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Farm Service Agency (FSA), Department of Agriculture (USDA).
Final rule.
This rule establishes the Quality Loss Adjustment (QLA) Program to provide assistance to producers who suffered eligible crop quality losses due to hurricanes, excessive moisture, floods, drought, tornadoes, typhoons, volcanic activity, snowstorms, and wildfires occurring in calendar years 2018 and 2019. It also amends the provisions for the Wildfire and Hurricane Indemnity Program Plus (WHIP+) to be consistent with the Further Consolidated Appropriations Act, 2020, by adding excessive moisture and drought occurring in 2018 and 2019 as qualifying disaster events and clarifying eligibility of sugar beets. The changes to WHIP+ were self-enacting and were previously implemented by FSA.
We invite you to submit comments on this rule. You may submit comments by either of the following methods, although FSA prefers that you submit comments electronically through the Federal eRulemaking Portal:
•
•
Comments will be available for viewing online at
Kimberly Graham at (202) 720–6825 (voice); or by email at:
The Additional Supplemental Appropriations for Disaster Relief Act, 2019 (“Disaster Relief Act,” Pub. L. 116–20) provided disaster assistance for necessary expenses related to losses of crops (including milk, on-farm stored commodities, crops prevented from planting in 2019, and harvested adulterated wine grapes), trees, bushes, and vines, as a consequence of hurricanes, floods, tornadoes, typhoons, volcanic activity, snowstorms, and wildfires occurring in calendar years 2018 and 2019. The Further Consolidated Appropriations Act, 2020 (Pub. L. 116–94), makes several changes to the provisions of the Disaster Relief Act, including:
• Specifying that assistance would be provided for crop quality losses;
• Adding excessive moisture as a qualifying disaster event;
• Adding drought as a qualifying disaster event if an area within the county was rated by the U.S. Drought Monitor as having a D3 (extreme drought) or higher level of drought intensity during the applicable calendar year; and
• Providing that sugar beet losses in 2018 and 2019 would be paid through cooperative processors (to be paid to producer members as determined by such processors).
This rule implements those provisions of the Further Consolidated Appropriations Act, 2020, by establishing the QLA Program to provide assistance for crop quality losses and amending the WHIP+ regulations to be consistent with the changes to qualifying disaster events and eligibility of sugar beet losses.
This rule establishes the QLA Program to provide disaster assistance for crop quality losses that were a consequence of hurricanes, excessive moisture, floods, qualifying drought, tornadoes, typhoons, volcanic activity, snowstorms, or wildfires occurring in calendar years 2018 and 2019. Eligible crops generally include crops for which FCIC crop insurance coverage or Noninsured Crop Disaster Assistance Program (NAP) coverage is available; however, value loss crops,
Qualifying disaster events include hurricanes, floods, tornados, typhoons, volcanic activity, snowstorms, wildfires, excessive moisture, qualifying drought, and related conditions that occurred in the 2018 or 2019 calendar year. Assistance is available for eligible producers in counties that received a qualifying Presidential Emergency Disaster Declaration (declaration) or Secretarial Disaster Designation (designation) due to one or more of the qualifying disaster events or a related condition. As required by the Further Consolidated Appropriations Act, 2020, drought is only a qualifying disaster event if an area within the county was rated by the U.S. Drought Monitor as having a D3 (extreme drought) or higher level of drought intensity during the applicable calendar year (referred to as “qualifying drought” in this rule). Only producers in those counties that received a disaster declaration or designation qualify for the QLA Program based on the declaration or designation. Producers in counties that did not receive a qualifying declaration or designation may still apply; however, they must also provide supporting documentation to establish that the crop was directly affected by a qualifying disaster event and suffered the same
FSA recognizes that a crop may suffer quality losses due to multiple disaster events in a single crop year, and the portion of a crop's quality loss that can be attributed to a specific disaster event may be difficult to determine. Therefore, while a qualifying disaster event must have caused at least a portion of the affected production's quality loss, FSA will consider the total quality loss caused by all eligible disaster events for eligibility and payment calculation purposes. Eligible disaster events for the QLA Program include those listed for NAP in 7 CFR 1437.10, except that the QLA Program does not cover losses due to insect infestation.
The QLA Program does not cover losses due to disaster events occurring after a crop was harvested or due to crop deterioration while in storage. Quality losses that could have been mitigated using good farming practices are not eligible. For example, if a producer's corn crop received a quality discount due to high moisture content, the producer could have mitigated that quality loss by using best practices for drying and storing the crop; therefore, that producer's quality loss due to high moisture is not eligible. The QLA Program does not provide assistance for losses that cannot be determined to have occurred or for losses for which a notice of loss was previously disapproved by FSA, RMA, or an approved insurance provider selling and servicing Federal crop insurance policies unless that notice of loss was disapproved solely because it was filed after the applicable deadline.
The QLA Program does not provide assistance for certain quality losses that were already compensated under a Federal crop insurance plan, NAP, or WHIP+. This includes losses to affected production of:
• Multiple market crops already compensated under crop insurance or WHIP+;
• Crops for which production used to calculate a crop insurance indemnity or WHIP+ payment was adjusted based on a comparison of the producer's sale price to the FCIC established price;
• Crops that received a crop insurance indemnity, NAP payment, or WHIP+ payment based on the quantity of production that was considered unmarketable; and
• Crops for which production was reported as salvage value or secondary use.
The QLA Program also excludes quality losses to sugar beets that were compensated through cooperative agreements with cooperative processors.
Affected production of a subsequent crop grown on double cropped acreage is only eligible if the crop has been approved as an eligible double cropping practice by the FSA State committee.
FSA will accept QLA Program applications from January 6, 2021, through March 5, 2021. To apply, producers must submit a completed QLA Program application either in person, by mail, email, or facsimile to an FSA county office. To be eligible, a producer must submit a complete application, which includes all of the following:
• FSA–898, Quality Loss Adjustment (QLA) Program Application;
• FSA–899, Historical Nutritional Value Weighted Average Worksheet (only for forage crops with verifiable documentation of historical nutrient factors from the 3 preceding crop years);
• FSA–578, Report of Acreage;
• FSA–895, Crop Insurance and/or NAP Coverage Agreement; and
• Required documentation, as discussed below.
The FSA–578, FSA–895, and FSA–899 forms, and other required documentation must be submitted to the producer's county office by March 19, 2021.
If not already on file with FSA, producers must also submit the following eligibility forms for each crop year within 60 days of the date the producer signs the application:
• AD–1026, Highly Erodible Land Conservation (HELC) and Wetland Conservation (WC) Certification;
• CCC–902, Farm Operating Plan for Payment Eligibility;
• CCC–941 Average Adjusted Gross Income (AGI) Certification and Consent to Disclosure of Tax Information; and
• CCC–942 Certification of Income from Farming, Ranching and Forestry Operations, if applicable.
Payments will not be made until all necessary eligibility documentation is received. Failure of an applicant to submit documentation timely may result in FSA not issuing a payment or, in the case of legal entities, a reduced payment if the required documentation for one or more members of the entity is not submitted timely.
To support their applications, producers must submit documentation showing the quality loss and quantity of affected production by March 19, 2021. Documentation of the quality loss (total dollar value loss, grading factors, and nutrient factors, as applicable), must be verifiable. Verifiable documentation is documentation that can be verified by FSA through an independent source; FSA may verify the submitted records with records on file at the warehouse, gin, laboratory, or other entity that received or tested the reported production. Examples of acceptable, verifiable documentation include warehouse grading sheets, settlement sheets, sales receipts, and laboratory test results. Except for grain crops that have been sold, the documentation must be from laboratory tests or analysis completed within 30 days of harvest to be considered acceptable, unless the FSA county committee determines that the record is representative of the condition of the affected production within 30 days of harvest. For grain crops that were sold, the verifiable documentation can be from any time from harvest through the time of sale, unless the FSA county committee determines the record is not representative of the condition within 30 days of harvest. Producers who do not have acceptable, verifiable documentation are ineligible for the QLA Program.
For forage crops, all producers must submit verifiable documentation showing the nutrient factors for the affected production of the crop. Producers must also submit verifiable documentation of the historical nutrient factors for the 3 preceding crop years if available. The type of nutrient factors (such as relative feed value or total digestible nutrients) that must be documented for a particular crop will be determined by the FSA county committee based on the standard practice for the crop in that county. For all crops other than forage crops, producers must submit verifiable documentation of the total dollar value loss due to quality, if available, and verifiable documentation of grading factors due to quality.
Documentation to support the quantity of affected production included on the application must be verifiable for non-forage crops that receive a QLA payment based on the producer's total dollar value loss. For all other crops (non-forage crops without a producer's total dollar value loss and all forage crops), records to support the quantity of affected production must be reliable. Reliable production records means evidence provided by the participant that is used to substantiate the amount of production reported when verifiable
QLA Program payments will be calculated using different formulas based on the type of crop (forage or non-forage) and based on the type of documentation submitted. All QLA payments, regardless of whether they are forage or non-forage, and the type of documentation submitted, will be calculated using a 70 percent payment factor. Payments calculated based on a county average loss, as described below, will be subject to an additional payment factor of 50 percent.
For forage crops with verifiable documentation of both the nutrient factors for the affected production and historical nutrient factors for the 3 preceding crop years, payment will be equal to the amount of the producer's total affected production multiplied by the producer's verifiable percentage of loss, multiplied by the average market price determined by FSA, multiplied by 70 percent. The producer's verifiable percentage of loss is determined by comparing the nutrient factor test results for the affected production to the average from the 3 preceding crop years, as documented on the FSA–899, Historical Nutritional Value Weighted Average Worksheet. The average market price for the QLA Program is the price used for NAP established according to 7 CFR 1437.12.
For forage crops with verifiable documentation of nutrient factors for the affected production but without historical nutrient factors for the 3 preceding crop years, the payment will be equal to the amount of the producer's total affected production multiplied by the county average percentage of loss, multiplied by the average market price determined by FSA, multiplied by 70 percent, multiplied by 50 percent.
For affected production of non-forage crops with verifiable documentation of the total dollar value loss due to quality, the QLA Program payment is equal to the producer's total dollar value loss on the affected production of the crop, multiplied by a payment factor of 70 percent.
For non-forage crops without verifiable documentation of a total dollar value loss but with verifiable documentation of grading factors due to quality, the payment will be equal to the amount of producer's affected production multiplied by the county average loss per unit of measure, multiplied by 70 percent, multiplied by 50 percent.
To determine the county average percentage of loss (for forage crops) or the county average loss per unit of measure (for non-forage crops), FSA will calculate the average loss for a crop based on losses of producers applying with verifiable documentation of historical nutritional factors (for forage crops) or the total dollar value loss (for non-forage crops) if at least 5 eligible producers submitted that documentation in the county. If less than 5 eligible producers in a county submit verifiable documentation of their historical nutritional factors or their total dollar value loss, FSA will determine a county average percentage of loss or county average loss per unit of measure based on the best available data, including losses of other QLA Program participants in contiguous counties. If sufficient data is still not available after considering other sources, FSA may determine that a county average cannot be calculated and producers in that county applying for payment under the applicable calculation are ineligible.
Payments for the QLA Program will not be issued until the application period has ended in order to allow FSA to determine the county average losses, as well as the total payments requested under the QLA Program. The Further Consolidated Appropriations Act, 2020 provides funding for the QLA Program to be available until December 31, 2021, in an amount equal to the remaining funds provided under the Bipartisan Budget Act of 2018 (Pub. L. 115–123) for losses due to Hurricanes Harvey, Irma, Maria, and other hurricanes and wildfires occurring in calendar year 2017,
A person or legal entity, other than a joint venture or general partnership, is eligible to receive, directly or indirectly, up to $125,000 per crop year in QLA Program payments. FSA will use the notification of interest provisions in 7 CFR 1400.107 and payment attribution provisions in 7 CFR 1400.105 for attributing and limiting payments to persons and legal entities. FSA will also use provisions in 7 CFR 1400.104 when changes in a farming operation result in an increase in persons to which payment limitation applies. Payments made to a joint operation (including a general partnership or joint venture) cannot exceed $250,000 per person or legal entity that comprise the ownership of the joint operation. Payments made to a legal entity will be reduced proportionately by an amount that represents the direct or indirect ownership in the legal entity by any person or legal entity that has otherwise reached the maximum payment limitation. These rules for attributing and limiting payments are consistent with the programs FSA administers on behalf of the Commodity Credit Corporation.
A person or legal entity, other than a joint venture or general partnership, is ineligible for a 2018, 2019, or 2020 payment if the person's or legal entity's average adjusted gross income (AGI) is more than $900,000, unless at least 75 percent of that person's or legal entity's average AGI is derived from farming, ranching, or forestry-related activities. The average AGI for each of the program years 2018, 2019, or 2020, is determined using the average of the adjusted gross incomes for the 3 taxable years preceding the most immediately preceding taxable year. For example, for the 2019 program year, the producer's AGI would be based on the 2015, 2016, and 2017 tax years. If at least 75 percent of the person's or legal entity's AGI is derived from farming, ranching, or forestry-related activities and the participant provides the required certification and documentation, the person or legal entity is eligible to
The Disaster Relief Act requires all participants who receive QLA Program payments to purchase crop insurance or NAP coverage for the next 2 available crop years. The latest year for meeting compliance with this provision will be the 2023 crop year. In other words, if the 2 consecutive years of coverage are not met by 2023 coverage year, the participant is ineligible for and must refund QLP Program payments. Participants must obtain crop insurance or NAP, as may be applicable, at the 60 percent coverage level or higher. In situations where crop insurance is unavailable for a crop, the Disaster Relief Act requires that a QLA Program participant obtain NAP coverage. Section 1001D of the Food Security Act of 1985 (1985 Farm Bill) provides that a person or entity with AGI in amount greater than $900,000 is not eligible to participate in NAP; however, producers with an AGI greater than $900,000 may be eligible for the QLA Program if at least 75 percent of that person's or legal entity's average AGI is derived from farming, ranching, or forestry-related activities. Accordingly, in order to reconcile this restriction in the 1985 Farm Bill and the Disaster Relief Act's requirement to obtain NAP or crop insurance coverage, QLA Program participants may meet the Disaster Relief Act's purchase requirement by purchasing Whole-Farm Revenue Protection crop insurance coverage, if eligible, or they may pay the applicable NAP service fee and premium for the 60 percent coverage level despite their ineligibility for a NAP payment. In other words, the service fee and premium must be paid even though no NAP payment may be made because the AGI of the person or entity exceeds the 1985 Farm Bill limitation.
The crop insurance and NAP coverage requirements are specific to the crop and county (county where the crop is physically located for insurance and administrative county for NAP) for which QLA Program payments are paid. This means that a producer is required to purchase crop insurance or NAP coverage for the crop in the county for which the producer was issued a QLA Program payment. Producers who receive a payment on a crop in a county and who have the crop or crop acreage in subsequent years, as provided in this rule, and who fail to obtain the 2 years of crop insurance or NAP coverage must refund all QLA Program payments for that crop in that county with interest from the date of disbursement. This is a condition of payment eligibility specified by Disaster Relief Act and is therefore not subject to partial payment eligibility or other types of equitable relief. Producers who were paid under the QLA Program for a crop in a county but do not plant that crop in a subsequent year are not subject to the crop insurance or NAP purchase requirement. WHIP+ participants who already met the requirement to purchase crop insurance or NAP coverage as specified in 7 CFR 760.1517 are considered to have also met the requirement to purchase crop insurance or NAP coverage for QLA Program purposes, and they are not required to obtain additional years of crop insurance or NAP coverage as a result of also receiving a QLA Program payment for that crop.
Applicable general eligibility requirements, including recordkeeping requirements and required compliance with HELC and Wetland Conservation provisions, are similar to those for the previous ad hoc crop disaster programs and current permanent disaster programs. All information provided to FSA for program eligibility and payment calculation purposes, including production records, is subject to spot check.
FSA, on behalf of the Secretary of Agriculture, previously implemented provisions of the Disaster Relief Act by establishing WHIP+ through a final rule published on September 19, 2019 (84 FR 48518–48537). The Disaster Relief Act provided assistance for losses of crops, trees, bushes, and vines, as a consequence of hurricanes, floods, tornadoes, typhoons, volcanic activity, snowstorms, and wildfires occurring in calendar years 2018 and 2019. WHIP+ covers only production losses of crops except in specific circumstances discussed previously in this document when the producer may have also been compensated for quality losses.
This rule amends 7 CFR 760.1500(c) and the definition of “qualifying disaster event” in § 760.1502 to include excessive moisture and qualifying drought. As under the QLA Program, drought is only considered a qualifying disaster event if an area within the county was rated by the U.S. Drought Monitor as having a D3 (extreme drought) or higher level of drought intensity during the applicable calendar year. This rule adds definitions of “qualifying drought” and “U.S. Drought Monitor” in § 760.1502.
The addition of these qualifying disaster events for WHIP+ was self-enacting as the text in the law clearly specified the required changes without need for interpretation; therefore, FSA began the sign-up period for losses due to excessive moisture and qualifying drought on March 23, 2020, and sign-up ended on October 30, 2020. Producers applying for WHIP+ assistance for losses due to excessive moisture or qualifying drought were required to meet all requirements in 7 CFR part 760, subpart O, including the requirement to purchase crop insurance for 2 years as specified in § 760.1517.
The Further Consolidated Appropriations Act, 2020 also directed the Secretary to pay sugar beet losses in 2018 and 2019 through cooperative processors. FSA has established cooperative agreements with sugar beet processors; those processors will be responsible for distributing assistance to their members. This rule amends the eligibility provisions in § 760.1517 to specify that members of cooperatives are not eligible for a WHIP+ payment for sugar beet losses.
FSA is also updating § 760.1510(a) to reflect the application deadline of October 30, 2020, and correcting references in §§ 760.1508(c) and (f) and 760.1511(a)(6).
The Administrative Procedure Act (5 U.S.C. 553) provides that the notice and comment and 30-day delay in the effective date provisions do not apply when the rule involves a matter relating to agency management or personnel or to public property, loans, grants, benefits, or contracts. This rule involves programs for payments to certain agricultural commodity producers and therefore falls within that exemption. Due to the nature of the rule and the need to implement the regulations expeditiously to provide assistance to agricultural producers, FSA finds that notice and public procedure are contrary to the public interest. Therefore, even though this rule is a major rule for purposes of the Congressional Review Act, FSA is not required to delay the effective date for 60 days from the date of publication to allow for Congressional review. Therefore, this rule is effective upon publication in the
Executive Order 12866, “Regulatory Planning and Review,” and Executive
The Office of Management and Budget (OMB) designated this rule as economically significant under Executive Order 12866, and therefore, OMB has reviewed this rule. The costs and benefits of this rule are summarized below. The full cost benefit analysis is available on
Executive Order 13771, titled Reducing Regulation and Controlling Regulatory Costs, was issued on January 30, 2017. The OMB guidance in M–17–21, dated April 5, 2017, specifies that “transfers” are not covered by Executive Order 13771 but that requirements imposed apart from transfers in transfer rules may qualify as costs or cost savings under Executive Order 13771, for example the information collection requirements in this rule. This rule is not subject to the requirements of E.O. 13771 because this rule results in no more than de minimis costs.
WHIP+ initially provided approximately $3 billion in supplemental assistance to producers for qualifying agricultural production losses. In the Further Consolidated Appropriations Act, 2020, Congress changed provisions of the Disaster Relief Act as follows:
1. Extended eligibility under WHIP+ to also cover
a. Crop production losses due to excessive moisture in calendar years 2018 and 2019;
b. Crop production losses due to drought in calendar years 2018 and 2019 if the area within the county in which the loss occurred was rated by the U.S. Drought Monitor as having a D3 (extreme drought) or higher level of drought intensity during the applicable calendar year;
2. Provided assistance for sugar beet losses in 2018 and 2019 to be paid through cooperative processors;
3. Authorized assistance for crop quality losses that occurred in calendar years 2018 and 2019 through the QLA Program (implemented by this rule).
Eligible crops under the QLA Program include crops for which Federal crop insurance or NAP coverage is available. To be eligible for the QLA Program, a crop must have suffered a quality loss due to a qualifying disaster event and had at least a 5 percent quality discount due to a combination of the qualifying disaster event and any other QLA-eligible causes of loss. Eligible crops may have been sold, fed on farm to livestock, or been in storage at the time of application.
USDA estimates the Further Consolidated Appropriations Act, 2020 will provide approximately $950 million for the continuation of disaster assistance program delivery, including payments to eligible producers for production losses due to excessive moisture and extreme drought under WHIP+ and for quality losses covered by the QLA Program. Of that amount, USDA anticipates that an estimated $500 million will be available for QLA Program payments. However, the amount of funding ultimately available for the QLA Program will not be known until other payments, for example for excessive moisture and drought under WHIP+, are finalized.
The QLA Program payment calculation depends on several factors, as shown in Figure 1. A producer is ineligible for a QLA Program payment if they received a crop insurance indemnity, NAP payment, or WHIP+ payment for a crop that was unmarketable, sold for salvage value or secondary use, or if the payment was based on a comparison of the sales price of the affected production and the applicable reference price. Otherwise, payments or benefits received under the Federal crop insurance, NAP or WHIP+ do not affect a producer's eligibility or payment received from the QLA Program. The payment calculation depends on the use of production (non-forage or forage) and evidence at hand of the crop quality loss. Producers who do not have evidence of the quality loss are ineligible.
The Regulatory Flexibility Act (5 U.S.C. 601–612), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA, Pub. L. 104–121), generally requires an agency to prepare a regulatory flexibility analysis of any rule whenever an agency is required by the Administrative Procedure Act or any other law to publish a proposed rule, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. This rule is not subject to the Regulatory Flexibility Act because USDA is not required by Administrative Procedure Act or any law to publish a proposed rule for this rulemaking.
The environmental impacts of this final rule have been considered in a manner consistent with the provisions of the National Environmental Policy Act (NEPA, 42 U.S.C. 4321–4347), the regulations of the Council on Environmental Quality (40 CFR parts 1500–1508), and the FSA regulation for compliance with NEPA (7 CFR part 799). The legislative intent for implementing the QLA Program is to provide assistance to producers who suffered eligible crop quality losses due to hurricanes, excessive moisture, floods, drought, tornadoes, typhoons, volcanic activity, snowstorms, and wildfires occurring in calendar years 2018 and 2019.
While OMB has designated this rule as “economically significant” under Executive Order 12866, “economic or social effects are not intended by themselves to require preparation of an environmental impact statement” (see 40 CFR 1502.16(b)), when not interrelated to natural or physical environmental effects.
For this rule, the FSA Categorical Exclusions found in 7 CFR 799.31 apply, specifically 7 CFR 799.31(b)(6)(iii), (iv), and (vi) (that is, § 799.31(b)(6)(iii) Financial assistance to supplement income, manage the supply of agricultural commodities, or influence the cost or supply of such commodities or programs of a similar nature or intent (that is, price support programs); § 799.31(b)(6)(iv) Individual farm participation in FSA programs where no ground disturbance or change in land use occurs as a result of the proposed action or participation; and § 799.31(b)(6)(vi) Safety net programs administered by FSA). No Extraordinary Circumstances (7 CFR 799.33) exist.
For the outlined reasons, FSA has determined that the implementation of the QLA Program and the participation in the QLA Program does not constitute a major Federal action that would significantly affect the quality of the human environment, individually or cumulatively. Therefore, FSA will not prepare an environmental assessment or environmental impact statement for this regulatory action.
Executive Order 12372, “Intergovernmental Review of Federal Programs,” requires consultation with State and local officials that would be directly affect by proposed Federal financial assistance. The objectives of the Executive order are to foster an intergovernmental partnership and a strengthened federalism, by relying on State and local processes for State and local government coordination and review of proposed Federal financial assistance and direct Federal development. For reasons specified in the final rule related notice to 7 CFR part 3015, subpart V (48 FR 29115, June 24, 1983), the programs and activities
This rule has been reviewed under Executive Order 12988, “Civil Justice Reform.” This rule will not preempt State or local laws, regulations, or policies unless they represent an irreconcilable conflict with this rule. The rule will not have retroactive effect. Before any judicial action may be brought regarding the provisions of this rule, the administrative appeal provisions of 7 CFR parts 11 and 780 must be exhausted.
This rule has been reviewed under Executive Order 13132, “Federalism.” The policies contained in this rule do not have any substantial direct effect on States, on the relationship between the Federal Government and the States, or on the distribution of power and responsibilities among the various levels of government, except as required by law. Nor does this rule impose substantial direct compliance costs on State and local governments. Therefore, consultation with the States is not required.
This rule has been reviewed in accordance with the requirements of Executive Order 13175, “Consultation and Coordination with Indian Tribal Governments.” Executive Order 13175 requires Federal agencies to consult and coordinate with Tribes on a government-to-government basis on policies that have Tribal implications, including regulations, legislative comments or proposed legislation, and other policy statements or actions that have substantial direct effects on one or more Indian Tribes, on the relationship between the Federal Government and Indian Tribes, or on the distribution of power and responsibilities between the Federal Government and Indian Tribes.
The USDA's Office of Tribal Relations (OTR) has assessed the impact of this rule on Indian Tribes and determined that this rule may have significant Tribal implications that require ongoing adherence to Executive Order 13175. OTR notes that the programs are similar to programs that have been administered by FSA and RMA in the past; having not heard any concerns regarding the administration of these in the past, and the fact that provisions are mandated in the Disaster Relief Act, OTR recommended that consultation is not required at this time. Tribes can request consultation at any time. FSA will work with OTR to ensure meaningful consultation is provided where changes, additions, and modifications identified in this rule are not expressly mandated by law.
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA, Pub. L. 104–4) requires Federal agencies to assess the effects of their regulatory actions on State local, and Tribal governments or the private sector. Agencies generally must prepare a written statement, including a cost benefit analysis, for proposed and final rules with Federal mandates that may result in expenditures of $100 million or more in any 1 year for State, local, or Tribal governments, in the aggregate, or to the private sector. UMRA generally requires agencies to consider alternatives and adopt the more cost effective or least burdensome alternative that achieves the objectives of the rule. This rule contains no Federal mandates, as defined in Title II of UMRA, for State, local, and Tribal governments or the private sector. Therefore, this rule is not subject to the requirements of sections 202 and 205 of UMRA.
In accordance with the Paperwork Reduction Act of 1995, FSA submitted the QLA Program information collection request to OMB for emergency approval. OMB approved the 6-month emergency information collection.
FSA is committed to complying with the E-Government Act, to promote the use of the internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.
The titles and numbers of the Federal Domestic Assistance Program found in the Catalog of Federal Domestic Assistance to which this rule applies are:
Dairy products, Indemnity payments, Reporting and recordkeeping requirements.
For the reasons discussed above, FSA amends 7 CFR part 760 as follows:
7 U.S.C. 4501 and 1531; 16 U.S.C. 3801, note; 19 U.S.C. 2497; Title III, Pub. L. 109–234, 120 Stat. 474; Title IX, Pub. L. 110–28, 121 Stat. 211; Sec. 748, Pub. L. 111–80, 123 Stat. 2131; Title I, Pub. L. 115–123, 132 Stat. 65; Title I, Pub. L. 116–20, 133 Stat. 871; and Division B, Title VII, Pub. L. 116–94, 133 Stat. 2658.
The additions read as follows:
(j) Members of cooperative processors are not eligible for WHIP+ assistance for sugar beet losses.
This subpart specifies the terms and conditions for the Quality Loss Adjustment (QLA) Program. The QLA Program provides disaster assistance for crop quality losses that were a consequence of hurricanes, excessive moisture, floods, qualifying drought, tornadoes, typhoons, volcanic activity, snowstorms, and wildfires occurring in calendar years 2018 and 2019.
(a) The QLA Program is administered under the general supervision of the Administrator, Farm Service Agency (FSA), and the Deputy Administrator for Farm Programs, FSA. The QLA Program is carried out by FSA State and county committees with instructions issued by the Deputy Administrator.
(b) FSA State and county committees, and representatives and their employees, do not have authority to modify or waive any of the provisions of the regulations in this subpart or instructions issued by the Deputy Administrator.
