clarification?

• Would a different format (grouping and order of sections, use of headings, paragraphing) make the regulation easier to understand? If so, what changes would achieve that?

• Is this section format adequate? If not, which of the sections should be changed and how?

• What other changes can the agencies incorporate to make the regulation easier to understand?

For the reasons set forth in the common preamble and under the authority of 12 U.S.C. 93a, 1462, 1462a, 1463, 1464, 3907, 3909, 1831o, and 5412(b)(2)(B), the Office of the Comptroller of the Currency proposes to amend part 3 of chapter I of title 12, Code of Federal Regulations as follows:

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Table of Contents I. Introduction A. Background B. Dodd-Frank Act C. Overview of the Proposal D. Integrated Set of Prudential Standards E. Global Framework II. Description of the Proposal To Measure and Impose Capital Requirements Based Upon Global Systemic Importance A. Identification of a GSIB B. Using Systemic Indicators Reported on the FR Y-15 C. Computing the Applicable GSIB Surcharge D. Augmentation of the Capital Conservation Buffer E. Implementation and Timing F. Periodic Review and Refinement of the Proposal III. Indicators of Global Systemic Risk A. Size B. Interconnectedness C. Substitutability D. Complexity E. Cross-jurisdictional Activity F. Use of Short-term Wholesale Funding IV. Amendments to the FR Y-15 V. Modifications to Related Rules VI. Regulatory Analysis A. Paperwork Reduction Act B. Regulatory Flexibility Act C. Plain Language I. Introduction A. Background

The 2007-2008 financial crisis demonstrated that certain U.S. financial companies had grown so large, leveraged, and interconnected that their failure could pose a threat to financial stability in the United States and globally. The sudden collapse and near-collapse of major financial companies were among the most destabilizing events of the crisis. As a result, significant public sector intervention was needed to reduce the impact of, or prevent, the failure of these companies and the attendant consequences for the broader financial system. The crisis demonstrated that supervisors and other relevant authorities needed to take additional steps to prevent financial vulnerabilities from spreading among firms in a manner that could undermine national and global financial stability. In response, U.S. authorities have undertaken a comprehensive reform of financial regulation to enhance their ability to monitor and address threats to financial stability, strengthen the prudential oversight and resolvability of systemically important financial institutions, and improve the capacity of financial markets and infrastructures to absorb shocks.

Despite those efforts, a perception persists in the markets that some companies remain too big to fail, which poses a significant threat to the financial system. The perception of too big to fail reduces incentives of shareholders, creditors, and counterparties of these companies to discipline excessive risk-taking by these companies and produces competitive distortions because these companies can often fund themselves at a lower cost than other companies. This distortion is unfair to smaller companies, damages fair competition, and may artificially encourage further consolidation and concentration in the financial system.

The financial crisis also revealed dangers that can emerge as a result of firms' reliance on short-term wholesale funding. Short-term wholesale funding is used by a variety of financial firms, including commercial banks and broker-dealers, and can take many forms, including unsecured commercial paper, asset-backed commercial paper, wholesale certificates of deposits, and securities financing transactions. During normal times, short-term wholesale funding helps to satisfy investor demand for safe and liquid investments, lower funding costs for borrowers, and support the functioning of the financial markets. During periods of stress, however, reliance on short-term wholesale funding can leave firms vulnerable to runs that undermine financial stability.

When short-term creditors lose confidence in a firm or believe other short-term creditors may lose confidence in that firm, those creditors have a strong incentive to withdraw funding quickly before withdrawals by other creditors drain the firm of its liquid assets. To meet its obligations, the borrowing firm may be required to rapidly sell less liquid assets, which it may be able to do only at fire sale prices that deplete the seller's capital and drive down asset prices across the market. In a post-default scenario, fire sale externalities could result if the defaulted firm's creditors seize and rapidly liquidate assets the defaulted firm has posted as collateral. Financial distress can spread among firms as a result of counterparty relationships or because of perceived similarities among firms, forcing firms to rapidly liquidate assets in a manner that places the financial system as a whole under significant strain.

In the wake of the financial crisis, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in order to mitigate the risk to the financial stability of the United States that could arise from the material financial distress or failure of large, interconnected financial institutions. 1 Section 165 of the Dodd-Frank Act directs the Board to establish enhanced prudential standards for bank holding companies with $50 billion or more in total consolidated assets and for nonbank financial companies the Financial Stability Oversight Council (Council) has designated for supervision by the Board (nonbank financial companies supervised by the Board). 2 The enhanced prudential standards include heightened risk-based capital requirements, leverage limits, liquidity requirements, single-counterparty credit limits, stress testing requirements, and risk management requirements. 3 These standards must be more stringent than those standards applicable to other bank holding companies and to nonbank financial companies that do not present similar risks to U.S. financial stability. 4 The standards must also increase in stringency based on several factors, including the size and risk characteristics of a company subject to the rule, and the Board must take into account the difference among bank holding companies and nonbank financial companies based on the same factors. 5 Section 165 also permits the Board to establish other prudential standards in addition to the mandatory standards, including three enumerated standards—a contingent capital requirement, enhanced public disclosures, and short-term debt limits—and any “other prudential standards” that the Board determines are “appropriate.”

Pursuant to its authority to establish enhanced risk-based capital standards under section 165 of the Dodd-Frank Act, the Board is proposing to impose risk-based capital surcharges (GSIB surcharges) upon U.S. bank holding companies that are identified as global systemically important banking organizations (GSIBs). First, the proposal would establish a methodology to determine whether a U.S. top-tier bank holding company is a GSIB based on five broad categories that are believed to be good proxies for, and correlated with, systemic importance—size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity. If a bank holding company's score as calculated under the proposed methodology is 130 basis points or greater, then such a bank holding company would be designated as a GSIB. Under the proposed methodology, eight large U.S. bank holding companies currently would be identified as GSIBs.

A firm that is designated as a GSIB under the proposed methodology would calculate a GSIB surcharge using two methods. The first method would be based on the sum of a firm's systemic indicator scores reflecting its size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity (method 1). The second method would be based on the sum of the firm's systemic indicator scores reflecting its size, interconnectedness, cross-jurisdictional activity, and complexity, as well as a measure of use of short-term wholesale funding, but would exclude the systemic indicator scores reflecting the firm's substitutability (method 2), and would generally result in higher surcharges as compared to method 1. A GSIB's surcharge would be the higher of the two surcharges determined under the two methods.

The proposal would amend the Board's regulatory capital rule to increase a GSIB's capital conservation buffer by the amount of its GSIB surcharge. 6 For example, under the proposal, a bank holding company subject to a GSIB surcharge of 2.5 percent would have a capital conservation buffer of 5.0 percent, which is the sum of the 2.5 percent capital conservation buffer and its GSIB surcharge. 7 The Board is proposing that the GSIB surcharge become effective pursuant to the same timeline as the capital conservation buffer, which will be phased in beginning in 2016 at a rate of 25 percent per year and become fully effective on January 1, 2019. 8

The proposed GSIB surcharge is designed to reduce a GSIB's probability of default such that a GSIB's expected systemic impact is approximately equal to that of a large, non-systemic bank holding company. Distress at a GSIB would have substantially greater negative consequences on the financial system than the failure of other bank holding companies that may be large or interconnected, but that do not have comparable systemic risk profiles. Distress at a GSIB can lead to a domino effect, whereby a GSIB's counterparties are placed under severe strain when the GSIB does not meet its financial obligations. The inability of a counterparty of a GSIB to meet its obligations leads, in turn, to severe strains at its significant counterparties, leading to more firms being unable to fulfill their contractual obligations. In addition, distress at a GSIB can lead to fire sales in asset markets, when a GSIB engages in distressed sales in an effort to obtain needed liquidity. The sudden increase in market supply of assets drives down prices. This effect is transmitted not only to firms that must sell assets to meet immediate liquidity needs but, because of margin calls and mark-to-market accounting requirements, to many other firms as well. There can also be information contagion effects, where market participants conclude from a GSIB's distress that other firms holding similar assets or following similar business models are likely to also be facing distress. Taken together, these impacts indicate that the failure of a GSIB could affect not only those firms closely connected to the GSIB, but also the broader financial system. Because the systemic loss given default of a GSIB is much greater than that of a large, non-systemic bank holding company, its probability of default must be significantly lower than that of a large, non-systemic bank holding company in order to equalize the expected systemic impact of its failure or distress.

The proposed GSIB surcharge increases in stringency based on a GSIB's risk characteristics, including size, complexity, interconnectedness, cross-jurisdictional activity, and use of short-term wholesale funding. In this way, the calibration is designed to induce a GSIB to reduce its risk of failure, internalize the negative externalities it poses, and correct for competitive distortions created by the perception that it may be too big to fail. In addition, the proposed GSIB surcharge would place additional private capital at risk before the Federal Deposit Insurance Fund or the Federal government's resolution mechanisms would be called upon and would reduce the likelihood of economic disruptions as a result of financial distress at these institutions.

The proposed GSIB surcharge is one of several enhanced prudential standards that the Board has developed pursuant to section 165 of the Dodd Frank Act. In November 2011, the Board and the Federal Deposit Insurance Corporation (FDIC) issued a joint final rule that would require bank holding companies and foreign banking organizations with $50 billion or more in total consolidated assets and nonbank financial companies designated by the Council for supervision by the Board to submit annual resolution plans. 9 Also in November 2011, the Board issued a final rule requiring a bank holding company to submit an annual capital plan to the Board in which it demonstrates the ability to meet the Board's minimum regulatory capital requirements over a range of stressed conditions. 10 In October 2012, the Board issued two final rules implementing stress testing requirements for certain bank holding companies, state member banks, and savings and loan holding companies pursuant to sections 165(i)(1) and (2) of the Dodd-Frank Act. 11 In February 2014, the Board issued a final rule establishing liquidity and risk management standards for U.S. bank holding companies and capital, stress testing, liquidity, and risk management standards for foreign banking organizations. 12 Finally, in September 2014, the Board, the FDIC, and the Office of the Comptroller of the Currency (OCC) issued the liquidity coverage ratio rule (LCR rule) that creates for the first time a standardized minimum liquidity coverage ratio requirement for the largest, most complex banking organizations. 13

In addition, the Board has adopted measures to strengthen the capital regulations applicable to all banking organizations. In July 2013, the Board, the FDIC, and the OCC adopted a final rule revising the regulatory capital rule to increase the quality and quantity of regulatory capital that must be maintained by banking organizations, and to improve risk coverage by more accurately measuring the risk inherent in exposures. 14 The final rule also established a capital conservation buffer that incentivizes banking organizations to hold capital in excess of regulatory minimums by imposing increasingly stringent limits on capital distributions and certain discretionary bonus payments as the banking organization's buffer falls below specified thresholds. For the case of banking organizations subject to the advanced approaches rule, the regulatory capital rule also includes a mechanism for increasing the capital conservation buffer when credit markets overheat (through the countercyclical buffer), and a supplementary leverage ratio that takes into account both on- and off-balance sheet exposures. 15 In April 2014, the Board, the FDIC, and the OCC issued enhanced supplementary leverage ratio standards for the largest, most complex bank holding companies ( i.e., the bank holding companies that would be identified as GSIBs under the proposed rule) and their insured depository institution subsidiaries, under which such bank holding companies must maintain a supplementary leverage ratio of 5 percent or more in order to avoid limitations on distributions and certain discretionary bonus payments, and such insured depository institution subsidiaries must maintain a supplementary leverage ratio of 6 percent or more to be “well capitalized” under the agencies' prompt corrective action regulations. 16

The Board continues to develop additional enhanced standards that will mitigate risks to U.S. financial stability posed by certain banking organizations.

The proposed GSIB surcharge is consistent with global efforts to address the financial stability risks posed by the largest, most interconnected financial institutions. Following the financial crisis, the Group of Twenty Finance Ministers and Central Bank Governors (G-20) requested that the Financial Stability Board (FSB) develop a policy framework to address the systemic and moral hazard risks associated with systemically important financial institutions, and in particular, global systemically important financial institutions. 17 In November 2010, the G-20 endorsed an FSB policy framework for addressing these institutions, one element of which is a capital surcharge for global systemically important financial institutions. 18 In November 2011, the FSB published an integrated set of policy measures to address the systemic and moral hazard risks associated with global systemically important financial institutions, intended to mitigate the impact of the failure of a global systemically important financial institution and reduce any competitive funding advantages these firms may have as a result of the perception that they are too big to fail. 19 The FSB identified the global systemically important financial institutions using an assessment methodology and framework developed by the Basel Committee on Banking Supervision (BCBS framework). 20 The BCBS calculates global firms' scores and releases the lists of global systemically important financial institutions, including global systemically important banking organizations, on an annual basis. 21

The BCBS plans to review the BCBS framework, including the indicator-based measurement approach and the threshold scores for identifying global systemically important financial institutions, every three years in order to capture developments in the banking sector and any progress in methods and approaches for measuring systemic importance. 22 The first three-year review has already begun. In connection with this review, the Board has encouraged the BCBS to consider including a measure of short-term wholesale funding within the BCBS framework.

The proposal would establish a methodology for identifying a U.S. bank holding company as a GSIB based on the bank holding company's systemic risk profile and establishing the appropriate size of the GSIB surcharge.

The proposal would require each U.S. top-tier bank holding company with total consolidated assets of $50 billion or more that is not a subsidiary of a non-U.S. banking organization to determine annually whether it is a GSIB by using five categories that measure global systemic importance: Size, interconnectedness, substitutability, complexity, and cross-jurisdictional activity. These proposed categories were chosen to measure whether the failure of a bank holding company, or the inability of a bank holding company to conduct regular course-of-business transactions, would likely impair financial intermediation or financial market functioning so as to inflict material damage on the broader economy. These factors are also consistent with the factors that the Board considers in reviewing financial stability implications of proposed mergers and acquisitions by banking organizations. 23

The proposal identifies individual systemic indicators that measure the firm's profile within each category, set forth in Table 1 below, and sets forth a weighting for those indicators to compute a bank holding company's systemic indicator score. The advantages of a multiple indicator-based measurement approach is that it encompasses many dimensions of systemic importance and is transparent. These systemic indicators, and their relationship to financial stability, are described in section III of this preamble.

To determine whether it is a GSIB, a bank holding company would first identify values for each systemic indicator listed in Table 1 that it reported on its most recent Banking Organization Systemic Risk Report (FR Y-15). 24 The bank holding company would then divide each of these values by the corresponding aggregate global indicator amount published by the Board in the fourth quarter of that year. This aggregate global indicator amount corresponds to the amount released by the BCBS, converted from Euros to U.S. dollars using the conversion rate provided by the BCBS. The aggregate global indicator amount released by the BCBS is the sum of the systemic indicator amounts for each category listed in Table 1 above, as reported by a sample of the largest banking organizations in the world for each systemic indicator. 25 The resulting quotient for each indicator would be multiplied by the prescribed weighting indicated in Table 1 above, and then multiplied by 10,000 to reflect the result in basis points. For example, if a bank holding company's cross-jurisdictional claims divided by the associated aggregate global amount for that indicator is 0.03 (that is, the firm's cross-jurisdictional claims amount is equal to 3 percent of the aggregate global amount for cross-jurisdictional claims), then its cross-jurisdictional claims indicator score would be 30 basis points (0.03*0.1*10,000). A bank holding company would then sum the weighted values for the twelve systemic indicators to determine its aggregate systemic indicator score and whether it would be identified as a GSIB, provided that the value for the substitutability indicators would be capped at 100, as described in section III.C of this preamble. 26 Under this methodology, a bank holding company's systemic importance depends on the amount of its activity in each systemic indicator relative to the global magnitude of the activity. The multi-indicator approach reflects the fact that there are multiple elements that contribute to systemic importance. The aggregate global indicator amounts released annually by the BCBS provide a simple and convenient means of comparing the global, consolidated activities of similarly situated global banking organizations.

In determining the threshold for identifying a GSIB, the Board analyzed various potential metrics for evaluating the systemic importance of large banking organizations, including those in the BCBS framework. 27 According to the Board's analysis, across many potential metrics, there is a clear separation in systemic risk profiles between the eight U.S. top-tier bank holding companies that would be identified as GSIBs under the proposed methodology and other bank holding companies. For example, using the estimated global systemic scores for the U.S. bank holding companies with over $50 billion of total consolidated as derived from data reported on the FR Y-15 filed in March 2014, there is a significant gap in scores among the largest bank holding companies, with all entities other than the eight bank holding companies that would currently be identified as GSIBs receiving aggregate systemic indicator scores of less than 50 points. Further, the bank holding company with the highest aggregate systemic indicator score that is not a GSIB received a score of approximately one third of that of the GSIB with the lowest aggregate systemic indicator score. The 130 basis point threshold is intended to capture the bank holding companies that are in this separate, higher systemic importance group. Bank holding companies with aggregate systemic indicator scores under the 130 basis point threshold would not be subject to a GSIB surcharge. 28

The proposal would require a bank holding company with total consolidated assets of $50 billion or more to begin calculating its aggregate systemic indicator score by December 31 of the year in which it crosses the $50 billion threshold. While the Board's other regulations implementing section 165 of the Dodd-Frank Act generally measure application of the enhanced prudential standards based on a four-quarter average of total consolidated assets, the proposal would adopt a June 30 measurement date of total consolidated assets to be consistent with the FR Y-15 reporting schedule.

Question 1. What are commenters' views on the scope of application of the proposal? Is the $50 billion total consolidated asset threshold appropriate for requiring bank holding companies to calculate their systemic indicator scores, or should some higher asset threshold be considered? Is it appropriate to exclude bank holding companies that are subsidiaries of non-U.S. banking organizations from the proposal's scope of application?

Question 2. What, if any, different or additional indicators should the Board consider for the identification of a bank holding company as a GSIB? In particular, should the Board take into account a bank holding company's use of short-term wholesale funding instead of or in addition to substitutability in determining whether it should be designated as a GSIB? Why or why not?

Question 3. What, if any, different aggregate systemic indicator score threshold should the Board consider for the designation of a bank holding company as a GSIB?

Question 4. If the proposed framework were applied to nonbank financial companies designated by the Financial Stability Oversight Council for Board oversight, how (if at all) should the framework be modified to capture the systemic risk profile of those companies?

As noted above, the systemic indicators are aligned with those reported by a bank holding company on the FR Y-15. The FR Y-15, implemented on December 31, 2012, is an annual report that gathers data on components of systemic risk from large bank holding companies and provides firm-specific information to enable an analysis of the systemic risk profiles of such firms. 29 The FR Y-15 was developed to facilitate the implementation of the GSIB surcharge through regulation, and also is used to analyze the systemic risk implications of proposed mergers and acquisitions and to monitor, on an ongoing basis, the systemic risk profiles of bank holding companies subject to enhanced prudential standards under section 165 of the Dodd-Frank Act. As of December 31, 2013, all U.S. top-tier bank holding companies with total consolidated assets of $50 billion or more are required to file the FR Y-15 on an annual basis. In connection with this proposal, the Board intends to modify the FR Y-15 to gather information on bank holding companies' use of short-term wholesale funding.

Question 5. Is the proposed use of June 30 as the measurement date for the $50 billion total consolidated asset threshold appropriate? Is there an alternative measurement date that should be used?

Under the proposal, a bank holding company with an aggregate systemic indicator score of 130 basis points or greater would be identified as a GSIB and as such, would be subject to the higher of the two surcharges calculated under method 1 and method 2, as described below.

A GSIB's method 1 surcharge would be the capital surcharge set forth in Table 2 below that corresponds to its aggregate systemic indicator score. As discussed further in section II.C.3 of this preamble, the proposed method 1 surcharge reflects one method of calibrating the size of a surcharge based on the probable systemic impact from the failure of a GSIB as compared to a bank holding company that is large, but not systemically important.

For instance, if a GSIB's systemic indicator score were 250, the GSIB's method 1 surcharge would be 1.5 percent.

As reflected in Table 2, the lowest method 1 surcharge would correlate to a method 1 score band ranging from 130 basis points to 229 basis points and would increase in increments of 0.5 percentage points for each additional 100 basis-point band, up to a method 1 surcharge of 2.5 percent. To account for the possibility that a GSIB's aggregate systemic indicator score could increase in the future beyond the fourth band, the proposal would require a one percentage point increase in the method 1 surcharge for each 100 basis point band at and above 530 basis points. An indefinite number of bands would give the Board the ability to assess an appropriate method 1 surcharge should a GSIB become significantly more systemically important, and would create disincentives for continued increases in global systemic scores.

Calibrating the surcharge using bands, as set forth in the proposal, or using a continuous function that increases linearly based on the weighted average of a bank holding company's systemic indicator score was considered during the development of the proposal. While the continuous function is more sensitive to changes in a bank holding company's systemic risk profile, it could be less transparent to the public and may be misleading in its precision as a measure of systemic risk. Accordingly, the proposal uses bands because it is a simple, transparent method that enables a GSIB and the public to better anticipate the size of the method 1 surcharge for future periods. The bands are intended to be sufficiently large so that modest changes in a firm's systemic indicators would not cause a firm to move between surcharge amounts. However, to the extent that a marginal change in a bank holding company's systemic risk profile caused the bank holding company to have a higher method 1 score, the proposal would delay the effective date of the higher method 1 score for a full year after it was calculated.

As a second step to determining its GSIB surcharge, a GSIB would be required to compute its surcharge under method 2. Under method 2, the GSIB would calculate a score for the size, interconnectedness, complexity, and cross-jurisdictional activity systemic indicators in the same manner as undertaken to compute its aggregate systemic indicator score. However, rather than using the substitutability systemic indicator used under method 1, the GSIB would instead add to its score a quantitative measure of its use of short-term wholesale funding (short-term wholesale funding score).

The proposal would include a firm's short-term wholesale funding score as a factor in the GSIB surcharge in order to address the systemic risks associated with short-term wholesale funding use. As described in section I.A. of this preamble, use of short-term wholesale funding generally increases a firm's probability of default by making the firm vulnerable to short-term creditor runs, and increases the likely social costs of the firm's distress, including by heightening the risk that the firm's significant stress or failure will give rise to fire sale externalities. Incorporating a short-term wholesale funding score into the GSIB surcharge framework would require a GSIB to hold more capital based on whether it relies more heavily on short-term wholesale funding. The increased capital charge would help increase the resiliency of the firm against runs on its short-term wholesale funding and help internalize the cost of using short-term wholesale funding. A GSIB may opt to modify its funding profile to reduce its use of short-term wholesale funding, or continue to use short-term wholesale funding to the same degree but hold additional capital.

The proposed method 2 would not rely on a measure of substitutability, even though the proposal would use substitutability to determine whether a bank holding company would be identified as a GSIB. A bank holding company's substitutability is relevant in determining whether a bank holding company is a GSIB, as the failure of a bank holding company that performs a critical function where other firms lack the expertise or capacity to do so can pose significant risks to U.S. financial stability. However, the capital surcharge imposed on a GSIB should be designed to address the GSIB's susceptibility to failure, and increasing a GSIB's surcharge based on short-term wholesale funding use rather than substitutability is a more effective means of requiring a GSIB to internalize the externalities it imposes on the broader financial system and reduce its probability of failure. A GSIB's short-term wholesale funding score would be based on the GSIB's average use of short-term wholesale funding sources over a calendar year. The proposed components of short-term wholesale funding would be weighted to account for the varying degrees of risk associated with different sources of short-term wholesale funding, and would then be divided by the GSIB's average total risk-weighted assets over the same calendar year. A GSIB would then apply a fixed conversion factor to the measure of short-term wholesale funding to normalize the value of short-term wholesale funding relative to the other systemic indicators. This amount would constitute the GSIB's short-term wholesale funding score. The methodology to calculate the short-term wholesale funding score, including its justification, is described in detail in section III.F of this preamble.

Once a GSIB calculates its short-term wholesale funding score, the GSIB would add its short-term wholesale funding score to the systemic indicator scores for the size, interconnectedness, complexity, and cross-jurisdictional activity indicators and multiply this figure by two to arrive at its method 2 score. To determine its method 2 surcharge, a GSIB would identify the method 2 surcharge that corresponds to its method 2 score, as identified in Table 3 below.

For instance, if a GSIB's short-term wholesale funding score were 200 and the sum of its systemic indicator scores for the size, interconnectedness, complexity, and cross-jurisdictional activity indicators were 530, the GSIB's method 2 score would equal 730, and its method 2 surcharge would be 4.0 percent.

Like the bands of the method 1 surcharge, the method 2 surcharge would use band ranges of 100 basis points, with the lowest band ranging from 130 basis points to 229 basis points. The method 2 surcharge would increase in increments of 0.5 percentage points per band, including bands at and above 1130 basis points. The modified band structure is appropriate for the method 2 surcharge because the proposed method's doubling of a GSIB's method 2 score could otherwise impose a surcharge that is larger than necessary to appropriately address the risks posed by a GSIB's systemic nature. As with the method 1 surcharge, the method 2 surcharge would include an indefinite number of bands in order to give the Board the ability to assess an appropriate surcharge should a GSIB become significantly more systemically important and would create disincentives for continued increases in systemic indicator and short-term wholesale funding scores.

Under the proposal, a GSIB would be subject to the greater surcharge resulting from the two methods described above. Based upon the proposed formulation of method 2, in most instances, a GSIB would be subject to the surcharge resulting from method 2.

The proposed calibration of the GSIB surcharges is based on the Board's analysis of the additional capital necessary to equalize the probable systemic impact from the failure of a GSIB as compared to the probable systemic impact from the failure of a large, but not systemically important, bank holding company. Increased capital at a GSIB increases the firm's resiliency to failure, thereby reducing the probability of it having a systemic effect. The proposed approach also builds on analysis of the return on risk-weighted assets that was developed to inform the calibration of the minimums and capital conservation buffers of the Board's regulatory capital rule.

In addition, the Board considered the long-term economic impact of stronger capital and liquidity requirements at banking organizations. In 2010, the BCBS published a study (2010 BCBS study), which estimated, using historical data, that the economic benefits of more stringent capital and liquidity requirements, on net, outweighed the cost of such requirements and that benefits would continue to accrue at even higher levels of risk-based capital than are a part of the Board's regulatory capital rule. 30 The Board also considered that other jurisdictions have established capital requirements for global systemically important banking organizations that exceed those required by the BCBS framework; for instance, by imposing a larger surcharge upon global systemically important banking organizations than would be imposed under the BCBS framework or by requiring implementation of a global systemically important banking organization surcharge on a more expedited timeline. For example, Switzerland, Sweden, and Norway each require global systemically important banking organizations to adhere to capital requirements larger than those of the BCBS framework. 31

Under the proposal, the method 1 surcharge would serve as a floor for the GSIB surcharge. Like the method 2 surcharge, the method 1 surcharge is based on the expected impact approach, but differs in three important ways. First, based upon current data, method 1 generally results in lower GSIB surcharges than method 2. Second, as compared to method 2, method 1 increases the GSIB surcharge at a higher rate to the extent a GSIB's systemic risk profile were to exceed the highest aggregate systemic indicator scores of the current GSIB population. As described above, the proposed method 1 surcharge would increase in 0.5 percentage point increments up to 2.5 percent, and then in 1.0 percentage point increments after a GSIB's systemic risk profile increases beyond the maximum current level ( i.e., beyond 250 points). Accordingly, in the future, a GSIB that increases in systemic importance could be bound by proposed method 1, rather than method 2. Third, method 1 would use a measure of substitutability. While the use of short-term wholesale funding is likely a more effective indicator for evaluating a GSIB's susceptibility to failure, a GSIB with a high substitutability score but low systemic indicator scores in all other categories may be subject to a surcharge under method 1 but not under method 2. In this case, imposing the method 1 surcharge would be appropriate, in order to correct for competitive and systemic distortions created by the perception that the GSIB may be too big to fail. Notably, this approach would also facilitate comparability among jurisdictions implementing the BCBS framework.

Using data as of year-end 2013, the Board estimates that the GSIB surcharges that would apply to the eight U.S. top-tier bank holding companies that would be identified as GSIBs would range from 1.0 to 4.5 percent. 32 Based upon these estimates, nearly all of the eight firms would already meet their GSIB surcharges on a fully phased-in basis, and all firms are on their way to meeting their surcharges over the proposed three-year phase-in period.

Question 6. The Board seeks comment on all aspects of the calibration of the GSIB surcharge. What are commenters' views regarding the proposed calibration? What are commenters' views regarding the benefits and challenges associated with the proposed two-method approach for determining the amount of the GSIB surcharge?

Question 7. What are commenters' views on the appropriateness of replacing the substitutability indicator with the short-term wholesale funding score under method 2?

Question 8. What are commenters' views on how the proposed GSIB surcharge would impact the competitive position of GSIBs relative to foreign peer institutions?

Question 9. What potential costs would be imposed on bank holding companies if the proposed GSIB surcharge were implemented? What are the potential impacts of the proposed framework on economic growth, credit availability, and credit costs in the United States, over the short-term and long-term? How could potential costs, burdens, and other adverse effects be minimized while achieving the financial stability benefits of the proposed GSIB surcharge?

Alternative methods could be used to reflect use of short-term wholesale funding within the GSIB surcharge. For example, the applicable surcharge might be calculated by using short-term wholesale funding as a scaling factor for the method 1 surcharge. For example, one approach might be:

As noted above, the Board believes that in most instances, GSIB Method 2 will be greater than GSIB Method 1 . Multiplying the method 1 surcharge by a scaling factor F could result in stronger incentives to reduce use of short-term wholesale funding, particularly among the most systemic firms. For example, using the existing measure of reliance (short-term wholesale funding/total average risk-weighted assets) and a scaling factor of 4 ( n =4) produces a comparable set of surcharges relative to the method 2 surcharge described above. Similarly, choosing a smaller factor for n would result in a smaller increase in GSIB surcharges.

Scaling the method 1 surcharge using a factor that incorporates short-term wholesale funding would reflect the view that the externalities associated with short-term wholesale funding depend largely on those firms identified as GSIBs under the proposed methodology. As a result, this alternative approach would maintain consistency with the BCBS framework's surcharge methodology. In addition, alternative scaling factors might be considered by altering the definition of short-term wholesale funding or using alternative dominators other than total average risk-weighted assets.

Question 10. What are commenters' views regarding scaling the method 1 surcharge to capture use of short-term wholesale funding? How should the scaling factor be chosen?

Under the proposal, the GSIB surcharge would augment the regulatory capital rule's capital conversation buffer for purposes of determining the banking organization's maximum payout ratio. 33

Under the regulatory capital rule, a banking organization must maintain capital sufficient to meet a minimum common equity tier 1 capital requirement of 4.5 percent, a minimum tier 1 capital requirement of 6 percent, and a minimum total capital requirement of 8.0 percent. In addition to those minimums, in order to avoid limits on capital distributions and certain discretionary bonus payments, a banking organization must hold sufficient capital to satisfy the minimum capital requirements, plus a capital conservation buffer composed of common equity tier 1 capital equal to more than 2.5 percent of risk-weighted assets. The capital conservation buffer is divided into quartiles, each associated with increasingly stringent limitations on capital distributions and certain discretionary bonus payments as the capital conservation buffer approaches zero. 34

Under the proposal, the GSIB surcharge would expand each quartile of a GSIB's capital conservation buffer by the equivalent of one fourth of the GSIB surcharge. 35 The minimum common equity tier 1 capital requirement for banking organizations is 4.5 percent, which, when added to the capital conservation buffer of 2.5 percent, results in a banking organization needing to maintain a common equity tier 1 capital ratio of more than 7 percent to avoid limitations on distributions and certain discretionary bonus payments. Under the proposal, this 7 percent level would be further increased by the applicable GSIB surcharge.

The mechanics of the capital conservation buffer calculations, after incorporating the GSIB surcharge, are illustrated in the following example. 36 A bank holding company is identified as a GSIB under the proposed framework as a result of having an aggregate systemic indicator score of 350 basis points. Under method 1, the GSIB's score correlates to a 2.0 percent method 1 surcharge. Under method 2, the GSIB's method 2 score equals 625, so that the GSIB's score would correlate to a surcharge of 3.0 percent. As the method 2 surcharge is larger than the method 1 surcharge, the GSIB would be subject to a GSIB surcharge of 3.0 percent. As a result, in order to have no payout ratio limitation under the proposal, the GSIB must maintain a common equity tier 1 capital ratio in excess of 10 percent (determined as the sum of the minimum common equity tier 1 capital ratio of 4.5 percent plus the capital conservation buffer of 2.5 percent as expanded by the 3 percent GSIB surcharge). In determining the effect on capital distributions and bonus payments, each of the four quartiles of the GSIB's capital conservation buffer would be expanded by one fourth of its GSIB surcharge, or by 0.75 percent, as set forth below in Table 5.

The FAA's authority to issue rules on aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority.

This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General Requirements.” Under that section, the FAA is charged with promoting safe flight of civil aircraft in air commerce by prescribing regulations and minimum standards for the design and performance of aircraft that the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority. It prescribes new safety standards for the design and operation of transport category airplanes.

The FAA proposes to amend the airworthiness regulations in Title 14, Code of Federal Regulations (14 CFR) part 25 related to lightning protection for fuel systems  1 (including fuel tank structure  2 and systems. 3 ) This action would remove the requirement for the prevention of lightning ignition sources from § 25.981(a)(3) at Amendment 25-102 and add a new requirement to § 25.954 for the prevention of ignition due to lightning.

We propose to revise § 25.954 to expand and clarify its objective and to modify it to meet current knowledge about lightning and state-of-the-art airplane design. This new requirement would reduce the risk of fuel tank ignition by requiring applicants to account for both ignition sources and fuel tank flammability limits established by existing regulations. The proposed amendments would adopt a performance-based standard to prevent catastrophic fuel tank vapor ignition due to lightning, rather than focus solely on the prevention of ignition sources.

We propose to insert an exception into § 25.981(a)(3) to remove its applicability to lightning protection. Inclusion of lightning in that section has resulted in recurring cases where applicants showed that compliance was impractical, leading them to seek exemptions to compliance with § 25.981 for fuel tank structural aspects. We have not issued exemptions for systems-related lightning protection, but we believe common treatment of structure- and systems-related lightning protection in the fuel system is appropriate.

To maintain the integrity of lightning protection features of airplanes certificated under the amended rules, we propose to amend part 25 appendix H to create a new requirement for applicants to establish airworthiness limitations specific to the airworthiness of fuel tank structure and systems lightning protection features.

This proposed rule would affect manufacturers who apply for type certification of new or significantly modified transport category airplanes, specifically, the airplanes' fuel tank structures and systems. It would also apply to applicants for supplemental type certificates for such modifications. This proposal would revise the part 25 regulations for design and maintenance of lightning protection features for fuel tank structure and systems.

We have found that compliance with § 25.981(a)(3), as it is currently written, is not always practical. The impracticality has led applicants to petition for exemptions and the FAA to impose special conditions to achieve the intended level of safety of the rule, which has created an administrative burden on industry and the FAA.

Lightning strikes to airplanes do occur, particularly when operating in instrument meteorological conditions. When lightning strikes an airplane, high transient current is conducted in the airplane structure. The transient current can melt, burn, and deform airplane parts and structure where the lightning attaches to the airplane. This current is also conducted through the airplane structure between the lightning attachment points on the airplane. The conducted lightning transient current can also induce voltage and current on airplane wiring, tubes, and control mechanisms. Melting, burning, arcing, or sparking due to conducted lightning current or voltage can result in fuel vapor ignition if they occur in a flammable environment.

On June 26, 1959, a Lockheed L-1649A Constellation was struck by lightning, which caused explosions in two of its fuel tanks, resulting in a crash. This airplane was fueled with aviation gasoline. Prior to this accident, government and industry had conducted research into the possible effects of lightning on airplane fuel tanks, but the scope of this research had been limited to the melting of integral fuel tank skin, and hot-spot formation.

Fuel vapor ignition due to lightning was the probable cause of a Boeing 707 accident that occurred near Elkton, Maryland on December 8, 1963. At the time of its certification, the 707 was not required to demonstrate effective lightning protection for fuel systems. Following the 707 accident, government and industry performed substantial research to determine the factors that could result in lightning-related fuel vapor ignition. However, most of this research focused on lightning burn-through for metal fuel tank structure, and lightning-related ignition of fuel vapor in fuel vents.

On December 23, 1971, lightning struck a Lockheed L-188A Electra, which led to a fire and separation of the right wing. Since the L-188A was certified by the FAA in 1958, the type did not benefit from the additional attention given to airplane fuel tanks after § 25.954 was published in 1967.

On May 9, 1976, a Boeing 747 crashed during descent into Madrid, Spain following a lightning strike to the airplane. The investigation of this accident found evidence that fuel vapor ignition could have been caused by lightning-induced sparking at a motor-driven fuel valve.

In three of the four accidents noted above, investigations found that the airplane fuel tanks contained either aviation gasoline or a mixture of Jet A kerosene-type fuels and higher volatility Jet B/JP-4 fuels. The fuel type involved in the 1971 Electra accident was not identified. The investigations for the other three accidents determined that the fuel mixtures would be flammable at the temperatures and altitudes that the airplanes were flying at the time of the lightning strikes. During the 1980s the use of Jet B/JP-4 fuels began to decline and those fuels became nearly obsolete in the 1990s.

Since the last lightning-related airplane fuel tank explosion (1976), the understanding of lightning effects on airplane fuel tanks and systems has increased significantly, and no further events have occurred even though the number of flight hours since the 1976 accident (approaching 1 billion) is more than 8 times that which preceded that event (less than 120 million).

Methods for preventing ignition sources due to lightning strikes are mature and are based on years of research into natural lightning characteristics and effects on airplane structure and systems. The results have been documented in a large body of literature and formalized into SAE standards such as ARP5412, 4 ARP5414, 5 and ARP5416. 6 The FAA has accepted use of these standards through Advisory Circulars (AC) 20-53B, Protection of Aircraft Fuel Systems Against Fuel Vapor Ignition Caused by Lightning, and AC 20-155, SAE Documents to Support Aircraft Lightning Protection Certifications . The International Conference on Lightning and Static Electricity (ICOLSE), National Aeronautics and Space Administration (NASA), the European Organization on Commercial Aircraft Equipment (EUROCAE), and other industry forums have published much of the supporting research. A high level of communication among airplane lightning specialists worldwide ensures that designers and certification authorities are continually informed of advances in lightning protection technology and application of this technology to new designs.

Following the 1963 Boeing 707 Elkton accident, the FAA adopted new fuel system lightning protection regulations. These regulations were implemented for transport category airplanes in § 25.954 at Amendment 25-14, Fuel system lightning protection. Section 25.954 states:

The fuel system must be designed and arranged to prevent the ignition of fuel vapor within the system by—

(a) Direct lightning strikes to areas having a high probability of stroke attachment;

(b) Swept lightning strokes to areas where swept strokes are highly probable; and

(c) Corona and streamering at fuel vent outlets.

This regulation requires lightning protection regardless of the likelihood that lightning would strike the airplane. This regulation does not acknowledge that lightning protection features could fail or become ineffective. The regulation contains no requirement for fault-tolerant fuel system lightning protection or for any evaluation of probabilities of failures related to the lightning protection features.

Following the 1976 Madrid Boeing 747 accident, the FAA issued a number of airworthiness directives to address possible sources of ignition that were found during the investigation. The FAA subsequently developed further guidance for airplane fuel system lightning protection. Specifically, the FAA revised AC 20-53, Protection of Airplane Fuel Systems Against Fuel Vapor Ignition Due to Lightning . This AC has been revised twice since its original issue. These documents added emphasis regarding lightning protection of fuel system components such as fuel tubes, fuel quantity systems, and fuel filler caps.

On July 17, 1996, a Boeing 747 operating as TWA Flight 800 was involved in an in-flight breakup after takeoff. The ensuing investigation determined that the center wing fuel tank exploded due to an unknown ignition source. Following the Flight 800 accident, the FAA reviewed the transport airplane fleet history and determined that fail-safe design principles had not been properly applied to prevent ignition sources in fuel tanks and application of the existing rules had not been adequate to prevent fuel tank explosions. The FAA also found that preventing ignition sources throughout the life cycle of a transport category airplane was an extremely difficult task and agreed with National Transportation Safety Board (NTSB) recommendations to also reduce or eliminate fuel tank flammability.

In January 1998 the FAA tasked  7 an Aviation Rulemaking Advisory Committee (ARAC) to provide specific recommendations and propose regulatory text that would eliminate or significantly reduce the hazards associated with explosive vapors in transport category airplane fuel tanks. Under the tasking, the proposed regulatory text was to ensure that new type designs of transport category airplanes are designed and operated so that during normal operation (up to maximum certified operating temperatures) the presence of explosive fuel vapor in all tanks is eliminated, significantly reduced, or controlled to the extent that there could not be a catastrophic event. The ARAC concluded  8 it was not practical to eliminate fuel tank flammability. They determined that the safety level of unheated aluminum main fuel tanks on airplanes using Jet A type fuel was adequate, and recommended that fuel tank flammability be limited to that level.