(c) The FSA State committee will take any action required by the regulations in this subpart that the FSA county committee has not taken. The FSA State committee will also:
(1) Correct, or require an FSA county committee to correct, any action taken by the FSA county committee that is not in accordance with the regulations in this subpart; or
(2) Require an FSA county committee to withhold taking any action that is not in accordance with this subpart.
(d) No delegation to an FSA State or county committee precludes the FSA Administrator or the Deputy Administrator from determining any question arising under this subpart or from reversing or modifying any determination made by an FSA State or county committee.
(e) The Deputy Administrator has the authority to:
(1) Permit State and county committees to waive or modify a non-statutory deadline specified in this subpart; and
(2) Delegate authority to FSA State or county committees to make determinations under § 760.1812(f) and (g).
(f) Items of general applicability to program participants, including, but not limited to, application periods, application deadlines, internal operating guidelines issued to FSA State and county offices, prices, and payment factors established under this subpart, are not subject to appeal in accordance with part 780 of this chapter.
The following definitions apply to this subpart. The definitions in §§ 718.2 and 1400.3 of this title also apply, except where they conflict with the definitions in this section. In the event of conflict, the definitions in this section apply.
(1) A quality loss due to a qualifying disaster event; and
(2) At least a 5 percent quality loss due to all eligible disaster events.
(1) For insurable crops, the crop year as defined according to the applicable crop insurance policy; and
(2) For NAP-eligible crops, the crop year as defined in § 1437.3 of this title.
(1) For conventional farming practices, those generally recognized by agricultural experts for the area, which could include one or more counties; or
(2) For organic farming practices, those generally recognized by the organic agricultural experts for the area or contained in the organic system plan that is in accordance with the National Organic Program specified in part 205 of this title.
(1) For insurable crops, harvested as defined according to the applicable crop insurance policy;
(2) For NAP-eligible single harvest crops, that a crop has been removed from the field, either by hand or mechanically;
(3) For NAP-eligible crops with potential multiple harvests in 1 year or harvested over multiple years, that the producer has, by hand or mechanically, removed at least 1 mature crop from the field during the crop year; and
(4) For mechanically harvested NAP-eligible crops, that the crop has been
(1) For forage crops, a reduction in an applicable nutrient factor for the crop; and
(2) For crops other than forage, a reduction in the total dollar value of the crop due to reduction in the physical condition of the crop indicated by an applicable grading factor.
(1) For insurable crops, the FCIC-established unit of measure; and
(2) For NAP-eligible crops, the established unit of measure used for the NAP price and yield.
(a) Participants will be eligible to receive a payment under this subpart only if they incurred a loss to an eligible crop due to a qualifying disaster event, as further specified in this subpart.
(b) To be an eligible participant under this subpart, a person or legal entity must be a:
(1) Citizen of the United States;
(2) Resident alien; for purposes of this subpart, resident alien means “lawful alien” (see § 1400.3 of this title);
(3) Partnership consisting solely of citizens of the United States or resident aliens; or
(4) Corporation, limited liability company, or other similar organizational structure organized under State law consisting solely of citizens or resident aliens of the United States.
(c) If any person who would otherwise be eligible to receive a payment dies before the payment is received, payment may be released as specified in § 707.3 of this chapter. Similarly, if any person or legal entity who would otherwise have been eligible to apply for a payment dies or is dissolved, respectively, before the payment is applied for, payment may be released in accordance with this subpart if a timely application is filed by an authorized representative. Proof of authority to sign for the deceased producer or dissolved entity must be provided. If a participant is now a dissolved general partnership or joint venture, all members of the general partnership or joint venture at the time of dissolution or their duly authorized representatives must sign the application. Eligibility of such participant will be determined, as it is for other participants, based upon ownership share and risk in producing the crop.
(d) An ownership share is required to be eligible for a payment under this subpart. Growers growing eligible crops under contract for crop owners are not eligible for a payment under this subpart unless the grower is also determined to have an ownership share of the crop. Any verbal or written contract that precludes the grower from having an ownership share renders the
(e) A person or legal entity is not eligible to receive assistance under this subpart if FSA determines that the person or legal entity:
(1) Adopted any scheme or other device that tends to defeat the purpose of this subpart or any of the regulations applicable to this subpart;
(2) Made any fraudulent representation; or
(3) Misrepresented any fact affecting a program determination under any or all of the following: This subpart and parts 12, 400, 1400, and 1437 of this title.
(f) A person who is ineligible for crop insurance or NAP under § 400.458 or § 1437.16 of this title, respectively, for any year is ineligible for payments under this subpart for the same year.
(g) The provisions of § 718.11 of this chapter, providing for ineligibility for payments for offenses involving controlled substances, apply.
(h) As a condition of eligibility to receive payments under this subpart, the participant must have been in compliance with the Highly Erodible Land Conservation and Wetland Conservation provisions of part 12 of this title for the applicable crop year for which the producer is applying for benefits under this subpart, and must not otherwise be precluded from receiving payments under part 12, 400, 1400, or 1437 of this title or any law.
(a) To be eligible for the QLA Program, an eligible crop's affected production must have suffered a quality loss due to a qualifying disaster event and had at least a 5 percent quality loss due to all eligible disaster events. Whether affected production of a crop had a 5 percent loss will be determined separately for crops with different crop types, intended uses, certified organic or conventional status, county, and crop year.
(b) Affected production of the following is not eligible for the QLA Program:
(1) Crops that were not grown commercially;
(2) Crops that were intended for grazing or were grazed;
(3) Crops not intended for harvest;
(4) Volunteer crops;
(5) Value loss crops;
(6) Maple sap;
(7) Honey;
(8) By-products resulting from processing or harvesting a crop, such as, but not limited to, cotton seed, peanut shells, wheat or oat straw, or corn stalks or stovers;
(9) First-year seeding for forage production;
(10) Immature fruit crops;
(11) Crops for which FCIC coverage or NAP coverage is unavailable;
(12) Multiple market crops for which the producer previously received a crop insurance indemnity or WHIP+ payment for a quality loss;
(13) Crops for which production used to calculate a crop insurance indemnity or WHIP+ payment was adjusted based on a comparison of the producer's sale price to FCIC established price;
(14) Crops that received a crop insurance indemnity, NAP payment, or WHIP+ payment based on the quantity of production that was considered unmarketable;
(15) Crops for which the producer previously received a crop insurance indemnity, NAP payment, or WHIP+ payment for which production was reported as salvage value or secondary use;
(16) Sugar beets for which a member of a cooperative processor received a payment through a cooperative agreement; and
(17) Crops that were destroyed.
(c) Only affected production from initial crop acreage will be eligible for a QLA Program payment, unless the provisions for subsequent crops in this section are met. All plantings of an annual or biennial crop are considered the same as a planting of an initial crop in tropical regions as defined in part 1437, subpart F, of this title.
(d) In cases where there is double cropped acreage, affected production of each crop may be eligible only if the specific crops are approved by the FSA State committee as eligible double cropping practices in accordance with procedures approved by the Deputy Administrator.
(e) Participants having affected production from multiple plantings may receive payments for each planting only if the planting meets the requirements of part 1437 of this title and all other provisions of this subpart are satisfied.
(a) A producer is eligible for payments under this subpart only if the producer's affected production of an eligible crop suffered a crop quality loss due to a qualifying disaster event.
(b) A crop quality loss due to a qualifying disaster event must have occurred on acreage that was physically located in a county that received a:
(1) Presidential Emergency Disaster Declaration authorizing public assistance for categories C through G or individual assistance due to a qualifying disaster event occurring in the 2018 or 2019 calendar years; or
(2) Secretarial Disaster Designation for a qualifying disaster event occurring in the 2018 or 2019 calendar years.
(c) A producer with a crop quality loss on acreage not physically located in a county that was eligible under paragraph (b) of this section will be eligible for the QLA Program for losses due to qualifying disaster events only if the producer provides supporting documentation from which the FSA county committee determines that the crop quality loss on the unit was reasonably related to a qualifying disaster event as specified in this subpart. Supporting documentation may include furnishing climatological data from a reputable source or other information substantiating the claim of loss due to a qualifying disaster event.
(a) A loss is not eligible under this subpart if any of the following apply:
(1) The cause of loss is determined by FSA to be the result of poor management decisions, poor farming practices, or drifting herbicides;
(2) The loss could have been mitigated using good farming practices, including losses due to high moisture content that could be mitigated by following best practices for drying and storing the crop;
(3) The qualifying disaster event occurred after the crop was harvested;
(4) FSA or RMA have previously disapproved a notice of loss for the crop and disaster event, unless that notice of loss was disapproved solely because it was filed after the applicable deadline; or
(5) The cause of loss was due to:
(i) Conditions or events occurring outside of the applicable growing season for the crop;
(ii) Insect infestation;
(iii) Water contained or released by any governmental, public, or private dam or reservoir project if an easement exists on the acreage affected by the containment or release of the water;
(iv) Failure of a power supply or brownout; or
(v) Failure to harvest or market the crop due to lack of a sufficient plan or resources.
(b) [Reserved]
(a) All persons with a financial interest in a legal entity receiving payments under this subpart are jointly and severally liable for any refund, including related charges, that is determined to be due to FSA for any reason.
(b) In the event that any application under this subpart resulted from
(c) Any payment to any participant under this subpart will be made without regard to questions of title under State law, and without regard to any claim or lien against the commodity, or proceeds, in favor of the owner or any other creditor except agencies of the U.S. Government. The regulations governing offsets and withholdings in part 3 of this chapter apply to payments made under this subpart.
(d) Any participant entitled to any payment may assign any payment(s) in accordance with regulations governing the assignment of payments in part 3 of this chapter.
(e) The regulations in parts 11 and 780 of this title apply to determinations under this subpart.
(a) Eligibility and payments under this subpart will be determined based on the county where the affected production was harvested.
(b) FSA county committees will make any necessary adjustments to the applicant's affected production and other information on the application form used to calculate a payment when the county committee determines:
(1) Additional documentation has been requested by FSA but has not been provided by the participant;
(2) The loss is due to an ineligible cause; or
(3) The participant has a contract providing a guaranteed payment for all or a portion of the crop.
(c) Unless otherwise specified, all eligibility provisions of part 1437 of this title also apply to tropical crops for eligibility under this subpart.
(d) FSA will use the most reliable data available at the time payments under this subpart are calculated. If additional data or information is provided or becomes available after a payment is issued, FSA will recalculate the payment amount and the producer must return any overpayment amount to FSA. In all cases, payments can only issue based on the payment formula for losses that affirmatively occurred.
(e) Production that is commingled between counties, crop years, or ineligible and eligible acres before it was a matter of record or combination of record and cannot be separated by using records or other means acceptable to FSA will be prorated to each respective year, county, or type of acreage, respectively.
(a) A person or legal entity, other than a joint venture or general partnership, is eligible to receive, directly or indirectly, payments of not more than $125,000 for each of the 2018, 2019, and 2020 crop years under this subpart.
(b) Payments made to a joint operation, including a joint venture or general partnership, cannot exceed the amount determined by multiplying the maximum payment amount specified in paragraph (a) of this section by the number of persons and legal entities, other than joint operations, that comprise the ownership of the joint operation.
(c) The direct attribution provisions in § 1400.105 of this title apply to payments under this subpart.
(d) The notification of interest provisions in § 1400.107 of this title apply to payments under this subpart.
(e) The provisions for recognizing persons added to a farming operation for payment limitation purposes as described in § 1400.104 of this title apply to payments under this subpart.
(f) The $900,000 average AGI limitation provisions in part 1400 of this title relating to limits on payments for persons or legal entities, excluding joint ventures and general partnerships, apply to each applicant for the QLA Program unless at least 75 percent of the person or legal entity's average AGI is derived from farming, ranching, or forestry-related activities. A person's or legal entity's average AGI for each of the program years 2018, 2019 or 2020, is determined by using the average of the adjusted gross incomes for the 3 taxable years preceding the most immediately preceding taxable year. If the person's or legal entity's average AGI is below $900,000 or at least 75 percent of the person or legal entity's average AGI is derived from farming, ranching, or forestry-related activities, the person or legal entity, is eligible to receive payments under this subpart.
(a) A completed FSA–898, Quality Loss Adjustment (QLA) Program Application, must be submitted in person, by mail, email, or facsimile to any FSA county office by the close of business on March 5, 2020.
(b) An application submitted in accordance with paragraph (a) of this section is not considered valid and complete for issuance of payment under this subpart unless FSA determines all the applicable eligibility provisions have been satisfied and the producer has submitted all of following by March 19, 2020:
(1) Documentation required by § 760.1811;
(2) FSA–578, Report of Acreage, for all acreage for any crop for which payments under this subpart are requested;
(3) FSA–895, Crop Insurance and/or NAP Coverage Agreement; and
(4) For forage crops, FSA–899, Historical Nutritional Value Weighted Average Worksheet, if verifiable documentation of historical nutrient factors is available.
(c) In addition to the forms listed in paragraph (b) of this section, applicants must also submit all the following eligibility forms within 60 days from the date of signing the QLA Program application if not already on file with FSA:
(1) AD–1026, Highly Erodible Land Conservation (HELC) and Wetland Conservation Certification;
(2) CCC–902 Automated, Farm Operating Plan for Payment Eligibility 2009 and Subsequent Program Years;
(3) CCC–941 Average Adjusted Gross Income (AGI) Certification and Consent to Disclosure of Tax Information; and
(4) CCC–942 Certification of Income from Farming, Ranching and Forestry Operations, if applicable.
(d) Failure to submit all required forms by the applicable deadlines in paragraphs (b) and (c) of this section may result in no payment or a reduced payment.
(e) Application approval and payment by FSA does not relieve a participant from having to submit any form required, but not filed, according to this section.
(f) Once signed by a producer, the application is considered to contain information and certifications of and pertaining to the producer regardless of who entered the information on the application.
(g) The producer applying for payment under this subpart certifies the accuracy and truthfulness of the information provided in the application as well as any documentation filed with or in support of the application. All information is subject to verification or spot check by FSA at any time, either before or after payment is issued. Refusal to allow FSA or any agency of the USDA to verify any information provided will result in the participant's forfeiting eligibility for payment under this subpart. FSA may at any time, including before, during, or after processing and paying an application, require the producer to submit any additional information necessary to implement or determine any eligibility
(a) If requested by FSA, an applicant must provide documentation that establishes the applicant's ownership share and value at risk in the crop.
(b) The applicant must provide acceptable documentation that is dated and contains all information required to substantiate the applicant's certification to the satisfaction of the FSA county committee. Verifiable documentation is required to substantiate the total dollar value loss and associated affected production, grading factors, and nutritional factors. FSA may verify the records with records on file at the warehouse, gin, or other entity that received or may have received the reported production. Reliable production records are required to substantiate the reported amount of affected production for applications not based on the total dollar value loss.
(c) To be considered acceptable, verifiable documentation for grain crops that were sold may come from any time between harvest and sale of the affected production, unless the FSA county committee determines the record is not representative of the condition within 30 days of harvest. For all other crops, the verifiable documentation must come from tests or analysis completed within 30 days of harvest, unless the FSA county committee determines that the record is representative of the condition of the affected production at time of harvest. Examples of acceptable records for purposes of this paragraph (c) include:
(1) Warehouse grading sheets;
(2) Settlement sheets;
(3) Sales receipts showing grade and price or disposition to secondary market due to quality; and
(4) Laboratory test results.
(d) For forage crops, producers must submit verifiable documentation showing the nutrient factors for the affected production. Producers must also submit verifiable documentation of the historical nutrient factors for the 3 preceding crop years if available. The nutrient factors that must be documented for a crop will determined by the FSA county committee based on the standard practice for the crop in that county.
(e) For all crops other than forage crops, producers must submit verifiable documentation of the total dollar value loss due to quality, if available, and verifiable documentation of grading factors due to quality.
(f) The participant is responsible for:
(1) Retaining, providing, and summarizing, at time of application and whenever required by FSA, the best available verifiable production records for the crop;
(2) Providing the information in a manner that can be easily understood by the FSA county committee; and
(3) Providing supporting documentation about the disaster event if the FSA county committee has reason to question the disaster event.
(e) Participants must provide all records for any production of a crop that is grown with an arrangement, agreement, or contract for guaranteed payment.
(f) Participants are required to retain documentation in support of their application for 3 years after the date of approval.
(g) Participants receiving QLA Program payments or any other person who furnishes such information to USDA must permit authorized representatives of USDA or the Government Accountability Office, during regular business hours, to enter the agricultural operation and to inspect, examine, and make copies of books, records, or other items for the purpose of confirming the accuracy of the information provided by the participant.
(a) Payments will be calculated separately for crops based on the crop type, intended use, certified organic or conventional status, county, and crop year.
(b) For forage crops with verifiable documentation of nutrient factors for the affected production and for the 3 preceding crop years, the payment will be equal to the producer's total affected production multiplied by the producer's verifiable percentage of loss, multiplied by the average market price, multiplied by 70 percent.
(c) For forage crops with verifiable documentation of nutrient factors for the affected production but not for the 3 preceding crop years, the payment will be equal to the producer's total affected production multiplied by the county average percentage of loss in paragraph (f) of this section, multiplied by the average market price, multiplied by 70 percent, multiplied by 50 percent.
(d) For crops other than forage with verifiable documentation of the total dollar value loss due to quality, the payment will be equal to the producer's total dollar value loss on the affected production, multiplied by 70 percent.
(e) For crops other than forage without verifiable documentation of the total dollar value loss but with verifiable documentation of grading factors, the payment will be equal to the producer's affected production multiplied by the county average loss per unit of measure in paragraph (g) of this section, multiplied by 70 percent, multiplied by 50 percent.
(f) The county average percentage of loss is the average percentage of loss from producers eligible for payment under paragraph (b) of this section if at least 5 producers in a county are eligible for payment for a crop under paragraph (b) of this section. If less than 5 producers in a county are eligible for payment for a crop under paragraph (b) of this section, the Deputy Administrator will:
(1) Determine a county average percentage of loss based on the best available data, including, but not limited to, evidence of losses in contiguous counties; or
(2) If a county average percentage of loss cannot be determined due to insufficient data, not issue payments to applicants under paragraph (c) of this section.
(g) The county average loss per unit of measure is based on the weighted average sales price from producers eligible for payment under paragraph (d) of this section if at least 5 producers in a county are eligible for payment for a crop under paragraph (d) of this section. If less than 5 producers are eligible for payment in a county under paragraph (d) of this section, the Deputy Administrator will:
(1) Determine a county average loss per unit of measure based on the best available data, including, but not limited to, evidence of losses in contiguous counties; or
(2) If a county average loss per unit of measure cannot be determined due to insufficient data, not issue payments to applicants under paragraph (e) of this section.
(a) Payments will be issued after the application period has ended and all applications have been reviewed by FSA.
(b) In the event that, within the limits of the funding made available by the Secretary, approval of eligible applications would result in payments
(c) Applications and claims that are unpaid or prorated for any reason will not be carried forward for payment under other funds for later years or otherwise, but will be considered, as to any unpaid amount, void and nonpayable.
(a) For the first 2 consecutive crop years for which crop insurance or NAP coverage is available after the enrollment period for the QLA Program ends, a participant who receives payment under this subpart for a crop loss in a county must obtain:
(1) For an insurable crop, crop insurance with at least a 60 percent coverage level for that crop in that county; or
(2) For a NAP-eligible crop, NAP coverage with a coverage level of 60 percent.
(b) Participants who exceed the average adjusted gross income limitation for NAP payment eligibility
(c) The final crop year to purchase crop insurance or NAP coverage to meet the requirements of paragraph (a) of this section is the 2023 crop year.
(d) A participant who obtained crop insurance or NAP coverage for the crop in accordance with the requirements for WHIP+ in § 760.1517 is considered to have met the requirement to purchase crop insurance or NAP coverage for the QLA Program.
(e) If a producer fails to obtain crop insurance or NAP coverage as required in this section, the producer must reimburse FSA for the full amount of QLA Program payment plus interest. A producer will only be considered to have obtained NAP coverage for the purposes of this section if the participant submitted a NAP application for coverage and paid the requisite NAP service fee and any applicable premium by the applicable deadline and completed all program requirements required under the coverage agreement, including filing an acreage report.
Office of the General Counsel, Department of Energy.
Final rule.
The U.S. Department of Energy (DOE) publishes this final rule to establish procedures for the issuance of DOE guidance documents in accordance with Executive Order 13891. In this final rule, DOE establishes internal agency requirements for the contents of guidance documents, and procedures for providing notice of, and soliciting public comment on, certain guidance documents. This final rule also establishes procedures for the public to petition DOE to modify or withdraw guidance documents.
The effective date of this rule is February 5, 2021.
The docket for this rulemaking, which includes
Mr. Matthew Ring, U.S. Department of Energy, Office of the General Counsel, Forrestal Building, GC–33, 1000 Independence Avenue SW, Washington, DC 20585, (202) 586–2555, Email:
In this final rule, DOE incorporates into the Code of Federal Regulations a new 10 CFR part 1061, which implements the requirements of Executive Order 13891, “Promoting the Rule of Law Through Improved Agency Guidance Documents.” (84 FR 55235 (Oct. 15, 2019)) Among other things, Executive Order 13891 requires agencies to provide more transparency for their guidance documents by creating a searchable online database for current guidance documents,
This final rule applies to all DOE guidance documents, as defined by Executive Order 13891, including the exceptions listed in section 2 of the Executive Order. This final rule also lists specific types of documents and communications that fall within the broader exceptions listed in the Executive Order (
In accordance with Executive Order 13891, this final rule requires that all DOE guidance documents clearly state that they do not have the force and effect of law and are not legally binding on the public, and that they are only intended to provide clarity to the public
This final rule also requires that all DOE guidance documents be reviewed and cleared by the Department's Office of the General Counsel. Additionally, this final rule requires that significant guidance documents be signed by the Secretary or a component agency head appointed by the President. This will ensure that the requirements and intent of Executive Order 13891 are met, and that guidance documents are issued in accordance with relevant laws and regulations.
This final rule also codifies procedures for providing notice in the
On July 1, 2020, DOE published a notice of proposed rulemaking (NOPR) in which DOE proposed new part 1061 to implement the requirements of Executive Order 13891. (85 FR 39495) In the NOPR, DOE also granted in part, and denied in part, a petition for rulemaking submitted by the New Civil Liberties Alliance (NCLA) asking DOE to initiate a rulemaking to prohibit any DOE component from issuing, relying on, or defending improper agency guidance.
NCLA's comments
NCLA further stated that, as proposed, § 1061.4 contemplates the finality of DOE's action on a petition and suggests that judicial review under the APA may be available, but it does not provide a specific recourse for a petitioner who disagrees with the agency's disposition of a petition. NCLA concluded that § 1061.4 should include an explicit provision stating that if a person exhausts his or her administrative remedies in accordance with paragraph (g) of § 1061.4, then the disposition of the petition submitted in accordance with § 1061.4 shall constitute final agency action under the APA and shall be subject to review under the judicial review provisions of the APA. (NCLA at 4)
In response, DOE emphasizes that the final rule requires DOE guidance documents to explicitly state that they are non-binding and do not have the force and effect of law, and prohibits DOE from relying on guidance documents as an independent basis for enforcement. Enforcement actions must be based on the underlying statutory or regulatory requirements. The requirements of this final rule make clear that no binding legal obligations or consequences flow from DOE guidance documents, and that compliance with a guidance document is voluntary. With respect to petitions for modification or withdrawal of DOE guidance documents, DOE declines to make the changes sought by NCLA. This final rule makes clear that a petitioner must avail himself or herself of the procedures in § 1061.4. After those procedures have been exhausted and the petitioner receives a final disposition of the petition, DOE's consideration of the petition is complete, and DOE will take no further action on the petition. As in the proposed rule, DOE notes that courts are responsible for determining whether judicial review is available under the APA for a particular agency action, including DOE's disposition of a petition under § 1061.4. Courts are in the best position to determine if an agency action is final and ripe for review, and whether legal consequences actually flow from said action, and therefore, DOE declines to include a provision stating when judicial review of a guidance document or a petition to modify or withdraw guidance document would be available. In addition, DOE notes that this final rule should eliminate, or lessen, the perceived need for judicial review in a significant range of circumstances by further confirming that guidance documents do not bind regulated parties. Accordingly, DOE declines to incorporate NCLA's suggested changes into this final rule.
The Manufactured Housing Association for Regulatory Reform (MHARR) provided comments
Consistent with MHARR's comments, the final rule establishes procedures to ensure that the agency's process for the issuance and modification of guidance documents is transparent and accessible to the public, including by allowing public comment on significant guidance documents. The final rule also assures regulated parties that such guidance is not legally binding, and does not affect the rights and obligations of regulated parties. The final rule implements, and is consistent with, the requirements of Executive Order 13891. With respect to MHARR's comments on the proposed CRA compliance provisions in NCLA's petition, DOE declines to include such provisions in the final rule. As DOE stated in the NOPR, current DOE and Executive Branch procedures ensure compliance with the CRA. MHARR stated that DOE has issued actions covered by the CRA without fully complying with the CRA; however, MHARR did not provide any specific examples of such non-compliant actions. Moreover, the CRA compliance procedures in NCLA's petition mirror those that are already required of Executive Branch agencies by OMB M–19–14, Guidance on Compliance with the Congressional Review Act (Apr. 11, 2019), which NCLA cited in its petition. (See 84 FR 5079, 50797 (Sept. 26, 2019)) Accordingly, the CRA compliance procedures proffered by NCLA, and supported by MHARR, are already in place in Executive Branch policy. Additionally, this final rule requires DOE to consult with, and receive a determination from, OIRA on the significance of DOE guidance documents. Therefore, OIRA will have the opportunity to determine independently whether a guidance document is a “major” rule for purposes of the CRA, consistent with 5 U.S.C. 804(2), or otherwise must be submitted under the CRA's procedures.
The Air-Conditioning, Heating, and Refrigeration Institute (AHRI)
Consistent with the AHRI's comments, the final rule establishes procedures consistent with Executive Order 13891 to ensure that the agency's process for the issuance and modification of guidance documents is transparent and accessible to the public, including through DOE's guidance web portal. The procedures in the final rule ensure that DOE guidance documents are readily accessible to the public online. With respect to AHRI's comments encouraging DOE to establish procedures that enable efficient solutions to short-term challenges, DOE believes that the procedures in the final rule are sufficient to meet such challenges. DOE (acting in conjunction with the Administrator of OMB's Office of Information and Regulatory Affairs pursuant to section 4(a)(iii) of Executive Order 13891) may dispense with the notice and comment procedures of the final rule in exigent circumstances or emergencies. DOE may likewise do so when DOE finds for good cause (consistent with section 4(a)(iii)(A) of Executive Order 13891) that notice and public comment for a significant guidance document are impracticable, unnecessary, or contrary to the public interest. Moreover, non-significant guidance documents need not be subject to public notice and comment. Accordingly, DOE made no changes to the final rule based on AHRI's comments, because the procedures in the final rule allow DOE sufficient flexibility to efficiently address short-term or urgent challenges.
Goodman Manufacturing Company, L.P. (Goodman)
As an alternative, Goodman proposed revising paragraph (g) in § 1061.3 to state that guidance documents not posted to DOE's web page portal are rescinded effective one year after final rule publication or whenever DOE subjects such guidance documents to the procedures of this section, whichever comes first. Goodman stated that this alternative is particularly essential to the HVAC industry regarding the uniform test methods for measuring the energy consumption of central air conditioners and heat pumps because of the difference in the applicable effective dates for Appendices M and M1 to Subpart B of 10 CFR part 430. (Goodman at 2) Goodman stated that, due to the difference in these effective dates, it is imperative that DOE maintain the existing guidance document for the usage of an amended test procedure for testing, rating, and certifying products prior to the compliance date for new standards (“2014 Early Compliance Guidance”), and that otherwise Appendix M1 will compel manufacturers to make representations in accordance with Appendix M1 on or after the effective date of Appendix M1, rather than prior to that date, as allowed under the 2014 Early Compliance Guidance. (Goodman at 2) Goodman stated that the 2014 Early Compliance Guidance is particularly essential for products subject to regional standards because it allows manufacturers to introduce products into commerce well in advance of the 2023 effective date as long as those products are tested, rated, and certified in accordance with Appendix M1 and the 2023 energy conservation standards, thereby providing remaining market actors in the traditional distribution chain an option to procure such products in time for the 2023 installation effective date. (Goodman at 2–3) Goodman requested that, at a minimum, DOE indicate on its website portal which guidance documents are in compliance and which guidance are not in compliance with § 1061.3(a). Goodman also stated that its concerns about existing guidance documents apply to guidance other than 2014 Early Compliance Guidance, along with a list of examples of such guidance documents. (Goodman at 3)
Goodman also proposed minor editorial revisions for the final rule. Specifically, Goodman stated that because the proposed definition of “Guidance document” in paragraph (16) of § 1061.2 already eliminates documents “directed solely at DOE personnel or to other Federal agencies that is not intended to have substantial future effect on the behavior of regulated parties,” the inclusion of this language in § 1061.3(a)(3) is duplicative and can be removed. Goodman also proposed replacing the word “will” in §§ 1061.3(f), 1061.3(g), 1061.4(d) and 1061.4(e) with the word “shall.” (Goodman at 3)
In response to Goodman, DOE makes clear that the specific guidance referenced in the comment has not been rescinded. DOE declines to make the changes to § 1061.3(g) proposed by Goodman; however, DOE has made a change to § 1061.3(g) to clarify that documents not made available through DOE's website portal as described in paragraph (f) of § 1061.3 are deemed rescinded under § 1061.3(g). This change replaces the text of § 1061.3(g) from the proposed rule that stated guidance documents “not posted to DOE's website portal as described in paragraph (a) of [§ 1061.3]” would be deemed rescinded. DOE believes that the final rule makes clear that existing documents currently available through the guidance web portal, such as the 2014 Early Compliance Guidance, are in effect. Executive Order 13891 required that agencies make all effective guidance documents available through each agency's guidance web portal, and that otherwise the guidance document would be deemed rescinded. However, agencies could have reinstated rescinded guidance documents without being subject to the procedures of Executive Order 13891 by making them available through their guidance web portal by June 27, 2020. Accordingly, any DOE guidance document, as defined in part 1061, that was not available through the DOE guidance web portal as of June 27, 2020, is deemed rescinded. DOE will not cite, use, or rely on any guidance document that has been rescinded, except to establish historical facts. However, all guidance documents made available through DOE's website portal prior to June 27, 2020, and that are currently available through DOE's website portal, have not been rescinded and are currently effective and may be relied upon. Under the final rule, only new or revised guidance documents, or rescinded guidance documents that DOE seeks to reinstate, must go through the procedures in § 1061.3. Guidance documents made available through DOE's website portal prior to June 27, 2020, and that are currently available through DOE's website portal, are currently in effect and are not required to go through the procedures in § 1061.3.
DOE agrees with Goodman's remaining editorial comments and has removed the reference to documents directed at DOE personnel in § 1061.3(a)(3), and has replaced the term “will” with “shall” in §§ 1061.3(f), 1061.3(g), 1061.4(d) and 1061.4(e).
This final rule is a “significant regulatory action” under Executive Order 12866, “Regulatory Planning and Review.” (58 FR 51735 (Oct. 4, 1993)) As a result, this action was reviewed by the Office of Information and Regulatory Affairs in the Office of Management and Budget (OMB). DOE does not anticipate that this rulemaking will have an economic impact on regulated entities. This is a final rule of agency procedure and practice. The final rule describes DOE's internal procedures for the promulgation and processing of guidance documents, to ensure that guidance documents only clarify existing statutory and regulatory obligations and do not impose any new obligations. DOE adopts these internal procedures as part of its implementation of Executive Order 13891, and does not anticipate incurring significant additional resource costs in doing so. Moreover, it is anticipated that the public will benefit from the resulting increase in efficiency and transparency in the issuance of guidance documents, and more opportunities to comment on guidance documents.
On January 30, 2017, the President issued Executive Order 13771, “Reducing Regulation and Controlling Regulatory Costs.” (See 82 FR 9339
The Regulatory Flexibility Act (5 U.S.C. 601
The final rule codifies internal agency procedures regarding DOE's issuance of guidance documents. Additionally, as noted previously, guidance documents do not have the force and effect of law and are not legally binding on regulated entities. This final rule establishes procedures to ensure that DOE guidance only clarifies existing statutory and regulatory obligations, rather than imposing any new obligations. DOE therefore does not anticipate any significant economic impacts from today's final rule. For these reasons, DOE certifies that this rulemaking will not have a significant economic impact on a substantial number of small entities. Accordingly, DOE did not prepare a regulatory flexibility act analysis for this rulemaking. DOE's certification and supporting statement of factual basis will be provided to the Chief Counsel for Advocacy of the Small Business Administration for review under 5 U.S.C. 605(b).
The final rule imposes no new information or record keeping requirements. Accordingly, Office of Management and Budget (OMB) clearance is not required under the Paperwork Reduction Act. (44 U.S.C. 3501
DOE has determined that the final rule is covered under the Categorical Exclusion found in DOE's National Environmental Policy Act regulations at paragraph A.6 of Appendix A to subpart D, 10 CFR part 1021. That Categorical Exclusion applies to actions that are strictly procedural, such as rulemaking establishing the administration of grants. The final rule codifies internal agency procedures for issuing guidance documents. The action does not have direct environmental impacts. No extraordinary circumstances are present that would warrant further review. Accordingly, DOE has not prepared an environmental assessment or an environmental impact statement.
Executive Order 13132, “Federalism,” 64 FR 43255, (Aug. 10, 1999), imposes certain requirements on agencies formulating and implementing policies or regulations that preempt State law or that have federalism implications. The Executive Order requires agencies to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion of the States and to carefully assess the necessity for such actions. The Executive Order also requires agencies to have an accountable process to ensure meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications. On March 14, 2000, DOE published a statement of policy describing the intergovernmental consultation process it will follow in the development of such regulations. (65 FR 13735) DOE examined this final rule and determined that it will not preempt State law and will not have a substantial direct effect 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. No further action is required by Executive Order 13132.
Executive Order 13175, “Consultation and Coordination with Indian Tribal Governments,” 65 FR 67249 (Nov. 9, 2000), applies to agency regulations that have Tribal implications, that is, regulations that have substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and Indian Tribes, or on the distribution of power and responsibilities between the Federal Government and Indian Tribes. The final rule has been analyzed in accordance with the principles and criteria contained in Executive Order 13175. Because this final rule does not significantly or uniquely affect the communities of the Indian tribal governments or impose substantial direct compliance costs on them, the funding and consultation requirements of Executive Order 13175 do not apply.
With respect to the review of existing regulations and the promulgation of new regulations, section 3(a) of Executive Order 12988, “Civil Justice Reform,” 61 FR 4729 (Feb. 7, 1996), imposes on Federal agencies the general duty to adhere to the following requirements: (1) Eliminate drafting errors and ambiguity; (2) write regulations to minimize litigation; and (3) provide a clear legal standard for affected conduct, rather than a general standard and promote simplification and burden reduction. Section 3(b) of Executive Order 12988 specifically requires that Executive agencies make every reasonable effort to ensure that the regulation: (1) Clearly specifies its preemptive effect, if any; (2) clearly specifies any effect on existing Federal law or regulation; (3) provides a clear legal standard for affected conduct, while promoting simplification and burden reduction; (4) specifies its retroactive effect, if any; (5) adequately defines key terms; and (6) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued by the Attorney General. Section 3(c) of Executive Order 12988 requires Executive agencies to review regulations in light of applicable standards in section 3(a) and section 3(b) to determine whether they are met, or it is unreasonable to meet one or more of them. DOE has completed the required review and determined that, to the extent permitted by law, the final rule meets the relevant standards of Executive Order 12988.
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Pub. L. 104–4) requires each Federal agency to assess the effects of Federal regulatory actions on State, local, and tribal governments and the private sector. For a proposed regulatory action likely to result in a rule that may cause 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), section 202 of UMRA requires a Federal agency to publish a written statement that estimates the resulting
Section 654 of the Treasury and General Government Appropriations Act of 1999 (Pub. L. 105–277) requires Federal agencies to issue a Family Policymaking Assessment for any rule that may affect family well-being. This final rule does not have any impact on the autonomy or integrity of the family as an institution. Accordingly, DOE has concluded that it is not necessary to prepare a Family Policymaking Assessment.
DOE has determined, under Executive Order 12630, “Governmental Actions and Interference with Constitutionally Protected Property Rights,” 53 FR 8859 (Mar. 18, 1988), that this final rule does not result in any takings which might require compensation under the Fifth Amendment to the United States Constitution.
The Information Quality Act (44 U.S.C. 3516, note) provides for agencies to review most disseminations of information to the public under guidelines established by each agency pursuant to general guidelines issued by OMB. OMB's guidelines were published at 67 FR 8452 (Feb. 22, 2002), and DOE's guidelines were published at 67 FR 62446 (Oct. 7, 2002). DOE has reviewed this final rule under the OMB and DOE guidelines and has concluded that it is consistent with applicable policies in those guidelines.
Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use,” 66 FR 28355 (May 22, 2001), requires Federal agencies to prepare and submit to the Office of Information and Regulatory Affairs (OIRA), Office of Management and Budget, a Statement of Energy Effects for any proposed significant energy action. A “significant energy action” is defined as any action by an agency that promulgated or is expected to lead to promulgation of a final rule, and that: (1)(i) Is a significant regulatory action under Executive Order 12866, or any successor order, and (ii) is likely to have a significant adverse effect on the supply, distribution, or use of energy, or (2) is designated by the Administrator of OIRA as a significant energy action. For any proposed significant energy action, the agency must give a detailed statement of any adverse effects on energy supply, distribution, or use should the proposal be implemented, and of reasonable alternatives to the action and their expected benefits on energy supply, distribution, and use. The final rule codifies internal agency procedures; it is not likely to have a significant adverse effect on the supply, distribution, or use of energy; and the Administrator of OIRA has not designated it as a significant energy action. Accordingly, the requirements of Executive Order 13211 do not apply.
The Secretary of Energy has approved publication of this final rule.
Administrative practice and procedure.
This document of the Department of Energy was signed on December 11, 2020, by William S. Cooper, III, General Counsel, pursuant to delegated authority from the Secretary of Energy. That document with the original signature and date is maintained by DOE. For administrative purposes only, and in compliance with requirements of the Office of the Federal Register, the undersigned DOE Federal Register Liaison Officer has been authorized to sign and submit the document in electronic format for publication, as an official document of the Department of Energy. This administrative process in no way alters the legal effect of this document upon publication in the
42 U.S.C. 7254; 42 U.S.C. 7101
This part establishes DOE procedures for the issuance and review of new or revised guidance documents, and procedures for the public to petition for the withdrawal or removal of DOE guidance documents.
For purposes of this part, the following terms, phrases and words are defined as follows:
(1) Rules promulgated pursuant to notice and comment under the Administrative Procedure Act, 5 U.S.C. 553, or similar statutory provisions;
(2) Rules exempt from rulemaking requirements under 5 U.S.C. 553(a);
(3) Rules of agency organization, procedure, or practice;
(4) Decisions of agency adjudications under 5 U.S.C. 554, 42 U.S.C. 6303(d)(3)(A), or similar statutory provisions;
(5) Internal executive branch legal advice or legal opinions addressed to executive branch officials;
(6) Agency statements of specific, rather than general, applicability, including advisory or legal opinions directed to particular parties about circumstance-specific questions, notices regarding particular locations or facilities, and correspondence with individual persons or entities, including notices of violation and warning letters;
(7) Briefs and other positions taken in litigation, enforcement actions, and financial assistance or contract bid protests, appeals or any other contract or financial assistance litigation;
(8) Agency statements that do not set forth a policy on a statutory, regulatory, or technical issue or an interpretation of a statute or regulation, including, but not limited to, speeches, presentations, editorials, media interviews, press materials, congressional testimony, and congressional correspondence;
(9) Guidance pertaining to military or foreign affairs functions;
(10) Guidance or policies pertaining to financial assistance formation, funding opportunity announcements, awards and administration of financial assistance;
(11) Guidance or policies pertaining to contract formation, solicitations, awards and administration of contracts;
(12) Guidance or policies pertaining to the administration or oversight of capital asset projects or projects treated as capital asset projects by the Department;
(13) Guidance pertaining to execution of the Department's small business programs and achievement, including compliance with the Small Business Regulatory Enforcement Fairness Act;
(14) Grant solicitations and awards;
(15) Contract solicitations and awards;
(16) Internal agency policies or guidance directed solely at DOE personnel or to other Federal agencies that is not intended to have substantial future effect on the behavior of regulated parties; or
(17) Guidance pertaining to the use, operation, or control of a government facility or property; or
(18) Policies or guidance when the release or disclosure of the document is legally prohibited.
(1) Lead to an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities;
(2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;
(3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or
(4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles of Executive Order 12866.
(a)
(1) Must comply with all relevant statutes and regulations;
(2) Must include a clear and prominent statement declaring that:
(i) The contents of the document do not have the force and effect of law and are not meant to bind the public in any way;
(ii) The document is intended only to provide clarity to the public regarding existing requirements under the law or agency policies, except as authorized by law or as incorporated into a contract; and
(iii) DOE will not rely upon the document as an independent basis for an enforcement action or other administrative penalty.
(3) Must avoid using mandatory language such as “shall,” “must,” “required,” or “requirement,” unless the language is describing an established statutory or regulatory requirement, or is directed solely to DOE personnel and is not intended to have a substantial future effect on the behavior of regulated parties;
(4) Must be written in plain and understandable language; and
(5) Must include the following attributes: The term “guidance”; a title; identification of the issuing agency or office; identification of activities to which and the persons to whom the document applies; the date of issuance; the relation to previous guidance (if applicable); a citation to the statutory provision(s), regulation(s), or both to which the document applies; and a short summary of the subject matter.
(b)
(1) Ensure compliance with this part and Executive Order 13891;
(2) Obtain a determination from the Administrator as to whether the guidance document is significant, as defined in this part; and
(3) If the guidance document is determined to be significant, coordinate with the Office of Information and Regulatory Affairs within the Office of Management and Budget as prescribed in paragraph (c) of this section.
(c)
(1) Publish notice of the guidance document in the
(2) Provide publicly available responses to major and relevant concerns raised in comments;
(3) Obtain signature of the significant guidance document by the Secretary of Energy or DOE component head appointed by the President prior to issuance of the final significant guidance document;
(4) In accordance with the procedures of Executive Order 12866, obtain review of the significant guidance document by the Administrator prior to issuance of the final significant guidance document;
(5) Comply with applicable requirements of Executive Orders 12866, 13563, 13609, 13771, and 13777. and any revisions thereto or superseding Executive Orders.
(d)
(e)
(1) DOE and the Administrator agree that exigency, safety, health, or other compelling cause warrants an exemption from the relevant requirement or requirements; or
(2) The significant guidance document is of a kind for which DOE and the Administrator have developed a categorical exception from the relevant requirement or requirements, as approved by the Administrator.
(f)
(1) Ensure that all guidance documents, as defined in this part, are available to the public on the DOE
(2) State clearly and prominently on its web page portal that guidance documents lack the force and effect of law, except as authorized by law or as incorporated into a contract.
(g)
(a)
(1) Sent by mail addressed to: Forrestal Building, U.S. Department of Energy, 1000 Independence Avenue SW, Washington, DC 20585;
(2) Sent by email to
(3) Hand delivered to DOE at 1000 Independence Avenue SW, Washington, DC 20585.
(b)
(1) Specify the petitioner's:
(i) Name, or if the petitioner is an organization, the name of the organization and the name and authority of the individual who signed the petition on behalf of the organizational or corporate petitioner;
(ii) Telephone number;
(iii) Mailing address; and
(iv) Email address (if available).
(2) Identify the guidance document to be withdrawn or modified; and
(3) Be signed by the petitioner or authorized representative.
(c)
(1) Present any specific problems or issues that the petitioner believes are associated with the guidance document, including any specific circumstances in which the guidance document is incorrect, incomplete, obsolete, or inadequate;
(2) Present any proposed solution to either modify or withdraw the guidance document, including a discussion of how the petitioner's proposed solution resolves the issues identified under paragraph (c)(1) of this section;
(3) In the case of a petition for modification of a guidance document, specify any modifications to the text of the document that petitioner seeks;
(4) Cite, enclose, or reference technical, scientific, or other data or information supporting the petitioner's assertions under paragraphs (c)(1) and (2) of this section.
(d)
(e)
(f)
(g)
(1) Avail himself or herself of the procedures in this section; and
(2) Receive a final disposition from DOE in accordance with paragraph (f) of this section.
Federal Aviation Administration (FAA), DOT.
Final rule; request for comments.
The FAA is adopting a new airworthiness directive (AD) for certain International Aero Engines AG (IAE) V2500–A1, V2522–A5, V2524–A5, V2525–D5, V2527–A5, V2527E–A5, V2527M–A5, V2528–D5, V2530–A5, V2531–E5, and V2533–A5 model turbofan engines. This AD was prompted by a root cause analysis of an event involving an uncontained failure of a high-pressure turbine (HPT) 1st-stage disk that resulted in high-energy debris penetrating the engine cowling. This AD requires removing certain HPT 1st-stage and HPT 2nd-stage disks from service. The FAA is issuing this AD to address the unsafe condition on these products.
This AD is effective January 21, 2021.
The FAA must receive comments on this AD by February 22, 2021.
You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods:
•
•
•
•
You may examine the AD docket at
Nicholas Paine, Aviation Safety Engineer, ECO Branch, FAA, 1200 District Avenue, Burlington, MA 01803; phone: (781) 238–7116; fax: (781) 238–7199; email:
On March 18, 2020, an Airbus Model A321–231 airplane, powered by IAE V2533–A5 model turbofan engines, experienced an uncontained HPT 1st-stage disk failure that resulted in high-energy debris penetrating the engine cowling. Based on a preliminary analysis of this event, on March 21, 2020, the FAA issued Emergency AD 2020–07–51, which requires the removal from service of certain HPT 1st-stage disks installed on IAE V2522–A5, V2524–A5, V2525–D5, V2527–A5, V2527E–A5, V2527M–A5, V2528–D5, V2530–A5, and V2533–A5 model turbofan engines.
Since the FAA issued AD 2020–07–51, the manufacturer conducted a root cause analysis and identified a different population of HPT 1st-stage and HPT 2nd-stage disks that are affected by the unsafe condition and require removal from service. This condition, if not addressed, could result in failure of the HPT, uncontained HPT failure, damage to the engine, damage to the airplane, and loss of the airplane. The FAA is issuing this AD to address the unsafe condition on these products.
The FAA is issuing this AD because the agency has determined the unsafe condition described previously is likely to exist or develop in other products of the same type design.
This AD requires the removal from service of certain HPT 1st-stage and HPT 2nd-stage disks installed on IAE V2500–A1, V2522–A5, V2524–A5, V2525–D5, V2527–A5, V2527E–A5, V2527M–A5, V2528–D5, V2530–A5, V2531–E5, and V2533–A5 model turbofan engines.
The design approval holder is currently developing a modification to address the unsafe condition identified in this AD. Once this modification is developed, the FAA might consider additional rulemaking.
Section 553(b)(3)(B) of the Administrative Procedure Act (APA) (5 U.S.C. 551
An unsafe condition exists that requires the immediate adoption of this AD without providing an opportunity for public comments prior to adoption. The FAA has found that the risk to the flying public justifies foregoing notice and comment prior to adoption of this rule. On March 18, 2020, an Airbus Model A321–231 airplane, powered by IAE V2533–A5 model turbofan engines, experienced an uncontained HPT 1st-stage disk failure that resulted in an aborted takeoff. The uncontained failure of the HPT 1st-stage disk resulted in high-energy debris penetrating the engine cowling. The FAA published Emergency AD (EAD) 2020–07–51 on March 21, 2020 (followed by publication in the
The FAA considers removal of certain HPT 1st-stage and HPT 2nd-stage disks to be an urgent safety issue. Accordingly, notice and opportunity for prior public comment are impracticable and contrary to the public interest pursuant to 5 U.S.C. 553(b)(3)(B). In addition, the FAA finds that good cause exists pursuant to 5 U.S.C. 553(d) for making this amendment effective in less than 30 days, for the same reasons the FAA found good cause to forego notice and comment.
The FAA invites you to send any written data, views, or arguments about this final rule. Send your comments to an address listed under
Except for Confidential Business Information (CBI) as described in the following paragraph, and other information as described in 14 CFR 11.35, the FAA will post all comments received, without change, to
CBI is commercial or financial information that is both customarily and actually treated as private by its owner. Under the Freedom of Information Act (FOIA) (5 U.S.C. 552), CBI is exempt from public disclosure. If your comments responsive to this AD contain commercial or financial information that is customarily treated as private, that you actually treat as private, and that is relevant or responsive to this AD, it is important that you clearly designate the submitted comments as CBI. Please mark each page of your submission containing CBI as “PROPIN.” The FAA will treat such marked submissions as confidential under the FOIA, and they will not be placed in the public docket of this AD. Submissions containing CBI should be sent to Nicholas Paine, Aviation Safety Engineer, ECO Branch, FAA, 1200 District Avenue, Burlington, MA 01803. Any commentary that the FAA receives which is not specifically designated as CBI will be placed in the public docket for this rulemaking.
The requirements of the Regulatory Flexibility Act (RFA) do not apply when an agency finds good cause pursuant to 5 U.S.C. 553 to adopt a rule without prior notice and comment. Because FAA has determined that it has good cause to adopt this rule without prior notice and comment, RFA analysis is not required.
The FAA estimates that this AD affects 4 engines installed on airplanes of U.S. registry.
The FAA estimates the following costs to comply with this AD:
Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. 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.
The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: General requirements. Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.
For the reasons discussed above, I certify that this AD:
(1) Is not a “significant regulatory action” under Executive Order 12866, and
(2) Will not affect intrastate aviation in Alaska.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:
49 U.S.C. 106(g), 40113, 44701.
This airworthiness directive (AD) is effective January 21, 2021.
None.
This AD applies to International Aero Engines AG (IAE) V2500–A1, V2522–A5, V2524–A5, V2525–D5, V2527–A5, V2527E–A5, V2527M–A5, V2528–D5, V2530–A5, V2531–E5, and V2533–A5 model turbofan engines with an installed:
(1) High-pressure turbine (HPT) 1st-stage disk, part number (P/N) 2A5001, with a serial number (S/N) listed in Figure 1 to paragraph (c) of this AD; or
(2) HPT 2nd-stage disk, P/N 2A4802 or 2A1202, with an S/N listed in Figure 2 to paragraph (c) of this AD.
Joint Aircraft System Component (JASC) Code 7250, Turbine Section.
This AD was prompted by an analysis performed by the manufacturer of an event involving an uncontained failure of an HPT 1st-stage disk that resulted in high-energy debris penetrating the engine cowling. The FAA is issuing this AD to prevent failure of the HPT 1st-stage and HPT 2nd-stage disks. The unsafe condition, if not addressed, could result in uncontained HPT disk failure, damage to the engine, damage to the airplane, and loss of the airplane.
Comply with this AD within the compliance times specified, unless already done.
(1) For IAE model turbofan engines with an HPT 1st-stage disk, P/N 2A5001, with a S/N listed in Figure 1 to paragraph (c) of this AD, within 50 flight cycles or 30 days after the effective date of this AD, whichever comes first, remove the HPT 1st-stage disk from service.
(2) For IAE model turbofan engines with an HPT 2nd-stage disk, P/N 2A4802 or 2A1202, with a S/N listed in Figure 2 to paragraph (c) of this AD, within 50 flight cycles or 30 days after the effective date of this AD, whichever comes first, remove the HPT 2nd-stage disk from service.
After the effective date of this AD, do not install onto any engine an HPT 1st-stage or HPT 2nd-stage disk with a P/N and S/N listed in paragraph (c) of this AD.
(1) The Manager, ECO Branch, FAA, has the authority to approve AMOCs for this AD,
(2) Before using any approved AMOC, notify your appropriate principal inspector, or lacking a principal inspector, the manager of the local flight standards district office/certificate holding district office.
For more information about this AD, contact Nicholas Paine, Aviation Safety Engineer, ECO Branch, FAA, 1200 District Avenue, Burlington, MA 01803; phone: (781) 238–7116; fax: (781) 238–7199; email:
None.
Bureau of Industry and Security, Commerce.
Interim final rule; technical amendment.
On January 6, 2020, the Bureau of Industry and Security (BIS) amended the Export Administration Regulations (EAR) to add Software Specially Designed to Automate the Analysis of Geospatial Imagery to the 0Y521 Temporary Export Control Classification Numbers (ECCN) Series as 0D521. In this action BIS extends that status for a year pursuant to the 0Y521 series extension procedures.
This rule is effective January 6, 2021.
Aaron Amundson, Director, Information Technology Division, Office of National Security and Technology Transfer Controls, at email
On January 6, 2020, the Bureau of Industry and Security (BIS) amended the Export Administration Regulations (EAR) with an interim final rule to add Software Specially Designed to Automate the Analysis of Geospatial Imagery to the 0Y521 Temporary Export Control Classification Numbers (ECCN) Series as 0D521. More specifically, the software was described as Geospatial imagery “software” “specially designed” for training a Deep Convolutional Neural Network to automate the analysis of geospatial imagery and point clouds.
BIS established the ECCN 0Y521 series in a final rule published April 13, 2012 (72 FR 22191) (hereinafter “April 13 rule”) to identify items that warrant control on the Commerce Control List (CCL) but are not yet identified in an existing ECCN. Items in the 0Y521 series of ECCNs are added upon a determination by the Department of Commerce, with the concurrence of the Departments of Defense and State, and other agencies as appropriate, that the items warrant control for export because the items may provide a significant military or intelligence advantage to the United States or because foreign policy reasons justify control. The ECCN 0Y521 series is a temporary holding classification.
Under the procedures established in the April 13 rule and codified at § 742.6(a)(8)(iii) of the EAR, items classified under ECCN 0Y521 remain so classified for one year from the date they are listed in supplement no. 5 to part 774 of the EAR, unless the items are re-classified under a different ECCN or the 0Y521 classification is extended.
BIS may extend an item's ECCN 0Y521 classification for two one-year periods, provided that the U.S. Government has submitted a proposal to the relevant multilateral regime(s) (
In this action, BIS extends the status of an item classified under a 0Y521 ECCN for a year consistent with procedures that allow such an extension. Specifically, in this case the U.S. Government submitted a proposal for multilateral control of the 0D521 software specially designed to automate the analysis of geospatial imagery, as described in the January 6, 2020 interim final rule, to the relevant multilateral regime (the Wassenaar Arrangement) in a timely manner, within the first year of the item's 0D521 classification. However, due to the pandemic, the regime did not convene and therefore did not consider acceptance of the proposal. An extension of time is appropriate in order for the U.S. Government to continue its effort at the Wassenaar Arrangement in 2021.
On August 13, 2018, the President signed into law the John S. McCain National Defense Authorization Act for Fiscal Year 2019, which included the Export Control Reform Act of 2018 (ECRA) (50 U.S.C. 4801–4852) that provides the legal basis for BIS's principal authorities and serves as the authority under which BIS issues this rule.
1. Executive Orders 13563 and 12866 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distribute impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This interim final rule has been designated to be not significant for purposes of Executive Order 12866. The requirements of Executive Order 13771 do not apply because the rule is not significant.
2. Notwithstanding any other provision of law, no person is required to respond to, nor is subject to a penalty for failure to comply with a collection of information, subject to the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
3. This rule does not contain policies associated with Federalism as that term is defined under Executive Order 13132.
4. Pursuant to section 1762 of ECRA (see 50 U.S.C. 4821), this action is exempt from the Administrative Procedure Act requirements (under 5 U.S.C. 553) for notice of proposed rulemaking, opportunity for public participation, and delay in effective date. This rule only updates Supplement No. 5 to Part 774 to the EAR by extending the date of the period of validity of 0D521 software in Supplement No. 5 to Part 774 for one year. This revision is merely technical and in accordance with established 0Y521 ECCN series procedure and purpose, which was proposed to the public and subject of comment. This rule clarifies information, which serves to avoid confusing readers about the 0D521 item's status. It does not alter any right, obligation or prohibition that applies to any person under the EAR.