In May 2001 the FAA adopted Amendment 25-102 (66 FR 23086-23131) revising § 25.981, Fuel tank ignition prevention, which was intended to prevent future fuel tank explosions. This amendment adopted a new § 25.981(a)(3), which eliminated ambiguity as to the necessary methods of compliance with the previously established requirements of §§ 25.901 and 25.1309. As stated in AC 25.981-1C, “. . . in order to eliminate any ambiguity as to the restrictions on latent failures, § 25.981(a)(3) explicitly requires that any anticipated latent failure condition not result in the airplane being one failure away from a catastrophic fuel tank ignition.”

This new paragraph added the requirement that the fuel tank design address potential failures that could cause ignition sources within the fuel system. Section 25.981(a)(3) requires consideration of factors such as aging, wear, and maintenance errors as well as the existence of single failures, combinations of failures not shown to be extremely improbable, and single failures in combination with latent failures to account for the cause of many ignition sources in fuel tanks and deficiencies in the existing regulations.

Section 25.981(a)(3) states that no ignition source may be present at each point in the fuel tank or fuel tank system where catastrophic failure could occur due to ignition of fuel or vapors. This must be shown by demonstrating that an ignition source could not result from each single failure, from each single failure in combination with each latent failure condition not shown to be extremely remote, and from all combinations of failures not shown to be extremely improbable. The effects of manufacturing variability, aging, wear, corrosion, and likely damage must be considered.

While lightning was not listed as a probable cause of the Flight 800 accident, the FAA's accident and incident historical review of fuel tank explosions resulted in our finding that improving fuel tank safety required preventing ignition from all sources, including lightning. Potential ignition sources due to lightning must be considered as part of compliance with this regulation, as discussed in the rulemaking preamble for § 25.981(a)(3) and the associated AC 25.981-1. This regulation effectively requires fail-safe ignition prevention means, like redundant features, or monitoring and indication of failures, be provided. However, in applying this rule to recent certification programs, we found that for the purpose of lightning protection, providing redundant features is not always practical. For example, failures of lightning protection features could remain latent for years between inspections, thereby exposing the fuel tank to the risk of ignition due to lightning. Typically these latent failures cannot be shown to be extremely remote considering the long inspection intervals.

The preamble to Amendment 25-102 stated the FAA's assumption that environmental conditions such as lightning are present when failures of systems occur. Consistent with this approach, AC 25.981-1C also states that applicants should assume that a lightning attachment could occur at any time (probability of lightning = 1). In addition, industry and FAA practice had been to assume that a defined set of severe lightning current components would be associated with every lightning strike to the aircraft. AC 25.981-1C, as well as the user's manual  9 associated with AC 20-53 that defines guidance for compliance to § 25.954, also states that applicants should assume that the fuel tank is always flammable (probability = 1).

Amendment 25-102 also introduced § 25.981(b) requirements to identify critical design configuration control limitations (CDCCLs) to prevent development of ignition sources within the fuel tank systems.

When Amendment 25-102 was adopted, the FAA considered it practical to limit fuel tank flammability to that of an unheated aluminum fuel tank. As recommended by the ARAC, the amendment adopted § 25.981(c) that required minimizing the flammability of airplane fuel tanks, or mitigating the effects of an explosion such that any damage from a fire or explosion would not prevent continued safe flight and landing. The FAA considered flammability control, through the use of fuel tank designs that provided cooling of the tanks using ventilation, as well as locating heat sources away from fuel tanks, to be practical means of minimizing fuel tank flammability. The FAA explained in the preamble to the rule that the intent was to limit fuel tank flammability to that of an unheated aluminum wing fuel tank. This regulation did not specifically require fuel tank inerting, nor did the regulation state specific fuel tank flammability limits. The preamble to Amendment 25-102 stated:

At the time we developed Amendment 25-102 ( i.e., 1998-2001), the FAA and industry were still exploring the dynamics of tank flammability and the fleet average flammability exposure for transport airplane fuel tanks. Evaluation of the technical and economic viability of fuel tank inerting systems for commercial transport airplanes was also in its early stages at that time. After promulgation of Amendment 25-102, the FAA and industry continued research and discussion of the measurement and modeling of fuel tank flammability and development of practical means to reduce or eliminate flammability in transport airplane fuel tanks. This eventually led to the certification of practical retrofit designs for center wing fuel tank nitrogen generating systems on existing transport airplane models. 10 Those systems use nitrogen-enriched air that is generated onboard the airplane to displace oxygen in the fuel tank. This results in inerting the fuel tank throughout most of the flight and ground operations. Some applicants for new type certificates involving composite wing structure have included flammability reduction means, such as an ullage inerting system, for all fuel tanks, including the main fuel tanks located in the wing.

Amendment 25-125 (73 FR 42444-42504), which was part of the fuel tank flammability reduction (FTFR) rule adopted in 2008, revised § 25.981(b) and (c) to introduce specific performance-based standards for the maximum flammability allowed in various fuel tanks. Amendment 25-125 maintained the alternative adopted by Amendment 25-102 allowing ignition mitigation means. Amendment 25-125 established a new fleet average flammability exposure limit of 3 percent for all fuel tanks, or that of an equivalent conventional unheated aluminum fuel tank. Fuel tanks that are not main fuel tanks and that have any portion located within the fuselage contour must be limited to 3 percent fleet average exposure and 3 percent warm day exposure. Amendment 25-125 did not change the ignition prevention standards of § 25.981(a), and it moved the CDCCL requirements created by Amendment 25-102 to § 25.981(d).

Introduction of airplane designs with composite fuel tanks that cannot be shown to meet the flammability requirements of § 25.981 has resulted in the need to provide active fuel tank flammability control systems in all fuel tanks. For main tanks that were only required to be equivalent to unheated aluminum wing tanks, these systems reduce fuel tank flammability well below that required by § 25.981(c). The FAA has issued special conditions for new airplane designs that allow consideration of these fuel tank flammability control systems when showing that fuel tank ignition will not result from structural ignition sources following a lightning strike.

Several applicants found that it was impractical to achieve dual fault tolerance for fuel tank structure lightning protection. The FAA agreed that applying § 25.981(a)(3) for fuel tank structure was impractical in certain cases. The FAA required the safety assessment associated with the fuel tank system to include the assumptions that the fuel tank was always flammable and lightning was continuously present. However, when evaluating where lightning attaches to the airplane and considering the lightning protection features, the probability of strikes that could cause an ignition source is significantly less than the required assumptions. We have defined strikes that could cause an ignition source as “critical lightning strikes.” Critical lightning strikes occur on the order of once every 100,000 hours of airplane operation. In addition, for airplanes with the fuel tank flammability reduction means required by § 25.981, the likelihood of a fuel tank being flammable is less than one hour for every hundred hours of operation. For airplanes without fuel tank flammability reduction means ( i.e., with unheated aluminum wing tanks), the flammability range is one to five hours for every one hundred hours of operation. Consideration of these factors in combination with fail-safe ignition required by § 25.981, which typically resulted in the need for triple-redundant lightning ignition prevention features, led the FAA to conclude that the required assumptions were overly conservative.

As a result, on May 26, 2009, the FAA issued a policy memorandum to standardize the process for granting exemptions and issuing special conditions for fuel tank structure lightning protection. FAA Policy Memorandum ANM-112-08-002, Policy on Issuance of Special Conditions and Exemptions Related to Lightning Protection of Fuel Tank Structure, defined requirements that were to be applied through special conditions or exemptions. This policy allowed the consideration of the likelihood of both the occurrence of a critical lightning strike and the tank being flammable. The policy contained detailed information that explained the design goal of § 25.981(a)(3) for fuel tank structure and provided guidance for alternatives to compliance that still achieved that design goal.

In 2009 the FAA chartered the Lightning ARC to re-examine §§ 25.954 and 25.981 at Amendments 25-102 and 25-125 for fuel tank lightning protection. The Lightning ARC included industry members that were the leading aircraft lightning protection design experts in the world, along with the leading regulatory experts working in the lightning area. To address structure-specific issues, such as the occurrence of cracks and fastener failures, the Lightning ARC established a subcommittee made up of airplane manufacturer structural experts. The ARC also commissioned a specific study of lightning current distribution at structural cracks and fasteners, including the evaluation of lightning-related sparks at these cracks and fasteners. In May 2011 the Lightning ARC issued a final report  11 that included the results of these special studies and their findings and recommendations. They proposed new rulemaking on the following topics:

1. Lightning-specific requirements that focused on ignition source prevention;

2. Inclusion of both structure and systems in the same fuel system lightning protection rule with the same requirements;

3. Single fault-tolerant designs, or if impractical, a qualitative assessment to ensure the combination of non-fault-tolerant failures resulting in an ignition source, is remote;

4. Design, manufacturing processes, and instructions for continued airworthiness (ICA) to address manufacturing variability, aging, wear, corrosion, and likely damage;

5. ICA to include caution information for critical lightning protection features to minimize accidental damage during maintenance, alteration, or repairs;

6. Inclusion of inspections and procedures required for non-fault-tolerant designs in the Airworthiness Limitations Section of the ICA;

7. Addition of a new section in the ICA specific to fuel tank lightning protection;

8. No requirement for lower flammability in the lightning regulations ( i.e., retain existing flammability requirements); and

9. Development of new guidance material and revision of existing guidance material to ensure a consistent approach to fuel system lightning protection.

To address these recommendations, the FAA issued a new policy statement that superseded Policy Memorandum ANM-112-08-002 as an interim approach until new rulemaking could be accomplished. Policy Statement PS-ANM-25.981-02, Policy on Issuance of Special Conditions and Exemptions Related to Lightning Protection of Fuel Tank Structure and Systems, issued June 24, 2014, expands the scope of the previous policy to include systems and provides guidance for special conditions and exemptions that are applicable to the design of lightning protection features in fuel tank structure and systems with respect to compliance with § 25.981(a)(3).

The proposed revisions to § 25.981(a)(3) would eliminate the need to issue special conditions and exemptions; however, the detailed information provided in that policy statement addresses the design goal of the proposed § 25.954 for fuel tank structure and systems and provides valuable information about means of compliance. Therefore, a copy of that policy statement has been added to the docket for this rule.

In order to comply with the latent failure criterion of § 25.981(a)(3), systems with potentially catastrophic failure conditions resulting from a lightning strike typically need at least triple-redundancy in their protective features, or dual-redundancy with continuous system monitoring to reduce the latency period. Dual-redundant designs could only be shown to comply with § 25.981(a)(3) when combined with either regular inspections at very short intervals or with a monitoring device to verify the functionality of the protective features. Inspection of the various design features might be difficult or impossible if, for example, the feature is covered by airframe structure. This level of redundancy has been shown to be impractical for certain areas of airplane structure, such as airplane skins, joints, ribs, spars, stringers, and associated fasteners, brackets, and coatings.

Lightning protection features are typically an integral part of the fuel tank structure or inside the fuel tanks. Due to the frequency of inspections that would be required to sufficiently limit exposure to latent failures, it would be impractical to use inspections of lightning protection features by themselves to eliminate the requirement for triple redundancy. Therefore, the FAA proposes to amend the requirements of §§ 25.954 and 25.981(a)(3) to address these and other issues related to fuel tank lightning protection design. The FAA's intent is to establish a balanced approach to ensure that airplane designs provide an acceptable level of safety, while allowing manufacturers to develop an economically viable design, economical manufacturing methods, and effective maintenance programs considering the limitations in preventing or managing failures inside the fuel tanks. To preclude a catastrophic event, the proposed standards would require the applicant to develop structural and system component designs that are free of ignition sources. In addition, the applicant must still account for fuel vapor flammability as required in § 25.981(b). This proposal would also allow applicants to take credit for providing reduced flammability exposure below what is required by § 25.981(b).

Practicality is a balance of available means, economic viability, and proportional benefit to safety. A means to provide fault tolerance against potential ignition sources that is possible with little economic impact is practical even if the potential ignition source conditions would be remote without them. In general, applicants have found fault tolerance to be practical for systems lightning protection features. However, in several cases, applicants found that providing fault tolerance was impractical because the means had a significant economic impact on production, operational, or maintenance costs. In these cases, it is not necessary that the applicants use these means if it can be determined that the probability of a potential ignition source, combined with a critical lightning strike and flammable fuel tank conditions is such that catastrophic failure is not anticipated over the life of the fleet.

The current rule specifies the primary lightning threats to the fuel system and requires designs that prevent ignition of fuel vapor within the system. The original intent was to prevent ignition of fuel vapor in the fuel tank structure and system due to lightning.

As written, the current rule does not address failures or deterioration of the lightning protection features.

In lieu of regulating fuel tank lightning protection by §§ 25.954 and 25.981, we propose to consolidate requirements for the prevention of fuel vapor ignition solely in § 25.954. We propose to retain (and renumber) the existing rule text of § 25.954, add a clarification of the existing requirements regarding lightning-induced or conducted electrical transients, and add two new performance-based requirements to regulate the risk of failures and to maintain the integrity of the lightning protection features during the airplane service life.

The addition of a clarification regarding lightning-induced or conducted electrical transients is needed to make it clear that this regulation addresses these effects. Lightning strikes to airplanes result in significant current conducted through airplane structure and equipment, and can induce voltage and current on wires, tubes, and equipment. The use of composite structure can increase these induced and conducted electrical transients. Therefore, this proposed rule would require that the design and arrangement of the fuel system prevent the ignition of fuel vapor within the system by lightning-induced and conducted electrical transients.

A new paragraph (b) would require that catastrophic ignition caused by lightning be extremely improbable, placing that risk in line with that of all other potentially catastrophic hazards. The proposed rule would require the type design to take into account the likelihood of a critical lightning strike, the fuel tank being flammable, and creation of an ignition source due to the failure of fuel system or structural lightning protection features. The purpose of the proposed rule is to ensure that a catastrophic fuel vapor ignition will not occur due to any single failure when lightning attaches to the airplane. In addition, the combination of the probabilities of a critical lightning strike, a flammable fuel tank condition, and the exposure time of all specified failures of structural features that are not fault-tolerant (and that can occur within the fuel tank) must, under the proposed rule, be such that catastrophic failure from ignition due to lightning would not be anticipated over the life of that airplane fleet. For example, for each structural discrepancy identified, the applicant would be required to demonstrate that mandated structural inspection procedures would reliably detect cracks or failed fasteners/cap-seals (where the gap size required to create arcing is exceeded) before the combined probability of the occurrence of a flammable fuel tank condition and a critical lightning strike was exceeded.

The proposed rule would also require that the type design take into account the failure of other system components that may run into and/or through the fuel tank and can be an ignition source in the event of a critical lightning strike. Lightning-related ignition of flammable fluids and vapors due to leakage outside the fuel system and the resultant hazards will continue to be covered in § 25.863.

The proposed rule would use “taking into account,” rather than “consider,”  12 a term the FAA has previously used. We intend no substantive effect by this change.

We propose to add a new paragraph (c) that would require applicants to develop CDCCLs that identify lightning protection design features, instructions on how to protect them, and inspection and test procedures specific to lightning protection features within fuel tank structure and systems to detect and correct any anomalies or failures during the life of the airplane. Section 25.954 as written in 1967 required applicants to design lightning protection features into fuel tank structure and systems, but it does not account for the deterioration of those features during the life of the airplane. During inspections and accident investigations, we found damage and deterioration of fuel tank lightning protection features such as bonding straps, brackets, and sealants that could present gaps or other electrical discontinuities that could become ignition sources in the presence of lightning strikes.

CDCCLs are one type of fuel system airworthiness limitation that define critical features of the design that must be maintained. CDCCLs were originally required by the fuel tank explosion prevention standards of § 25.981 and appendix H to 14 CFR part 25 at Amendment 25-102. Fuel system airworthiness limitations include mandatory replacement times, inspection intervals, related inspection procedures, and CDCCLs. As explained in the FTFR final rule, Amendment 25-125, “The intent of the CDCCL requirement is to define the critical features of the design that could be unintentionally altered in a way that could cause reduction in fuel system safety.” CDCCLs are distinct from mandatory replacement times, inspection intervals, and inspections and other procedures.

This proposed new paragraph will require applicants to identify the lightning protection design features of the airplane, as well as to prepare instructions on how to protect those features. Identification of a feature refers to listing the feature in the CDCCL. The FAA has determined that during airplane operations, modifications, and unrelated maintenance actions, these features can be unintentionally damaged or inappropriately repaired or altered. Instructions on protection are meant to address this safety concern. An example of a common design feature to prevent catastrophic ignition caused by lightning is wire separation so that wires cannot chafe against one another. An example of an instruction on how to protect this design feature would be, “When performing maintenance or alterations in the vicinity of these wires, ensure a minimum of 6-inch wire separation is maintained.”

Addressing the effects of aging, wear, and corrosion as both a design and continuing airworthiness consideration is necessary to ensure reliable protection over the life of the airplane. The proposed rule would require applicants to establish necessary inspection and test procedures to prevent development of lightning-related ignition sources within the fuel tank structure and systems. One example of an inspection procedure would be to examine a structural element for cracks. An example of a test procedure would be a functional test to ensure a ground fault interrupter continues to function. The FAA would require these inspection and test procedures to include airworthiness limitations for non-fault-tolerant features and caution information for lightning protection features that may be altered by maintenance and repairs. For non-fault-tolerant lightning protection features that are identified in support of certification, the rule would require applicants to develop and identify inspection and test procedures as airworthiness limitations in the instructions for continued airworthiness, approved by the FAA, in order to preclude the development of unsafe conditions.

We also propose to add a new paragraph (d) to define “critical lightning strike” and “fuel system” for the purpose of this section.

Section 25.954 provides requirements for protection from ignition due to lightning, and § 25.981 provides requirements for protection against ignition from all sources, including lightning. The redundancy of the rule coverage has caused confusion regarding which regulation applies to fuel tank lightning protection.

To consolidate lightning protection requirements into one rule, § 25.954, we propose to add an exception to § 25.981(a)(3) removing lightning as an ignition source from the scope of this section and referring applicants to § 25.954 for lightning protection requirements.

Section 25.981(d) at Amendment 25-125 requires CDCCLs, inspections, or other procedures to be established to ensure fuel tank safety. The FAA intended that CDCCLs would be required to identify critical design features, and that inspections or other procedures would also be provided where it was determined necessary. However, some have misunderstood the wording to allow inspections or other procedures, for example adhering to component maintenance manuals alone, instead of maintaining the original design details of the critical feature. We are proposing to revise this rule text to clarify that CDCCLs must be provided to identify critical design features, in addition to inspections or other procedures.

Currently, section H25.4 does not expressly mention instructions about lightning protection features. We propose to add a new paragraph H25.4(5) that will make mandatory any inspection and test procedures that are needed to sustain the integrity of the lightning protection features that are used to show compliance with § 25.954.

We propose to add a new section to appendix H to require applicants to develop instructions for continued airworthiness that are approved by the FAA, and that are specific to the lightning protection features for fuel tank structure and systems required by § 25.954.

The FAA would develop one new proposed AC and would propose revisions to two other ACs to be published concurrently with the proposed regulations contained in this NPRM. The proposed new AC would provide guidance material for acceptable means, but not the only means, of demonstrating compliance with proposed § 25.954. The revisions to the existing ACs would update them to reflect the revised rules.

Changes to Federal regulations must undergo several economic analyses. First, Executive Order 12866 and Executive Order 13563 direct that each Federal agency shall propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs. Second, the Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires agencies to analyze the economic impact of regulatory changes on small entities. Third, the Trade Agreements Act (Pub. L. 96-39) prohibits agencies from setting standards that create unnecessary obstacles to the foreign commerce of the United States. In developing U.S. standards, this Trade Act requires agencies to consider international standards and, where appropriate, that they be the basis of U.S. standards. Fourth, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by state, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more annually (adjusted for inflation with base year of 1995). This portion of the preamble summarizes the FAA's analysis of the economic impacts of this proposed rule. We suggest readers seeking greater detail read the full regulatory evaluation, a copy of which we have placed in the docket for this rulemaking.

In conducting these analyses, FAA has determined that this proposed rule: (1) Has benefits that justify its costs; (2) is not an economically “significant regulatory action” as defined in section 3(f) of Executive Order 12866; (3) is not “significant” as defined in DOT's Regulatory Policies and Procedures; (4) would not have a significant economic impact on a substantial number of small entities; (5) would not create unnecessary obstacles to the foreign commerce of the United States; and (6) would not impose an unfunded mandate on state, local, or tribal governments, or on the private sector by exceeding the threshold identified above. These analyses are summarized below.