5. Because a notice of proposed rulemaking and an opportunity for public comment are not required to be given for this rule by 5 U.S.C. 553, or by any other law, the analytical requirements of the Regulatory Flexibility Act, 5 U.S.C. 601,
Exports, Reporting and recordkeeping requirements.
Accordingly, part 774 of the Export Administration Regulations (15 CFR parts 730 through 774) is amended as follows:
50 U.S.C. 4801–4852; 50 U.S.C. 4601
Food and Drug Administration, Department of Helath and Human Services (HHS).
Final rule.
The Food and Drug Administration (FDA or we) is establishing January 1, 2024, as the uniform compliance date for food labeling regulations that are published on or after January 1, 2021, and on or before December 31, 2022. We periodically announce uniform compliance dates for new food labeling requirements to minimize the economic impact of labeling changes.
This rule is effective January 6, 2021. Submit either electronic or written comments on the final rule by March 8, 2021.
You may submit comments as follows:
Submit electronic comments in the following way:
•
• If you want to submit a comment with confidential information that you do not wish to be made available to the public, submit the comment as a written/paper submission and in the manner detailed (see “Written/Paper Submissions” and “Instructions”).
Submit written/paper submissions as follows:
•
• For written/paper comments submitted to the Dockets Management Staff, FDA will post your comment, as well as any attachments, except for information submitted, marked and identified, as confidential, if submitted as detailed in “Instructions.”
• Confidential Submissions—To submit a comment with confidential information that you do not wish to be made publicly available, submit your comments only as a written/paper submission. You should submit two copies total. One copy will include the information you claim to be confidential with a heading or cover note that states “THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION.” We will review this copy, including the claimed confidential information, in our consideration of comments. The second copy, which will have the claimed confidential information redacted/blacked out, will be available for public viewing and posted on
Carrol Bascus, Center for Food Safety and Applied Nutrition (HFS–24), Food and Drug Administration, 5001 Campus Dr., College Park, MD 20740, 240–402–3835.
We periodically issue regulations requiring changes in the labeling of food. If the compliance dates of these labeling changes were not coordinated, the cumulative economic impact on the food industry of having to respond separately to each change would be substantial. Therefore, we periodically have announced uniform compliance dates for new food labeling requirements (see
We have determined under 21 CFR 25.30(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 final rule contains no collections of information. Therefore, clearance by the Office of Management and Budget under the Paperwork Reduction Act of 1995 is not required.
We have examined the impacts of the final rule under Executive Order 12866, Executive Order 13563, Executive Order 13771, 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 us 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). Executive Order 13771 requires that the costs associated with significant new regulations “shall, to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations.” We believe that this final rule is not a significant regulatory action as defined by Executive Order 12866.
The establishment of a uniform compliance date does not in itself lead to costs or benefits. We will assess the costs and benefits of the uniform compliance date in the regulatory impact analyses of the labeling rules that take effect at that date.
The Regulatory Flexibility Act requires us to analyze regulatory options that would minimize any significant impact of a rule on small entities. Because the final rule does not impose compliance costs on small entities, we certify that the final rule will not have a significant economic impact on a substantial number of small entities.
The Unfunded Mandates Reform Act of 1995 (section 202(a)) requires us to prepare a written statement, which includes an assessment of anticipated costs and benefits, before issuing “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 $156 million, using the most current (2019) Implicit Price Deflator for the Gross Domestic Product. This final rule would not result in an expenditure in any year that meets or exceeds this amount.
We have analyzed this final rule in accordance with the principles set forth in Executive Order 13132. We have determined that the 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 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.
This action is not intended to change existing requirements for compliance dates contained in final rules published before January 1, 2021. Therefore, all final rules published by FDA in the
In rulemaking that began with publication of a proposed rule on April 15, 1996 (61 FR 16422), and ended with a final rule on December 24, 1996 (61 FR 67710) (together “the 1996 rulemaking”), we provided notice and an opportunity for comment on the practice of establishing uniform compliance dates by issuance of a final rule announcing the date. We received no comments objecting to this practice during the 1996 rulemaking, nor have we received comments objecting to this practice since we published a uniform compliance date final rule on December 20, 2018. Therefore, we find good cause to dispense with issuance of a proposed rule inviting comment on the practice of establishing the uniform compliance date because such prior notice and comment are unnecessary. Interested parties will have an opportunity to comment on the compliance date for each individual food labeling regulation as part of the rulemaking process for that regulation. Consequently, FDA finds any further advance notice and opportunity for comment unnecessary for establishment of the uniform compliance date. Nonetheless, under 21 CFR 10.40(e)(1), we are providing an opportunity for comment on whether the uniform compliance date established by this final rule should be modified or revoked.
In addition, we find good cause for this final rule to become effective on the date of publication of this action. A delayed effective date is unnecessary in this case because the establishment of a uniform compliance date does not impose any new regulatory requirements on affected parties. Instead, this final rule provides affected parties with notice of our policy to identify January 1, 2024, as the compliance date for final food labeling regulations that require changes in the labeling of food products and that publish on or after January 1, 2021, and on or before December 31, 2022, unless
The new uniform compliance date will apply only to final FDA food labeling regulations that require changes in the labeling of food products and that publish on or after January 1, 2021, and on or before December 31, 2022. Those regulations will specifically identify January 1, 2024, as their compliance date. All food products subject to the January 1, 2024, compliance date must comply with the appropriate regulations when initially introduced into interstate commerce on or after January 1, 2024. If any food labeling regulation involves special circumstances that justify a compliance date other than January 1, 2024, we will determine for that regulation an appropriate compliance date, which will be specified when the final regulation is published.
Internal Revenue Service (IRS), Treasury.
Final regulations.
This document sets forth final regulations relating to amendments made to section 402(c) of the Internal Revenue Code (Code) by section 13613 of the Tax Cuts and Jobs Act (TCJA). Section 13613 of TCJA provides an extended rollover period for a qualified plan loan offset, which is a type of plan loan offset. These regulations affect participants, beneficiaries, sponsors, and administrators of qualified employer plans.
Naomi Lehr at (202) 317–4102, Vernon Carter at (202) 317–6799, or Pamela Kinard at (202) 317–6000 (not toll-free numbers).
This document amends 26 CFR part 1, by adding § 1.402(c)–3 to the Income Tax Regulations to reflect changes to section 402(c) of the Code, as amended by section 13613 of TCJA (Pub. L. 115–97 (131 Stat. 2054)).
Section 72(p)(1) of the Code provides that if, during any taxable year, a participant or beneficiary receives (directly or indirectly) any amount as a loan from a qualified employer plan (as defined in section 72(p)(4)(A)),
For the exception under section 72(p)(2) to apply so that a plan loan is not treated as a distribution under section 72(p)(1) for the taxable year in which the loan is received, the loan generally must satisfy three requirements:
(1) The loan, by its terms, must satisfy the limits on loan amounts, as described in section 72(p)(2)(A);
(2) The loan, by its terms, generally must be repayable within 5 years, as described in section 72(p)(2)(B); and
(3) The loan must require substantially level amortization over the term of the loan, as described in section 72(p)(2)(C).
Section 401(a)(31) requires that a plan qualified under section 401(a) provide for the direct transfer of eligible rollover distributions. A similar rule applies to section 403(a) annuity plans, section 403(b) tax-sheltered annuities, and section 457 eligible governmental plans. See generally sections 403(a)(1), 403(b)(10), and 457(d)(1)(C).
Sections 402(c)(3) and 408(d)(3) provide that any amount distributed from a qualified plan or individual retirement account or annuity (IRA) will be excluded from income if it is transferred to an eligible retirement plan no later than the 60th day following the day the distribution is received. A similar rule applies to section 403(a) annuity plans, section 403(b) tax-sheltered annuities, and section 457 eligible governmental plans. See generally sections 403(a)(4)(B), 403(b)(8)(B), and 457(e)(16)(B).
Sections 402(c)(3)(B) and 408(d)(3)(I) provide that the Secretary may waive the 60-day rollover requirement “where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.” See generally Rev. Proc. 2020–46, 2020–45 I.R.B. 995, which sets forth a self-certification procedure that taxpayers may use in certain circumstances to claim a waiver of the 60-day deadline for completing a rollover under section 402(c)(3)(B) or 408(d)(3)(I), and Rev. Proc. 2020–4, 2020–1 I.R.B. 148, which sets forth procedures that taxpayers may use to request a waiver of the 60-day rollover deadline by submitting a request for a private letter ruling.
Section 1.402(c)–2, Q&A–3(a), provides that, unless specifically excluded, an eligible rollover distribution means any distribution to an employee (or to a spousal distributee described in § 1.402(c)–2, Q&A–12(a)) of all or any portion of the balance to the credit of the employee in a qualified plan. Section 1.402(c)–2, Q&A–3(b), provides that certain distributions (for example, required minimum distributions under section 401(a)(9)) are not eligible rollover distributions.
Section 1.402(c)–2, Q&A–9(a), provides that a distribution of a plan loan offset amount (as defined in § 1.402(c)–2, Q&A–9(b)) is an eligible rollover distribution if it satisfies § 1.402(c)–2, Q&A–3. Thus, an amount not exceeding the plan loan offset amount may be rolled over by the employee (or spousal distributee) to an eligible retirement plan within the 60-day period described in section 402(c)(3), unless the plan loan offset amount fails to be an eligible rollover distribution for another reason.
Section 1.402(c)–2, Q&A–9(b), provides that a distribution of a plan loan offset amount is a distribution that occurs when, under the plan terms governing the loan, the employee's
Section 13613 of TCJA amended section 402(c)(3) of the Code to provide an extended rollover deadline for qualified plan loan offset (QPLO) amounts (as defined in section 402(c)(3)(C)(ii)).
A QPLO amount is defined in section 402(c)(3)(C)(ii) as a plan loan offset amount that is treated as distributed from a qualified employer plan to an employee or beneficiary solely by reason of:
(1) The termination of the qualified employer plan, or
(2) The failure to meet the repayment terms of the loan from such plan because of the severance from employment of the employee.
In addition, section 402(c)(3)(C)(iv) provides that the extended rollover period will not apply “to any plan loan offset amount unless such plan loan offset amount relates to a loan to which section 72(p)(1) does not apply by reason of section 72(p)(2).”
Section 301.9100–2(b) of the regulations provides rules for automatic six-month extensions to make regulatory or statutory elections. Under this rule, a taxpayer will receive an automatic extension of 6 months from the due date of a return, excluding extensions, to make elections that otherwise must be made by the due date of the return plus extensions, provided that:
(1) The taxpayer's return was timely filed for the year the election should have been made; and
(2) The taxpayer takes appropriate corrective action within the six-month period.
Section 301.9100–2(b) further provides that paragraph (b) does not apply to regulatory or statutory elections that must be made by the due date of the return excluding extensions.
On August 20, 2020, the Department of the Treasury (Treasury Department) and the IRS published a notice of proposed rulemaking (REG–116475–19) in the
As an initial matter, the QPLO proposed regulations confirm that a QPLO is a type of plan loan offset; accordingly, most of the general rules relating to plan loan offset amounts apply to QPLO amounts. For example, the rule that a plan loan offset amount is an eligible rollover distribution applies to a QPLO amount. In addition, the rules in § 1.401(a)(31)–1, Q&A–16 (guidance concerning the offering of a direct rollover of a plan loan offset amount), and § 31.3405(c)–1, Q&A–11 (guidance concerning special withholding rules with respect to plan loan offset amounts), applicable to plan loan offset amounts in general, apply to QPLO amounts. The QPLO proposed regulations provide examples to illustrate the interaction of the special rules for QPLOs with the general rules for plan loan offsets.
Section 1.402(c)–3(a)(2)(ii)(A) of the QPLO proposed regulations provides that a distribution of a plan loan offset amount that is an eligible rollover distribution and
Section 1.402(c)–3(a)(2)(ii)(B) of the QPLO proposed regulations provides that a distribution of a plan loan offset amount that is an eligible rollover distribution and a QPLO amount may be rolled over by the employee (or spousal distributee) to an eligible retirement plan through the period ending on the individual's tax filing due date (including extensions) for the taxable year in which the offset is treated as distributed from a qualified employer plan. Thus, a taxpayer with an eligible rollover distribution that is a QPLO amount may roll over any portion of the distribution to an eligible retirement plan, including another qualified retirement plan (if that plan permits) or an IRA, by the taxpayer's deadline for filing income taxes for the year of the distribution, including extensions.
Section 1.402(c)–3(a)(2)(iii)(A) of the QPLO proposed regulations provides that a plan loan offset amount is the amount by which, under plan terms governing a plan loan, an employee's accrued benefit is reduced (offset) in order to repay the loan (including the enforcement of the plan's security interest in the employee's accrued benefit). A distribution of a plan loan offset amount is an actual distribution, not a deemed distribution under section 72(p).
Section 1.402(c)–3(a)(2)(iii)(B) of the QPLO proposed regulations defines a QPLO amount as a plan loan offset amount that satisfies two requirements. First, the plan loan offset amount must be treated as distributed from a qualified employer plan to an employee or beneficiary solely by reason of the termination of the qualified employer plan, or the failure to meet the repayment terms of the loan from such plan because of the severance from employment of the employee. Second, the plan loan offset amount must relate to a plan loan that met the requirements of section 72(p)(2) immediately prior to the termination of the qualified employer plan or the severance from employment of the employee, as applicable.
Section 1.402(c)–3(a)(2)(iii)(C) of the QPLO proposed regulations define a qualified employer plan, for purposes of the QPLO amount definition, as a qualified employer plan as defined in section 72(p)(4).
Section 1.402(c)–3(a)(2)(iv) of the QPLO proposed regulations provides several special rules for purposes of determining whether a plan loan offset amount is a QPLO amount. First, the QPLO proposed regulations provide that whether an employee has a severance from employment with the employer that maintains the qualified employer plan is determined in the same manner as under § 1.401(k)–1(d)(2). Thus, an employee has a severance from employment when the employee ceases to be an employee of the employer maintaining the plan.
Second, the QPLO proposed regulations provide that a plan loan offset amount is treated as distributed from a qualified employer plan to an employee or beneficiary solely by reason of the failure to meet the plan loan repayment terms because of severance from employment if the plan loan offset:
(1) Relates to a failure to meet the repayment terms of the plan loan, and
(2) Occurs within the period beginning on the date of the employee's severance from employment and ending on the first anniversary of that date.
Whether a plan loan offset amount is a QPLO amount is relevant to plan administrators because those administrators are responsible for reporting whether a distribution is a plan loan offset amount or a QPLO amount on Form 1099–R,
The QPLO proposed regulations proposed to apply the subsequent final regulations to plan loan offset amounts, including qualified plan loan offset amounts, treated as distributed on or after the date of publication of a Treasury decision adopting the proposed rules as final regulations. The preamble to the QPLO proposed regulations also stated that taxpayers (including a filer of a Form 1099–R) may rely on the proposed regulations with respect to plan loan offset amounts, including qualified plan loan offset amounts, treated as distributed on or after August 20, 2020, and before the date the regulations are published as final regulations in the
The Treasury Department and the IRS received one written comment relating to the QPLO proposed regulations. No request for a public hearing was made, and no public hearing was held. After consideration of the comment, this Treasury decision adopts the QPLO proposed regulations with one important modification relating to the applicability date.
The commenter stated that the bright-line 12-month rule in the QPLO proposed regulations is a helpful approach in determining whether a plan loan offset amount is a QPLO amount, but expressed concern that recordkeepers may not currently have procedures to track a terminated employee's date of severance or the one-year anniversary of that date. To address this concern, the commenter recommended that the Treasury Department and the IRS (i) consider an alternative bright-line rule under which a plan loan offset amount is treated as satisfying the requirement in § 1.402(c)–3(a)(2)(iv)(B) if the plan loan offset occurs by the end of the year following the calendar year in which the employee has a severance from employment, and (ii) delay by one year the effective date of the final regulations (or, alternatively, provide for a one-year period of time during which a person responsible for reporting a QPLO amount on Form 1099–R will not be viewed as improperly reporting it, provided that a reasonable, good faith effort is made to determine if a plan loan offset is a QPLO).
With respect to the first recommendation, the Treasury Department and the IRS have considered the alternative bright-line rule suggested by the commenter, but have retained in the final regulations the 12-month rule in § 1.402(c)–3(a)(2)(iv)(B) of the QPLO proposed regulations. Although the 12-month rule is a bright-line rule that may assist plan administrators and recordkeepers in satisfying their reporting obligations, it is also an interpretation of a statutory requirement that should apply to all taxpayers in the same manner. The alternative rule recommended by the commenter could result in significantly different treatment of participants based solely on when during a calendar year each participant severs from employment. For example, Taxpayer A, who severs from employment on December 31, 2020, could experience a plan loan offset during a 366-day period following the severance and be treated as having a QPLO (and thus be eligible for the extended rollover rule), whereas Taxpayer B, who severs from employment one day later, on January 1, 2021, could experience a plan loan offset during a 729-day period and receive the same treatment.
With respect to the commenter's second recommendation to delay the effective date of the final regulations, the Treasury Department and the IRS
The applicability date in these final regulations is also revised to provide that taxpayers (including a filer of a Form 1099–R) may apply these regulations with respect to plan loan offset amounts, including qualified plan loan offset amounts, treated as distributed on or after August 20, 2020, which is the date of the publication of the QPLO proposed regulations.
These regulations apply to plan loan offset amounts, including qualified plan loan offset amounts, treated as distributed on or after January 1, 2021. Thus, for example, the rules in § 1.402(c)–3 will first apply to 2021 Form 1099–Rs required to be filed and furnished in 2022. However, taxpayers (including a filer of a Form 1099–R) may apply these regulations with respect to plan loan offset amounts, including qualified plan loan offset amounts, treated as distributed on or after August 20, 2020.
For copies of recently issued Revenue Procedures, Revenue Rulings, Notices, and other guidance published in the Internal Revenue Bulletin, please visit the IRS website at
These regulations are not subject to review under section 6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Treasury Department and the Office of Management and Budget regarding review of tax regulations.
In addition, it is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6). This certification is based on the fact that the regulations reflect the statutory changes to section 402(c) made by section 13613 of TCJA. The regulations reflect the extended rollover period for QPLO amounts, as amended by TCJA. Specifically, the regulations reflect the statute in a manner that (i) is consistent with the statutory language, (ii) provides certain clarifications, and (iii) eases and facilitates plan administration. Although the regulations might affect a substantial number of individuals, the economic impact of the regulations is not expected to be significant. The regulations do not impose any new compliance burdens on taxpayers and are not expected to result in any economically meaningful changes in behavior.
Pursuant to section 7805(f), the notice of proposed rulemaking preceding these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business, and no comments were received.
The principal authors of these regulations are Naomi Lehr and Pamela R Kinard of the Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes), although other persons in the IRS and the Treasury Department participated in their development.
Income taxes, Reporting and recordkeeping requirements.
Accordingly, 26 CFR part 1 is amended as follows:
26 U.S.C. 7805 * * *
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Environmental Protection Agency (EPA).
Final rule.
This action establishes how the Environmental Protection Agency (EPA) will consider the availability of dose-response data underlying pivotal science used in its significant regulatory actions and influential scientific information. When promulgating significant regulatory actions or developing influential scientific information for which the conclusions are driven by the quantitative relationship between the amount of dose or exposure to a pollutant, contaminant, or substance and an effect, the EPA will give greater consideration to studies where the underlying dose-
This final rule is effective on January 6, 2021.
The EPA has established a docket for this action under Docket ID No. EPA–HQ–OA–2018–0259. All documents in the docket are listed on the
Bennett Thompson, Office of Science Advisor, Policy and Engagement (8104R), Environmental Protection Agency, 1200 Pennsylvania Ave. NW, Washington, DC 20460; telephone number: (202) 564–1071; email address:
This final rule does not regulate any entity outside the EPA. Rather, the requirements modify the EPA's internal procedures regarding the transparency of pivotal science underlying significant regulatory actions
The EPA is issuing this final rule to help strengthen the transparency of the dose-response data underlying certain EPA actions and to set the overarching structure and principles for transparency of pivotal science in significant regulatory actions and influential scientific information. This rule has a much narrower scope than the 2018 proposed rule (Ref. 5) and the 2020 supplemental notice of proposed rulemaking (Ref. 7). The rule describes how the EPA will determine the consideration to afford pivotal science of the EPA's significant regulatory actions and influential scientific information for which the conclusions are driven by the quantitative relationship between the amount of dose or exposure to a pollutant, contaminant, or substance and an effect based on the availability of the underlying dose-response data and other applicable factors. This rule builds upon prior EPA actions in response to Government-wide data access and sharing policies.
First, the EPA is requiring that, when promulgating significant regulatory actions or developing influential scientific information, the Agency will determine which studies constitute pivotal science and give greater consideration to those studies determined to be pivotal science for which the underlying dose-response data are available in a manner sufficient for independent validation.
Second, the EPA is establishing provisions for how the requirements of this part will apply. This rule sets the overarching structure and principles for transparency of pivotal science in significant regulatory actions and influential scientific information. The final rule provides that if implementing the rule results in any conflict between this rule and the environmental statutes that the EPA administers, and their implementing regulations, this rule will yield and the statutes and regulations will be controlling.
Third, this rule requires that the EPA shall clearly identify all science that serves as the basis for informing a significant regulatory action. The EPA shall make all such science that serves as the basis for informing a significant
Fourth, the EPA is establishing requirements for the independent peer review of pivotal science.
Fifth, the EPA is finalizing a provision that provides criteria for the Administrator to consider when granting case-by-case exemptions to the requirements of this rule.
The EPA is also defining the following terms for the purposes of this rule: “data,” “dose-response data,” “independent validation,” “influential scientific information,” “pivotal science,” “publicly available,” “reanalyze,” “science that serves as the basis for informing a significant regulatory action,” and “significant regulatory actions.”
Finally, the EPA intends to issue implementation guidelines that will help execute this final rule consistently across programs. This may include the process for designating key studies as pivotal science, documenting the availability of dose-response data, and requesting an Administrator's exemption.
The EPA is authorized to issue this rule under its authority to promulgate housekeeping regulations governing its internal affairs (hereinafter, “housekeeping authority”). This final rule describes how the EPA will determine the consideration to afford pivotal science of the EPA's final significant regulatory actions and influential scientific information based on the availability of the underlying dose-response data and other applicable factors. This rule exclusively pertains to the internal practices of the EPA and does not regulate the conduct or determine the rights or obligations of any entity outside the Federal Government.
The Federal Housekeeping Statute (5 U.S.C. 301) provides that “[t]he head of an Executive department or military department may prescribe regulations for the government of his department, the conduct of its employees, the distribution and performance of its business, and the custody, use, and preservation of its records, papers, and property.” As the Supreme Court discussed in
While the EPA is not one of the “Executive departments” referred to in 5 U.S.C. 101, the EPA gained housekeeping authority equivalent to that granted to Executive departments in section 301 through the Reorganization Plan No. 3 of 1970, 84 Stat. 2086 (July 9, 1970), which created the EPA. The Reorganization Plan established the Administrator as “head of the agency,” transferred functions and authorities of various agencies and Executive departments to the EPA, and gave the EPA the authority to promulgate regulations to carry out the transferred functions.
Section 2(a)(1)–(8) of the Reorganization Plan transferred to the EPA functions previously vested in several agencies and Executive departments including the Departments of the Interior and Agriculture. Section 2(a)(9) also transferred so much of the functions of the transferor officers and agencies “as is incidental to or necessary for the performance by or under the Administrator of the functions transferred” and provided that “[t]he transfers to the Administrator made by this section shall be deemed to include the transfer of [ ] authority, provided by law, to prescribe regulations relating primarily to the transferred functions.” The Federal Housekeeping Statute was existing law at the time the Reorganization Plan was enacted. Further, the Reorganization Plan does not limit the authority to promulgate regulations only to the transferred functions, but rather it transfers all authority that “relate[s]” to the transferred functions. Housekeeping authority is ancillary to the transferred functions because it allows the EPA to establish standard, internal procedures that are necessary to carry out and support those functions. Accordingly, the concomitant Federal housekeeping authority to issue procedural rules was transferred to the EPA.
The Office of Legal Counsel has opined that the Reorganization Plan “convey[s] to the [EPA] Administrator all of the housekeeping authority available to other department heads under section 301” and demonstrates that “Congress has vested the Administrator with the authority to run EPA, to exercise its functions, and to issue regulations incidental to the performance of those functions.”
Courts have recognized the EPA as an agency with Federal housekeeping authority. The U.S. Court of Appeals for the Second Circuit, in
On April 30, 2018, the EPA published the Strengthening Transparency in Regulatory Science Proposed Rulemaking (“2018 proposed rule,” Ref. 5). The 2018 proposed rule cites as authority several environmental statutes that the EPA administers: The Clean Air Act (CAA); the Clean Water Act (CWA); the Safe Drinking Water Act (SDWA); the Resource Conservation and Recovery Act (RCRA); the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA); the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA); the Emergency Planning and Community Right-To-Know Act (EPCRA); and the Toxic Substances Control Act (TSCA). Subsequently, on May 25, 2018, the EPA published a document extending the comment period and announced a public hearing on the 2018 proposed rule to be held on July 18, 2018 (Ref. 6). That document identified 5 U.S.C. 301 as a source of authority in addition to those statutes cited in the 2018 proposed rule.
On March 18, 2020, in the
This action is a procedural rule within the scope of the EPA's housekeeping authority. As the Supreme Court explained in
Some public commenters asserted that the EPA lacks the authority under the substantive environmental statutes that it administers to promulgate this rule. However, the EPA is relying exclusively on its housekeeping authority to promulgate this purely procedural rule. In this final procedural rule, the EPA does not interpret or apply provisions of a particular statute or statutes that it administers. The EPA will undertake such efforts in forthcoming actions, which will be either statute-specific science transparency regulations or programmatic regulations implementing this procedural rule. Some of these subsequent actions will be substantive rules issued under the associated environmental statutes and will be subject to judicial review. In this action, the EPA is finalizing a rule of internal agency procedures, including how the Agency will consider the availability of dose-response data underlying pivotal science used in its significant regulatory actions and influential scientific information for independent validation.
Some public commenters nonetheless took the position that this rule is substantive because it will affect the Agency's interactions with regulated parties. First, and as discussed above, this final rule does not regulate any party outside of the EPA but rather exclusively governs the EPA's internal process for determining the consideration to afford pivotal science with respect to certain actions. This rule does not require any researcher or other outside entity to provide data or models to the EPA. Nor does the rule categorically exclude studies—even studies where the underlying dose-response data are not available for independent validation—and therefore any incidental impact on researchers who are developing science and deciding whether to make the underlying dose-response data available is negligible. Instead, it governs internal agency procedures for determining the consideration to afford various studies according to factors that include data availability. In doing so, the final rule provides greater transparency on the consideration the EPA will give pivotal science where the underlying dose-response data are or are not available for independent validation.
Certain commenters stated that the final rule is substantive because they asserted it imposes burdens on scientists who endeavor to have their research considered by the EPA when it makes regulatory decisions or develops influential scientific information. The EPA notes, however, that procedural rules do not alter the rights or interests of parties but they “may alter the manner in which the parties present themselves or their viewpoints to the agency,” without thereby becoming substantive rules (
Some commenters also argued that this rule is not procedural because they asserted it conflicts with the substantive environmental statutes administered by the EPA. However, this final rule does not interpret or apply the provisions of any environmental statutes; such efforts will occur in the subsequent actions under the relevant statutes described above. As this rule makes clear, if implementing this procedural rule would result in conflicts with existing environmental statutes, and their implementing regulations, this rule will yield to the EPA statutes and regulations.