This rule is a retrospective regulatory review rulemaking under Executive Order 13563. This rule would be relieving for both government and industries with the estimated net benefits. We assess regulatory benefits based on resources saved for reducing regulatory burden on both industry and the FAA. The total combined savings would be about $610 million or $450 million present value at a 7% discount rate. The lower and the higher estimates of the total combined regulatory savings range from $384 million to $836 million (see table). The proposed rule would maintain a level of safety for fuel tank structure and system lightning protection consistent with that provided for other airplane hazards.

• Part 25 airplane manufacturers.

• Operators of part 25 airplanes.

• The Federal Aviation Administration.

• Data related to industry savings mainly come from airplane manufacturers.

• Data related to requests for exemptions and special conditions come from FAA internal data source and the agency's experts judgments.

• The FAA would process four special conditions and seven exemptions in the next ten years in the absence of this rule.

• Domestic airplane manufacturers would petition for two special conditions and three exemptions before reaching their cost-benefit steady-state. 13

• Approximately 184 airplanes would be produced per year for ten years based on airplane models being approved for exemptions and special conditions for lightning protection. 14

• Computational weights of composite wing airplanes would change from current approximate 15%-25% level linearly increasing to 50% level for a ten-year production cycle. 15

• Airplanes have service life-span for 30 years. 16

• Projected impacts on manufacturers and the government are for a ten-year period from 2015 to 2024.

• All monetary values are expressed in 2014 dollars.

The Regulatory Flexibility Act of 1980 (Pub. L. 96-354) (RFA) establishes “as a principle of regulatory issuance that agencies shall endeavor, consistent with the objectives of the rule and of applicable statutes, to fit regulatory and informational requirements to the scale of the businesses, organizations, and governmental jurisdictions subject to regulation.” To achieve this principle, agencies are required to solicit and consider flexible regulatory proposals and to explain the rationale for their actions to assure that such proposals are given serious consideration.” The RFA covers a wide range of small entities, including small businesses, not-for-profit organizations, and small governmental jurisdictions.

Agencies must perform a review to determine whether a rule will have a significant economic impact on a substantial number of small entities. If the agency determines that it will, the agency must prepare a regulatory flexibility analysis as described in the RFA.

However, if an agency determines that a rule is not expected to have a significant economic impact on a substantial number of small entities, section 605(b) of the RFA provides that the head of the agency may so certify and a regulatory flexibility analysis is not required. The certification must include a statement providing the factual basis for this determination, and the reasoning should be clear.

The proposed rule would amend certain airworthiness regulations that are not always practical for transport category airplanes regarding lightning protection of fuel tanks and systems. While the largest benefiters of this proposed rule would be airplane manufacturers, who are large entities, many small airline operators would also benefit from this proposed rule due to fuel savings. Therefore, as provided in section 605(b), the Administrator of the FAA certifies that the proposed rule would not have a significant economic impact on a substantial number of small entities and also certify that a regulatory flexibility analysis is not required.

The Trade Agreements Act of 1979 (Pub. L. 96-39), as amended by the Uruguay Round Agreements Act (Pub. L. 103-465), prohibits Federal agencies from establishing standards or engaging in related activities that create unnecessary obstacles to the foreign commerce of the United States. Pursuant to these Acts, the establishment of standards is not considered an unnecessary obstacle to the foreign commerce of the United States, so long as the standard has a legitimate domestic objective, such as the protection of safety, and does not operate in a manner that excludes imports that meet this objective. The statute also requires consideration of international standards, and where appropriate, that they be the basis for U.S. standards. The FAA has assessed the potential effect of this proposed rule and determined that it could result in the same benefits or costs to domestic and international entities in accord with the Trade Agreements Act.

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires each Federal agency to prepare a written statement assessing the effects of any Federal mandate in a proposed or final agency rule that may result in an expenditure of $100 million or more (in 1995 dollars) in any one year by state, local, and tribal governments, in the aggregate, or by the private sector; such a mandate is deemed to be a “significant regulatory action.” The FAA currently uses an inflation-adjusted value of $151 million in lieu of $100 million. This proposed rule does not contain such a mandate; therefore, the requirements of Title II of the Act do not apply.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires that the FAA consider the impact of paperwork and other information collection burdens imposed on the public. The FAA has determined that there would be no new requirement for information collection associated with this proposed rule.

In keeping with U.S. obligations under the Convention on International Civil Aviation, it is FAA policy to conform to International Civil Aviation Organization (ICAO) Standards and Recommended Practices to the maximum extent practicable. The FAA has reviewed the corresponding ICAO Standards and Recommended Practices and has identified no differences with these proposed regulations.

FAA Order 1050.1E identifies FAA actions that are categorically excluded from preparation of an environmental assessment or environmental impact statement under the National Environmental Policy Act in the absence of extraordinary circumstances. The FAA has determined this rulemaking action qualifies for the categorical exclusion identified in Section 312f of Order 1050.1E and involves no extraordinary circumstances.

The FAA has analyzed this proposed rule under the principles and criteria of Executive Order 13132, Federalism. The agency has determined that this action would not have a substantial direct effect on the States, or the relationship between the Federal government and the States, or on the distribution of power and responsibilities among the various levels of government, and therefore, would not have Federalism implications.

The FAA analyzed this proposed rule under Executive Order 13211, Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use (May 18, 2001). The agency has determined that it would not be a “significant energy action” under the executive order and would not be likely to have a significant adverse effect on the supply, distribution, or use of energy.

The FAA invites interested persons to participate in this rulemaking by submitting written comments, data, or views. The agency also invites comments relating to the economic, environmental, energy, or federalism impacts that might result from adopting the proposals in this document. The most helpful comments reference a specific portion of the proposal, explain the reason for any recommended change, and include supporting data. To ensure the docket does not contain duplicate comments, commenters should send only one copy of written comments, or if comments are filed electronically, commenters should submit only one time.

The FAA will file in the docket all comments it receives, as well as a report summarizing each substantive public contact with FAA personnel concerning this proposed rulemaking. Before acting on this proposal, the FAA will consider all comments it receives on or before the closing date for comments. The FAA will consider comments filed after the comment period has closed if it is possible to do so without incurring expense or delay. The agency may change this proposal in light of the comments it receives.

Proprietary or Confidential Business Information: Commenters should not file proprietary or confidential business information in the docket. Such information must be sent or delivered directly to the person identified in the FOR FURTHER INFORMATION CONTACT section of this document and marked as proprietary or confidential. If submitting information on a disk or CD ROM, mark the outside of the disk or CD ROM and identify electronically within the disk or CD ROM the specific information that is proprietary or confidential.

Under 14 CFR 11.35(b), if the FAA is aware of proprietary information filed with a comment, the agency does not place it in the docket. It is held in a separate file to which the public does not have access, and the FAA places a note in the docket that it has received it. If the FAA receives a request to examine or copy this information, it treats it as any other request under the Freedom of Information Act (5 U.S.C. 552). The FAA processes such a request under Department of Transportation procedures found in 49 CFR part 7.

An electronic copy of rulemaking documents may be obtained from the Internet by—

1. Searching the Federal eRulemaking Portal ( http://www.regulations.gov );

2. Visiting the FAA's Regulations and Policies Web page at http://www.faa.gov/regulations_policies or

3. Accessing the Government Printing Office's Web page at http://www.gpo.gov/fdsys/.

Copies may also be obtained by sending a request to the Federal Aviation Administration, Office of Rulemaking, ARM-1, 800 Independence Avenue SW., Washington, DC 20591, or by calling (202) 267-9680. Commenters must identify the docket or notice number of this rulemaking.

All documents the FAA considered in developing this proposed rule, including economic analyses and technical reports, may be accessed from the Internet through the Federal eRulemaking Portal referenced in item (1) above.

In consideration of the foregoing, the Federal Aviation Administration proposes to amend chapter I of title 14, Code of Federal Regulations as follows:

The Food and Drug Administration (FDA) is proposing to amend its labeling regulations at 21 CFR 201.100, 201.306, 201.310, 606.121, 606.122, 610.60, and 610.61 for human prescription drugs and biological products, and blood and blood components intended for transfusion, to require that the prescribing information intended for health care professionals be distributed electronically and, with few exceptions, not in paper form. Prescribing information provides health care professionals the information necessary for the safe and effective use of the product. It is updated periodically to include the most current information, such as newly acquired safety information. Currently, the prescribing information is distributed in paper form on or within the package from which a prescription drug is dispensed. The paper form of the prescribing information may not contain the most current information because it may have been printed and distributed prior to more recent labeling changes, while the electronic form of prescribing information can be updated in real-time. FDA is taking this action to ensure that the most current prescribing information for prescription drugs will be available and readily accessible to health care professionals at the time of clinical decisionmaking and dispensing.

The electronic distribution requirements of this proposed rule would not apply to patient labeling (including patient package inserts and Medication Guides), or to prescribing information accompanying promotional labeling, which would continue to be provided in paper form.

FDA is authorized under various sections of the Federal Food, Drug, and Cosmetic Act (the FD&C Act) to require that prescribing information be distributed electronically and to require that paper copies of the prescribing information no longer be distributed, except as provided in this regulation, to ensure that human prescription drugs have adequate directions for use and to ensure the efficient enforcement of the FD&C Act. These sections include sections 201(n), 502, 503, 505, and 701(a) of the FD&C Act (21 U.S.C. 321(n), 352, 353, 355, and 371(a)), and section 351 of the Public Health Service Act (the PHS Act) (42 U.S.C. 262). The electronic distribution of prescribing information for human prescription drugs would permit the efficient enforcement of the misbranding provisions in sections 502(a) and (f) of the FD&C Act, as well as the safety and effectiveness provisions of section 505 of the FD&C Act.

The proposed rule would amend the labeling regulations to require manufacturers to distribute the prescribing information electronically, instead of in paper form. Manufacturers would be required to submit the prescribing information to FDA for posting on FDA's publicly available labeling repository Web site ( labels.fda.gov ) every time there is a change in the labeling. Manufacturers would also be required to review the labeling posted at FDA's Web site to verify that the correct version of the labeling appears in the repository, and to promptly notify FDA if the correct version is not posted. This would ensure that the most up-to-date version of the prescribing information is available to health care professionals and the public.

The proposed rule would require a product's immediate container label and outside package to bear a statement directing health care professionals to FDA's labeling repository to view the electronic version of prescribing information. The statement would also provide a toll-free telephone number, maintained by the manufacturer, to receive requests for the manufacturer to send an emailed, faxed or mailed paper copy of the prescribing information. The manufacturer would be required to ensure the toll-free number service was available 24 hours a day, 7 days a week. This would ensure that the prescribing information is accessible in most situations when Internet access is not available to the health care professional.

In addition, the proposed rule would provide that FDA may grant an exemption from the electronic distribution of labeling requirements when compliance could adversely affect the safety, effectiveness, purity, or potency of the drug, is not technologically feasible, or is otherwise inappropriate. Manufacturers of exempted products would distribute prescribing information in paper form on or within the package from which the product is dispensed. Examples of circumstances where it may be appropriate to exempt a product include a product intended for use in an emergency room or a product that may be stockpiled for an emergency.

The proposed rule impacts the drug and biological products industries that supply prescribing information, as well as the prescribers, pharmacists and other health care professionals who are the intended users of the information. After initial set-up costs, industry will experience net savings by providing the prescription information electronically. Pharmacies will incur net costs due to initial capital costs to access the information, increased search time when accessing the information and the printing cost when a request is received for the prescribing information in printed form. We estimate no cost increases to most health care professionals to access the information.

At a 7 percent discount rate over a 10-year period, the annualized cost savings range from $52 million to $164 million and are predominantly savings to industry; the annualized costs range from $47 million to $89 million and are mainly incurred by pharmacies; and the annualized net savings range from $5 million to $74 million. The public health benefits of users having access to the most up-to-date version of the prescribing information have not been quantified.

We are proposing to amend the labeling regulations to require electronic distribution of prescribing information for human prescription drugs. 1 This is intended to facilitate the distribution of updated prescribing information as new information becomes available and as changes in prescribing information are made. FDA is taking this action so that the most current prescribing information for distributed prescription drugs will be available and readily accessible to health care professionals at the time of clinical decisionmaking and dispensing.

This proposed rule complements other FDA and Department of Health and Human Services initiatives that are intended to provide accessible electronic drug product information to health care professionals, consumers, and/or the public. These initiatives include the electronic prescribing provisions of the Medicare Prescription Drug Improvement and Modernization Act (Pub. L. 108-173), the requirement for bar codes on certain drug product labels, the requirement for submission of electronic labeling in product approval applications, and electronic registration of drug establishments and listing of drug products. Additionally, the Agency has been involved in an initiative known as “DailyMed”. “DailyMed” is a publicly-available, computerized repository of a broad array of drug information, which is maintained by the National Library of Medicine.

“Prescription drug labeling,” as relevant to this proposed rule, includes prescribing information; patient labeling; the product's immediate container label; outer container; the outside package; and other written, printed, or graphic information that accompanies the product. Prescription drug labeling meets the definition of “labeling” in section 201(m) of the Federal Food, Drug, and Cosmetic Act (the FD&C Act) (21 U.S.C. 321(m)) and must comply with all applicable provisions of section 502 of the FD&C Act (21 U.S.C. 352). In addition, in order to be exempt from the statutory requirement of section 502(f)(1) of the FD&C Act, prescription drug labeling must also satisfy the requirement of § 201.100(d) (21 CFR 201.100(d)) which states that any labeling, as defined in section 201(m) of the FD&C Act, whether or not it is on or within a package from which the drug is to be dispensed, distributed on or behalf of the manufacturer, packer, or distributor of the drug, that furnishes or purports to furnish information for use or which prescribes, recommends, or suggests a dosage for the use of the drug contains adequate information for such use, as further described in that provision. In this document, the terms “prescription drug labeling”, “product labeling”, and “labeling” will be used interchangeably as broader terms to encompass prescribing information and other information considered to be components of labeling. All components of labeling are submitted to FDA as part of an applicant's new drug application (NDA), abbreviated new drug application (ANDA), biologics license application (BLA), supplement, annual report, or in other submissions, such as establishment registration and drug listing.

“Prescribing information”, commonly referred to as “professional labeling”, “content of labeling”, “package insert”, “physician labeling”, “direction circular”, “circular of information”, or “package circular”, is a component of prescription drug labeling and is periodically updated to include the most current information about the product. For products approved by FDA, approval of the prescribing information is based on the Agency's thorough analysis of the marketing application, including the proposed label, submitted by the applicant. Prescribing information contains the information necessary for safe and effective use of the product, and is intended for use by the health care professional. Prescribing information is subject to the format and content requirements of §§ 201.56, 201.57, 201.80, 606.122, or 610.61 (21 CFR 201.56, 201.57, 201.80, 606.122, or 610.61). Prescribing information is currently distributed in paper form with the product to meet the condition stating that labeling on or within the package from which a prescription drug is to be dispensed bears adequate information for its use (§ 201.100(c)(1)). This proposed rule applies to prescribing information that is currently distributed in paper form on or within the package from which the prescription drug is to be dispensed. In addition, prescribing information must also accompany “promotional” labeling, as described in § 202.1(l)(2) (21 CFR 202.1(l)(2)). 2 This proposed rule will not apply to prescribing information that accompanies promotional labeling, which will continue to be distributed in paper form. Therefore, we propose new § 201.100(d)(4) to make clear that prescribing information accompanying promotional labeling must be distributed in paper form.

“Patient labeling”, another component of labeling for some prescription drugs, is FDA-approved information that is intended for patient use and includes patient package inserts and Medication Guides. Patient labeling must be reprinted in the prescribing information or must accompany the prescribing information (§§ 201.57(c)(18) and 201.80(f)(2)). Because FDA is examining methods to improve the content and distribution of patient labeling in a different initiative, patient labeling is not affected by this proposed rule and will continue to be provided in paper form, as required by applicable regulations, and to be electronically submitted to FDA with the prescribing information. Therefore, for those products including patient labeling, patients will continue to receive warnings, risk information, and special instructions for use in paper form as patient labeling.

Prescription drug labeling also includes the product's immediate container label and the outside package. It is noted that labeling regulations of biological products distinguish between a “container label” and “package label” (§§ 610.60 and 610.61 (21 CFR 610.60 and 610.61)). For purposes of this document, any reference to the “outside package” applies to the “package label” for biological products or the outer carton, outer container, or outer package of the prescription drug. Based on the FD&C Act definitions of the terms “label” and “labeling”, any outer container, carton, or package is “labeling”.

The prescribing information that is the subject of this proposed rule is the paper version that is on or within the package from which the drug is to be dispensed ( e.g., physically attached to the bottle containing the drug, inside the carton or box containing the drug, with the bulk pharmacy package). Usually, it is printed on thin paper in small size font, and is folded multiple times so that it can be contained within the drug carton or can be otherwise attached to drug packaging. Drug products, with the paper prescribing information on or within their packaging, are distributed to pharmacies for dispensing.

This paper prescribing information is intended for use by all health care professionals. However, health care professionals have come to rely on electronic or other paper versions ( e.g., compendia such as the Physicians' Desk Reference (PDR)) compiled by third parties instead of this paper version. Prescribing physicians and many health care professionals ( e.g., nurses) typically do not receive this paper version because they do not dispense drugs. Pharmacists do receive it along with the drug product from the manufacturer or distributer, but it is often difficult to read due to the small font size, thin paper, and multiple folds, and we have heard anecdotally that it is often discarded. In addition, pharmacies usually have some form of compendia purchased from a third party, and many hospitals and chain pharmacies rely on electronic compendia. Patients ordinarily do not receive the paper prescribing information because the pharmacist dispenses the drug to a patient in a different container than the packaging from the manufacturer, but they do receive other information intended for patients from the pharmacy (see section I.A).

Instructions for use for the pharmacist are considered part of human prescription drug labeling, specifically part of the prescribing information. For the purposes of this proposed rule, instructions for use for the pharmacist include any instructions for administering, assembling, reconstituting, mixing, diluting, or other preparation that is done prior to dispensing the drug product to the patient. These preparation steps for the pharmacist are contained in the “Dosage and Administration” section of the prescribing information (§§ 201.57(c)(3) and 201.80(j)), which currently accompanies the product in paper form. If the information is adequately concise, it may also be printed on the product's immediate container label or on the outside package. To the extent that this information is available on the immediate container label or outside package, it does not fall within the scope of this proposed rule. However, usually the product's immediate container label is too small to contain the preparation instructions, so the immediate container label or the outside package typically bears a statement referring to the prescribing information for the detailed instructions. Therefore, where the container label refers to the prescribing information for preparation instructions, this proposed rule would require that these instructions for use for the pharmacist be available electronically, rather than in paper form. This proposed rule provides a mechanism, if needed, to request the prescribing information in paper form. FDA welcomes comments on whether, in circumstances where the instructions for use for the pharmacist are not sufficiently concise to be printed on the immediate container label or outside package, the electronic version of the prescribing information is adequate.

In addition to § 201.100, blood and blood components intended for transfusion are also subject to labeling requirements under §§ 606.121 and 606.122, including the requirement that the circular of information be available for distribution, and to registration and listing requirements under 21 CFR part 607. This rule, if finalized, would require that the prescribing information ( i.e., the circular of information) for blood and blood components intended for transfusion be provided electronically, rather than in paper form. This rule would also provide the mechanism for a request to be made for prescribing information in paper form. In contrast to biological products that register and list under part 207 (21 CFR part 207), however, labeling and registration and listing information for blood and blood components are currently not electronically submitted to the Agency. FDA is in the process of developing standards for the electronic submission of labeling for these products, and these standards will eventually accommodate blood and blood components. The Agency will consider progress in developing such standards when setting a compliance date for blood and blood components and/or on our own initiative granting an exemption for blood and blood components for a period of time until electronic submission of the labeling for blood and blood components is supported. Thus, the final regulation may include staggered compliance dates, with a later compliance date for blood and blood components and an earlier compliance date for all other drug products. We also invite public comment on whether blood and blood components intended for transfusion should be subject to the electronic distribution of prescribing information requirements in this proposed rule once the electronic submission standards accommodate these products.

FDA recognizes that there may be situations that present challenges for accessing electronic prescribing information of prescription drugs. Some of these situations were identified in the July 2013 Government Accountability Office Report “Electronic Drug Labeling: No Consensus on the Advantages and Disadvantages of Its Exclusive Use” (GAO Report) (Ref. 1).

During a public health emergency, natural disaster, or other situation involving field response, there may be power outages or technology service interruptions that render electronic prescribing information unavailable to health care professionals. Responders generally enter an emergency situation with all the medical supplies and materials necessary to address the emergency situation. Therefore, we do not anticipate that they would rely on the Internet being available to be able to provide medical care. For example, deployment units often have electronic medical resources that can be used with wireless mobile devices. If wireless service is not available, units are also equipped with back-up sources of drug information ( e.g., compendia downloaded onto laptops or tablets, paper compendia, and other targeted information to address the public health emergency). Responders also train extensively for emergency situations and are very familiar with the specific drugs they are dispensing, reducing the risks associated with not having access to the electronic prescribing information. Thus, reference to the full content of labeling would rarely be necessary in such an emergency. When it comes to natural disasters that affect pharmacies, they often have contingency plans in place for how services will be provided ( e.g., during events such as power disruptions). For example, some pharmacies may rely on back-up generators or refer patients to another nearby pharmacy (Ref. 1). We invite comment from public health authorities and the medical care community on how product labeling is currently handled and whether current practices are sufficient when Internet access is not available due to disasters or public health emergencies. We also invite comment on what impact, if any, this proposed rule will have during a public health emergency, natural disaster, or other situation involving field response when Internet or wireless access is not available or reliable.

We also recognize that, during the course of a declared emergency, FDA may issue an emergency use authorization for an unapproved use of an FDA-approved drug (21 U.S.C. 360bbb-3). In such a situation, it may be appropriate to direct health care providers to materials about the Emergency Use Authorization as the primary source of information about product use for and during the emergency, in addition to FDA-approved labeling available in the labeling repository or in paper form, as appropriate. We invite comment on whether the proposed exemptions provision provides emergency planners with sufficient flexibility regarding the labeling of their stockpiled products.

We also are concerned that there may be health care providers that are routinely unable to access electronic prescribing information due to a lack of Internet access, either because of resource constraints or geographic location, e.g., in rural areas with limited Internet access. As described in detail in section IV.B, we are proposing that such health care providers would be able to access current prescribing information through mail, fax, or email, by calling a toll-free number that would be required to be included on the immediate container label and outer container of human prescription drugs. In section IV.B, we invite comment on whether requesting the prescribing information over the telephone is a sufficient method for obtaining it when it cannot be accessed using the Internet. We also invite comment on alternative or additional methods for ensuring that health care professionals without regular Internet access have the most current prescribing information, including comment on other systems described in section II.C.

Finally, we note that drugs may be exported from the United States for humanitarian use in other countries. We expect that labeling for such products will often be in the language of the country to which it is being exported and include units of measurement used in or designated by the country to which the drug would be exported. Further, in some instances, the country to which a drug is being exported may have different or additional labeling requirements or conditions for use (compared to those on the FDA-approved labeling), and the foreign country may require the drug to be labeled in accordance with those requirements or uses. For these reasons, we expect that drugs intended for export generally will be labeled in accordance with the foreign requirements and conditions for use, as long as the conditions in the relevant provisions of the FD&C Act, or if applicable, section 351(h) of the PHS Act, are met. Nevertheless, we request comment on any impact that our current proposal to require the electronic distribution of labeling may have on drugs exported for humanitarian use and whether any modifications to the proposal should be made to address such products.

On December 11, 2003, we amended the regulations governing the format in which certain labeling is required to be submitted for review with NDAs, ANDAs, certain BLAs, supplements, and annual reports (68 FR 69009). The final rule required the electronic submission of certain prescribing information in a form that FDA can process, review, and archive. This action was taken to simplify the labeling review process and to provide more timely approval of labeling changes. To support this requirement, we issued guidance in April 2005 entitled “Providing Regulatory Submissions in Electronic Format—Content of Labeling” ( http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/ucm072331.pdf ). This guidance describes the Structured Product Labeling (SPL) standard, which is based on extensible markup language (XML), as the most up-to-date electronic format that FDA can use to process, review, and archive prescribing information, and other labeling changes that are submitted electronically as part of a regulatory submission.

In 2007, Congress enacted the Food and Drug Administration Amendments Act of 2007 (Pub. L. 110-85) (FDAAA). Section 224 of FDAAA, which amends section 510(p) of the FD&C Act (21 U.S.C. 360(p)), expressly requires owners and operators of establishments engaged in the manufacture of drugs (manufacturers  3 ) to submit drug establishment registration and drug listing information electronically unless an exemption is granted. As part of the drug listing information, each manufacturer must submit a copy of all components of each drug's current labeling to the Agency with the exception of promotional labeling (§ 207.25(b)). To assist manufacturers with electronic submissions of drug establishment registration and drug listing information, FDA issued a guidance on May 28, 2009, entitled “Providing Regulatory Submissions in Electronic Format—Drug Establishment Registration and Drug Listing” ( http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/ucm072339.pdf ). This guidance provides recommendations to manufacturers on how to create and submit separate electronic SPL files containing drug establishment registration and drug listing information, including a copy of the required components of labeling, for each marketed prescription human drug, including biological products covered by part 207. The FD&C Act currently requires manufacturers to update the drug listing information (which includes the product labeling) at least twice a year, in June and December, if there have been changes to the listing elements in the prior 6 months (21 U.S.C. 360(j)(2)).

This proposed rule will complement FDA's other electronic initiatives and is intended to improve access to up-to-date prescribing information for health care professionals, thereby enhancing the safe and effective use of prescription drugs.

The final rule entitled “Requirements on Content and Format of Labeling for Human Prescription Drug and Biological Products” (71 FR 3922; January 24, 2006) became effective on June 30, 2006 (the 2006 rule) (21 CFR parts 201, 314, and 601). The purposes of this final rule were to improve the management of the risks of medical product use and reduce medical errors by health care professionals, as well as enable health care professionals to better communicate risk information to their patients. The new content and format requirements make it easier for health care professionals to access, read, and use prescribing information, thereby increasing the extent to which they rely on it to obtain information on prescribing, dispensing, and administering prescription drugs. In announcing the final rule, FDA explained that these new requirements should enhance the safe and effective use of prescription human drugs and in turn reduce the number of adverse reactions resulting from medication errors due to misunderstood or incorrectly applied drug information.

The 2006 rule only applies to applications or efficacy supplements approved since June 30, 2001; those pending on June 30, 2006; and to new applications and efficacy supplements submitted after June 30, 2006. There are older drug products that are not subject to the new labeling content and format requirements and that have a different format of labeling and may have different headings in the labeling. As proposed, this rule does not require the electronic versions of the labeling of these older drug products to comply with the content and format requirements of the 2006 rule. FDA invites comment on whether the existence of the two different formats of electronic labeling would present barriers to their value when used in the health care setting.

This proposed rule would require electronic distribution of prescribing information for human prescription drugs and biological products that meet the definition of a drug (see footnote 1) instead of the paper form. Electronic distribution would ensure that the most current prescribing information is available so that health care professionals can readily access the information and be better informed at the time of clinical decisionmaking and dispensing. This proposed rule would apply to manufacturers, applicants, and persons who market prescription drugs that they regard as not subject to section 505 of the FD&C Act (21 U.S.C. 355). Again, for ease of reference, in the preamble of this regulation, we will use the phrase “manufacturer or applicant” to refer to manufacturers, applicants (including holders of NDAs, ANDAs, and BLAs), and persons who market unapproved drugs. The proposed rule would require manufacturers and applicants to distribute electronically prescribing information by submitting the labeling in an electronic format that FDA can process, review, and archive (currently SPL format) to FDA each time the labeling content is changed. The submitted labeling would be distributed via FDA's labeling repository Web site ( labels.fda.gov ), which is a publicly available Web site. By proposing to make the most current prescribing information available at a single, comprehensive Web site, the rule would address a concern raised by stakeholders and identified in the GAO Report regarding the limitations of the multiple Web sites that currently provide electronic labeling and the importance of having a single data source that is reliable, authoritative, and comprehensive (Ref. 1). The proposed rule also would require the immediate container label and outer container of human prescription drugs to bear a statement explaining that the most current prescribing information is available at FDA's labeling repository Web site ( labels.fda.gov ) and to provide a toll-free telephone number that health care professionals may use to request that the manufacturer or applicant send current prescribing information through alternative means, such as FAX, email, or mail ( e.g., U.S. Postal Service or other delivery service). In cases where the immediate container label does not have adequate space for the statement, the statement would be required to be affixed to the immediate container by other means such as a peel-back label. As described in further detail in section IV.B, the only products that would not be required to bear the statement on both the immediate container and the outside package are biological products that are capable of bearing only a partial label or are incapable of bearing a container label.

Given the time necessary for industry to make preparations needed to comply with this regulation, FDA is proposing an effective date of 6 months after the publication date of the final rule in the Federal Register and a compliance date of 2 years after the date of publication of the final rule (see sections XI and XII for the compliance dates and implementation plans for this rule). FDA is requesting comments on the proposed effective and compliance dates, and whether they allow sufficient time for industry to implement this rule and, if not, how much additional time would be needed for implementation.

FDA has determined that requiring electronic distribution of prescribing information and eliminating the paper form that is contained on or within the package from which the drug is to be dispensed is important to ensure health care professionals have access to the most up-to-date information about the safe and effective use of the drug. To meet the requirement that states that labeling on or within the package from which the drug is to be dispensed bears adequate information for its use (§ 201.100(c)(1)), currently, prescribing information that accompanies human prescription drugs is provided in paper form. The paper form of the prescribing information is either attached to the immediate container or it may accompany the product if the product has an outer container or package. It is possible that the paper form of the prescribing information accompanying a product in interstate commerce or in the possession of a pharmacist or other health care professional may not contain the most current information because, as described in II.B.1, the paper form accompanying the product may have been printed and distributed prior to more recent labeling changes.

Paper prescribing information may be outdated by the time the drug product reaches pharmacy shelves. The manufacturer or applicant of a prescription drug may take months to incorporate a labeling change for the product and print new paper forms of the updated prescribing information. This process includes printing, folding, storing until used, and attaching the prescribing information to the immediate container or placing the prescribing information within the outer package that may house the product. Each of these steps typically requires equipment made specifically for these functions. For some products, manufacturers or applicants may only produce updated printed prescribing information once a year. In cases such as this, the information in the paper form of the prescribing information may be outdated if the product is not manufactured frequently and there have been new labeling changes since manufacturing. Because of these factors, products with prior versions of the prescribing information in paper form may remain in use. FDA contracted with the consulting firm Eastern Research Group, Inc. (ERG) to investigate, among other things, how industry currently implements safety labeling changes and the associated timelines for making changes. ERG issued a report entitled “Analysis of the Feasibility of Safety Labeling Changes Implementation Timelines” that describes that it may be months, if not years, before updated prescribing information is available with finished drug product. It was estimated that, for printed prescribing information attached to a drug product, a change will generally reach the market anywhere from as little as 3 months to more than 39 months after the change is made (Ref. 2).

Such delays in updating the paper prescribing information raise concerns about health care professionals using outdated information for clinical decisionmaking. While not all changes may be related to significant safety or effectiveness concerns, some changes to the prescribing information are critically important for the safe use of the drug ( e.g., a new contraindication or warning). Because drugs that are already in distribution are not generally recalled to update the prescribing information, this new risk information would not appear in the paper prescribing information, while it could be promptly incorporated in an electronic version.

Unlike the paper form, electronic prescribing information can be updated in real-time with newly acquired safety or effectiveness information, and would be available for use by prescribers and other health care professionals within days of an update. Currently, electronic forms of the prescribing information for many, but not all, human prescription drugs, are available through various sources to health care professionals and consumers in a variety of formats. This information, though, may not be the most up-to-date version of the prescribing information. The proposed rule would require that applicants and manufacturers distribute the drug's most current labeling electronically by submitting the prescribing information to FDA in a format that FDA can process, review, and archive each time the content is changed. These submissions will populate FDA's publicly available labeling repository so that the updated prescribing information is distributed in a timely fashion to prescribers, pharmacists, and health care providers. This proposed rule would require the manufacturer or applicant to verify that its prescribing information appears on FDA's labeling repository Web site and is accurate, complete, and up-to-date, and to notify FDA if the labeling is not promptly posted or if the labeling on FDA's labeling repository Web site is not accurate, complete, and up-to-date. Since FDA's labeling repository Web site will link prescribing information to specific National Drug Code (NDC) numbers, the prescribing information will be product-specific and will correspond to the NDC that may appear on a product's label. The Agency expects that the repository will also be searchable by, among other things, active ingredient and proprietary name. In this way, FDA will be able to provide the public with a complete source for the most current prescribing information for products approved under NDAs, ANDAs, and BLAs, and those marketed and not approved.

Based on the availability of a complete source for up-to-date electronic prescribing information upon implementation of this regulation, coupled with much higher use of electronic systems in health care, FDA concludes that the time is right to transition to electronic distribution of prescribing information from the static, potentially outdated paper version on pharmacy shelves. A recent survey of 436 pharmacists was conducted to assess pharmacists' readiness to adopt “paperless labeling” ( i.e., electronic prescribing information) (Ref. 3). Among this sample of pharmacists from chain pharmacies, independent retail pharmacies, hospitals, and other rural or urban dispensing sites, approximately 79 percent of respondents believed that paperless labeling would improve the adequacy of drug information available in their worksite and most pharmacists believed that patient safety would improve as a result because updated information about a drug would be readily accessible. Most pharmacists also reported that communication with patients would improve as a result of a paperless system as 81 percent of pharmacists reported using prescribing information when educating or counseling patients and verifying dose information. Pharmacists participating in the survey, in all settings except chain pharmacies, reported relying on manufacturer Web sites for online prescribing information. Pharmacists of chain pharmacies reported using corporately curated prescribing information. Of all pharmacists surveyed, only 6 percent reported using exclusively paper resources to retrieve prescribing information and only 4 percent did not have Internet access.

In addition, as described in this document, at present there are delays between when the labeling change occurs and when a product with the updated paper copy of the prescribing information actually reaches the pharmacy or point of care. During our public meeting in 2007 (see 72 FR 15701; April 2, 2007), described in section III, we heard that this is a concern of many health care professionals and consumers. Health care professionals and representative organizations believed that having the most up-to-date prescribing information would allow them to make better informed clinical decisions for their patients and would benefit the public health overall.

FDA tracks safety labeling changes and classifies them by type, depending on the risk described and the section of the prescribing information that is changed. Based on 11 years of data (2003 to 2013), we determined that there are approximately 500 safety labeling changes made each year (Ref. 4). Postapproval, safety-related labeling changes to the prescribing information that may impact public health include adding or strengthening a contraindication, warning, precaution, or adverse reaction, or the addition of, or changes to, a boxed warning for the product. In general, when important new safety information has been acquired, a new boxed warning may be added to the prescribing information to alert prescribers about the new serious risk. Our regulations also require that the boxed warning information be explained in more detail in the “Contraindications” or “Warnings and Precautions” sections of the labeling (§ 201.57(c)(1)). Therefore, addition of a new boxed warning or changes to the boxed warning generally will also affect more than one section of the prescribing information.

We conducted an internal review of labeling changes for new molecular entities, a small subset of all marketed prescription drugs, for the calendar years of 2005 to 2007, and found 36 new boxed warnings were added to the prescribing information during this 3 year period (Ref. 5). It should be noted that approximately two-thirds of these boxed warnings were the result of class-related safety labeling changes that added new boxed warnings to several different products in specific drug classes, including antidepressants, nonsteroidal anti-inflammatory drugs, and atypical antipsychotics.

In addition to boxed warnings, there are many other safety-related changes to other sections of the labeling that will add new information that is important for patient care. For example, changes to the “Contraindications” section can affect prescribing decisions and the patient population eligible for the drug, while changes to the “Warnings and Precautions” section and “Adverse Reactions” section can affect patient monitoring or management. We conducted an internal review of changes made to the boxed warning and “Contraindications” sections between the years 2003 to 2013 and found that there are about 50 additions or changes to boxed warnings each year and about 60 changes to the “Contraindications” section (Ref. 4). For example, in 2013, the prescribing information for codeine products (including all generic products containing codeine) was revised to include a new boxed warning and an addition to the “Contraindications” section to inform prescribers of the risk of respiratory depression and death in children who underwent tonsillectomy and/or adenoidectomy related to ultra-rapid metabolism of codeine to morphine. That same year, FDA issued a safety announcement regarding the use of valproate drug products for pregnant women taking the drug for migraine prevention and the prescribing information was updated to add new information to the boxed warning to inform prescribers that use of the drug while pregnant can cause major congenital malformations, particularly neural tube defects such as spina bifida, and decreased IQ scores in children. The serious nature of these warnings highlight the need for health care professionals to have access to, and utilize, the most current prescribing information from a reliable and consistent source.

FDA has tentatively concluded that health care professionals should have access to, and rely on the most updated prescribing information when making prescribing or other clinical decisions about the safe and effective use of a drug. For this reason, FDA considered a mandatory dual system for distribution of prescribing information ( i.e., one in which both paper and electronic versions would be distributed simultaneously). Under such a system, the paper version of the prescribing information could include a statement that would notify the health care professional that the paper version may not contain the most up-to-date information and would direct the health care professional to the electronic version. FDA is concerned that, even with this statement, the potentially outdated paper version may be used to make a decision impacting patient care. If the paper prescribing information remains available, a busy health care professional may not look to the labeling repository to ensure he or she is reading the current paper version of the prescribing information or to ascertain what section of the prescribing information has been updated since the paper version was printed. A health care provider who does not have Internet access may continue to rely on an outdated paper version of the prescribing information, rather than contacting the manufacturer for the most updated version.

FDA also considered a dual system that requires the electronic version of the prescribing information and permits voluntary distribution of the paper version. In addition, to the concerns we describe previously with a mandatory dual system, FDA is concerned that a voluntary dual labeling system could cause confusion and workflow disruptions for health care professionals where it would be left to each manufacturer's discretion to decide whether its products will be distributed with the paper version of the prescribing information.

One additional system that FDA is soliciting comment on is a system that requires manufacturers to distribute the prescribing information electronically, as described in this proposed rule. Where paper prescribing information is needed, dispensers ( e.g., pharmacies) would have the option of ordering single or multiple copies of the paper prescribing information when ordering a shipment of drug from the distributor. The distributor, or other entity that delivers the drug to a dispenser, would be required to provide the paper prescribing information in the quantity ordered along with the shipment of the drug to the dispenser. The manufacturer would be required to provide sufficient numbers, or a means to produce sufficient numbers, of the paper prescribing information to the distributor. With this option, for the reasons described previously, FDA does not anticipate that dispensers would routinely order paper prescribing information because they would rely on the electronic version of the prescribing information and because pharmacies usually have some other form of compendia purchased from a third party. Nevertheless, this option would permit dispensers to receive paper prescribing information with drug shipments, as needed.

We seek comment on the dual systems described previously. Specifically, we request comment on whether and how dual systems could achieve the goal of ensuring that health care providers have the most current prescribing information. We also request comment on the structure of a dual system ( e.g., if such a system should require both a paper and electronic version be distributed, or require the electronic version while allowing the paper version to be distributed voluntarily or ordered by dispensers), what kind of statement the paper prescribing information should contain to advise health care providers about the electronic version, and if there are concerns or benefits not identified by FDA with such an approach. With respect to the system that would provide the dispenser the option of ordering paper prescribing information, we request comment on any challenges, including administrative challenges, to manufacturers, distributors, or dispensers related to an ordering and fulfillment process for paper prescribing information. Finally, we note that a system in which paper copies could be ordered from the distributor could address concerns discussed in section I.C.3 about health care providers that do not have reliable regular Internet access and we invite comment on this aspect of a system.

The GAO Report noted that a potential disadvantage of the exclusive use of electronic prescribing information is that it could disrupt pharmacists' workflow by requiring different steps for pharmacists to use to consult prescribing information and also preventing them from retrieving the prescribing information from the box when the pharmacist felt it was necessary to show it to the patient during a consultation (Ref. 1). The GAO Report said that these workflow disruptions could reduce the time available for patient consultations and noted that interruptions to pharmacists' workflow have been shown to increase the risk of errors made when dispensing a drug. We are aware that transitioning from a paper to electronic delivery system for prescribing information may be a change in practice that may require adjustments. In addition, if a pharmacist determines that accessing electronic prescribing information would be too disruptive, the pharmacist might instead rely on memory or outdated prescribing information available to the pharmacist in paper format, e.g., in a paper-based compendia. We note, however, that in the recent survey of pharmacists discussed previously, most reported that a paperless system would improve patient safety and communication with patients (Ref. 3). Further, some of the workflow disruptions that a paperless system might cause could be offset by the advantages of having electronic prescribing information. For example, as noted in the GAO Report, in comments, and in public testimony received by FDA, electronic prescribing information is more user-friendly than the current paper package inserts: Pharmacists can quickly identify the information they are seeking by using hyperlinks and can adjust the font size to make it easy it read. We request comment on the potential workflow disruptions associated with a switch to an online-only system, and any related risks to the public health. We also request comment on whether the effective and compliance dates described in sections XI and XII of this proposed rule should be modified to allow for more time to adapt to workflow changes and to mitigate any potential risks caused by changes in workflow resulting from the proposed rule.