This is a rulemaking of agency organization, procedure, or practice. This procedural rule would not regulate any person or entity outside the EPA and would not affect the rights or obligations of outside parties. As a rule of Agency procedure, this rule is exempt from the notice-and-comment and delayed effective-date requirements set forth in the Administrative Procedure Act. See 5 U.S.C. 553(a)(2), (b)(A), (d). Nonetheless, the Agency voluntarily sought public comment on the proposed rule because it believed that the information and opinions supplied by the public would inform the Agency's views.
In the 2018 proposed rule (Ref. 5), the EPA proposed adding 40 CFR part 30, which would direct the EPA to ensure that the pivotal regulatory science underlying its actions is publicly available in a manner sufficient for independent validation. The EPA proposed to take this action under the authority of the statutes it administers, including provisions providing general authority to promulgate regulations necessary to carry out the Agency's functions under these statutes and provisions specifically addressing the Agency's conduct of and reliance on scientific activity to inform those functions.
In the 2018 proposed rule, the EPA defined “dose-response data and models,” “pivotal regulatory science,” “regulatory decisions,” “regulatory science,” and “research data” (proposed 40 CFR 30.2).
Many of the provisions in proposed 40 CFR part 30 applied to dose-response models and data, regardless of the source of funding or identity of the party who developed the model or generated the data. Specifically, the EPA proposed that the Agency would ensure that dose-response data and models underlying pivotal regulatory science were publicly available in a manner sufficient for independent validation, including releasing information necessary for the public to “understand, assess, and replicate findings” (proposed 40 CFR 30.5). The public release of such information would be consistent with law; protect privacy, confidentiality, and confidential business information (CBI); and be sensitive to national security interests.
In addition to proposing requirements for ensuring that dose-response data and models were publicly available in a manner sufficient for independent validation, the EPA proposed additional requirements pertaining to the use of dose-response data and models underlying pivotal regulatory science. Proposed 40 CFR 30.6 would have required the EPA to: Describe and document any assumptions and methods used; clearly explain the scientific basis for each model assumption used and present analyses showing the sensitivity of the modeled results to alternative assumptions; evaluate the appropriateness of using default assumptions (
The 2018 proposed rule also included requirements that pertained more broadly to the use of studies in Agency actions and pivotal regulatory science. Proposed 40 CFR 30.4 would have required the EPA to clearly identify all studies relied upon when taking any final Agency action and make all such studies available to the public to the extent practicable. Proposed 40 CFR 30.7 would have required the EPA to conduct independent peer review of all pivotal regulatory science used to justify regulatory decisions. As part of the peer review, the EPA would have been required to ask peer reviewers to articulate the strengths and weaknesses of the Agency's justification for the assumptions applied and the implications of those assumptions for the results.
Finally, the 2018 proposed rule would have allowed for the EPA Administrator to grant exemptions to the requirements of the rule when the Administrator determined that compliance would be impracticable because it was not feasible to either (1) ensure that all dose-response data and models underlying pivotal regulatory science were publicly available in a manner sufficient for independent validation, in a fashion consistent with law; protective of privacy, confidentiality, and CBI; and sensitive to national security interests; or (2) conduct independent peer review on all pivotal regulatory science used to justify regulatory decisions for reasons outlined in Section IX of the OMB Bulletin for Peer Review (Ref. 8).
The EPA solicited comment on the 2018 proposed rule generally and on specific provisions in the proposal, including the legal authority for the proposed rule, the scope of the proposal, public access to dose-response data and models, and how the proposed rule should be implemented.
The 2020 SNPRM (Ref. 7) included clarifications, modifications, and additions to certain provisions in the 2018 proposed rule. The 2020 SNPRM also revised the authority cited in proposed 40 CFR part 30; revised proposed 40 CFR 30.2, 30.3, 30.5, 30.6, 30.7, and 30.9; and deleted proposed 40 CFR 30.10.
Through the 2020 SNPRM, the EPA modified proposed 40 CFR part 30 to expand the scope of the 2018 proposed rule, clarified the intent of the 2018 proposed rule, and solicited public comment on two proposed approaches for how the Agency would consider data and model availability when evaluating studies. The 2020 SNPRM modified the scope of the 2018 proposed rule in two ways: (1) Expanded “dose-response data and models” to “data and models,” and (2) expanded the applicability of the proposed requirements to influential scientific information, which was defined in the 2020 SNPRM as the “scientific information the Agency reasonably can determine will have or does have a clear and substantial impact on important public policies or private sector decisions,” consistent with the definition of “influential scientific information” provided in the OMB Final Information Quality Bulletin for Peer Review (Ref. 8). As a result of the 2020 SNPRM, the provisions in proposed 40 CFR part 30 would have applied to data and models, regardless of the source of funding or identity of the party who developed the model or generated the data, underlying pivotal science or pivotal regulatory science. The EPA modified proposed 40 CFR 30.2, 30.3, 30.6, and 30.9 to reflect this change in scope of the proposed rulemaking.
With the expanded scope, the EPA proposed that data and models underlying pivotal regulatory science and pivotal science be available in a manner sufficient for independent validation. To clarify its intent, in the 2020 SNPRM the EPA modified and added proposed definitions for key terminology, including “data,” “model,” “publicly available,” and “independent validation.” Specifically, the EPA clarified that “independent validation” of data and models, as proposed, meant the “reanalysis of study data by subject matter experts who have not contributed to the development of the study to demonstrate that the same analytic results reported in the study are capable of being substantially reproduced” (2020 SNPRM proposed 40 CFR 30.2). In the 2020 SNPRM, the EPA also proposed definitions for “reanalyze” and “capable of being substantially reproduced” to further clarify the intent of the rulemaking.
In proposed 40 CFR 30.5, the EPA solicited public comment on two approaches for how the Agency would consider data and model availability
Finally, the EPA clarified in the 2020 SNPRM that it is authorized to promulgate this rulemaking under its housekeeping authority and revised the authority cited in proposed 40 CFR part 30 accordingly. The Agency solicited public comment on whether to use its housekeeping authority independently or in conjunction with the environmental statutory provisions cited as authority in the 2018 proposed rule, which were further clarified in the 2020 SNPRM.
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The purpose of this action is to increase transparency by codifying internal procedural requirements for how the EPA will consider the availability of the underlying dose-response data that it relies upon to promulgate significant regulatory actions and develop influential scientific information. These requirements build upon open data initiatives in the Federal Government and scientific community and advance the EPA's mission and commitment to the public by prioritizing transparency of the underlying dose-response data in pivotal science for the most impactful of EPA's assessments and regulatory actions. Where underlying dose-response data in pivotal science are available, subject matter experts could independently reanalyze the data to affirm original research conclusions, check for errors, test alternative assumptions, and better understand and evaluate the implications of the uncertainty used in the original analysis. Such independent reanalyses will subsequently enable the EPA to make stronger, data-driven decisions in future rulemakings or in revisions to existing rules or influential scientific information. This could occur through standard cyclical reviews (
The transparency provisions in this final rule are intended to build upon existing Federal Government efforts and provide incremental progress toward the Agency's goal of greater transparency. The EPA and the Federal Government have long encouraged open data initiatives, as the principle of transparency in regulatory decision-making and the other operations of government agencies is a fundamental behavior of good government that is inherently valuable to the public. For example, in 2002 the Office of Management and Budget (OMB) released its
The scientific community has also embraced greater data transparency, as evidenced by data sharing and availability requirements for many high-impact journals (Ref. 15) and the emergence of organizations, such as the Center for Open Science, and international initiatives like Findable, Accessible, Interoperable, and Reusable (FAIR) data principles; Facilitate Open Science Training in European Research (FOSTER); and Guidelines for Transparency and Openness Promotion (TOP) in Journal Policies and Practices that incentivize greater transparency in research (Refs. 16, 17).
The EPA supports these efforts and is pursuing an incremental approach to maximizing transparency in the science that it relies upon to ensure that implementation is done in a thoughtful and deliberate way that focuses on the EPA's most impactful actions, minimizes unintended consequences, and informs future transparency requirements. As further described in Section II.B of this preamble, the EPA is focusing on the underlying dose-response data for this rulemaking because of the influence these data have on particularly impactful decisions at
Most public commenters on the purpose of the 2018 proposed rule and the 2020 SNPRM supported the concept of greater transparency, but questioned the “problem” the EPA was trying to fix. Other commenters indicated that it was not clear how greater data availability would fix these perceived problems, given what they asserted were limited detail in the proposed rule. Some public commenters and members of the EPA's Science Advisory Board (SAB) also suggested that issues related to transparency are or may be fixed with existing guidance, mechanisms, and other requirements. Other commenters questioned the motivation for the rulemaking, asserting that the rulemaking was the result of political interests, rather than scientific need; that it was biased to benefit industry; or that it was a deliberate attempt to suppress human health and climate studies. Some commenters contended that there was little evidence of a widespread reanalysis issue in science or, in particular, studies that would inform environmental policy. Other commenters contended that the rulemaking was at odds with the Agency's mission and would result in decreased environmental and human health protections. Some commenters asserted that the rule would lead to increased litigation and limit the public's trust in the EPA. Other commenters contended that the rule was inconsistent with practices in other Federal agencies and may adversely impact other Federal and state agencies that rely on EPA assessments.
Commenters supporting the rulemaking generally asserted that the greater transparency provided in the proposal and SNPRM was necessary and important for developing sound and scientifically robust regulations. Some commenters stated that transparency is a principle of good government. Some commenters noted specific benefits to greater transparency, including more effective public scrutiny and scientific debate, less political rhetoric, and clearer, more efficient regulations. Some commenters provided specific examples of EPA regulations or risk assessments that have relied on incorrect data or would have been improved with greater transparency. Other commenters contended that greater transparency was consistent or complementary with research and publishing policies, Federal Government policies, and the scientific method, while other commenters asserted that the rule would be an important improvement to transparency at the EPA.
The EPA continues to believe that codifying internal procedures aimed at prioritizing transparency in significant regulatory actions and influential scientific information into regulation will improve the opportunity for the public to access the EPA's scientific analyses and resulting regulatory actions in a way that is beneficial to the scientific process, the Agency's mission, and the public's health and safety. This rule is designed to build upon OMB M–19–15 (Ref. 18), which highlights the need to characterize the sensitivity of an agency's conclusions to analytic assumptions, as well as other Federal guidance documents that require greater data transparency (Ref. 18). The EPA's attention to data transparency is also responsive to the broader interest in greater data and model transparency observed in the numerous transparency initiatives in the scientific community and Federal Government, as well as the criticism the EPA has received from members of the public, scientific community, and Congress on the transparency of the scientific basis for EPA's decisions in previous influential scientific information assessments and regulatory actions (Refs. 19, 20, 21, 22, 23). The EPA's continued progress toward maximizing transparency is vital to building and maintaining trust with the public and credibility in the Agency's decisions.
The EPA disagrees with the contention that this rule is politically motivated, as transparency assumes no political ideology, nor is this rule likely to result in decreased human health or environmental protections, as the benefits of greater data transparency and the significance of reanalyzing and validating study results are well-documented in scientific literature. McNutt (2014) noted, “reproducibility, rigor, transparency, and independent verification are cornerstones of the scientific method” (Ref. 24). The National Academies of Sciences, Engineering, and Medicine (NAS) workshop on Reproducibility and Replicability in Science also noted that “certainly, reproducibility and replicability play an important role in achieving rigor and transparency” (Ref. 16).
The EPA agrees that data transparency is vital for individuals who have not contributed to the study to be able to verify the quality and strength of published studies and agrees with commenters that the opportunity to independently validate the pivotal science that the EPA relies upon is important in furthering scientific understanding and the Agency's mission. A presenter in a 2016 NAS workshop on Principles and Obstacles for Sharing Data from Environmental Health Research stated more directly that “for environmental policy making to be legitimate, the scientific reasoning behind a given decision—including the data supporting it—must be transparent” (NAS Workshop Report, Ref. 26). When data are widely available, researchers can validate
The EPA also agrees with commenters that the scientific community and government agencies are making great strides in data transparency; however, improvements can still be made over existing policies and mechanisms. Many scientific publications, for example, require authors to make a data availability or data access statement, which discloses where and under what conditions the underlying study data are available. Yet the EPA cannot solely rely on data availability statements made in published research because initiatives toward greater data sharing and transparency amongst scientific journals and international organizations are still being implemented, are inconsistently enforced, and the true accessibility of data in a public repository is still limited (Refs. 28, 29, 30, 31, 32, 33). For example, Christensen et al. (2019) evaluated 1,072 peer-reviewed articles and “found that rates of data availability for empirical articles published after journals adopted data-sharing policies differ widely between journals, from 0 percent to 83 percent, with a mean of 35 percent” (Ref. 32). Stodden et al. (2018) noted they were only able to retrieve the dataset and code for 44 percent of the 204 computational studies published in
Finally, focusing the final rule requirements on the underlying dose-response data is intended to address public comments concerning clarity of the rule, potential unintended consequences, and the potential for far-reaching impacts. The requirements provide a workable framework for evaluating pivotal science in the context of the availability of its underlying dose-response data, while balancing important technical considerations in order to ensure the Agency maintains a strong scientific basis for its decision-making. The incremental progress made possible by this rule provides an important step towards prioritizing transparency in particularly impactful EPA rules and assessments and will inform future statute-specific rulemakings.
As discussed in Section III.B of this preamble, based on a consideration of the public comments on the 2018 proposed rule and the 2020 SNPRM, the EPA is finalizing internal procedural requirements for how the Agency will consider the availability of underlying dose-response data of pivotal science when promulgating a significant regulatory action or developing influential scientific information that relies on dose-response data. The EPA is also further clarifying how the Agency will determine the consideration to afford to pivotal science in either significant regulatory actions or influential scientific information.
Consistent with existing Agency practice (Ref. 35), the EPA will review and evaluate all relevant scientific studies when developing significant regulatory actions and influential scientific information. The EPA will continue to use the following, established factors to assess the quality of studies used to develop significant regulatory actions and influential scientific information (Refs. 36, 37):
• Soundness—The extent to which the scientific and technical procedures, measures, methods or models employed to generate the information are reasonable for, and consistent with, the intended application.
• Applicability and Utility—The extent to which the information is relevant for the Agency's intended use.
• Clarity and Completeness—The degree of clarity and completeness with which the data, assumptions, methods, quality assurance, sponsoring organizations and analyses employed to generate the information are documented.
• Uncertainty and Variability—The extent to which the variability and uncertainty (quantitative and qualitative) in the information or in the procedures, measures, methods or models are evaluated and characterized.
• Evaluation and Review—The extent of independent verification, validation and peer review of the information or of the procedures, measures, methods or models.
When evaluating potential links between exposure to a pollutant, contaminant, or substance and effects and the nature of the dose-response relationship, the EPA will follow best practices and rely on the highest quality, most relevant studies in determining the potential for hazard due to exposure to a pollutant, contaminant, or substance. Where there is convincing and well-substantiated evidence (consistent with Agency guidelines on hazard identification and dose-response assessment) to support a relationship between exposure and effect, the EPA will identify a subset of those studies for use in characterizing the quantitative relationship between the amount of dose or exposure to a pollutant, contaminant, or substance and an effect. This will be based on the exposure situation being addressed, the quality of the studies, the reporting adequacy, and the relevance of the endpoints. From that subset, the specific dose-response studies or analyses that drive the requirements, quantitative analyses, or both will be identified as pivotal science (see Section III.E of this preamble).
Once the EPA has identified pivotal science—for either significant regulatory actions or influential scientific information—the EPA will then evaluate if the underlying dose-response data are available in a manner sufficient for independent validation. The EPA will give greater consideration to pivotal science for which the underlying dose-response data are either publicly available in a manner sufficient for
The EPA acknowledges, and agrees with commenters, that there may be pivotal science for which the underlying dose-response data are not publicly available due to technological feasibility or cannot be made available in a secure environment that still allows for independent analysis. For example, dose-response data underlying older pivotal science may no longer be available or may not exist in a currently usable format. In these cases, the EPA may still use the pivotal science after either giving it lesser consideration or receiving an exemption from the requirements of this rule from the Administrator (see Section III.G of this preamble). See Section III.E of this preamble for a description of the factors the EPA will consider when determining the consideration to afford to pivotal science when the underlying dose-response data are not available for independent validation.
The EPA expects to identify pivotal science, and the consideration afforded to pivotal science, in proposed significant regulatory actions and external review drafts of influential scientific information, which will allow the subject matter experts, if they so choose, to independently validate the pivotal science and provide comment to the EPA. The EPA believes that this approach will allow the public to more effectively comment, engage, and hold the EPA accountable during the future development of specific significant regulatory actions and influential scientific information.
The EPA considered these comments when finalizing this rule, and the EPA does not agree that its approach will lead to systematic bias towards certain types of stakeholder goals. As described above, the EPA is not categorically excluding any studies from consideration when promulgating significant regulatory actions or developing influential scientific information. Rather, the Agency will continue to evaluate the quality of all relevant studies, consistent with the intended use of the information. The EPA will also continue to rely on the highest quality, most relevant studies available in determining the potential for hazard due to exposure to a pollutant, contaminant, or substance.
When characterizing the quantitative relationship between the amount of dose or exposure to a pollutant, contaminant, or substance and an effect, the EPA will identify pivotal science and give greater consideration to pivotal science for which the underlying dose-response data are available in a manner sufficient for independent validation. Including this review of dose-response data availability for pivotal science is critical to the EPA's progress toward increased transparency and providing increased opportunity for scientific reanalysis and review by independent third parties. This approach will result in significant regulatory actions and influential scientific information that are based on high quality studies that maximize transparency, leading to human health and environmental protections consistent with the statutes the EPA administers.
In response to the 2018 proposed rule, the EPA received comments on perceived conflicts between the requirements included in the 2018 proposed rule and statutory requirements that direct EPA to consider certain data and information when developing Agency actions. For example, some commenters contended that the requirements in the 2018 proposed rule conflicted with the FIFRA pesticide registration requirements and associated implementing regulations, which require registrants to submit data and information to the EPA to enable the Agency to make its unreasonable adverse effects determinations. These commenters argued that, under the 2018 proposed rule, the EPA would not be able to consider these data, which are often claimed as CBI, when evaluating the pesticide registrations because the data could not be made publicly available. In response to this comment and other similar comments, the EPA clarified in the 2020 SNPRM the relationship between this rulemaking, the environmental statutes and their implementing regulations by adding language to proposed 40 CFR 30.3 stating that statutory requirements and corresponding implementing regulations would control in the event of any conflicts.
With this final rule, the EPA is maintaining language from the 2020 SNPRM in 40 CFR 30.3 stating that statutory requirements and corresponding implementing regulations will control in the event of any conflict, and clarifying in this preamble that the requirements in this final rule set the overarching structure and principles for transparency in significant regulatory actions and influential scientific information. The EPA plans to promulgate either statute-specific transparency regulations or programmatic actions implementing this procedural rule, as appropriate, to clarify how the Agency will implement the provisions from this final rule for specific programs authorized under the statutes the EPA administers.
The 2018 proposed rule focused on dose-response data and models, although not consistently. For example, some parts of the proposed regulatory text appear to limit applicability of certain provisions to only dose-response models. In others, the proposed requirements would apply more broadly. Commenters noted this variability. As a result, in the 2020 SNPRM, the EPA proposed a consistent, broader applicability to data and models.
The EPA received significant comment on this proposed expansion of the applicability of the rulemaking to data and models. While some commenters supported this expansion, other commenters contended that the applicability to dose-response data and models was already very broad, and that the broader applicability would significantly limit the information that the EPA could consider in a broad ranges of assessments (
Based on the comments on the 2018 proposed rule and the 2020 SNPRM, taking into account the number of studies that would be subject to the rule, the EPA determined that the Agency
Based on comments and other considerations, the EPA is concentrating its efforts in the final rule to increase transparency on dose-response data, as the dose-response data are discrete and the dose-response assessment is a well-defined and impactful step in the quantitative assessment of risk. This final rule provides an important step in furthering progress toward maximizing transparency and will provide insight for future statute-specific requirements. Consistent with this targeted focus, the EPA is replacing the proposed definition of “dose-response data and models” at 40 CFR 30.2 with a definition of “dose-response data” (see Section III.C of this preamble).
The 2018 proposed rule included proposed definitions for “dose-response data and models,” “pivotal regulatory science,” “regulatory decisions,” “regulatory science,” and “research data.” Some commenters stated that several of the proposed definitions were unclear, including some that seemed to overlap (
In response to these comments on the 2018 proposed rule, the EPA proposed in the 2020 SNPRM definitions for “capable of being substantially reproduced,” “data,” “independent evaluation,” “models,” “publicly available,” and “reanalyze.” In the 2020 SNPRM, the EPA also proposed a definition of “influential scientific information” to comport with the proposed expansion of the applicability of the rulemaking to influential scientific information.
Based on a consideration of the public comments on both the 2018 proposed rule and the 2020 SNPRM, the EPA is finalizing the definitions at 40 CFR 30.2 as follows.
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While commenters generally supported the inclusion of the proposed definitions for “capable of being substantially reproduced,” “independent validation,” and “reanalyze,” some commenters addressed aspects of the proposed definitions and suggested modifications. One commenter suggested replacing the term “validation” with “verification” because they asserted the term “validation” has specific meanings in the context of assay development and in the context of model development. The EPA understands that the term validation is used differently in some scientific disciplines than the EPA has defined it. However, for the purposes of this rule, the EPA has defined validation in terms of independent reanalysis.
Another commenter contended that the proposed definition of “independent validation” was inconsistent with the remainder of the proposal because it restricts the concept of “independent validation” to “subject matter experts who have not contributed to the development of the study,” rather than the public as was the stated intent of the rule. Because this rule is about scientific data, the EPA finds it unlikely that without the necessary expertise, one could reasonably reanalyze the dose-response data underlying pivotal
One commenter noted that the term “reproduced” in the proposed definition of “capable of being substantially reproduced” and the use of “capable of being substantially reproduced” in the proposed definition of “independent validation,” were inconsistent with the description of reproduce in the 2020 SNPRM preamble and the NAS Workshop Report (Ref. 26). The commenter contended that this adds confusion. Another commenter asserted that there is insufficient guidance or standards for what the term “substantially” means or who will make the determination (
The EPA finds that these comments have merit. The EPA is modifying the definition of “independent validation” in the final rule by replacing “capable of being substantially reproduced” with “produced.” The EPA will not finalize the proposed 40 CFR 30.2 definition of “capable of being substantially reproduced” because the term is not used in the final rule's definition of “independent validation” or elsewhere in 40 CFR 30. As a result, “substantially” will not need to be defined or described in the final rule. The EPA is also modifying the definition of “reanalyze” to specify the use of the same methods because as proposed it specified the use of the “same or different” methods. This change was made so that the definition would be consistent with the final rule's definition of “independent validation.”
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Several commenters asserted that the proposed definition of “data” was so broad that it could include potentially any information. One commenter contended that as published scientific results are often the final steps in a process involving several processing and analysis steps, the proposed definition of “data” definition did not identify what intermediate step of data processing would be subject to this rule. The commenter noted that determining which of the multiple data processing and analysis steps that should be used would differ from study to study. Another commenter suggested that the EPA should identify the actual final dataset used in statistical analysis as the appropriate stage of data to be made available.
As the EPA described in the 2020 SNPRM, there are different stages of data. The EPA presented the different stages described in the NAS Workshop Report (Ref. 26), “There are raw data, which come straight from the survey or the experiment. There are cleaned-up data, which consist of the raw data modified to remove obvious errors.” (These are the data that are ready to be analyzed to extract relevant information.) “There are processed data, which are data that have been computed and analyzed to extract relevant information. There is the final clean data set that is provided with a publication.” Since the purpose of 40 CFR 30.5 is to determine the consideration to afford to studies based on, among other factors, the availability of the underlying dose-response data that would support independent validation via reanalysis of the data underlying pivotal science, the appropriate stage of data would not be the processed data (data that have been computed and analyzed to extract relevant information) or the final clean data set that is provided with a publication. At these two stages of data, the analysis has already been conducted, and the results have already been determined. In order to determine if these results are valid, data that had not already been computed and analyzed are needed.
In this final rule, the EPA is not identifying a specific step in a multi-step analysis as the stage of data that would be sufficient for independent validation through reanalysis because this would be overly prescriptive and not informative. As noted by commenters, the step at which the final clean data set will be generated will vary from study to study. The level of detail required would be that needed for a separate party to reanalyze the study. The appropriate step is where the data are ready to be analyzed to extract relevant information.
One commenter requested that the EPA introduce and define a new term, “validated data,” which are the data with the proper level of quality assurance. While the EPA routinely conducts quality assurance to ensure that data are acceptable for use, the EPA does not see the need to create a separate definition. The focus of this rulemaking is the independent validation of the results of studies underlying pivotal science, not the quality assurance of the data itself.
Some commenters contended that the EPA should define “data” as the raw data in which obvious errors have not been removed. Other commenters stated that raw data in which obvious errors have not been removed would result in skewed analyses for third parties not familiar with the data collection process. Given concerns about potentially skewed analyses, the final definition of “data” maintains the stage of data in which obvious errors have been removed.
Some commenters also requested that the EPA define “model” to clarify the applicability of the rulemaking. In the 2020 SNPRM, the EPA proposed a definition of “model” at 40 CFR 30.2, but the Agency is not finalizing the definition of “model” because this regulation applies only to dose-response data (see Section III.B of this preamble).
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The EPA received public comments in support of and against the Agency's proposed 40 CFR 30.2 definition of “influential scientific information.” Some commenters believed that the proposed definition was too broad to be useful and, as a result, would apply to all scientific documents produced by the EPA. Other commenters believed that the proposed definition was too narrow and would not adequately capture the types of information that may be considered influential.
The EPA finds that these comments have merit, in part. The definition of “influential scientific information” at proposed 40 CFR 30.2 in the 2020 SNPRM is the same definition as in the OMB Final Information Quality Bulletin for Peer Review (Ref. 8). The EPA proposed to adopt this definition because it intended the scope to be consistent with how that term has been interpreted and applied in the context of peer review.
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The EPA received comment on the use of “regulatory” in “pivotal regulatory science.” Some commenters contended that there is no such thing as science that is regulatory; rather, there is science used to support regulation. Some commenters also noted that the terms “pivotal science” and “pivotal regulatory science” have similar scopes.
The EPA acknowledges that no scientific study is inherently regulatory; rather, the EPA uses science to inform its significant regulatory actions. In order to increase the clarity of this final rule, to take into account the similarities between the two definitions, and to more accurately describe the science that the EPA uses, the EPA is removing the term “pivotal regulatory science” and combining the definitions of “pivotal science” and “pivotal regulatory science” under the single term “pivotal science” in 40 CFR 30.2. The EPA is responding to comments on both terms together.
Some commenters noted that the scope of studies that could be considered “pivotal science” was unclear but appeared broad. Some commenters argued that since properly conducted science reviews the entire body of scientific evidence, nearly any study evaluated could be considered “pivotal science.” The EPA's SAB suggested that the Agency clarify whether “pivotal science” refers to all the hazard characterization and dose-response models that the EPA evaluates and captures in its analysis (Ref. 27). Other commenters asserted that if the EPA interprets “pivotal science” broadly to include all studies involved in the development of significant regulatory actions or influential scientific information, implementing this rule would be infeasible.
As discussed in Section III.B of this preamble, the EPA finds merit in comments that the proposed definition for “pivotal science” appeared too broad to feasibly implement in this rule. Because of the EPA's commitment to basing its decisions on sound science, the EPA may review several hundred or thousands of scientific studies in the development of significant regulatory actions or influential scientific information. As such, the EPA agrees that determining data availability for all the studies EPA considers in significant regulatory actions and influential scientific information may be infeasible at this time. Future statute-specific rulemakings may be more expansive as the EPA continues to make incremental progress toward maximizing transparency.
Further, although this rulemaking does not require reanalysis of a study's underlying data, the EPA finds that limiting the scope of “pivotal science” will still provide meaningful and impactful opportunity for reanalysis. Lewandowsky et al. (2020) evaluated the cost-effectiveness of reanalysis studies under various scenarios and concluded that reanalysis studies are most cost-effective when they are focused on studies of the greatest interest to the scientific community (in this study, the number of citations was a surrogate for interest) (Ref. 38). This finding is consistent with results in other studies that found and encouraged narrowing the focus of attempted reanalysis studies to those studies of greater significance (Refs. 37, 39, 40, 41).