This proposed rule would not affect the applicant's responsibilities regarding the content of labeling or the process for submitting labeling changes to FDA for approval. The prescribing information component of labeling would contain the most current changes approved by FDA, changes being effected pending FDA approval, and editorial changes that may be submitted in the annual report. Any postapproval labeling changes to an application (NDA, ANDA, or BLA) must comply with §§ 314.70, 314.97, or 601.12, as applicable, and under those requirements FDA would continue to be notified about supplements and other changes to approved applications (§§ 314.70(a) and 601.12(a)). Depending on the type of change, the changes would continue to be submitted as a supplement for prior approval (“prior approval supplements”) before distribution, as a Changes Being Effected (CBE) supplement, or by inclusion of the information in the annual report (§§ 314.70(b), (c), and (d); 314.81(b)(2); 601.12(b), (c), and (d)). (See, also section IV.E. “Submission of Most Current Version of Prescribing Information to FDA” for more information.)

This proposed rule would require manufacturers and applicants to distribute labeling electronically via posting on FDA's labeling repository. We propose to require submission of the prescribing information, in a format that FDA can process, review, and archive for distribution via the FDA's labeling repository Web site. Generally, it is expected that labeling can be posted as early as the next business day following its submission to FDA. In the case of a labeling change submitted in a prior approval supplement, the proposed regulation would require applicants to submit the labeling within 2 business days following FDA approval of the supplement.

For changes contained in a CBE supplement, the labeling should be submitted to FDA on the same day that a CBE supplement is submitted to the Agency. Minor changes to the prescribing information that would normally be documented in the applicant's annual report to FDA would still be reported and described in the annual report, but the prescribing information reflecting the labeling update would be sent to FDA at the time of the change for posting on FDA's labeling repository Web site. This will help to ensure that the most current labeling is considered by FDA and available to the public.

In the Federal Register of April 2, 2007 (72 FR 15701), we announced a public hearing to solicit views and information from interested parties concerning the concept of electronic distribution of FDA-approved prescribing information currently contained in the package insert for human prescription drug and biological products. We also sought information on the feasibility of establishing a modern and efficient process for industry to electronically distribute prescribing information to dispensers and asked specific questions to evaluate the possible benefits of electronic prescribing information and the logistics of such an electronic system (72 FR 15701 at 15702). At the public hearing, we explained that FDA is committed to facilitating the transition to use of electronic information and capitalizing on the efficiencies that an electronic environment could offer. The public hearing and comments submitted to FDA in connection with the public hearing suggested that:

• The majority believe that electronic distribution of prescribing information would give health care professionals access to the most current information in the labeling, and this would result in better care for patients and improved public health.

• Electronic distribution of prescribing information would be better for the environment (because most prescribing information provided in paper form is discarded) and could be more user-friendly if individuals are able to manipulate font sizes to make the print larger and easier to read.

• Use of electronic distribution of prescribing information should not impose undue hardship on pharmacists and pharmacies in regard to workflow, process, and costs related to implementing a new system (which may include training, maintenance, and printing).

• Education or training should be provided to health care professionals if FDA converts to electronic distribution of prescribing information.

• There are varying opinions as to whether FDA should require electronic distribution of prescribing information for all prescription drugs, whether there should be a transition period whereby paper forms would coexist with the electronic format, and whether certain drugs, due to warnings for the drugs or special instructions regarding their use, always should be accompanied by prescribing information in paper form.

• Parties also differed as to whether we should provide for other sources of prescribing information if emergency situations resulting in a loss of electricity or Internet access arose. Some suggested that we should create an annual compendium that health care professionals could consult as a backup resource.

We considered these comments in drafting this proposed rule. For example, FDA agrees that electronic distribution of prescribing information should give health professionals access to the latest information for a particular human prescription drug and contribute to improving patient care. The paper prescribing information that is the subject of this proposed rule is the version that is on or within the package from which the drug is to be dispensed ( e.g., the bulk pharmacy package). In general, prescribing physicians do not dispense drugs, so they usually do not have access to the paper version appended to the bulk pharmacy package. Instead, they use electronic or paper versions ( e.g., compendia such as the Physicians' Desk Reference (PDR)) and would have access to FDA's labeling repository. Pharmacists that currently use the paper prescribing information will need to seek drug information by accessing FDA's up-to-date electronic labeling repository or by requesting the paper version of the prescribing information from the manufacturer or, if needed, consulting another source ( e.g., paper or electronic compendia). Patients generally do not receive the paper prescribing information, but they would also have access to up-to-date electronic prescribing information from FDA's labeling repository Web site. Since patient labeling is not subject to this rule, warnings, risk information, and special instructions for use in patient labeling will continue to be provided in paper form to patients.

We also agree that electronic distribution of prescribing information may reduce waste. We have heard anecdotally that the paper form of prescribing information is not generally used and is frequently discarded with the drug packaging to conserve shelf space in the pharmacy. However, we did not evaluate the environmental impacts resulting from fewer paper forms of labeling and did not cite environmental benefits as a justification for this proposed rule.

We also agree that electronic prescribing information is more user-friendly. Pharmacists have stated that the paper version is very difficult to read because of small font sizes and hard to keep organized once it is unfolded. The user of an electronic version would have ability to make the print larger and easier to read, and to navigate the prescribing information through the use of hyperlinks.

This proposal represents a continuation of our efforts to improve access to prescription drug labeling and to make a transition from paper to electronic distribution of prescribing information so that health care providers utilize the most up-to-date version of the prescribing information. To help understand the impact of this proposed rule, we invite any additional comments on the use of prescribing information by prescribers and other health care professionals, as well as consumers/patients.

Section 201(m) of the FD&C Act defines “labeling” to mean “all labels and other written, printed, or graphic matter (1) upon any article or any of its containers or wrappers, or (2) accompanying such article.” For purposes of this rulemaking only, we consider electronic distribution of prescribing information to be “accompanying” the drug, through the label statement directing interested parties to access the prescribing information through the Internet or other electronic means.

Proposed §§ 201.100(b)(8) and 610.61(t) would require a statement to appear on the immediate container label (or be affixed to the immediate container by other means such as a peel-back label) and the outer container or package stating that to obtain the current prescribing information, go to labels.fda.gov or call (insert the toll-free telephone number) for a faxed, emailed, or mailed copy. In order to ensure that it is readable, the statement would be required to be no smaller than 6-point type.

Proposed § 610.60(a)(8) would require biological product containers capable of bearing a full label to bear the statement. However, we do not propose to amend § 610.60(c) or (d) to require the statement to appear on the container label or to be affixed to the immediate container by other means for containers that bear only a partial label or no container label. Consistent with current § 610.60(c) and (d) and proposed § 610.61(t), containers capable of bearing only a partial label and containers incapable of bearing a label must be placed in a package that must have a label bearing the required statement detailed in this proposed rule. FDA recognizes that the package may be discarded at the time containers are stored and invites comment on the availability of the package in cases where the immediate container label does not have adequate space for the required statement.

Proposed § 606.121(c) would require the container label of blood and blood components to bear the statement: See circular of information for indications, contraindications, cautions, and methods of infusion. To obtain the current circular of information, go to labels.fda.gov or call (insert toll-free telephone number) for a faxed, emailed, or mailed copy. In order to ensure that it is readable, the statement would be no smaller than 6-point type. If the immediate container label is too small to accommodate the statement, the statement must be affixed to the immediate container by other means, such as a peel-back label.

We request comment on the feasibility of requiring a statement of this length on containers such as small volume single dose vials and syringes of product, some of which already bear one or more peel-off labels for product identification and inclusion in patient charts. In addition, we request comments on whether the new required statement will diminish the ability to include peel offs for inclusion in patient charts.

In order to ensure that the prescribing information is accessible in situations when Internet access is not available to the health care professional seeking the current prescribing information, the manufacturer or applicant would be required to print a toll-free telephone number in the statement appearing on the immediate container label and outer container or package that the health care professional could call to have the manufacturer or applicant send the most current prescribing information by FAX, email, or mail. This is intended primarily for use by health care professionals without regular access to the Internet, but could also be used in the case of a public health emergency or natural disaster to the extent that the emergency responders retain some means of communication, e.g., telephone and fax. As discussed in section I.C.3, we expect that in most emergency situations, first responders and other deployed units would be prepared with the key information from prescribing information necessary to appropriately dispense medications in an emergency, even if Internet and other methods of communication are unavailable.

Under proposed § 201.100(c)(5), the manufacturer or applicant would be required to ensure that the toll-free telephone number is current, fully functioning, and maintained so that there is always an alternate method to obtain the current prescribing information if the requestor cannot access the FDA's labeling repository Web site. The toll-free telephone number service would be required to be available 24 hours a day, 7 days a week. If a request is received for a FAX, email, or mailing of the current prescribing information, the manufacturer or applicant would be required to take adequate steps to ensure that it provides the requested prescribing information promptly. As previously noted, the requirements of this regulation, including the requirement to provide the toll-free number and to provide the requested prescribing information applies to all manufacturers, including repackagers and relabelers. Thus, each manufacturer would be required to provide a toll-free number on the label and outer container and to respond to requests for faxed, emailed, or mailed copies of the labeling. FDA invites comment on whether these alternatives available on request through the telephone are sufficient methods for obtaining the current prescribing information if it cannot be accessed using the Internet. FDA also invites comment on what would be considered a reasonable amount of time to respond to a request for current prescribing information. The proposed requirement is to “promptly” respond.

Under proposed § 201.100(c)(3), the covered prescribing information would be distributed electronically and would not be distributed in paper form, except where a paper copy is requested or where an exemption is granted. By contrast, FDA-approved patient package inserts, including patient instructions for use, Medication Guides required under 21 CFR part 208, and any other type of patient labeling are not within the scope of this rule and would continue to be provided in paper form.

The Web site labels.fda.gov presently holds prescribing information submitted to the Agency under current requirements, such as with listing information and annual reports. It is searchable by proprietary name, active ingredient, company name, NDC number, and application number or regulatory citation. We note that certain classes of products, such as cord blood products, may not have a proprietary name or NDC number, and we request comment on other categories by which the repository should be searchable. FDA also solicits comment regarding the ease of use of the labels.fda.gov Web site.

Under proposed § 201.100(g) a manufacturer or applicant would be able to submit a written request to FDA for exemption of a human prescription drug from the requirements for electronic distribution of prescribing information. The person requesting the exemption would be required to describe the reasons that compliance with the electronic distribution of prescribing information requirements could adversely affect the safety, effectiveness, purity, or potency of the drug; is not technologically feasible; or is otherwise inappropriate; and explain why the concerns underlying the request could not reasonably be addressed by other measures. Additionally, FDA, on its own initiative, would be able to exempt a drug from the requirements for electronic distribution of prescribing information, if FDA determines that compliance with the electronic distribution of labeling requirements could adversely affect the safety, effectiveness, purity, or potency of the drug; is not technologically feasible; or is otherwise inappropriate. Examples of circumstances where it may be appropriate to exempt a product from the requirements for electronic distribution of prescribing information include a product which requires multiple steps for reconstitution, a product that is intended for use in an emergency room, or a product that may be stockpiled for use during an emergency. In addition, many cell therapy products require proper handling, preparation, and administration of the final licensed product to ensure that the correct product has been received; that the product remains viable, pure, and potent; and that the product is administered safely. Because steps for ensuring the safety and effectiveness of cell therapy products are important, we request comment on the feasibility of the application of electronic distribution of prescribing information under this proposed rule for cellular therapy products regulated under section 351 of the PHS Act.

We propose that requests for exemption be directed to the appropriate review division and submitted to the Center for Drug Evaluation and Research and the Center for Biologics Evaluation and Research at the addresses in proposed § 201.100(g)(2). We plan to issue guidance prior to the effective date of the final regulation to inform manufacturers of any additional means of submitting requests for exemption, such as electronic submission.

This proposed rule would require submission of the prescribing information, in a format that FDA can process, review, and archive, for distribution via FDA's labeling repository Web site. For newly approved drugs, proposed § 201.100(c)(4) would require that applicants, including NDA, BLA, and ANDA applicants, submit prescribing information in this format in time for the prescribing information to be posted in the labeling repository before the drug enters interstate commerce. For drugs already approved, proposed § 201.100(c)(4) would require applicants or manufacturers to submit the most current labeling to FDA each time the prescribing information is changed, including those changes submitted as supplements or in an annual report (§§ 314.70 and 601.12). Compliance with this proposed section would not exempt applicants from compliance with § 314.70 or § 601.12, related to supplements and other changes to approved applications, including for labeling. Applicants would be required to submit updated labeling within 2 business days of FDA approval of a prior approval supplement. Under the proposed regulation, labeling should be submitted to FDA for distribution on the same day that a CBE supplement is submitted to the Agency under § 314.70(c)(6). Manufacturers who are not applicants, for example, repackers, would be required to submit the prescribing information within 2 business days of the posting of the applicant's updated labeling. For unapproved drugs, the person responsible for the content of labeling must submit the labeling within 2 business days of a change to the labeling. Finally, with regard to supplements to ANDAs, we request comment on whether a conforming amendment cross-referencing § 201.100 should be added to § 314.97, which addresses the requirements for submitting supplemental applications and other changes to an approved abbreviated application.

A primary reason for migrating to electronic prescribing information is to ensure that the most up-to-date information about the drug product is available. Currently, per § 207.30(a), every manufacturer required to list drugs under § 207.20 must review and provide updated listing information to the Agency, including labeling, each subsequent June and December, or at their discretion as the change occurs. To minimize the number of submissions to the Agency, if a supplemental change to the prescribing information is submitted to FDA under proposed § 201.100(c)(4) before the required submission for updating electronic registration and listing (part 207), and there is no additional change to the labeling between the time of the § 201.100(c)(4) submission reflecting the supplemental change and the date on which updated drug listing information would be required to be submitted under § 207.30, then this labeling information would not need to be submitted again when electronic registration and listing information is updated.

FDA anticipates that prescribing information will be posted on the next business day following the date of submission. In addition, under proposed § 201.100(c)(4), it would be the responsibility of the entity who submits the labeling to verify, within 2 business days of submission to the FDA labeling repository, that the correct version of the prescribing information is being distributed at FDA's labeling repository Web site and available for public access. FDA would not be responsible for incorrect prescribing information that is submitted and then posted. If prescribing information is not posted to the labeling repository within 2 business days of submission, the manufacturer, applicant, or other person submitting the labeling must notify FDA's SPL Coordinator by calling 1-888-463-6332 or emailing spl@fda.hhs.gov within 4 business days of submission. If the manufacturer, applicant, or other person submitting the labeling observes that incorrect prescribing information has been posted on the labeling repository, that person must contact FDA's SPL Coordinator by calling 1-888-463-6332 or emailing spl@fda.hhs.gov within 2 business days of its posting. We invite comment on whether this is a sufficient amount of time for a manufacturer or applicant to check the accuracy and completeness of the posted prescribing information. The SPL coordinator should be provided information such as the NDC code, drug name, and a description of the problem with the labeling. If updates to labeling are not provided as required, labeling posted on FDA's labeling repository Web site will be outdated and inaccurate. Outdated labeling posted on the labeling repository renders a product misbranded and in these cases the applicant or manufacturer may be subject to enforcement action by the Agency.

We propose the following conforming amendments. Proposed § 201.100(b)(7), would replace the phrase on or within the package from which it is to be dispensed with the phrase either on or within the package from which it is to be dispensed or accompanying the package from which it is to be dispensed under 21 CFR 201.100(b)(8). Proposed §§ 201.100(c)(1) and (d)(2), 201.306(a)(1)(ii) and (b)(2), and 201.310(a) would replace the phrase on or within the package from which the drug is to be dispensed with the phrase either on or within the package from which the drug is to be dispensed or accompanying the package from which the drug is to be dispensed under 21 CFR 201.100(b)(8). The first sentence of § 201.100(d) would be revised to state whether or not it is on or within a package from which it is to be dispensed or accompanying a package from which the drug is to be dispensed under 21 CFR 201.100(b)(8).

Proposed § 201.100(d)(4) would require that promotional labeling continue to be disseminated with a copy of FDA-approved product labeling in paper form. This requirement would ensure that, for example, a health care professional that receives promotional labeling or detailing materials containing promotional claims would also have the full FDA-approved product labeling readily available in paper form.

The introductory paragraph of § 606.122 would be revised to replace the phrase must be available for distribution with the phrase must be distributed electronically. Finally, paragraph (k) of § 610.61 would be revised to state that the route of administration recommended, or reference to such directions in an enclosed circular or the electronic prescribing information and paragraph (n) would be revised to state that the inactive ingredients when a safety factor, or reference to an enclosed circular or the electronic prescribing information.

FDA is authorized under various sections of the FD&C Act to require that prescribing information be distributed electronically and to require that paper copies of the prescribing information no longer be distributed, except as provided in this regulation, to ensure that human prescription drugs have adequate directions for use and to ensure the efficient enforcement of the FD&C Act. These sections include sections 201(n), 502, 503, 505, and 701(a) of the FD&C Act (21 U.S.C. 321(n), 352, 353, 355, and 371(a)), and section 351 of the PHS Act (42 U.S.C. 262). The electronic distribution of prescribing information for human prescription drugs would permit the efficient enforcement of the misbranding provisions in sections 502(a) and (f) of the FD&C Act, as well as the safety and effectiveness provisions of section 505 of the FD&C Act.

First, FDA has the authority to require that the prescribing information be distributed electronically, rather than by the shipment of a paper copy of the prescribing information with each container of a prescription drug. Under section 502(f) of the FD&C Act, a drug or device is deemed to be misbranded unless its labeling bears adequate directions for use, adequate warnings against use by patients where its use may be dangerous to health, and adequate warnings against unsafe dosage or methods or duration of administration, in such manner and form as are necessary to protect users. (See 21 U.S.C. 352(f).) Adequate directions for use means directions under which the layman can use a drug safely and for the purposes for which it is intended. (See 21 CFR 201.5.) Additionally, section 502(f) of the FD&C Act authorizes FDA to create a regulatory exemption from this requirement.

Under this authority, FDA has issued regulations exempting drugs subject to section 503(b)(1) of the FD&C Act (prescription drugs) from the requirements of section 502(f)(1) of the FD&C Act if certain conditions are met. (See e.g., 26 FR 8389 (September 6, 1961) (final rule amending then § 1.106 (21 CFR 1.106)); see also 17 FR 6818 (July 25, 1952) (final rule amending then § 1.106).) The 1961 amendments to then § 1.106 exempted a drug subject to section 503(b)(1) of the FD&C Act from section 502(f)(1) of the FD&C Act if, among other things, labeling on or within the package from which the drug is to be dispensed bears adequate information for its use, under which professionals licensed by law to administer the drug can use the drug safely and for the purposes for which it is advertised or represented. (See § 1.106(b)(3).) The relevant provision of the exempting regulations is currently codified at § 201.100(c)(1). Section 201.100(c)(1), like its predecessor § 1.106(b)(3), exempts a drug subject to section 503(b)(1) of the FD&C Act from section 502(f)(1) of the FD&C Act if labeling on or within the package from which the drug is to be dispensed bears adequate information for its use, under which professionals licensed by law to administer the drug can use the drug safely and for the purposes for which it is advertised or represented. Subsection (c)(2) provides that, for an article subject to section 505 of the FD&C Act, the labeling bearing such information is the labeling authorized by the approved new drug application or required as a condition for the certification or the exemption from certification requirements applicable to preparations of insulin or antibiotic drugs. (See § 201.100(c)(2).)

The review in this proposed rule of the language of the exempting regulations shows that, for decades, the mechanism through which the pharmaceutical industry has met the requirement for exempting a prescription drug from section 502(f)(1) of the FD&C Act is the shipment of a paper copy of the prescribing information with each container of a prescription drug. The statutory language authorizing FDA to create a regulatory exemption from the requirements of section 502(f)(1) of the FD&C Act is broad. We have concluded that nothing in the statutory language mandates that the regulatory exemption can be met only through shipment of a paper copy of the labeling accompanying each container of the drug. Advances in technology now allow for the electronic distribution of labeling, an option that was not feasible at the time FDA initially issued the predecessor to this proposed regulation.

The electronic distribution of prescribing information is expected to advance: (1) The provision of adequate directions for use to persons prescribing, dispensing, and administering the drug; (2) the provision of adequate warnings to prescribers against use in patients where a drug's use may be dangerous to health; and (3) the prevention of unsafe prescribing of prescription drugs. Currently, the prescriber, health care provider, or pharmacist may review a paper copy of the labeling that has been shipped and stored with a drug for a number of months and that may not contain the most recent information with regard to indications, warnings, or directions for use. In contrast, the electronic distribution of prescribing information provides access to the most recent information about the directions for use, warnings, and contraindications. This information will be available within days of a change via posting on the FDA labeling repository or by FAX, email, or mail. Accordingly, FDA has concluded that it has the authority to amend § 201.100(c)(1) to require that the exemption from section 502(f)(1) of the FD&C Act must be met through electronic means.

Second, FDA concludes that it has authority to base the regulatory exemption from the adequate directions for use requirements of section 502(f) of the FD&C Act on the condition that a paper copy of the prescribing information not be shipped with each container of the drug, except where FDA has concluded that compliance with electronic distribution would adversely affect the safely, effectiveness, purity, or potency of the drug; is not technically feasible; or is otherwise inappropriate. Although the regulation exempting prescription drugs from the requirement to provide adequate directions for use has previously conditioned the exemption on distribution of paper copies of the prescribing information, at the time those regulations were drafted the electronic distribution of prescribing information was not feasible. As described in this document, given the shelf life of many prescription drug products, changes to the prescribing information may occur between the time a product is shipped from the manufacturer and the time the product is received at the pharmacy or health care facility. Changes to the prescribing information may also occur during the time that the drug is stored at the pharmacy and prior to the time it is dispensed. Under such circumstances, a pharmacist or health care provider who relies upon a paper copy of the labeling, rather than the electronic version, may not have access to the current version of the prescribing information, including the latest warnings or contraindications that may appear in the electronic version of the prescribing information at the time a drug is prescribed and dispensed. Thus, where the electronic distribution of labeling is feasible, the continued distribution of paper labeling is not always sufficient to ensure that the products have adequate directions for use, adequate warnings against use by patients where its use may be dangerous to health, and adequate warnings against unsafe dosage or methods or duration of administration, in such manner and form as are necessary to protect users.

In contrast, the electronic distribution of prescribing information would make it easier for the person prescribing, dispensing, or administering the drug to have full access to all of the drug's current prescribing information, including directions for use, warnings, and contraindications. Specifically, the electronic distribution of the prescribing information via its placement in the FDA labeling repository, accessible through FDA's Web site, would better ensure that pharmacists and other health professionals have access to the most recent version of the directions for use and to the most current warnings and contraindications. With the electronic distribution of prescribing information, pharmacists and health care professionals would have timely access to the most current version of the prescribing information, in contrast to the paper form of the prescribing information, which may contain outdated information by the time it reaches the pharmacist or other health care professional. For these reasons, FDA has concluded that it has legal authority to require the prescribing information no longer physically accompany the product in paper form, except as provided in the exempting provisions of this proposed regulation.

Third, we conclude that FDA has the legal authority to require the label to bear a statement including the FDA labeling repository Web site where the electronic prescribing information will appear and a toll-free telephone number maintained by the manufacturer or applicant and that a manufacturer or applicant must maintain a toll-free telephone number through which individuals may request the prescribing information to be faxed, emailed, or mailed.

As explained in this document, section 502(f) of the FD&C Act provides that a drug is misbranded unless its labeling bears adequate directions for use, adequate warnings against use by patients for whom use may be dangerous to health, and adequate warnings against unsafe dosage or methods or duration of administration in such manner and form as necessary to protect users. Since this rule would make the distribution of this information electronic, the requirement that the Internet address and telephone number appear on the label is necessary so that a health care professional prescribing, administering, or dispensing the product would have the information needed to access the most current prescribing information. This statement will ensure that health care providers are directed to the FDA labeling repository (which will contain the most updated version of the prescribing information), as opposed to other electronic versions of the prescribing information, which may not be updated as frequently as the FDA labeling repository. Similarly, the toll-free number and the requirement that manufacturers and applicants maintain labeling via FAX, email, or mail will ensure that health care providers and pharmacists without Internet access can obtain the most current version of the prescribing information. Thus, this requirement ensures that the prescribing information bearing adequate directions for use, adequate warnings against use by patients for whom use may be dangerous to health, and adequate warnings against unsafe dosage or methods or duration of administration in such manner and form as necessary to protect users accompanies the drug.

In addition, section 502(a) of the FD&C Act prohibits false or misleading labeling of drugs, including the failure to reveal material facts relating to potential consequences under customary conditions of use under section 201(n) of the FD&C Act. The requirement that the label include the Internet address of the FDA labeling repository and the manufacturer's or applicant's telephone number ensures that the drug product will have accompanying labeling, which should include relevant information such as the drug strength, dosage form, route of administration, active ingredient, and drug interactions. In addition, it ensures that the prescribing information is accurate, up-to-date, and readily available to the health care provider. Because the labeling that is linked to the drug product via either the Internet address or the telephone number includes material facts relating to potential consequences under customary conditions of use under section 201(n) of the FD&C Act, the requirement that the Internet address and telephone number be placed on the label is also justified under section 502(a) of the FD&C Act. Furthermore, section 701(a) of the FD&C Act authorizes FDA to issue regulations for the efficient enforcement of the FD&C Act.

For all these reasons, FDA concludes that we have the legal authority to require that the prescribing information be provided electronically, rather than by the shipment of a paper copy of the prescribing information with each container of a prescription drug (except where exempted by this regulation), and to require that the label bear a statement including the Internet address where the electronic labeling may be found and a toll-free telephone number through which individuals may request the prescribing information by other means (such as by FAX, email, or mailing of a paper copy).

The Agency has determined under 21 CFR 25.30(i) and (k) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

This proposed rule contains information collection provisions that are subject to review by OMB under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). The title, description, and respondent description of the information collection are given under this section with an estimate of the annual reporting burden. Included in the estimate is the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information.

We invite comments on these topics: (1) Whether the proposed collection of information is necessary for the proper performance of FDA's functions, including whether the information will have practical utility; (2) the accuracy of FDA's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques, when appropriate, and other forms of information technology.

Title: Electronic Distribution of Prescribing Information for Human Prescription Drugs, Including Biological Products

Description: The proposed rule would amend certain labeling regulations to require applicants or manufacturers of human prescription drugs (including biological products and blood and blood components intended for transfusion) to distribute the prescribing information for these drugs electronically. This information is currently distributed in paper form on or within the package from which a prescription drug is dispensed. The electronic distribution requirements of this regulation would not apply to patient labeling (including patient package inserts and Medication Guides), which would continue to be provided in paper form, as currently required by applicable regulations. The proposed regulation would require manufacturers and applicants to submit labeling containing prescribing information to FDA for distribution via FDA's labeling repository Web site every time there is a change in the labeling and to review the labeling posted at FDA's Web site to ensure that the correct version of the labeling appears in the repository. The regulation would require a product's immediate container label or a label affixed to the immediate container by other means, such as a peel-back label (if the immediate container label is too small to bear the statement) and outside package to bear a statement directing health care professionals to FDA's labeling repository to view the electronic version of prescribing information and to provide a toll-free telephone number maintained by the manufacturer to receive requests that the manufacturer send an emailed, faxed, or mailed paper copy of the prescribing information. The prescribing information would be distributed in paper form where a pharmacist or health care provider requests that the manufacturer send a paper copy of the labeling or where an exemption to the electronic distribution of labeling requirements has been granted. Manufacturers and applicants of exempted products would distribute prescribing information in paper form on or within the package from which the product is dispensed and would not be required to distribute the labeling electronically or by FAX, email, or mail. We are taking this action to help ensure that the most current prescribing information is publicly accessible for the safe and effective use of the product.

Description of Respondents: Persons and businesses, including small businesses and manufacturers responsible for the labeling of prescription drugs, including applicants, repackagers, relabelers, and persons responsible for the labeling of unapproved drugs.

This proposed rule would require that prescribing information be distributed through electronic means, unless FDA exempts a specific product from the electronic distribution requirement or unless the manufacturer is requested to send a paper copy of the labeling. The addition of new § 201.100(c)(3) would require prescribing information to be distributed electronically and, with the exceptions noted in this document, not in paper form. The mechanism by which the labeling will be distributed electronically would be through posting on the FDA labeling repository at labels.fda.gov. The labeling repository would be initially populated with labeling that had already been electronically submitted to FDA to comply with current requirements (part 207, and §§ 314.50(l), 314.94(d), 601.14). On the effective date of this regulation, manufacturers and applicants would not need to make a new submission of labeling to FDA under this regulation if the labeling available in the repository is current. However, before distributing product with labels directing users to labels.fda.gov for prescribing information, the manufacturer or applicant must review the prescribing information in the repository, and, if the prescribing information in the repository is not current, must submit the current version of the prescribing information.

This proposed rule would revise § 201.100, with the addition of paragraph (c)(4), which would require that, upon initial approval of a drug, or following any change to approved labeling, the applicant or other manufacturer must submit the content of labeling in an electronic format to FDA at the time of the change for distribution via the FDA's labeling repository Web site. Minor changes to the prescribing information would continue to be reported in the applicant's annual report; however, the revised labeling would be required to be submitted to FDA at the time of the change for distribution via FDA's labeling repository Web site. Submissions at the time of a change would ensure that the most up-to-date prescribing information is posted on the FDA's labeling repository Web site and available to the public, particularly health care professionals, for use with the drug at the time it is prescribed, dispensed, or administered.

Current §§ 201.100(b), 606.121, 610.60, and 610.61 set forth the information that is required to appear on the label of the prescription drug product or the container label and outside package of biological products. This proposed rule would require, except where an exemption is granted, that all immediate container labels and outside packages bear a statement directing users to the FDA labeling repository to obtain the current prescribing information or circular of information and to a toll-free number to request that this information instead be provided by mail, email, or FAX. In order to ensure that the statement is readable, this statement would be no smaller than 6-point type. Where the immediate container label does not have sufficient space to bear this statement, it would be required to be affixed to the immediate container by other means, such as a peel-back label.

To ensure that the prescribing information is readily accessible if Internet access is not available to the health care professional seeking the current prescribing information, the label statement would be required to include a toll-free telephone number on the product's immediate container label and outside package. The health care professional would call this number to request the most current prescribing information by FAX, email, or mail. The manufacturer would be responsible for ensuring that the toll-free telephone number is current, fully functioning, and maintained so that there is always an alternate method available (24 hours a day, 7 days a week) to obtain the current prescribing information if the requestor cannot access the information electronically. The manufacturer would be responsible for taking adequate steps to ensure that it promptly provides the prescribing information to the requestor.

Proposed § 201.100(g) would permit a manufacturer to request that a drug or biological product be exempt from the requirements for electronic distribution of labeling set forth in this section. The exemption request must document why compliance with the electronic distribution of labeling requirements could adversely affect the safety, effectiveness, purity, or potency of the drug; is not technologically feasible; or is otherwise inappropriate and must document that the concerns underlying the request could not reasonably be addressed by other measures. In addition, FDA would be able to exempt products on its own initiative. Manufacturers and applicants of exempted products would be required to distribute prescribing information in paper form on or within the package from which the drug is to be dispensed.

Prescribing information for prescription drugs ( i.e., content of labeling required under § 201.100(d)) already must be submitted to the Agency in an electronic format that the Agency can process, review, and archive as part of NDAs, ANDAs, BLAs, and annual reports. (See §§ 314.50(l), 314.94(d), 601.14(b), and 314.81(b).) These submissions are approved by OMB under the PRA under OMB control numbers 0910-0530 and 0910-0338. In addition, under section 510(p) of the FD&C Act, enacted in 2007, listing information required to be submitted under section 510(j) of the FD&C Act and implementing regulations in part 207 has been required to be submitted electronically since June 2009. Labeling for all drugs is a subset of that information, including prescribing information both for prescription drugs that are subject to approved NDAs, ANDAs, and BLAs, and for prescription drugs that are not subject to approved applications. Information collections associated with the electronic submission of listing information are approved under OMB control number 0910-0045. In May 2009, FDA issued a guidance entitled “Providing Regulatory Submissions in Electronic Format—Drug Establishment Registration and Drug Listing,” ( http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/ucm072339.pdf . In this guidance, FDA explained that labeling updates to applications under the content of labeling regulations could be duplicative in content and format of labeling required to be submitted for listing under part 207. To avoid duplicative submissions, FDA recommended that applicants simultaneously fulfill the “content of labeling” and listing requirements regarding submission of labeling by submitting a single SPL file through the listing system and cross-referencing it in their applications.

FDA intends to adopt the same electronic format used in these other submissions (currently SPL) for submitting labeling required under this proposed regulation. FDA intends to use labeling previously submitted under these other provisions to initially populate the labeling repository prior to the effective date of the rule, so that where labeling is current, no new submissions will be needed to achieve initial compliance. Further, if this proposed rule becomes final, going forward, a single submission will in many cases fulfill the requirements under this regulation, under the content of labeling requirements in parts 314 and 601, and under certain provisions of part 207. Because this regulation would require submission of labeling in electronic form prior to the time at which such labeling must be submitted under those other provisions (and therefore, may result in some additional submissions not accounted for in those information collections), in the burden estimates that follow, FDA has included the estimated burden of all submissions that would be required to meet the terms of this proposed regulation, without excluding those that would duplicate submissions already addressed under one of the previously named provisions. In the future, however, FDA anticipates that if this rule becomes final and its information collection provisions are approved, it would be appropriate to reduce the estimated information collection burdens approved under control numbers 0910-0530, 0910-0338, and 0910-0045, as FDA does not intend to require duplicative submissions.

To estimate the burden hours per submission, we adopted an estimate of 1.25 hours per submission (which was the time estimate used for submission of electronic content of labeling under the most recent OMB extension of approval for that information collection, approved under OMB control number 0910-0338, which expires on January 31, 2017). The total estimated number of labeling submissions is the sum of several items.

The proposed regulation would require applicants to submit the labeling upon initial approval of a drug. To estimate the annual number of submissions for newly approved products, the Agency reviewed the number of NDA and ANDA approvals and new licenses for biological products to estimate the average number of approvals on an annual basis. We have estimated that there will be approximately 106 NDA applicants who had an average of 150 NDA approvals per year and approximately 250 ANDA applicants who had 1,200 ANDA approvals. We further estimate that approximately 25 respondents will have an average of 45 BLAs licensed on an annual basis. The total burden hour estimate for these submissions to the Agency is 1,744 hours (1,395 × 1.25 = 1,744).

To estimate the number of labeling submissions that may occur due to updates to the labeling of currently marketed drugs for changes that would require a supplement to an application, we reviewed the number of supplements to NDAs and BLAs reflecting labeling changes that were submitted to FDA in fiscal year 2013 for drug and biological product manufacturers and applicants. An average of 200 applicants submitted an average of 5.5 supplements reflecting labeling changes per applicant per year to the Agency (n = 1,100). The burden hour estimate for these submissions to the Agency is 1,375 hours ([200 × 5.5] × 1.25 = 1,375).

Because this proposed rule would require that applicants submit labeling changes to FDA at the time of the change, there may be submissions to the Agency due to a minor labeling change that previously would have been submitted to the Agency with annual reports (§§ 314.81 and 601.12). To estimate the number of submissions for minor label changes, we assumed that the percentage of firms making label changes via annual reports would be similar to the percentage making changes via supplements and moderate changes being effected in 30 days. Thus, we assumed that one change per applicant, (200 NDA/BLA firms, 225 ANDA firms, and 457 repackagers), for a total of 882 submissions. The total burden hour estimate for these submissions to the Agency is 1,103 hours (882 × 1.25 = 1,103).

Holders of ANDA applications would also submit updated labeling if the applicant who holds the NDA for the innovator drug makes a change to its labeling. We estimate that, on an annual basis, 225 ANDA applicants will make 1,830 submissions of updated labeling. The total burden hour estimate for these additional submissions to the Agency is 2,288 hours (1,830 × 1.25 = 2,288).

This regulation also would require repackagers and relabelers (who are subject to part 207 but not to parts 314 or 612) to submit labeling for their repackaged or relabeled products. Thus, each time an applicant submits updated labeling for a particular product for distribution via the repository, any manufacturers who repack or relabel that product would also be required to submit updated labeling for posting in the labeling repository. Based on the number of repackers and relabelers that would be subject to this proposal, we estimate that 169 repackers and relabelers would make approximately 566 submissions of updated labeling for NDA products for posting in the labeling repository. In addition, we estimate that 575 repackers and relabelers would make a total of 2,196 submissions of labeling due to an ANDA change. The total burden hour estimate for these submissions to the Agency is 3,453 hours (2,762 × 1.25 = 3,453).

To estimate the annual burden on blood establishments of submitting updated versions of the circular of information and reviewing the posted circular of information, we have estimated that there are 1,300 blood establishments that will be affected by this regulation. The vast majority of blood establishments use the same circular of information, and we estimate that the circular of information will change once annually. Thus, the annual burden of submitting the circular of information is estimated to be 1,625 hours (1,300 × 1.25 = 1,625).

The sums of all of these prior estimates are included in tables 1 and 2 as our estimates of the information collection burden associated with proposed § 201.100(c)(4). In developing our estimates for NDA, ANDA, and BLA products, we are not able to fully account for the possible overlap in respondents submitting labeling under each of the scenarios described in this document. For example, it is possible that a firm submitting labeling in conjunction with a new drug approval might also submit labeling to address a minor labeling change that is reportable in an annual report. In the number of respondents reported in the table, we have not attempted to account for this overlap, but have merely added the number of respondents from each subestimate. The result may be an overestimate of the number of respondents, and a consequent underestimate of the average number of responses per respondent. We invite comment on this and other aspects of our estimate.

Because FDA regulations do not currently require blood establishments to submit the circular of information electronically, blood establishments would be required to submit the circular of information to FDA prior to the effective date of this regulation. To estimate the burden on blood establishments of submitting updated versions of the circular of information, we have estimated that there are 1,300 blood establishments that will be affected by this regulation. The vast majority of blood establishments use the same circular of information. Thus, the initial burden of submitting the circular of information is estimated to be 1,625 hours (1,300 × 1.25 = 1,625) (table 2).

Because the labeling repository will be populated with labeling received by the Agency under current requirements, we do not expect a mass submission of prescribing information upon the effective date of this regulation. We require that manufacturers and applicants will verify the accuracy and completeness of the labeling already posted in the repository. This will ensure that labeling available via the FDA labeling repository is accurate and up-to-date. An estimate of establishments that would be affected by this rule was made based on information available in FDA's establishment and product listing databases for drug and biological products. An average of the estimated 1,500 to 2,000 drug manufacturers and applicants was combined with an estimate of 1,800 biological establishments (either licensed establishment or registered blood establishments) for an estimate of 3,550 possible respondents (1,750 + 1,800 = 3,550) for estimating the burden. Collectively, these respondents are responsible for producing 46,000 to 57,600 prescription drug products. An average of this range was used for determining the frequency of responses, resulting in 51,800 individual prescription drug products. The frequency of responses was determined by taking the number of individual prescription drug products divided by the number of respondents, resulting in an estimate of 14.60 responses per respondent. (51,800/3,550 = 14.60).

To estimate the burden hours associated with each submission, we adopted an estimate of 5 hours, which is equal to the time estimated for proofreading the electronic document in the electronic submission final rule (68 FR 69009). We believed this estimate would be similar to the estimate of the amount of time needed to review the accuracy and completeness of the posted prescribing information and compare it with the electronic file that was submitted to the Agency. Although a manufacturer may have to review the accuracy of more than one copy of a single version of the prescribing information that corresponds to multiple NDC numbers, we believe the 5-hour estimate is reasonable. We request comment on whether this estimate would be applicable to the proposed requirement for reviewing the accuracy and completeness of the prescribing information after it is posted. The total first year burden hour estimate for review for accuracy and completeness of the posted prescribing information is 259,150 hours (3,550 × 14.60 × 5 = 259,150) (table 2). This burden hour estimate includes the time for each manufacturer to review the accuracy and completeness of the prescribing information once it is posted, following a change to the labeling, on the FDA's labeling repository Web site.

In addition, on an annual basis, upon approval of a new NDA, ANDA, or BLA, or upon a change made to prescribing information, all manufacturers and applicants, including repackers of such products will be required to review for accuracy the newly posted prescribing information. As explained in this document, on an annual basis we estimate that there will be 1,395 labeling submissions for newly approved or licensed products (NDAs, BLAs, ANDAs), 1,100 labeling submissions for NDA/BLA supplements, 1,830 labeling submissions for ANDA supplements due to innovators' labeling changes, 882 labeling submissions for annual reportable changes, and 2,762 labeling submissions by repackers due to changes in NDA/ANDA holders' labeling. The total annual burden hour estimate for review for accuracy and completeness of the posted prescribing information for these products is 13,480 hours ([1,395 + 1,100 + 1,830 + 882 + 2,762 = 7,969] × 5 = 39,845) (table 1). The annual burden of checking the circular of information for accuracy is estimated to be 6,500 (1,300 × 5 = 6,500). The total annual burden for drugs, biologics, and blood and blood components is 46,345 hours (table 1).