In this final rule, rather than considering all studies that support the assessment of the relationship of a dose or exposure of a pollutant, contaminant, or substance to the magnitude of a predicted health or environmental impact as “pivotal science,” the EPA is balancing transparency and feasibility by focusing on those studies that inform the quantitative relationship between the dose or exposure of a pollutant, contaminant, or substance and an effect. Thus, “pivotal science” includes only those studies that are integral to characterizing dose-response relationships (
This clarified definition of “pivotal science” in the final rule is also responsive to the SAB's comments that pivotal science should be more focused (Ref. 27). Consistent with the intent of this rulemaking, the EPA intends to clearly identify the studies considered pivotal in the documentation at the proposed rule stage for significant regulatory actions and when influential scientific information is disseminated for peer review.
Some commenters also expressed confusion regarding how “pivotal science” relates to “best available science.” One commenter recommended that if this rulemaking is intended to alter the EPA's definition and use of the best available science, the EPA should issue further guidance for public comment. To be clear, this rulemaking is not intended to modify the Agency's interpretations of “best available science.” The EPA will continue to consider all peer-reviewed science, consistent with existing study quality assessment factors and corresponding statutory mandates. The EPA will then identify and consider “pivotal science in accordance with the provisions of this rule,” unless the implementation of the rule conflicts with statutory requirements and associated implementing regulations.
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One commenter stated that the proposed definition was vague because it did not make clear whether the study data itself would proactively be made available to members of the public by data holders in government sources, media sources, or other online sources. The definition is not intended to describe the mechanism for making the information available (
Another commenter requested that the EPA consider data and models to be publicly available when they are available through restricted access when the data includes CBI, proprietary data, or PII that cannot be sufficiently de-identified to protect the data subjects. The EPA disagrees with the commenter. The plain meaning of “publicly available” does not include availability through restricted access to data that includes CBI or PII because there are laws that preclude the disclosure of CBI or PII to those not authorized for its access. Thus, the general public cannot access the un-sanitized CBI data or non-anonymized PII data in a manner that will allow for independent validation through reanalysis. If the public cannot access such data, it is not publicly available.
Several commenters contended that the proposed definition of “publicly available” would introduce a bias favoring industry data submitted to the EPA. They asserted that industry-generated studies submitted to the EPA pursuant to FIFRA would be considered publicly available because they could be obtained by the public in response to a Freedom of Information Act (FOIA) request. However, this does not mean that these are immediately or easily available to the public. Some commenters cited the EPA's
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In the 2018 proposed rule, the EPA defined regulatory science as “scientific information, including assessments, models, criteria documents, and regulatory impact analyses, that provide the basis for EPA final significant regulatory actions.” Several commenters claimed that this definition was vague and without discernable meaning. The EPA disagrees with the assertion that the proposed definition was without meaning, but in response to comments
Other commenters expressed confusion over the scope of what constitutes science that serves as the basis for informing a final significant regulatory action, as defined in the proposed rule. One commenter asserted that the phrase “provides the basis” means that science that serves as the basis for informing a final significant regulatory action could be all the science considered, relied upon, and included in the administrative record of a rulemaking by the EPA. The EPA agrees with this and clarifies in the final rule that the scope of science that serves as the basis for informing a significant regulatory action is equivalent to the science included in the public docket as part of a rulemaking, but not all of that body of science would typically be considered “pivotal science.”
In the 2018 proposed rulemaking, the EPA proposed to apply the requirements of this rulemaking on significant regulatory decisions. The EPA then solicited comment on whether the requirements of this rulemaking should apply to (1) other stages of the rulemaking process; (2) a narrower scope of coverage; and (3) certain categories of regulatory actions, such as individual party adjudications, enforcement activities, or permit proceedings or other agency actions. In the 2020 SNPRM, the EPA proposed to expand the applicability of this rulemaking to include influential scientific information.
The EPA received significant comment on the proposed applicability of this rulemaking to significant regulatory decisions and influential scientific information. Some commenters supported the proposed applicability, while other commenters disagreed with it.
A few commenters addressed the potential for expansion or narrowing of the scope of the rule to include other actions in addition to final significant regulatory decisions and influential scientific information. Of the few commenters that explicitly addressed potential expansion beyond the proposed rulemaking, a majority focused on recommendations to include the science underlying Integrated Science Assessments (ISAs) and IRIS assessments. A few commenters expressed support to expand the proposed rulemaking to include one or more of the following: TSCA risk evaluations; CERCLA remedial actions; RCRA corrective actions; as well as assessments and actions under the CWA. Additional comments recommended expansion of the scope of the proposed rulemaking to include enforcement and permitting actions, as well as agency guidance documents. Some commenters supported applying the requirements of this rulemaking to proposed rules and advance notices of proposed rulemakings. Other commenters specifically opposed expanding the proposed rulemaking to include the aforementioned actions. Additionally, some commenters recommended narrowing the scope to only rulemakings subject to the Congressional Review Act or economically significant regulatory actions under E.O. 12866 (
Some of the assessments that commenters suggested should be subject to the requirements of this rulemaking are categorized as influential scientific information. The EPA notes that many assessments categorized as influential scientific information support rulemakings and other actions under several environmental statutes that the EPA administers. For example, the ISA for lead and the IRIS assessment for trichloroethylene have been used in a variety of actions (including those that are not significant regulatory actions) under TSCA, RCRA, and the CAA. IRIS assessments are routinely used under the CAA, RCRA, and CERCLA. By finalizing the scope rule to include influential scientific information, the Agency is applying the applicability of the rule to an important category of scientific assessments that influence a wide range of EPA regulatory actions.
The EPA sees no need to include the proposed rule stage of final significant regulatory actions in the regulatory text because as a practical matter proposed rules must comply with this final rule before being finalized. As a general matter, the EPA does not introduce the studies and analyses it relies on for a rulemaking at the final rule stage. The scientific basis for a rulemaking is provided for public review and comment in the public docket when the proposed rule is issued or, if subsequently added to the docket, through a separate opportunity for public comment. Advance notices of proposed rulemakings are not consistent with the purpose of this rule, given their preliminary nature and frequent focus on soliciting comments on a regulatory issue or approach.
Transparency is important in ensuring that the decisions the EPA makes are based on sound science. The EPA is finalizing the applicability of this rule to significant regulatory actions and influential scientific information because of the potential broad impact of these actions and assessments on American lives and livelihoods. The EPA is not applying this rulemaking to permit proceedings, site-specific actions, or enforcement actions because these actions are typically focused on individual regulated entities.
In the 2018 proposed rule, the EPA proposed to require at 40 CFR 30.5 that “[w]hen promulgating final significant regulatory decisions, the Agency shall ensure that dose-response data and models underlying pivotal regulatory science are publicly available in a manner sufficient for independent validation.” The EPA received a large number of comments stating that the approach in the 2018 proposed rule would likely preclude the use of valid data and models from consideration as pivotal science. The comments indicated that the proposed requirement to ensure data and models are publicly available in a manner sufficient for independent validation would prevent the use of data and models that include CBI, proprietary data, and PII that cannot be sufficiently de-identified to protect the data subjects, as well as many older studies. In response to such comments, in the 2020 SNPRM, the EPA proposed a modified version of the 2018 proposed regulatory text at 40 CFR 30.5. Proposed 40 CFR 30.5 would allow
A few commenters contended that 40 CFR 30.5 as proposed in the 2018 proposed rule was superior to proposed 40 CFR 30.5 in the 2020 SNPRM and the alternative proposed 40 CFR 30.5 in the 2020 SNPRM. The commenters asserted that privacy or confidentiality should not have priority over transparency. They further asserted that the approaches in the 2020 SNPRM would impose substantial limits on the effect of the rule since privacy, confidentiality, and restricted access are all concepts and practices that inhibit full transparency.
Some commenters supported the categorical approach taken in proposed 40 CFR 30.5 in the 2020 SNPRM in which pivotal science would need to be available for independent validation. A few commenters suggested that it be expanded to apply to all studies, not only those that are pivotal science. Other commenters contended the proposed 2020 SNPRM approach was flawed because it would exclude from consideration valid scientific studies for which the underlying data at the stage required by this regulation are unavailable, regardless of whether the studies have been peer reviewed or would be considered part of the “best available science” under the environmental statutes that EPA administers that require the use of “best available science.” These commenters stated that such a categorical exclusion is inconsistent with current scientific standards and the requirements of the environmental statutes that the EPA administers. Other commenters noted that there are a variety of reasons, including the age of a study, why the underlying data at the stage required by this rulemaking would not be available, publicly or otherwise, for independent validation.
Some commenters supported and other commenters opposed alternate proposed 40 CFR 30.5 in which the Agency would, all else being equal, give greater consideration to studies where the underlying data and models are available in a manner sufficient for independent validation. Some commenters stated that this was a reasonable way to consider transparency because studies would be assessed on a case-by-case basis and valid studies would not be categorically excluded. Other commenters did not support alternate proposed 40 CFR 30.5 because they contended there is no scientific justification for a rule that directs the EPA to selectively give greater consideration to certain studies over others based on data availability.
Upon consideration of the comments, the EPA agrees that it is important not to categorically exclude any study because the data underlying a study at the stage required by this rulemaking may not be available for independent validation. Therefore, the EPA is not finalizing the primary proposal in the 2020 SNPRM that would have categorically required that for studies to be considered pivotal science, the underlying data would need to be available for independent validation. However, given that transparency is an important aspect of EPA's regulatory actions and assessments, it should be an important consideration in how the Agency considers pivotal science. As described in 40 CFR 30.5 of the final rule, the EPA will rely on the highest quality, most relevant studies available in determining the potential for hazard due to exposure to a pollutant, contaminant, or substance. Where there is convincing and well substantiated evidence to support a relationship between exposure and effect, the EPA will identify those studies—based on the exposure situation being addressed, the quality of the studies, the reporting adequacy, and the relevance of the endpoints—that would inform a dose-response assessment for those effect endpoints. From that subset, the specific dose-response studies or analyses that drive the requirements or quantitative analyses of an EPA significant regulatory action or influential scientific information will be identified as pivotal science.
Further, the EPA is finalizing the approach that gives greater consideration to pivotal science whose underlying dose-response data are publicly available or available through restricted access. Restricted or tiered access in this final rule means that the underlying dose-response data are available through a data sharing mechanism, such as through an agreement with the originating author or institution, access to a refined or redacted dataset that anonymizes the more sensitive portions of the analyzable dataset, a restricted access data repository or secure data enclave, or some other mechanism (
Some commenters argued that the EPA did not sufficiently explain how it will identify “pivotal science.” For example, one commenter stated that the EPA did not explained what it means for a study to “underly” [sic] influential scientific information or to “drive the requirements” of final significant regulatory actions. Some commenters on the 2018 proposed rule asked for the EPA to clarify in what stage of the review process the Agency would identify pivotal science. In the 2020 SNPRM, the EPA explained, “under this [proposed] regulation EPA would continue to use standard processes for identifying, evaluating, and reviewing available data, models, and studies. When the Agency has potentially identified multiple key studies or models of similar quality that could drive its subsequent decisions, the Agency will investigate the availability of the underlying data.” In response to the 2020 SNPRM, one commenter suggested the EPA provide a transparent explanation of how and why studies are determined to be pivotal science over others. A commenter also argued that if the EPA interprets “pivotal science” narrowly (
The EPA disagrees with the proposition that designating a set of key studies as “pivotal science” will necessarily be biased or without accountability. The EPA follows an objective, unbiased process for identifying and evaluating scientific
Further, the EPA intends to promulgate regulations under the environmental statutes that the EPA administers to further clarify how the Agency will apply the definition of “pivotal science” in specific programs authorized under those statutes (
In response to comments on the meaning of “drive the requirements and/or quantitative analysis,” these are the studies that are integral to quantitatively characterizing dose-response relationships for the toxicity endpoints that underlie the requirements or analyses of EPA significant regulatory actions or influential scientific information. The EPA may further interpret the meaning of “drive,” and describe the process for designating key studies as pivotal science in subsequent implementation guidelines and/or statute-specific rulemakings.
Some commenters stated that the EPA did not explain what was meant by “other things being equal.” Some of these commenters requested clarity on what factors in addition to transparency would be considered. Some specific suggestions from commenters include that EPA should give consideration to quality studies that evaluate a range of models, that are scientifically sound for the intended use, and that have study “characteristics (
Some of the factors in 40 CFR 30.5(d) are intended to be evaluated for pivotal science with underlying data that are not available for independent validation relative to pivotal science with underlying data that are available for independent validation. For example, when assessing studies, the EPA may determine that greater consideration should be given to a study with underlying data that are unavailable for independent validation when that study is of higher quality compared to a medium-quality study with underlying data that are available for independent validation (factor 1), the conclusions of the significant regulatory action or influential scientific information are or are not highly sensitive to the exclusion of the study for which the underlying data are not available for independent validation (factor 3), the study with data unavailable for independent validation was better fit for the purpose of the EPA assessment (factor 4), or the results of the study for which the underlying data are not available are supported by other scientific evidence, such as mechanistic data (factor 6).
Importantly, the factors in 40 CFR 30.5(d) do not apply to other stages in the assessment process (although they are relevant to determining whether to grant an exemption under 40 CFR 30.7, as further explained below). For example, the consideration for exposures that were conducted at more environmentally relevant exposure concentrations (factor 5) does not suggest that epidemiological studies will automatically be given greater weight than laboratory studies. The EPA will continue to use established guidelines for identifying and integrating evidence and will use the factors in 40 CFR 30.5(d) only when evaluating the data availability requirements of this rule (or when determining whether to grant an exemption under 40 CFR 30.7, as further explained below). In addition, not all of these factors will be applicable to all studies or assessments. For example, some pollutants, chemicals, or substances may have unique scientific considerations (factor 7), such as the valence state of a metal compound or endogenous contributions to internal concentrations, that may not be relevant for other pollutants, chemicals, or substances. Therefore, the weight afforded to each factor by the EPA may vary by assessment, and how those factors were considered will be documented in the assessment. If two studies, one with and one without available data and are relatively equal with respect to the study quality factors in 40 CFR 30.5(b), the study where the underlying data is available will be given greater consideration and the weight of the other study will be based on an assessment of the factors in 40
This final rule requires the consideration of the factors in 40 CFR 30.5(d) when assessing pivotal studies for which the dose-response data are not available for independent validation. The EPA may adapt these factors in upcoming statute-specific rulemakings, as appropriate, for significant regulatory actions under the different environmental statutes that the EPA administers. How scientific information is to be considered varies among the different environmental statutes and sometimes within an individual statute. Interpretation of the assessment factors will be tailored to the specific circumstances and the specific environmental statutes.
Some commenters asserted that the 2018 proposed rule and the 2020 SNPRM failed to explain how historical data, which may have been collected under different policies and procedures, will be treated. These commenters noted that underlying dose-response data may have been lost for older studies due to record retention schedules. Some commenters also contended that a significant amount of work would be required to locate, curate, and retrospectively make datasets available for public access.
The EPA intends to determine the extent of the consideration that should be given to pivotal studies lacking available data on a case-by-case basis. The EPA will consider the circumstances specific to each such study when it applies the factors listed in 40 CFR 30.5(d) to that study. The age of the data is not a consideration under 40 CFR 30.5(d), but could be the basis for a 40 CFR 30.7 exemption request.
Some commenters stated that the EPA should not have the rulemaking apply retrospectively to studies given the potential difficulty accessing, reviewing, and making data available that were not originally intended to be disseminated, as would be required by this rulemaking. These commenters requested that the EPA apply the rulemaking provisions only to data and models underlying studies generated after the promulgation of this rule.
This final rule applies prospectively to significant regulatory actions and influential scientific information and has no retrospective effect on existing (
Some commenters contended that a substantial amount of work would be required in order to make data underlying studies available for independent validation, but that the EPA has not identified a responsible party for this work, nor has it made clear the timelines, electronic data sharing mechanisms, or how public reporting of such availability would be achieved, archived, and maintained over time. The EPA would like to emphasize that this final rule does not impose requirements on any entity outside of the EPA. This is a rule of internal procedures and does not direct or require any outside entity or the EPA to establish data sharing mechanisms. Further, the final rule does not require the EPA to collect, store, or publicly disseminate dose-response data underlying pivotal science.
Some commenters asserted that reproducing findings across similar studies is more informative than reanalyzing the data from a single study. Such commenters noted that confidence in the study findings is best gained when different groups are studying the same thing or are conducting similar studies. They asserted that the study results could then be averaged, compared, and further analyzed. One commenter noted that the ability to reanalyze the data from a study with very poor scientific quality does not strengthen the quality of the study. Commenters contended that reproducing studies (
Other commenters supported the proposed requirement for independent validation by reanalysis of data and models underlying studies because they believe this is key to determining whether the science is accurate and of high quality. Some commenters contended that by reanalyzing the underlying data and models, independent researchers can evaluate the myriad of choices and assumptions the original researchers have made regarding the data and statistical models and the potential introduction of any sources of bias.
While the availability of dose-response data underlying a study in a manner sufficient for independent validation is an important component of determining the level of consideration to afford a study, the EPA agrees that availability by itself is not sufficient to determine study quality. As explained in 40 CFR 30.5(b), the EPA will use existing factors (including soundness, applicability and utility, clarity and completeness, uncertainty and variability, and evaluation and review) to evaluate study quality. Subsequently, after identifying the highest quality, most relevant studies that would inform a dose-response assessment and identifying the availability of pivotal science, the EPA would consider the additional applicable factors in 40 CFR 30.5(d) when determining the level of consideration to give pivotal science where the underlying dose-response data are not available for independent validation. Further, although the EPA agrees with commenters that meaningful insights can be obtained through similar studies in different media or context, the EPA continues to find that independent validation of the study findings and conclusions driving the EPA's dose-response assessments would provide important information. As detailed in Section III.A.1 of this preamble, there is scientific support for the usefulness of reanalyzing data, and the EPA finds this to be especially true for data that drive the quantitative requirements or analyses of EPA significant regulatory actions or influential scientific information. Implementation of this rule will increase transparency and, thus, the opportunity for independent subject matter experts to validate pivotal science, and as the dose-response data are better understood the public will, if they so choose, be able to more effectively comment, engage, and hold the EPA accountable during the development of future significant regulatory actions and influential scientific information.
In the 2018 proposed rule, the EPA proposed requirements at 40 CFR 30.6 specific to dose-response data and models. These proposed requirements directed the EPA to describe and document the assumptions and methods it used; to evaluate the appropriateness of using default assumptions, including assumptions of a linear, no threshold dose-response; to explain the scientific
The EPA received significant comment on the 2018 proposed rule regarding the proposed 40 CFR 30.6 requirement that the EPA evaluate the appropriateness of using default assumptions, “including assumptions of a linear, no threshold dose-response.” The vast majority of commenters asserted that the EPA should not focus the requirement to evaluate the appropriateness of using default assumptions specifically on linear, no threshold dose-response. In the 2020 SNPRM, in response to these comments, the EPA proposed a variation of the regulatory text which did not include the phrase “including assumptions of a linear, no threshold dose-response,” because this could imply that the regulation is specific to those particular assumptions.
The EPA also received significant comment on the 2018 proposed rule about the proposed 40 CFR 30.6 requirement to clearly explain the scientific basis for each model assumption used and to present analyses showing the sensitivity of the modeled results to alternative assumptions. Most commenters contended that such a requirement would be overly burdensome and unnecessary. They recommended that the EPA should present sensitivity analyses only on the most significant assumptions.
Considering these comments, in the 2020 SNPRM, the EPA clarified that the use of the terms “model assumptions,” “assumptions” and “models” in the proposed regulatory text at 40 CFR 30.6 apply to the critical assumptions that drive the model's analytic results, not to each assumption used in the model. The EPA's proposed revision of the 40 CFR 30.6 regulatory text reflected this clarification.
After considering comments on both the 2018 proposed rule and the 2020 SNPRM, the EPA has determined that this rule should apply to dose-response data rather than dose-response data
Further, because the EPA is not finalizing any part of the provision that is specific to assumptions and methods associated with dose-response models, comments on the proposed requirements related to these issues are moot. However, while the EPA is not finalizing the provisions in 40 CFR 30.6 that include the term uncertainty, the EPA is responding to these comments because the term uncertainty is used in 40 CFR 30.5. The EPA is also responding to comments on the proposed 40 CFR 30.6 provision incorporated as part of 40 CFR 30.5.
Some commenters contended that the EPA's use of the term “uncertainty” at 40 CFR 30.6 is vague. A few other commenters contended that the EPA should include specific requirements in 40 CFR 30.6 as to the scope of an analysis of uncertainty. The EPA disagrees with the suggestion that the term “uncertainty” is vague or that there is significant ambiguity about what should be in the scope of a characterization of uncertainty. The characterization of uncertainty is a key factor in the assessments that the EPA conducts. It is a component of various EPA guidelines (
Several commenters contended that the proposed 40 CFR 30.6 requirement that the EPA give explicit consideration to high quality studies that explore a broad range of parametric dose-response or concentration-response models and to non-parametric models that incorporate fewer assumptions could force the EPA into situations in which it applies dose-response model(s) that are not appropriate for the data being assessed. The EPA notes that the final regulatory text in 40 CFR 30.5 does not require that a specific type of dose-response model be applied to a particular situation. Rather, in determining the consideration to afford pivotal science for which the dose-response data are not available for independent validation, the EPA will evaluate, as appropriate, the extent to which the study considered a broad range of parametric dose-response or concentration-response models, a robust set of potential confounding variables, nonparametric models that incorporate fewer assumptions, various threshold models across the dose or exposure range, and models that investigate factors that might account for spatial heterogeneity.
In the 2018 proposed rule, the EPA proposed that the Administrator could grant case-by-case exemptions to the requirements in proposed 40 CFR part 30 when compliance with those requirements is impracticable (proposed 40 CFR 30.9). In the 2020 SNPRM, the EPA modified proposed 40 CFR 30.9 to be consistent with other changes proposed in the 2020 SNPRM, such that the Administrator could grant case-by-case exemptions to the requirements in proposed 40 CFR part 30 under specific conditions for which compliance with the requirements in proposed 40 CFR part 30 is impracticable.
Some commenters supported the Administrator's exemption provision in proposed 40 CFR 30.9 while others opposed it. Commenters expressing support for the exemption provision noted that exemptions may be needed to account for lawful and reasonable restrictions on underlying data and models. Commenters expressing opposition to the exemption provision raised concerns about the Administrator granting exemptions from the requirements in proposed 40 CFR part 30. These commenters contended that the Administrator may lack the scientific expertise to make the appropriate exemption decisions and that the Administrator, as a political appointee, could be biased. Some public commenters recommended that the exemption process require formal consultation with EPA career scientists, the EPA's SAB, or another Agency advisory committee.
The EPA also received comment on the following proposed conditions
The EPA finds that these comments have merit, in part. The Agency agrees with retaining the Administrator's exemption provision because there are conditions under which compliance with the requirements in 40 CFR part 30 might be impracticable. For example, the underlying dose-response data for some studies, particularly older studies, may not be readily publicly available because of the technological barriers to data sharing (
The EPA does not agree with the comments regarding the role of the Administrator in determining whether to grant an exemption and finds that the Administrator is the appropriate decision maker in this context. To ensure that the Administrator's decision is appropriately transparent, in the final rule the EPA has included a provision in 40 CFR 30.7 that requires the Agency to document the rationale for any exemptions granted by the Administrator in the significant regulatory action or influential scientific information. This documentation would typically be provided as part of the proposed rulemaking, given that it would be part of the decision concerning what is the pivotal science for the rule. Regardless of what is provided in the proposed rule stage of the rulemaking, the final rulemaking will provide clear documentation.
Some commenters and the EPA's SAB (Ref. 27) also requested that the EPA include criteria that the Administrator will consider when determining whether to grant exemptions from the requirements in 40 CFR part 30. The EPA finds that these comments have merit and is including additional criteria in 30 CFR 30.7 that may be used by the Administrator when he or she is determining whether greater consideration should be afforded to pivotal science for which the underlying dose-response data are not available in a manner sufficient for independent validation. As a result, the Administrator may also determine that greater consideration is warranted when a third party has independently validated the underlying dose-response data through reanalysis or when the EPA's evaluation of the factors in 40 CFR 30.5(d) indicate that full consideration of the pivotal science is justified.
To assist the Administrator in determining whether to grant an exemption, the EPA program or Region responsible for the significant regulatory action or influential scientific information and public commenters can provide input when the Administrator is considering an exemption. The EPA will document the rationale for the Administrator's exemption in the significant regulatory action or influential scientific information. The EPA is confident that the above criteria provide sufficient clarity and boundaries for the Administrator to consider when granting an exemption under 40 CFR 30.7.
In the 2018 proposed rule and the 2020 SNPRM, the EPA proposed to require independent peer review on pivotal regulatory science and pivotal science. The EPA also proposed to require that the Agency ask peer reviewers to opine on the strengths and weaknesses of the EPA's justifications for the assumptions used in models.
Some commenters on the 2018 proposed rule and 2020 SNPRM specifically asked why the EPA would need to peer review health and scientific studies and scientific literature that had already undergone independent peer review. They stated that the EPA failed to explain why existing peer review requirements and mechanisms are insufficient. Such commenters also noted that in addition to being duplicative and unnecessary, the proposed requirement would cause unnecessary delays in the EPA actions and would result in increased costs for the Agency. One commenter noted that the EPA already has policies in place for peer review and referred to the EPA's Peer Review Handbook (Ref. 44). Another commenter stated that, while it is certainly best practice to consider only science that has been independently peer reviewed when making regulatory decisions, that does not necessitate independent peer review by the EPA. The commenter noted that most scientific bodies and publications—including
The EPA finds that these comments have merit, in part. However, in this rule, the EPA is not changing the pre-existing requirements of the OMB Final Information Quality Bulletin for Peer Review (Ref 8). The preamble of the Bulletin states that “the intensity of peer review is highly variable across journals” and “prior peer review and publication is not by itself sufficient grounds for determining that no further review is necessary” (Ref. 8). Peer review does not typically include reanalysis of the underlying data (
The EPA is, therefore, finalizing the language at 40 CFR 30.6 (formerly 40 CFR 30.7 in the 2018 proposed rule and the 2020 SNPRM) to clarify that the Agency will evaluate whether or not to initiate peer review, consistent with the OMB Final Information Quality Bulletin for Peer Review (Ref. 8) and the EPA's Peer Review Handbook (Ref. 44), of
In the 2018 proposed rule, the EPA proposed to require at 40 CFR 30.4 that “EPA shall clearly identify all studies (or other regulatory science) relied upon when it takes any final action. The EPA should make all such studies available to the public to the extent practicable.” Some commenters expressed concern that proposed 40 CFR 30.4 would permit the Agency to exclude valid studies from consideration on the basis of the availability of underlying data or models. Another commenter noted that this section would apply to any final agency action, rather than regulatory decisions. In response to these comments, the EPA notes that this section does not require the EPA to exclude studies from consideration when developing final significant regulatory actions either on the basis of the availability of underlying data or models, or depending on the practicability of making these studies available to the public.
The EPA agrees with the commenter that the scope of 40 CFR 30.4 should be limited to significant regulatory actions, which are defined in 40 CFR 30.2 as “final regulations determined to be `significant regulatory actions' by the Office of Management and Budget pursuant to Executive Order 12866.” The EPA is finalizing additional changes to the title and body of 40 CFR 30.4 by using terms defined in 40 CFR 30.2. In the title of 40 CFR 30.4, the EPA is replacing “taking final action” with “significant regulatory actions” to improve clarity and specificity, since the latter term is defined. In the body of 40 CFR 30.4, the EPA is replacing “all studies (or other regulatory science) relied upon when it takes any final agency action” with “science that serves as the basis for informing a significant regulatory action” to improve specificity, since the latter language is defined; replacing “should” with “shall;” “studies” with “science that serves as the basis for informing a significant regulatory action” to improve specificity, since the latter term is defined; and “available to the public” with “publicly available” to improve specificity, since the latter term is defined. Together, these changes are meant to clarify that the requirements of 40 CFR 30.4 are consistent with the EPA's existing practice of making science that serves as the basis for informing a significant regulatory action available in the public docket as part of the rulemaking.
In the 2018 proposed rule, as part of its E.O. 12866 and E.O. 13563 reviews, the EPA stated that the benefits of the proposal justify the costs. The EPA's rationale was that the rule would facilitate expanded data sharing and exploration of key data sets, improve the ability to independently validate analyses underlying significant regulatory actions, and would be implemented in a cost-effective way. The 2020 SNPRM did not provide additional characterizations of benefits and costs. A number of commenters noted that the EPA did not provide an economic assessment to support the Agency's benefit-cost claims. Commenters also noted that the EPA did not characterize costs to the Agency, including administrative costs to ascertain the public availability of underlying data, costs for additional analyses required, and costs to ensure that PII and CBI are not disclosed. Other commenters noted that the EPA had not adequately explained the benefits of this rule, including enabling increased secondary analyses by third party researchers.
The EPA agrees that neither the 2018 proposed rule nor the 2020 SNPRM included a characterization of costs to the Agency. The EPA emphasizes that this is a rule of internal procedure promulgated under the EPA's housekeeping authority. However, the EPA has identified some incremental costs that the Agency may incur as a result of this final rule. As stated in Section III.A.2 of this preamble, the EPA will continue its current practice of conducting extensive review of scientific studies during the development of significant regulatory actions and influential scientific information. The additional procedures required by this rule apply only to pivotal science, which is a subset of the total number of studies that the EPA would evaluate. Given the costs of the current robust process for identifying and reviewing scientific studies and documentation that are existing Agency practice, as well as that the determination of dose-response data availability is limited to pivotal science underlying significant regulatory actions and influential scientific information, the EPA anticipates that the incremental costs of this rule will be small. The Agency may also incur other administrative costs to perform analyses and evaluations to support activities such as exemption decisions made by the Administrator, and documenting these or other decisions made pursuant to the requirements of the final rule. Again, the Agency anticipates that the incremental costs for these activities will be small relative to current administrative costs for developing significant regulatory actions or influential scientific information. Finally, this final rule does not require the EPA to disclose or host data, but to determine if dose-response data are available and to give greater consideration to those studies for which such data are available. Hence, this rule does not impose costs on the EPA or any other party to make data available, including costs to ensure that PII and CBI are not disclosed. The Agency may opt, at its discretion, to incur the costs associated with making data available when it is in the public interest to do so, but that will be decided on a case-by-case basis and is not a requirement of the final rule.
The EPA also agrees that the benefits of the rule were not fully characterized in the 2018 proposed rule or the 2020 SNPRM. The EPA emphasizes, however, that this is a rule of internal procedure promulgated under the EPA's housekeeping authority. As discussed in Section III.A.1 of this preamble, the main benefits of this rule spring from greater transparency in significant regulatory actions and influential scientific information. By placing greater emphasis on the availability of dose-response data underlying pivotal science, the rule will allow for greater scientific scrutiny as EPA decision makers are developing significant regulatory actions and influential scientific information and increases the likelihood that any errors will be identified and corrected. Greater transparency is also inherently valuable as a principle of good government and provides benefits to the public at large, including reducing the risk of errors in EPA analyses and in the science such analyses rely upon. The ability for independent subject matter experts to validate pivotal science will facilitate more effective comment and engagement with the public during development of future significant regulatory actions and influential scientific information.
Some commenters further argued that the EPA failed to account for costs external to the EPA as consequence of
Some commenters argued the 2018 proposed rule and the 2020 SNPRM would impose costs on third parties because it would prohibit the EPA from using necessary science where the underlying data and models are not publicly available, which would prevent the EPA from meeting its statutory obligations and performing its mission of protecting human health and the environment. Some commenters also contended that the proposed rule requirements would impose costs to the public by delaying EPA regulatory actions that protect human health and the environment.
As described earlier, the EPA acknowledges and agrees with commenters that there may be pivotal science where the underlying data are not publicly available or available through restricted access. The final rule is limited to dose-response data and, as no studies are categorically excluded from consideration, the EPA will continue to rely on the full body of the highest quality, most relevant studies available in determining the potential for hazard due to exposure to a pollutant, contaminant, or substance. Consistent with the requirements of this rule, the EPA will identify a subset of those studies based on the exposure situation being addressed, the quality of the studies, the reporting adequacy, and the relevance of the endpoints that would inform a dose-response assessment, and will give greater consideration to pivotal science for which the underlying dose-response data are available. The EPA disagrees with commenters that the requirements of this rule will result in any meaningful delay in promulgating regulations. While this final rule requires the Agency to evaluate the availability of dose-response data for pivotal science, the incremental burden to the Agency to carry out these requirements is expected to be small given (1) the extensive scientific review the EPA already conducts regularly and (2) that the requirement is limited to pivotal science (
In 2018, the EPA proposed in 40 CFR 30.8 that “EPA shall implement the provisions of this subpart in a manner that minimizes costs.” A number of commenters argued that this statement was vague and that the 2018 proposed rule neither explained what costs this rule would incur, nor how they would be minimized. One commenter further raised concern that, in order to minimize costs, proposed 40 CFR 30.8 may require the EPA to exclude valid data from consideration rather than take potentially expensive steps to protect CBI, proprietary data, and PII. Still other commenters interpreted proposed 40 CFR 30.8 as requiring the EPA to base its final significant regulatory actions and influential scientific information on cost. Commenters expressed concern that this would be at the exclusion of considerations such as the best available science and public health. A commenter further argued that the EPA does not have the statutory authority to base its assessment of science on cost without consideration of public health and environmental costs and benefits and privacy-related costs and benefits, and that doing so would be irrational and arbitrary.
As explained in Section III.J of this preamble, this rule of internal procedure is anticipated to incur small incremental costs related to the additional review of data availability, as compared to the Agency's existing costs for extensive review and documentation as part of the development of significant regulatory actions and influential scientific information. In consideration of the public comments, however, the EPA is not finalizing proposed 40 CFR 30.8 “How is EPA to account for cost under this subpart?” This rule is not intended to require the EPA to exclude valid data from consideration on the basis of cost, nor interpret the EPA's statutory authority to consider costs in significant regulatory actions or influential scientific information. Given the EPA's existing commitment to fulfill its duties in a cost-effective manner, the EPA has determined not to finalize proposed 40 CFR 30.8.
The following is a listing of the documents that are specifically referenced in this notice. The docket includes these documents and other information considered by EPA, including documents referenced within the documents that are included in the docket, even if the referenced document is not physically located in the docket. For assistance in locating these other documents, please consult the person listed under
Additional information about these statutes and Executive orders can be found at
This action is a significant regulatory action that was submitted to the Office of Management and Budget (OMB) for review. Any changes made in response to OMB recommendations have been documented in the docket. The EPA does not anticipate that this rulemaking will have an economic impact on regulated entities.
This action is not subject to Executive Order 13771 because this final rule is a rulemaking of agency organization, procedure, or practice.
This action does not contain any information collection activities and therefore does not impose an information collection burden under the PRA.
I certify that this action will not have a significant economic impact on a substantial number of small entities under the RFA. This action will not impose any requirements on small entities. This action does not regulate any entity outside the Federal Government.
This action does not contain any unfunded mandate as described in UMRA, 2 U.S.C. 1531–1538, and does not significantly or uniquely affect small governments. The action imposes no enforceable duty on any state, local or tribal governments or the private sector.
This action does not have federalism implications. It will not 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.
This action does not have tribal implications as specified in Executive Order 13175. Thus, Executive Order 13175 does not apply to this action.
The EPA interprets Executive Order 13045 as applying only to those regulatory actions that concern environmental health or safety risks that the EPA has reason to believe may disproportionately affect children, per the definition of “covered regulatory action” in section 2–202 of the Executive order. This action is not subject to Executive Order 13045 because it does not concern an environmental health risk or safety risk.
This action is not a “significant energy action” within the meaning of Executive Order 13211. It is not likely to have a significant adverse effect on the supply, distribution or use of energy, and it has not otherwise been designated as a significant energy action by the Administrator of the Office of Information and Regulatory Affairs (OIRA).
This rulemaking does not involve technical standards.
The EPA believes that this action is not subject to Executive Order 12898 (59 FR 7629, February 16, 1994) because it does not establish an environmental health or safety standard.
This rule is exempt from the CRA because it is a rule of agency organization, procedure or practice that does not substantially affect the rights or obligations of non-agency parties.
Environmental protection, Administrative practice and procedure, Reporting and recordkeeping requirements.
5 U.S.C. App.; Pub. L. 98–80, 84 Stat. 2086.
This part directs the EPA to give greater consideration to pivotal science when the underlying dose-response data are available in a manner sufficient for independent validation.
For the purposes of this part:
(a) The provisions of this part apply to science that serves as the basis for informing a significant regulatory action or influential scientific information, as well as to dose-response data underlying pivotal science, regardless of the source of funding or identity of the party conducting the science. The provisions of this part apply to significant regulatory actions for which a proposed rule was published in the
(b) The provisions of this part do not apply to physical objects (like laboratory samples), drafts, and preliminary analyses, and influential scientific information or pivotal science that meet one or more of the exemptions identified in Section IX of the OMB Final Information Quality Bulletin for Peer Review. In the event the procedures outlined in this part conflict with statutes the EPA administers, or their implementing regulations, the statutes and regulations will control. Except where explicitly stated otherwise, the provisions of this part do not apply to any other type of Agency action, including individual party adjudications, enforcement activities, site-specific actions, or permit proceedings.
The EPA shall clearly identify the science that serves as the basis for informing a significant regulatory action. The EPA shall make all such science that serves as the basis for informing a significant regulatory action publicly available to the extent permitted by law.
(a) When promulgating a significant regulatory action or developing influential scientific information that relies on dose-response data, the Agency shall follow best practices to evaluate potential links between exposure to a pollutant, contaminant, or substance and the effect and the nature of the dose-response relationship.
(b) The EPA will use the following factors to assess the quality of studies identified in the systematic review: soundness, applicability and utility, clarity and completeness, uncertainty and variability, and evaluation and review. The EPA will rely on the highest quality, most relevant studies in determining the potential for hazard due to exposure to a pollutant, contaminant, or substance. Where there is convincing and well-substantiated evidence of a relationship between exposure and effect, the EPA will identify those studies based on the exposure situation being addressed, the quality of the studies, the reporting adequacy, and the relevance of the endpoints that would inform a dose-response assessment for those effect endpoints. From the subset in the preceding sentence, the specific dose-response studies or analyses that drive the requirements, quantitative analyses, or both of an EPA significant regulatory action or influential scientific information will be identified as pivotal science.
(c) The EPA shall give greater consideration to pivotal science where the underlying dose-response data are publicly available in a manner sufficient for independent validation. The Agency shall also give greater consideration to pivotal science based on dose-response data that include confidential business information, proprietary information or personally identifiable information if these data are available through restricted access in a manner sufficient for independent validation. For pivotal science where there is no access to dose-response data, or access is limited, the Agency may still consider these studies but will give them lesser consideration unless the Administrator grants an exemption under § 30.7. The Agency will identify the pivotal science that was given lesser consideration and provide a short description of why lesser consideration was given.
(d) In determining the degree of consideration to afford pivotal science for which the dose-response data are not available for independent validation, the EPA shall consider the following factors and any other relevant factors, as applicable:
(1) The quality of the study relative to other studies for which the dose-response data are available;
(2) The extent to which there are other studies for which the dose-response data are available;
(3) The sensitivity of the conclusions in the significant regulatory action or influential scientific information based on the use of the study;
(4) The extent to which the study is fit for the purpose or intended use relative to other pivotal science for which the dose-response data are available;
(5) The use of exposures or doses in a range and duration that is relevant for the intended use and that minimizes the need for extrapolations;
(6) The extent to which the study is supported by other scientific evidence;
(7) The extent to which the study accounted for unique scientific considerations;
(8) The extent to which the study minimizes the use of defaults and assumptions, uses appropriate and strong statistical methods, and includes a robust representation of uncertainty and confidence intervals; and
(9) The study's consideration of a broad range of parametric dose-response or concentration-response models, a robust set of potential confounding variables, nonparametric models that incorporate fewer assumptions, various threshold models across the dose or exposure range, and models that investigate factors that might account for spatial heterogeneity.
(e) The EPA shall also describe critical assumptions and methods used in its dose-response assessment and shall characterize the variability and uncertainty of the assessment. The EPA shall evaluate the appropriateness of using default assumptions on a case-by-case basis. The EPA shall clearly explain the scientific basis for critical assumptions used in the dose-response assessment that the EPA relied on for the significant regulatory action or influential scientific information.
(f) Where the Agency is making dose-response data publicly available, it shall do so in a fashion that is consistent with law, protects privacy, confidentiality, confidential business information, and is sensitive to national security. Dose-response data is considered “publicly available in a manner sufficient for independent validation” when it includes the information necessary for the public to understand, assess, and reanalyze findings and may include, for example:
(1) Data (data would be made available subject to access and use restrictions);
(2) Associated protocols necessary to understand, assess, and extend conclusions;
(3) Computer codes and models involved in the creation and analysis of such information;
(4) Recorded factual materials; and
(5) Detailed descriptions of how to access and use such information.
(g) The provisions of this section apply to dose-response data underlying studies that are pivotal science, regardless of who funded or conducted the studies. The Agency shall make all reasonable efforts to explore methodologies, technologies, and institutional arrangements for making such data available before it concludes that doing so in a manner consistent with law and protection of privacy, confidentiality, national security is not possible.
The EPA shall conduct independent peer review consistent with the requirements of the OMB Final Information Quality Bulletin for Peer Review and the exemptions described therein. The EPA will evaluate whether or not to conduct additional peer review of individual studies identified as pivotal science if the studies have already undergone journal peer review. Because transparency in pivotal science includes addressing issues associated with assumptions used in analyzing dose-response data, the EPA shall ask peer reviewers to articulate the strengths and weaknesses of the justification for the assumptions applied and the implications of those assumptions for the results.
(a) The Administrator may grant an exemption to this part for a study on a case-by-case basis if he or she determines that greater consideration is warranted because:
(1) Technological or other barriers render sharing of the dose-response data infeasible;
(2) The development of the dose-response data was completed or updated before January 6, 2021;
(3) Making the dose-response data available would conflict with laws and regulations governing privacy, confidentiality, confidential business information, or national security;
(4) A third-party has conducted independent validation of the study's underlying dose-response data through reanalysis; or
(5) The factors used in determining the consideration to afford to the pivotal science indicate full consideration is justified.
(b) When making a decision to grant an exemption, the Administrator may consider input from EPA staff and public commenters. The EPA shall document the rationale for exemptions granted by the Administrator in the significant regulatory action or influential scientific information.
Agency for International Development.
Correcting amendments; final rule.
On October 16, 2020, the U.S. Agency for International Development (USAID) issued a final rule revising provisions of the AID Acquisition Regulation (AIDAR) that pertain to the General Provision contract clause 5, entitled “Leave and Holidays” for U.S. personal services contractors (USPSCs.) This document corrects typographical errors in the final rule by revising the text of clause 5, adding the effective dates in the titles of clauses 6 and 16, and revising the authority citation.
Effective January 6, 2021.
Richard E. Spencer, Procurement Analyst, by phone at 202–916–2629, or email at
USAID is correcting errors in the final rule entitled “Leave and Holidays for U.S. Personal Services Contractors, including Family and Medical Leave,” under AIDAR 48 CFR chapter 7, appendix D, which was published in the
Government procurement.
Accordingly, 48 CFR chapter 7 is corrected by making the following amendments:
The revisions read as follows:
[Insert the following clause in all USPSC contracts.]
(a) * * *
(3) * * * Annual leave restored must be scheduled and used no later than the earlier of either—
(i) The end of the leave year two years after the date fixed by the approving official as the termination date of the exceptional circumstances beyond the contractor's control, which resulted in the forfeiture; or
(ii) The end of the contract.
Cybersecurity and Infrastructure Security Agency, DHS.
Advance Notice of Proposed Rulemaking (ANPRM).
The Cybersecurity and Infrastructure Security Agency (CISA) is considering removing all 49 Division 1.1 explosive chemicals of interest from Appendix A of the Chemical Facility Anti-Terrorism Standards (CFATS) regulations. Currently, both CISA and the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) regulate facilities possessing these chemicals for security concerns. Removing these chemicals of interest from coverage under CFATS would reduce regulatory requirements for facilities currently covered by both CFATS and ATF's regulatory frameworks and relieve compliance burdens for a small number of affected facilities.
Comments on this ANPRM must be received by March 8, 2021.
You may submit comments, identified by docket number CISA–2020–0014 through the Federal eRulemaking Portal available at
Do not submit comments that include trade secrets, confidential commercial or financial information, Chemical-terrorism Vulnerability Information (CVI), Protected Critical Infrastructure Information (PCII), or Sensitive Security Information (SSI) directly to the public regulatory docket. Contact the individual listed in the
Lona Saccomando, (703) 603–4868,
CISA is issuing this Advance Notice of Proposed Rulemaking (ANPRM) to solicit comments on the advisability of removing Division 1.1 explosives from Appendix A to the Chemical Facility Anti-Terrorism Standards (CFATS) regulations located at 6 CFR part 27. As described below, we believe that these regulations may be unnecessarily burdensome for facilities that are already subject to security regulations for the same chemicals by another Federal agency, ATF. We encourage comments describing the nature of compliance operations in cases where regulatory duplication and overlap may exist, as well as on the costs and benefits of CFATS-specific security measures.
CISA's CFATS program is an important part of our nation's counterterrorism efforts. The agency works with industry stakeholders to keep dangerous chemicals out of the hands of persons or organizations who wish to harm the United States. Since the CFATS program was created, the Department of Homeland Security (DHS)
The CFATS program identifies chemical facilities of interest and regulates the security of high-risk chemical facilities through risk-based performance standards.
On November 20, 2007, DHS published a list of COI in Appendix A to 6 CFR part 27.
DHS included Division 1.1 explosives in Appendix A notwithstanding the Department of Justice's ATF regulation of the purchase, possession, storage, and transportation of the same types of explosives.
Division 1.1 explosives included in Appendix A are “explosive materials” as defined in 18 U.S.C. 841(c) and are subject to ATF regulation. ATF regulations require persons storing any explosives to follow certain safety and theft-prevention precautions, including specific requirements governing the secure storage of explosives and inspection of magazines.
CFATS and ATF regulations differ substantially, and the interaction between them can be complex. In many instances, compliance with the measures required to comply with ATF regulations and industry best practices result in some facilities not tiering as high-risk under CFATS. Therefore, this small portion of facilities has no additional regulatory obligations under CFATS after submission of a Top-Screen. For example, all explosives must be stored in compliance with ATF standoff-distance
While the above is an example of a way in which CFATS and ATF regulations dovetail effectively, sometimes the regulations do not correspond so cleanly. For example, a small number of facilities, despite adhering to ATF regulations regarding the secure storage of explosive materials,
The partial regulatory overlap has led to frustration among some stakeholders in the explosives community and has led CISA to conduct a comprehensive review of the respective programs' regulatory requirements. As a result, CISA is considering modifications to Appendix A to remove Division 1.1 explosive chemicals from the COI listed in Appendix A.
It is the policy of the executive branch to prudently manage the costs associated with governmental imposition of private expenditures required to comply with Federal regulations.
At this time, CISA is considering whether the elimination of the burden of dual regulation of Division 1.1 explosive chemicals between CISA and ATF programs could be warranted. To this end, CISA is soliciting comments on amending Appendix A to remove all Division 1.1 explosives from the list of COI listed in Appendix A. If Appendix A is so amended, facility operators would no longer be required to count Division 1.1 explosives when determining whether their facilities are subject to the Top-Screen requirements pursuant to 6 CFR 27.200.
At the time of the promulgation of CFATS, DHS believed that the increased security value of having high-risk facilities that possessed Division 1.1 explosives regulated under CFATS was worth the increased cost. In 2007, DHS distinguished its approach from the deference that the Environmental Protection Agency (EPA) had shown ATF regulations by noting that “EPA's decisions were based on safety and the prevention of an accidental release [and that] DHS is concerned with an
However, since implementation of the CFATS program, CISA has found that, for many facilities, possession of Division 1.1 explosives at the quantity triggering reporting for the Release-Explosive security issue under CFATS (
We note that while ATF's and CISA's regulations differ substantially, other agencies have deferred to ATF's explosives expertise when considering regulation of explosives facilities. In 1998, while developing the Risk Management Plan regulations, the EPA issued a final rule removing Division 1.1 explosives from its list of regulated substances for accidental release prevention.
Other facilities that possess Division 1.1 explosives are considered high-risk under CFATS under the Theft/diversion-EXP/IEDP security issue, in part because of the concerns presented by the prospect of physical or cyber-focused security breaches. CISA currently regulates 85 facilities that possess Division 1.1 explosive COI under the Theft/diversion-EXP/IEDP security issue. Many of these facilities possess other COI regulated by CFATS that are not Division 1.1 explosives. If Division 1.1 explosives were removed from Appendix A, CISA estimates that 24 facilities would no longer be regulated as high-risk under CFATS.
Though CFATS includes cybersecurity and some other requirements such as security plans, security equipment, training, or recording/reporting of threats that are not accounted for in ATF's framework, ATF regulations include some important theft-prevention and inventory-tracking standards
Prior to implementing the enhanced tiering methodology in October of 2016, DHS published a CFATS ANPRM on August 18, 2014, to seek public comment on ways in which the CFATS regulation and program might be improved.
In response to the 2014 CFATS ANPRM, the Department received several detailed comments relevant to the coverage of Division 1.1 explosives under CFATS generally encouraging the Department to remove Division 1.1 explosives for both release-explosive and theft/diversion-EXP/IEDP security issues.
In light of the time that has passed since 2015, and the changes to the tiering methodology made since then, CISA is soliciting comments from stakeholders on the current coverage of release-explosive and theft/diversion-EXP/IEDP COI under CFATS and on the proposed elimination of these COI from Appendix A. Specifically:
(1) Should CISA remove Division 1.1 explosives for consideration as a release-explosive security concern? Why or why not?
(2) Should CISA remove Division 1.1 explosives for consideration as a theft/diversion-EXP/IEDP security concern? Why or why not?
(3) How would the removal of Division 1.1 explosives impact the security posture of chemical facilities?
(4) Would the removal of Division 1.1 explosives impact the regulatory burden of CFATS on chemical facilities? If so, in what ways and to what extent?
The Acting Secretary of Homeland Security, Chad F. Wolf, having reviewed and approved this document, has delegated the authority to electronically sign this document to Chad R. Mizelle, who is the Senior Official Performing the Duties of the General Counsel for DHS, for purposes of publication in the
Department of Defense (DoD).
Proposed rule.
The DoD is giving concurrent notice of an updated system of records pursuant to the Privacy Act of 1974 for the DoD 0004 “Defense Repository for Common Enterprise Data (DRCED)” system of records and this proposed rulemaking. In this proposed rulemaking, the Department proposes to exempt portions of the DRCED system of records from certain provisions of the Privacy Act because of national security requirements.
Send comments on or before March 8, 2021.
You may submit comments, identified by docket number and title, by any of the following methods:
•
•
Ms. Lyn Kirby, Chief, Defense Privacy, Civil Liberties, and Transparency Division, Directorate for Oversight and Compliance, Department of Defense, 4800 Mark Center Drive, Mailbox #24, Suite 08D09, Alexandria, VA 22350–1700;
The DoD 0004 DRCED system of records is a DoD-wide system of records that supports multiple information systems that provide DoD-wide and component-level enterprise solutions for integrating and analyzing targeted data from existing DoD systems to develop timely, actionable, and insightful conclusions in support of national strategies. These systems are used to automate financial and business transactions, perform cost-management analysis, produce oversight and audit reports, and provide critical data linking to improve performance of mission objectives. These systems are also capable of creating predictive analytic models based upon specific data streams to equip decision makers with critical data necessary for execution of fiscal and operational requirements.
The Privacy Act allows federal agencies to exempt eligible records in a system of records from certain provisions of the Act, including the provisions providing individuals with a right to request access to and amendment of their own records. If an agency intends to exempt a particular system of records, it must typically first go through the rulemaking process to provide public notice and an opportunity to comment on the proposed exemption. This proposed rule explains why an exemption is being claimed for this system of records and invites public comment, which DoD will consider before the issuance of a final rule implementing the exemption.
The DoD proposes to modify 32 CFR part 310 to add a new Privacy Act exemption rule for the DoD 0004 DRCED system of records. The DoD proposes an exemption for DoD 0004 DRCED because some of its records may contain classified national security information and disclosure of those records to an individual may cause damage to national security. The Privacy Act, pursuant to 5 U.S.C. 552a(k)(1), authorizes agencies to claim an exemption for systems of records that contain information properly classified pursuant to executive order. DoD is proposing to claim an exemption from the access and amendment requirements of the Privacy Act, pursuant to 5 U.S.C. 552a(k)(1), to prevent disclosure of any information properly classified pursuant to executive order, as implemented by DoD Instruction (DoDI) 5200.01 and DoD Manual (DoDM) 5200.01, Volumes 1 and 3.
If implemented, this proposed rule will deny an individual access under the Privacy Act to only those portions of records for which the claimed exemption applies. In addition, records in the DoD 0004 DRCED system of records are only exempt from the Privacy Act to the extent the purposes underlying the exemption pertain to the record.
A notice of a modified system of records for DoD 0004 DRCED is also published in this issue of the
Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distribute impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. It has been determined that this proposed rule is not a significant regulatory action.
This proposed rule has been deemed not significant under Executive Order (E.O.) 12866, “Regulatory Planning and Review,” therefore, the requirements of E.O. 13771, “Reducing Regulation and Controlling Regulatory Costs” do not apply.
This proposed rule is not a “major rule” as defined by 5 U.S.C. 804(2).
It has been certified that this proposed rule does not have a significant economic impact on a substantial number of small entities because it is concerned only with the administration of Privacy Act Systems of Records within the DoD. A Regulatory Flexibility Analysis is not required.
It has been determined that this proposed rule does not impose additional information collection requirements on the public under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
It has been determined that this proposed rule does not involve 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 and that it will not significantly or uniquely affect small governments.
It has been determined that this proposed rule does not have federalism implications. This rule does not 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.
Privacy.
Accordingly, 32 CFR part 310 is proposed to be amended as follows:
5 U.S.C. 552a.
(e) * * *
(3)
(i)
(ii)
(iii)
(A)
(B)
(iv)
Office of the Secretary, Office of Civil Rights, Commerce.
Notice; withdrawal.
On Thursday, October 1, 2020, the Department of Commerce (DOC) published a notice entitled, “Agency Information Collection Activities: Proposed Collection; Comment Request; Reporting Process for Complaint of Employment Discrimination Based on Sexual Orientation Against the Department of Commerce.” That notice invited public comments on the proposed, and continuing information collection request for OMB Control Number 0694–0024, Form Number: CD–545. Through the publication of this document, we are withdrawing the request for approval from the Office of Management and Budget (OMB) to collect this information collection.
The request for public comment preceding submission of the collection to OMB published on October 1, 2020 and ended November 30, 2020.
In a notice published in the
Executive Order (E.O.) 13087, issued on May 28, 1998, amended E.O. 11478,
At the time DAO 215–11 was established and many years thereafter, Department employees and applicants were unable to pursue sexual orientation discrimination claims under Title VII of the Civil Rights Act of 1964, as amended, and thus could not utilize the process afforded to Federal employees and applicants outlined in Title 29, Code of Federal Regulations (CFR), Part 1614. However, the Supreme Court, in
In response to the request for public comment, comments were received from Lisa Schnall, Senior Attorney Advisor, Office of Legal Counsel, Equal Employment Opportunity Commission, on November 30, 2020, concerning Form CD–545 (Complaint of Employment Discrimination Based on Sexual Orientation Against the Department of Commerce). In her comments, Ms. Schnall cited the Supreme Court's decision in
Since the matter of sexual orientation being a form of prohibited sex discrimination has now been decided with finality, we agree that withdrawing Form CD–545 would streamline and enhance the efficiency of the process for raising claims of sexual orientation and are therefore requesting the form's discontinuation.