Under proposed § 201.100(b)(8), a new label statement would be required on a product's immediate container label (or on a label affixed to the container by other means, such as a peel-back label, if the immediate container is too small to bear the statement) and outer container or package. A portion of this statement, directing users to access labels.fda.gov to view electronic prescribing information, is information provided by FDA to manufacturers and applicants for disclosure to the public, and therefore does not constitute a collection of information under 5 CFR 1320.3(c)(2). However, the portion of the statement that provides a toll-free number for requesting prescribing information by mail, email, or FAX is not provided by FDA. Accordingly, we have accounted for the burden of including that statement. The frequency of responses was determined by taking the average of the estimated number of stock keeping units (SKUs) (150,000-200,000), divided by the number of respondents, resulting in an estimate of 49.3 responses per respondent (175,000/3,550 = 49.3). To estimate the burden hours associated with adding the statement to existing product labels, we adopted an estimate of 24 hours, which was the estimate used for redesigning labels to incorporate bar codes (see 69 FR 9119 at 9149; February 26, 2004). The total burden hour estimate for adding the new label statement to all presently marketed prescription drugs is 4,200,360 hours (3,550 × 49.3 × 24 = 4,200,360) (table 3).

In addition, immediate container labels and outside packages for newly approved products would need to be designed to include the statement. Because the inclusion of the statement would be one requirement of multiple requirements considered in preparing drug product labels, this burden is included as part of the overall burden to design, test, and produce the label for a drug product's immediate container and outer container or package. The format and content of prescription drug and biological product labels must comply with FDA regulations in 21 CFR part 201 for drugs, including § 201.100(b) and other sections in subparts A and B, and 21 CFR part 610 subpart G. For blood and blood components, the label must comply with 21 CFR part 606 subpart G. Based on characteristics of the product, there are some differences in the label requirements for prescription drugs, biological products and blood and blood components. However, in general, prescription drug labels contain the following information about the drug: (1) Proprietary and established name (or proper name for biological products); (2) recommended or usual dose; (3) route of administration; (4) any warnings or cautionary statements; (5) “Rx only” statement; (6) other required statements or information based on type of product; (7) quantity or proportion of each active ingredient, or amount of product; (8) names of inactive ingredients (if the drug is for other than oral use); (9) identifying lot or control number; (10) manufacturer name and address (and license number for biologics); (11) expiration date; and (12) barcode. Based on FDA's burden estimates for other types of drug product labeling and information from the pharmaceutical industry, FDA estimates that it takes applicants or manufacturers approximately 160 hours to design, test ( i.e., to ensure that the designed label fits on the drug product container or carton), and produce each prescription drug product label, including the statement required under proposed § 201.100(b)(8). Based on an average of the estimated number of SKUs (175,015) and the estimated number of respondents (3,550), as discussed previously, the total burden for the design, testing, and production of prescription drug product labels for existing products is approximately 28,002,400 hours (table 3). Going forward for newly approved drug products, we estimate that the total burden hours for the design, testing and production of new prescription drug product labels for a drug product's immediate container and outer container or package would be approximately 223,220 hours (table 4). This is based on the average annual submission of approximately 150 NDAs from approximately 106 applicants, approximately 1200 ANDAs from approximately 250 applicants, and approximately 45 BLAs from approximately 25 applicants.

Under proposed § 201.100(g), the Agency would permit a manufacturer who markets a product to submit a written request to FDA for exemption of a human prescription drug, including a biological product, from the requirements for electronic distribution of prescribing information. We anticipate very few exemption requests will be submitted. Therefore, we estimate that approximately 10 manufacturers and applicants would request an exemption annually, and that each request would take approximately 1 hour to prepare and submit to FDA. In those instances where we grant an exemption, the covered prescribing information would be distributed in paper form by the manufacturer.

The total estimated annual reporting burden for this collection of information is as follows:

This proposed rule would require that manufacturers provide and maintain a toll-free telephone number that users of prescribing information can call if they want the prescribing information to be faxed, emailed, or mailed to them. It was assumed that all manufacturers would use existing telephone infrastructure, and they would need to add options to the system so that someone could request the prescribing information in other forms, particularly if Internet access is not available. The costs would include labor costs to modify the phone system and to respond to requests. We will adopt the estimate for the annualized cost to have a functioning system and maintaining it from the economic impact analysis. The recurring annual costs to operate and maintain the toll-free telephone number and to send paper prescribing information upon request would range from $26,500 to $90,750 (Ref. 6). An average of this range will be used for this estimation, resulting in $58,619 per manufacturer.

Concerning the distribution of prescribing information by fax, email, or mail when requested (§§ 201.100(c)(5) and 201.100(g)), and based on data described in section IX.H of the Analysis of Impacts, we estimate that each manufacturer, repacker, relabeler, or contract manufacturer will receive approximately 130 requests annually to distribute prescribing information by fax, email, or mail, and that each distribution of prescribing information would take approximately 1 hour (table 4). In addition, we estimate that each request to receive prescribing information by fax, email, or mail will take approximately 15 minutes (table 1).

In compliance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507)(d)), the Agency has submitted the information collection provisions of this proposed rule to OMB for review. To ensure that comments on the information collection are received by January 20, 2015, OMB recommends that written comments be faxed to the Office of Information and Regulatory Affairs, OMB, Attn: FDA Desk Officer, FAX: 202-395-7285, or emailed to oira_submission@omb.eop.gov . All comments should be identified with the title “Electronic Distribution of Prescribing Information for Human Prescription Drugs, Including Biological Products.”

FDA has analyzed this proposed rule in accordance with the principles set forth in Executive Order 13132. We have determined that the proposed rule, does not contain policies that have substantial direct effects on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. Accordingly, we have concluded that the proposed rule does not contain policies that have federalism implications as defined in the Executive order and, consequently, a federalism summary impact statement is not required.

FDA has examined the impacts of the proposed rule under Executive Order 12866, Executive Order 13563, the Regulatory Flexibility Act (5 U.S.C. 601-612), and the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). Executive Orders 12866 and 13563 direct Agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). This proposed rule would be an economically significant regulatory action under Executive Order 12866.

The Regulatory Flexibility Act requires Agencies to analyze regulatory options that would minimize any significant impact of a rule on small entities. The proposed rule would have a significant economic impact on a substantial number of small entities.

Section 202(a) of the Unfunded Mandates Reform Act of 1995 requires that Agencies prepare a written statement, which includes an assessment of anticipated costs and benefits, before proposing “any rule that includes any Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted annually for inflation) in any one year.” The current threshold after adjustment for inflation is $141 million, using the most current (2013) Implicit Price Deflator for the Gross Domestic Product. FDA expects this proposed rule to result in a 1-year expenditure that would meet or exceed this amount.

The proposed rule would generate costs to set up a system for the electronic distribution of prescribing information for human prescription drugs. While this system may support other or all components of the product labeling in addition to the prescribing information, this proposed rule covers the prescribing information portion of product labeling.

The proposed rule would generate costs for users of prescribing information who would need additional hardware, training, Internet access, and information access time. In addition, incremental costs would be associated with some printing of the prescribing information. Table 5 shows a summary of the ranges of annualized costs using discount rates of 7 percent and 3 percent over 10 years. The proposed rule would generate benefits in the form of production cost savings because eliminating the production of most paper forms would reduce the costs of providing prescribing information on human prescription drugs. Table 5 shows the ranges of savings. The large ranges for both costs and savings indicate the uncertainty associated with such a large change in practices for such a large number of manufacturers and users. If we use a 7 percent discount rate to annualize the costs and savings over 10 years, the effects of the proposed rule could range from annualized net savings of $5.0 million to annualized net savings of $73.5 million. With a 3 percent discount rate to annualize cost savings, the effects could range from an annualized net savings of $10.0 million to annualized net savings of $82.2 million. These quantified effects do not include the public health benefits associated with users having access to the most up-to-date versions of the prescribing information.

The full assessment of the economic analysis is available in Docket FDA-2007-N-0363 and at http://www.fda.gov/AboutFDA/ReportsManualsForms/Reports/EconomicAnalyses/default.htm (Ref. 7).

Interested persons may submit either electronic comments regarding this document to http://www.regulations.gov or written comments to the Division of Dockets Management (see ADDRESSES ). It is only necessary to send one set of comments. Identify comments with the docket number found in brackets in the heading of this document. Received comments may be seen in the Division of Dockets Management between 9 a.m. and 4 p.m., Monday through Friday, and will be posted to the docket at http://www.regulations.gov .

We propose that any final rule based on this proposal become effective 6 months after publication in the Federal Register . Implementation of this rule would require that manufacturers and applicants have up-to-date electronic prescribing information posted on FDA's labeling repository Web site, that manufacturers and applicants have verified the content of that information, that the immediate container label and outer container or package bear the required statement, and that paper labeling no longer accompany the drug. The FDA labeling repository Web site is currently available at labels.fda.gov and is populated with prescribing information submitted to the Agency under current regulatory requirements, such as requirements to submit labeling with listing information or with annual reports. If the prescribing information available in the repository is current, manufacturers and applicants would not be required to resubmit labeling before beginning the electronic distribution of labeling.

Any human prescription drug that an applicant or manufacturer introduces into interstate commerce after the effective date that does not have accurate, complete, and updated electronic prescribing information available on FDA's labeling repository Web site, as well as the statement on the product's immediate container label and the outer container or package explaining how to access the information, or that continues to be accompanied by paper prescribing information would not meet the criteria to be exempt from the requirement to provide “adequate directions for use” and would be misbranded under section 502(f)(1) of the FD&C Act. As explained further in section XII, we understand that 6 months is not likely to be sufficient time for many manufacturers and applicants to implement this rule with regard to some or all of their marketed products. As a result, we are proposing to exercise enforcement discretion for 2 years from publication of the final rule. However, we anticipate that some will be able to comply with the rule beginning on the effective date. We want to ensure that those that are able to comply as soon as 6 months after publication can take advantage of the benefits of electronic distribution of labeling at that time and will no longer need to provide paper labeling with their products (as long as all other requirements of the rule are met). Because, technically, full implementation (elimination of paper labeling that accompanies the product) cannot take place until the rule is effective, a longer effective date could delay implementation by those able to comply as soon as 6 months after the publication date. We request comment on whether a 6 month effective date is sufficient given the concerns raised in the GAO report about potential workflow disruptions in pharmacies as a result of an online-only system for prescribing information. Additionally, FDA requests comments on whether a dual system, where the regulation would require distribution of both paper and electronic versions of labeling until the compliance date, is desirable and information about the potential benefits or consequences of such a requirement.

Given the time that may be needed for industry to make necessary changes to the drugs' immediate container labels and outer containers or packages to comply with this rule and to enable firms to exhaust existing stock of drugs already packaged with paper prescribing information, we propose a compliance date of 2 years after the final rule is published. Thus, until the compliance date, we will exercise enforcement discretion with regard to products subject to the electronic labeling requirements, so long as those products continue to be distributed with the current prescribing information in paper form. However, a product distributed between the effective date and the compliance date that bears the new required statement on the label and outer container must have the current electronic prescribing information in the labeling repository at labels.fda.gov and should not be accompanied by the paper prescribing information.

We note that registration and listing information for blood and blood components is currently not electronically submitted to the Agency. FDA is in the process of developing standards for the electronic submission of labeling for blood and blood components. The Agency will consider progress in developing such standards when setting a compliance date in a final rule for blood and blood components and/or on our own initiative grant an exemption for blood and blood components for a period of time until electronic submission of the labeling for blood and blood components is supported. Thus, the final regulation may include staggered compliance dates, with a later compliance date for blood and blood components and an earlier compliance date for all other drug products.

FDA is requesting comments on the proposed effective and compliance dates, and whether they are appropriate. Specifically, we request comment on whether a delayed compliance date would alleviate concerns raised in the GAO report about potential workflow disruptions in pharmacies as a result of an online-only system for prescribing information and, if so, how much additional time would be needed to change operations.

The following references have been placed on display in the Division of Dockets Management (see ADDRESSES ) and may be seen by interested persons between 9 a.m. and 4 p.m., Monday through Friday, and are available electronically at http://www.regulations.gov . (FDA has verified the Web site address in this reference section, but FDA is not responsible for any subsequent changes to the Web site after this document publishes in the Federal Register .)

Therefore, under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act, and under authority delegated to the Commissioner of Food and Drugs, it is proposed that 21 CFR parts 201, 606, and 610 be amended as follows:

The additions and revisions read as follows:

In the Final Rules section of this Federal Register , EPA is approving the State's SIP submittal as a direct final rule without prior proposal because the Agency views this as a noncontroversial submittal and anticipates no adverse comments. A detailed rationale for the approval is set forth in the direct final rule. If no adverse comments are received in response to this rule, no further activity is contemplated. If EPA receives adverse comments, the direct final rule will be withdrawn and all public comments received will be addressed in a subsequent final rule based on this proposed rule. EPA will not institute a second comment period. Any parties interested in commenting on this action should do so at this time. Please note that if EPA receives adverse comment on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, EPA may adopt as final those provisions of the rule that are not the subject of an adverse comment. For additional information, see the direct final rule which is located in the Rules section of this Federal Register .

Title I of the James Zadroga 9/11 Health and Compensation Act of 2010 (Pub. L. 111-347), amended the Public Health Service Act (PHS Act) to add Title XXXIII  1 establishing the WTC Health Program within the Department of Health and Human Services (HHS). The WTC Health Program provides medical monitoring and treatment benefits to eligible firefighters and related personnel, law enforcement officers, and rescue, recovery, and cleanup workers who responded to the September 11, 2001, terrorist attacks in New York City, at the Pentagon, and in Shanksville, Pennsylvania (responders), and to eligible persons who were present in the dust or dust cloud on September 11, 2001 or who worked, resided, or attended school, childcare, or adult daycare in the New York City disaster area (survivors).

All references to the Administrator of the WTC Health Program (Administrator) in this notice mean the Director of the National Institute for Occupational Safety and Health (NIOSH) or his or her designee.

Pursuant to section 3312(a)(6)(B) of the PHS Act, interested parties may petition the Administrator to add a health condition to the List in 42 CFR 88.1. Within 60 calendar days after receipt of a petition to add a condition to the List, the Administrator must take one of the following four actions described in section 3312(a)(6)(B) and 42 CFR 88.17: (i) Request a recommendation of the STAC; (ii) publish a proposed rule in the Federal Register to add such health condition; (iii) publish in the Federal Register the Administrator's determination not to publish such a proposed rule and the basis for such determination; or (iv) publish in the Federal Register a determination that insufficient evidence exists to take action under (i) through (iii) above.

On October 20, 2014, the Administrator received a petition to add primary biliary cirrhosis to the List (Petition 006). 2 The petition was submitted by a Salvation Army responder who worked at Ground Zero in the aftermath of the September 11, 2001, terrorist attacks. The petitioner stated that she had been diagnosed with primary biliary cirrhosis and shared letters from her personal physicians confirming the diagnosis. The petition offered as evidence a number of articles identifying potential associations between primary biliary cirrhosis and other autoimmune diseases to various environmental exposures, including polycyclic aromatic hydrocarbons, xenobiotics, asbestos, and silicon. 3

The Administrator has established a methodology for evaluating whether to add non-cancer health conditions to the List of WTC-Related Health Conditions. 4 First, the Administrator determines whether published, peer-reviewed studies about the health condition among 9/11-exposed populations are available to assess evidence for a causal relationship and provide a basis for a decision on whether to add the condition to the List. If the studies provide sufficient evidence for analysis, the Administrator proceeds with an assessment of the information. A health condition may be added to the List if published, peer-reviewed direct observational or epidemiologic studies provide substantial support  5 for a causal relationship between 9/11 exposures and the health condition in 9/11-exposed populations. If only epidemiologic studies are available and they provide only modest support  6 for a causal relationship between 9/11 exposures and the health condition, the Administrator may then evaluate studies of associations between the health condition and 9/11 agents. 7 If that additional assessment establishes substantial support for a causal relationship between a 9/11 agent or agents and the health condition, the health condition may be added to the List.

In accordance with section 3312(a)(6)(B) of the PHS Act and 42 CFR 88.17, described above, the Administrator has reviewed the evidence presented in Petition 006. None of the articles presented with the petition provide sufficient evidence of a causal relationship between primary biliary cirrhosis and 9/11 exposures to establish a basis for a decision on whether to add primary biliary cirrhosis to the List. Although some of the articles identify potential associations between specific 9/11 agents and primary biliary cirrhosis or autoimmune disease in general, none of the articles are peer-reviewed direct observational or epidemiologic studies of 9/11 populations, as required by the methodology described above.

In addition to reviewing the evidence provided in Petition 006, the Administrator also conducted a search of the existing scientific/medical literature for evidence that could establish a causal relationship between 9/11 exposures and primary biliary cirrhosis. He did not find any peer-reviewed, published direct observational or epidemiologic studies of 9/11-exposed populations which would support such a relationship.

Because neither the evidence submitted by the Petitioner nor a search of published scientific/medical literature provided information regarding the occurrence of primary biliary cirrhosis among 9/11-exposed populations, the Administrator has determined that requesting a recommendation from the STAC (pursuant to PHS Act, section 3312(a)(6)(B)(i) and 42 CFR 88.17(a)(2)(i)) is unwarranted. In prior actions, the Administrator requested a recommendation from the STAC when he determined that it would assist his evaluation; such as when, for example, the Administrator is in need of an interpretation of conflicting or inconclusive published scientific evidence.

Similarly, the Administrator has determined that insufficient evidence exists to take further action, including either proposing the addition of primary biliary cirrhosis to the List (pursuant to PHS Act, section 3312(a)(6)(B)(ii) and 42 CFR 88.17(a)(2)(ii)) or publishing a determination not to publish a proposed rule in the Federal Register (pursuant to PHS Act, section 3312(a)(6)(B)(iii) and 42 CFR 88.17(a)(2)(iii)). In order to publish such a proposed addition or a determination not to propose a rule, the Administrator would first need to find that enough scientific evidence is available to analyze whether 9/11 exposures are associated with the health condition. Since the Administrator is unable to identify sufficient evidence to conduct an analysis of whether to add the health condition, the Administrator (pursuant to PHS Act, section 3312(a)(6)(B)(iv) and 42 CFR 88.17(a)(2)(iv)) is publishing a determination that he cannot take any of the other statutory and regulatory actions.

For the reasons discussed above, the request made in Petition 006 to add primary biliary cirrhosis to the List of WTC-Related Health Conditions is denied.

This is a summary of the Wireless Telecommunications Bureau's Order ( Order ) in GN Docket No. 12-268, DA 14-1784, adopted and released on December 8, 2014. The complete text of this document is available for public inspection and copying from 8:00 a.m. to 4:30 p.m. ET Monday through Thursday or from 8:00 a.m. to 11:30 a.m. ET on Fridays in the FCC Reference Information Center, 445 12th Street SW., Room CY-A257, Washington, DC 20554. The complete text may be purchased from the Commission's duplicating contractor, Best Copy and Printing, Inc. (BCPI), telephone 202-488-5300, facsimile 202-488-5563, or by contacting BCPI on its Web site: http://www.BCPIWEB.com. The complete text is also available on the Commission's Web site at http://wireless.fcc.gov, or by using the search function on the ECFS Web page at http://www.fcc.gov/cgb/ecfs/.

The Wireless Telecommunications Bureau (Bureau) released an Order on December 8, 2014, which extends the comment and reply comment filing deadlines established in the Competitive Bidding NPRM, 79 FR 68172, November 14, 2014. The Federal Communications Commission (Commission) adopted the Competitive Bidding NPRM on October 1, 2014, proposing to reform certain of its general part 1 rules governing competitive bidding for spectrum licenses to reflect changes in the marketplace. The Commission expressed its intention to act on the issues raised in the Competitive Bidding NPRM in time to allow all parties to account for any changes while planning for the broadcast incentive auction. Extending the deadlines for comments and reply comments in response to the Competitive Bidding NPRM will increase the likelihood that interested parties will be able to take into account more complete information about the results of the bidding in Auction 97 and thereby promote a more comprehensive record in the proceeding, without jeopardizing the Bureau's ability to act on the Competitive Bidding NPRM sufficiently in advance of the upcoming broadcast incentive auction. Pursuant to sections 4(i), 4(j), and 5(c) of the Communications Act of 1934, as amended, and pursuant to the authority delegated in 47 CFR 0.131 and 0.331, the Bureau extends the deadlines for filing comments and reply comments until January 23, 2015, and February 12, 2015.