Paul Redpath, Chief, Program Implementation Division, Office of Civil Rights, Department of Commerce, approved the publication of this Notice in the
On September 2, 2020, Patheon Puerto Rico, Inc. (Patheon), submitted a notification of proposed production activity to the FTZ Board for its facility within Subzone 7L, in Manatí, Puerto Rico.
The notification was processed in accordance with the regulations of the FTZ Board (15 CFR part 400), including notice in the
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (Commerce) preliminarily determines that passenger vehicle and light truck tires (passenger tires) from the Republic of Korea (Korea) are being, or are likely to be, sold in the United States at less than fair value (LTFV). The period of investigation is April 1, 2019, through March 31, 2020. Interested parties are invited to comment on this preliminary determination.
Applicable January 6, 2021.
Elfi Blum or Jun Jack Zhao, AD/CVD Operations, Office VII, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482–0197 or (202) 482–1396, respectively.
This preliminary determination is made in accordance with section 733(b) of the Tariff Act of 1930, as amended (the Act). Commerce published the notice of initiation of this investigation on June 29, 2020.
The products covered by this investigation are passenger tires from Korea. For a complete description of the scope of this investigation,
In accordance with the preamble to Commerce's regulations,
The deadline to submit scope case briefs is established in the Preliminary Scope Decision Memorandum. There will be no further opportunity for comments on scope-related issues.
Commerce is conducting this investigation in accordance with section 731 of the Act. Commerce has calculated export price and constructed export price in accordance with section 772 of the Act. Normal value (NV) is calculated in accordance with section 773 of the Act. Furthermore, pursuant to sections 776(a) and (b) of the Act, Commerce has preliminarily relied on partial facts otherwise available, with adverse inferences, for Hankook Tire & Technology Co. Ltd (Hankook).
Sections 733(d)(1)(ii) and 735(c)(5)(A) of the Act provide that in the preliminary determination Commerce shall determine an estimated all-others rate for all exporters and producers not individually examined. This rate shall be an amount equal to the weighted average of the estimated weighted-average dumping margins established for exporters and producers individually investigated, excluding rates that are zero,
Commerce preliminarily determines that the following estimated weighted-average dumping margins exist:
In accordance with section 733(d)(2) of the Act, Commerce will direct U.S. Customs and Border Protection (CBP) to suspend liquidation of entries of subject merchandise, as described in Appendix I, entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice in the
These suspension of liquidation instructions will remain in effect until further notice.
Commerce intends to disclose its calculations and analysis performed to interested parties in this preliminary determination within five days of any public announcement or, if there is no public announcement, within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b).
As provided in section 782(i)(1) of the Act, Commerce intends to verify the information relied upon in making its final determination. Normally, Commerce verifies information using standard procedures, including an on-site examination of original accounting, financial, and sales documentation. However, due to current travel restrictions in response to the global COVID–19 pandemic, Commerce is unable to conduct on-site verification in this investigation. Accordingly, we intend to verify the information relied upon in making the final determination through alternative means in lieu of an on-site verification.
Case briefs or other written comments may be submitted to the Assistant Secretary for Enforcement and Compliance. Interested parties will be notified of the timeline for the submission of such case briefs and written comments at a later date. Rebuttal briefs, limited to issues raised in case briefs, may be submitted no later than seven days after the deadline date for case briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing, limited to issues raised in the case and rebuttal briefs, must submit a written request to the Assistant Secretary for Enforcement and Compliance, U.S. Department of Commerce, within 30 days after the date of publication of this notice. Requests should contain the party's name, address, and telephone number, the number of participants, whether any participant is a foreign national, and a list of the issues to be discussed. If a request for a hearing is made, Commerce intends to hold the hearing at a time and date to be determined. Parties should confirm by telephone the date and time of the hearing two days before the scheduled date.
Section 735(a)(2) of the Act provides that a final determination may be postponed until not later than 135 days after the date of the publication of the preliminary determination if, in the event of an affirmative preliminary determination, a request for such postponement is made by exporters who account for a significant proportion of exports of the subject merchandise, or in the event of a negative preliminary determination, a request for such postponement is made by the petitioner. Section 351.210(e)(2) of Commerce's regulations requires that a request by exporters for postponement of the final determination be accompanied by a request for extension of provisional measures from a four-month period to a period not more than six months in duration.
On December 2 and 9, 2020, Hankook and Nexen, respectively, requested that, in the event of an affirmative preliminary determination in this investigation, Commerce postpone its final determination in accordance with section 735(a)(2)(A) of the Act and 19 CFR 351.210(b)(2)(ii) and extend the application of the provisional measures prescribed under section 733(d) of the Act and 19 CFR 351.210(e)(2) from a four-month to a six-month period.
In accordance with section 733(f) of the Act, Commerce will notify the International Trade Commission (ITC) of its preliminary determination. If the final determination is affirmative, the ITC will determine before the later of 120 days after the date of this preliminary determination or 45 after the final determination whether these imports are materially injuring, or threaten material injury to, the U.S. industry.
This determination is issued and published in accordance with sections 733(f) and 777(i)(1) of the Act and 19 CFR 351.205(c).
The scope of this investigation is passenger vehicle and light truck tires. Passenger vehicle and light truck tires are new pneumatic tires, of rubber, with a passenger vehicle or light truck size designation. Tires covered by this investigation may be tube-type, tubeless, radial, or non-radial, and they may be intended for sale to original equipment manufacturers or the replacement market.
Subject tires have, at the time of importation, the symbol “DOT” on the sidewall, certifying that the tire conforms to applicable motor vehicle safety standards. Subject tires may also have the following prefixes or suffix in their tire size designation, which also appears on the sidewall of the tire:
Prefix designations:
P—Identifies a tire intended primarily for service on passenger cars.
LT—Identifies a tire intended primarily for service on light trucks.
Suffix letter designations:
LT—Identifies light truck tires for service on trucks, buses, trailers, and multipurpose passenger vehicles used in nominal highway service.
All tires with a “P” or “LT” prefix, and all tires with an “LT” suffix in their sidewall markings are covered by these investigations regardless of their intended use.
In addition, all tires that lack a “P” or “LT” prefix or suffix in their sidewall markings, as well as all tires that include any other prefix or suffix in their sidewall markings, are included in the scope, regardless of their intended use, as long as the tire is of a size that fits passenger cars or light trucks. Sizes that fit passenger cars and light trucks include, but are not limited to, the numerical size designations listed in the passenger car section or light truck section of the Tire and Rim Association Year Book, as updated annually. The scope includes all tires that are of a size that fits passenger cars or light trucks, unless the tire falls within one of the specific exclusions set out below.
Passenger vehicle and light truck tires, whether or not attached to wheels or rims, are included in the scope. However, if a subject tire is imported attached to a wheel or rim, only the tire is covered by the scope.
Specifically excluded from the scope are the following types of tires:
(1) Racing car tires; such tires do not bear the symbol “DOT” on the sidewall and may be marked with “ZR” in size designation;
(2) pneumatic tires, of rubber, that are not new, including recycled and retreaded tires;
(3) non-pneumatic tires, such as solid rubber tires;
(4) tires designed and marketed exclusively as temporary use spare tires for passenger vehicles which, in addition, exhibit each of the following physical characteristics:
(a) The size designation and load index combination molded on the tire's sidewall are listed in Table PCT–1R (“T” Type Spare Tires for Temporary Use on Passenger Vehicles) or PCT–1B (“T” Type Diagonal (Bias) Spare Tires for Temporary Use on Passenger Vehicles) of the Tire and Rim Association Year Book,
(b) the designation “T” is molded into the tire's sidewall as part of the size designation, and,
(c) the tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by Tire and Rim Association Year Book, and the rated speed is 81 MPH or a “M” rating;
(5) tires designed and marketed exclusively as temporary use spare tires for light trucks which, in addition, exhibit each of the following physical characteristics:
(a) The tires have a 265/70R17, 255/80R17, 265/70R16, 245/70R17, 245/75R17, 265/70R18, or 265/70R18 size designation;
(b) “Temporary Use Only” or “Spare” is molded into the tire's sidewall;
(c) the tread depth of the tire is no greater than 6.2 mm; and
(d) Uniform Tire Quality Grade Standards (“UTQG”) ratings are not molded into the tire's sidewall with the exception of 265/70R17 and 255/80R17 which may have UTGC molded on the tire sidewall;
(6) tires designed and marketed exclusively for specialty tire (ST) use which, in addition, exhibit each of the following conditions:
(a) The size designation molded on the tire's sidewall is listed in the ST sections of the Tire and Rim Association Year Book,
(b) the designation “ST” is molded into the tire's sidewall as part of the size designation,
(c) the tire incorporates a warning, prominently molded on the sidewall, that the tire is “For Trailer Service Only” or “For Trailer Use Only”,
(d) the load index molded on the tire's sidewall meets or exceeds those load indexes listed in the Tire and Rim Association Year Book for the relevant ST tire size, and
(e) either
(i) the tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by Tire and Rim Association Year Book, and the rated speed does not exceed 81 MPH or an “M” rating; or
(ii) the tire's speed rating molded on the sidewall is 87 MPH or an “N” rating, and in either case the tire's maximum pressure and maximum load limit are molded on the sidewall and either
(1) both exceed the maximum pressure and maximum load limit for any tire of the same size designation in either the passenger car or light truck section of the Tire and Rim Association Year Book; or
(2) if the maximum cold inflation pressure molded on the tire is less than any cold inflation pressure listed for that size designation in either the passenger car or light truck section of the Tire and Rim Association Year Book, the maximum load limit molded on the tire is higher than the maximum load limit listed at that cold inflation pressure for that size designation in either the passenger car or light truck section of the Tire and Rim Association Year Book;
(7) tires designed and marketed exclusively for off-road use and which, in addition, exhibit each of the following physical characteristics:
(a) The size designation and load index combination molded on the tire's sidewall are listed in the off-the-road, agricultural, industrial or ATV section of the Tire and Rim Association Year Book,
(b) in addition to any size designation markings, the tire incorporates a warning, prominently molded on the sidewall, that the tire is “Not For Highway Service” or “Not for Highway Use”,
(c) the tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by the Tire and Rim Association Year Book, and the rated speed does not exceed 55 MPH or a “G” rating, and
(d) the tire features a recognizable off-road tread design;
(8) Tires designed and marketed for off-road use as all-terrain-vehicle (ATV) tires or utility-terrain-vehicle (UTV) tires, and which, in addition, exhibit each of the following characteristics:
(a) The tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by the Tire and Rim Association Year Book, and the rated speed does not exceed 87 MPH or an “N” rating, and
(b) both of the following physical characteristics are satisfied:
(i) The size designation and load index combination molded on the tire's sidewall does not match any of those listed in the passenger car or light truck sections of the Tire and Rim Association Year Book, and
(ii) The size designation and load index combination molded on the tire's sidewall matches any of the following size designation (American standard or metric) and load index combinations:
The products covered by this investigation are currently classified under the following Harmonized Tariff Schedule of the United States (HTSUS) subheadings: 4011.10.10.10, 4011.10.10.20, 4011.10.10.30, 4011.10.10.40, 4011.10.10.50, 4011.10.10.60, 4011.10.10.70, 4011.10.50.00, 4011.20.10.05, and 4011.20.50.10. Tires meeting the scope description may also enter under the following HTSUS subheadings: 4011.90.10.10, 4011.90.10.50, 4011.90.20.10, 4011.90.20.50, 4011.90.80.10, 4011.90.80.50, 8708.70.45.30, 8708.70.45.46, 8708.70.45.48, 8708.70.45.60, 8708.70.60.30, 8708.70.60.45, and 8708.70.60.60. While HTSUS subheadings are provided for convenience and for customs purposes, the written description of the subject merchandise is dispositive.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (Commerce) preliminarily determines that passenger vehicle and light truck tires (passenger tires) from the Socialist Republic of Vietnam (Vietnam) are being, or are likely to be, sold in the United States at less than fair value (LTFV). The period of investigation is October 1, 2019 through March 31, 2020. Interested parties are invited to comment on this preliminary determination.
Applicable January 6, 2021.
Jasun Moy or Robert Scully, AD/CVD Operations, Office V, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482–8194 or (202) 482–0572, respectively.
This preliminary determination is made in accordance with section 733(b) of the Tariff Act of 1930, as amended (the Act). Commerce published the notice of initiation of this investigation on June 29, 2020.
The products covered by this investigation are passenger tires from Vietnam. For a complete description of the scope of this investigation,
In accordance with the preamble to Commerce's regulations,
The deadline to submit scope case briefs is established in the Preliminary Scope Decision Memorandum. There will be no further opportunity to comment on scope-related issues.
Commerce is conducting this investigation in accordance with section 731 of the Act. Commerce has calculated export prices and constructed export prices in accordance with sections 772(a) and 772(b) of the Act, respectively. Because Vietnam is a non-market economy, within the meaning of section 771(18) of the Act, Commerce has calculated normal value in accordance with section 773(c) of the Act. Furthermore, pursuant to section 776(a) and (b) of the Act, Commerce has preliminarily relied upon facts otherwise available with adverse inferences to determine the estimated weighted-average dumping margin for the Vietnam-wide entity. For a full description of the methodology underlying Commerce's preliminary determination,
In the
Commerce preliminarily determines that the following estimated weighted-average dumping margins exist:
In accordance with section 733(d)(2) of the Act, Commerce will direct U.S. Customs and Border Protection (CBP) to suspend liquidation of subject merchandise as described in the scope of the investigation section entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice in the
Because the estimated weighted-average dumping margins for Kenda and Sailun in the above-specified producer/exporter combinations are zero or
As explained in the Preliminary Decision Memorandum, in accordance with section 735(a)(4) of the Act and 19 CFR 351.204(e)(1), should the final estimated weighted-average dumping margins be zero or
Commerce normally adjusts cash deposits for estimated antidumping duties by the amount of domestic subsidy pass-through and export subsidies countervailed in a companion countervailing duty (CVD) proceeding, when CVD provisional measures are in effect. Accordingly, where Commerce preliminarily made an affirmative determination for domestic subsidy pass-through or export subsidies, Commerce has offset the estimated weighted-average dumping margin by the appropriate rates. Any such adjusted cash deposit rate may be found in the Preliminary Determination section above.
Should provisional measures in the companion CVD investigation expire prior to the expiration of provisional measures in this LTFV investigation,
These suspension of liquidation instructions will remain in effect until further notice.
Commerce intends to disclose to interested parties the calculations performed in connection with this preliminary determination within five days of its public announcement or, if there is no public announcement, within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b).
As provided in section 782(i)(1) of the Act, Commerce intends to verify the information relied upon in making its final determination. Normally, Commerce verifies information using standard procedures, including an on-site examination of original accounting, financial, and sales documentation. However, due to current travel restrictions in response to the global COVID–19 pandemic, Commerce is unable to conduct on-site verification in this investigation. Accordingly, we intend to verify the information relied upon in making the final determination through alternative means in lieu of an on-site verification.
Case briefs or other written comments may be submitted to the Assistant Secretary for Enforcement and Compliance. Interested parties will be notified of the timeline for the submission of case briefs and written comments on non-scope issues at a later date. Rebuttal briefs, limited to issues raised in case briefs, may be submitted no later than seven days after the deadline date for case briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing, limited to issues raised in the case and rebuttal briefs, must submit a written request to the Assistant Secretary for Enforcement and Compliance, U.S. Department of Commerce, within 30 days after the date of publication of this notice. Requests should contain the party's name, address, and telephone number, the number of participants, whether any participant is a foreign national, and a list of the issues to be discussed. If a request for a hearing is made, Commerce intends to hold the hearing at a time and date to be determined. Parties should confirm by telephone the date and time of the hearing two days before the scheduled date.
Section 735(a)(2) of the Act provides that a final determination may be postponed until not later than 135 days after the date of the publication of the preliminary determination if, in the event of an affirmative preliminary determination, a request for such postponement is made by exporters who account for a significant proportion of exports of the subject merchandise, or in the event of a negative preliminary determination, a request for such postponement is made by the petitioner. Pursuant to 19 CFR 351.210(e)(2), Commerce requires that requests by respondents for postponement of a final antidumping determination be accompanied by a request for extension of provisional measures from a four-month period to a period not more than six months in duration.
On December 1 and 7, 2020, pursuant to 19 CFR 351.210(e), Sailun and Kenda requested, respectively, that Commerce postpone the final determination and that provisional measures be extended for a period not to exceed six months.
In accordance with section 733(f) of the Act, Commerce will notify the International Trade Commission (ITC) of its preliminary determination of sales at LTFV. If the final determination is affirmative, the ITC will determine before the later of 120 days after the date of this preliminary determination or 45 days after the final determination whether imports of the subject merchandise are materially injuring, or threaten material injury to, the U.S. industry.
This determination is issued and published in accordance with sections 733(f) and 777(i)(1) of the Act and 19 CFR 351.205(c).
The scope of this investigation is passenger vehicle and light truck tires. Passenger vehicle and light truck tires are new pneumatic tires, of rubber, with a passenger vehicle or light truck size designation. Tires covered by this investigation may be tube-type, tubeless, radial, or non-radial, and they may be intended for sale to original equipment manufacturers or the replacement market.
Subject tires have, at the time of importation, the symbol “DOT” on the sidewall, certifying that the tire conforms to applicable motor vehicle safety standards. Subject tires may also have the following prefixes or suffix in their tire size designation, which also appears on the sidewall of the tire:
Prefix designations:
P—Identifies a tire intended primarily for service on passenger cars.
LT—Identifies a tire intended primarily for service on light trucks.
Suffix letter designations:
LT—Identifies light truck tires for service on trucks, buses, trailers, and multipurpose passenger vehicles used in nominal highway service.
All tires with a “P” or “LT” prefix, and all tires with an “LT” suffix in their sidewall markings are covered by these investigations regardless of their intended use.
In addition, all tires that lack a “P” or “LT” prefix or suffix in their sidewall markings, as well as all tires that include any other prefix or suffix in their sidewall markings, are included in the scope, regardless of their intended use, as long as the tire is of a size that fits passenger cars or light trucks. Sizes that fit passenger cars and light trucks include, but are not limited to, the numerical size designations listed in the passenger car section or light truck section of the Tire and Rim Association Year Book, as updated annually. The scope includes all tires that are of a size that fits passenger cars or light trucks, unless the tire falls within one of the specific exclusions set out below.
Passenger vehicle and light truck tires, whether or not attached to wheels or rims, are included in the scope. However, if a subject tire is imported attached to a wheel or rim, only the tire is covered by the scope.
Specifically excluded from the scope are the following types of tires:
(1) Racing car tires; such tires do not bear the symbol “DOT” on the sidewall and may be marked with “ZR” in size designation;
(2) pneumatic tires, of rubber, that are not new, including recycled and retreaded tires;
(3) non-pneumatic tires, such as solid rubber tires;
(4) tires designed and marketed exclusively as temporary use spare tires for passenger vehicles which, in addition, exhibit each of the following physical characteristics:
(a) The size designation and load index combination molded on the tire's sidewall are listed in Table PCT–1R (“T” Type Spare Tires for Temporary Use on Passenger Vehicles) or PCT–1B (“T” Type Diagonal (Bias) Spare Tires for Temporary Use on Passenger Vehicles) of the Tire and Rim Association Year Book,
(b) the designation “T” is molded into the tire's sidewall as part of the size designation, and,
(c) the tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by Tire and Rim Association Year Book, and the rated speed is 81 MPH or a “M” rating;
(5) tires designed and marketed exclusively as temporary use spare tires for light trucks which, in addition, exhibit each of the following physical characteristics:
(a) The tires have a 265/70R17, 255/80R17, 265/70R16, 245/70R17, 245/75R17, 265/70R18, or 265/70R18 size designation;
(b) “Temporary Use Only” or “Spare” is molded into the tire's sidewall;
(c) the tread depth of the tire is no greater than 6.2 mm; and
(d) Uniform Tire Quality Grade Standards (“UTQG”) ratings are not molded into the tire's sidewall with the exception of 265/70R17 and 255/80R17 which may have UTGC molded on the tire sidewall;
(6) tires designed and marketed exclusively for specialty tire (ST) use which, in addition, exhibit each of the following conditions:
(a) The size designation molded on the tire's sidewall is listed in the ST sections of the Tire and Rim Association Year Book,
(b) the designation “ST” is molded into the tire's sidewall as part of the size designation,
(c) the tire incorporates a warning, prominently molded on the sidewall, that the tire is “For Trailer Service Only” or “For Trailer Use Only”,
(d) the load index molded on the tire's sidewall meets or exceeds those load indexes listed in the Tire and Rim Association Year Book for the relevant ST tire size, and
(e) either
(i) the tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by Tire and Rim Association Year Book, and the rated speed does not exceed 81 MPH or an “M” rating; or
(ii) the tire's speed rating molded on the sidewall is 87 MPH or an “N” rating, and in either case the tire's maximum pressure and maximum load limit are molded on the sidewall and either
(1) both exceed the maximum pressure and maximum load limit for any tire of the same size designation in either the passenger car or light truck section of the Tire and Rim Association Year Book; or
(2) if the maximum cold inflation pressure molded on the tire is less than any cold inflation pressure listed for that size designation in either the passenger car or light truck section of the Tire and Rim Association Year Book, the maximum load limit molded on the tire is higher than the maximum load limit listed at that cold inflation pressure for that size designation in either the passenger car or light truck section of the Tire and Rim Association Year Book;
(7) tires designed and marketed exclusively for off-road use and which, in addition, exhibit each of the following physical characteristics:
(a) The size designation and load index combination molded on the tire's sidewall are listed in the off-the-road, agricultural, industrial or ATV section of the Tire and Rim Association Year Book,
(b) in addition to any size designation markings, the tire incorporates a warning, prominently molded on the sidewall, that the tire is “Not For Highway Service” or “Not for Highway Use”,
(c) the tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by the Tire and Rim Association Year Book, and the rated speed does not exceed 55 MPH or a “G” rating, and
(d) the tire features a recognizable off-road tread design;
(8) Tires designed and marketed for off-road use as all-terrain-vehicle (ATV) tires or utility-terrain-vehicle (UTV) tires, and which, in addition, exhibit each of the following characteristics:
(a) The tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by the Tire and Rim Association Year Book, and the rated speed does not exceed 87 MPH or an “N” rating, and
(b) both of the following physical characteristics are satisfied:
(i) The size designation and load index combination molded on the tire's sidewall does not match any of those listed in the passenger car or light truck sections of the Tire and Rim Association Year Book, and
(ii) The size designation and load index combination molded on the tire's sidewall matches any of the following size designation (American standard or metric) and load index combinations:
The products covered by this investigation are currently classified under the following Harmonized Tariff Schedule of the United States (HTSUS) subheadings: 4011.10.10.10, 4011.10.10.20, 4011.10.10.30, 4011.10.10.40, 4011.10.10.50, 4011.10.10.60, 4011.10.10.70, 4011.10.50.00, 4011.20.10.05, and 4011.20.50.10. Tires meeting the scope description may also enter under the following HTSUS subheadings: 4011.90.10.10, 4011.90.10.50, 4011.90.20.10, 4011.90.20.50, 4011.90.80.10, 4011.90.80.50, 8708.70.45.30, 8708.70.45.46, 8708.70.45.48, 8708.70.45.60, 8708.70.60.30, 8708.70.60.45, and 8708.70.60.60. While HTSUS subheadings are provided for convenience and for customs purposes, the written description of the subject merchandise is dispositive.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (Commerce) preliminarily determines that passenger vehicle and light truck (PVLT) tires from the Taiwan are being, or are likely to be, sold in the United States at less than fair value (LTFV). The period of investigation is April 1, 2019 through March 31, 2020. Interested parties are invited to comment on this preliminary determination.
Applicable January 6, 2021.
Lauren Caserta or Chien-Min Yang, AD/CVD Operations, Office VII, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482–4737 or (202) 482–5484, respectively.
This preliminary determination is made in accordance with section 733(b) of the Tariff Act of 1930, as amended (the Act). Commerce published the notice of initiation of this investigation on June 29, 2020.
The products covered by this investigation are PLVT tires from Taiwan. For a complete description of the scope of this investigation,
In accordance with the preamble to Commerce's regulations,
The deadline to submit scope case briefs is established in the Preliminary Scope Decision Memorandum. There will be no further opportunity to comment on scope-related issues.
Commerce is conducting this investigation in accordance with section 731 of the Act. Commerce has calculated export prices and constructed export prices in accordance with sections 772(a) and 772(b) of the Act, respectively. Normal value (NV) is calculated in accordance with section 773 of the Act. For a full description of the methodology underlying Commerce's preliminary determination,
Sections 733(d)(1)(ii) and 735(c)(5)(A) of the Act provide that in the preliminary determination Commerce shall determine an estimated all-others rate for all exporters and producers not individually examined. This rate shall be an amount equal to the weighted average of the estimated weighted-average dumping margins established for exporters and producers individually investigated, excluding any zero and
Commerce preliminarily determines that the following estimated weighted-average dumping margins exist:
In accordance with section 733(d)(2) of the Act, Commerce will direct U.S. Customs and Border Protection (CBP) to suspend liquidation of entries of subject merchandise, as described in Appendix I, entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice in the
Commerce intends to disclose to interested parties the calculations performed in connection with this preliminary determination within five days of its public announcement or, if there is no public announcement, within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b).
As provided in section 782(i)(1) of the Act, Commerce intends to verify the information relied upon in making its final determination. Normally, Commerce verifies information using standard procedures, including an on-site examination of original accounting, financial, and sales documentation. However, due to current travel restrictions in response to the global COVID–19 pandemic, Commerce is unable to conduct on-site verification in this investigation. Accordingly, we intend to verify the information relied upon in making the final determination through alternative means in lieu of an on-site verification.
Case briefs or other written comments may be submitted to the Assistant Secretary for Enforcement and Compliance. A timeline for the submission of case briefs and written comments on non-scope issues will be notified to interested parties at a later date. Rebuttal briefs, limited to issues raised in case briefs, may be submitted no later than seven days after the deadline date for case briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing, limited to issues raised in the case and rebuttal briefs, must submit a written request to the Assistant Secretary for Enforcement and Compliance, U.S. Department of Commerce, within 30 days after the date of publication of this notice. Requests should contain the party's name, address, and telephone number, the number of participants, whether any participant is a foreign national, and a list of the issues to be discussed. If a request for a hearing is made, Commerce intends to hold the hearing at a time and date to be determined. Parties should confirm by telephone the date and time of the hearing two days before the scheduled date.
Section 735(a)(2) of the Act provides that a final determination may be postponed until not later than 135 days after the date of the publication of the preliminary determination if, in the event of an affirmative preliminary determination, a request for such postponement is made by exporters who account for a significant proportion of exports of the subject merchandise, or in the event of a negative preliminary determination, a request for such postponement is made by the petitioners. Pursuant to 19 CFR 351.210(e)(2), Commerce requires that requests by respondents for postponement of a final antidumping determination be accompanied by a request for extension of provisional measures from a four-month period to a period not more than six months in duration.
On December 7 and 8, 2020, pursuant to 19 CFR 351.210(e), Cheng Shin and Nankang requested, respectively, that Commerce postpone the final determination and that provisional measures be extended to a period not to exceed six months.
In accordance with section 733(f) of the Act, Commerce will notify the International Trade Commission (ITC) of its preliminary determination. If the final determination is affirmative, the ITC will determine before the later of 120 days after the date of this preliminary determination or 45 days after the final determination whether imports of the subject merchandise are materially injuring, or threaten material injury to, the U.S. industry.
This determination is issued and published in accordance with sections 733(f) and 777(i)(1) of the Act and 19 CFR 351.205(c).
The scope of this investigation is passenger vehicle and light truck tires. Passenger vehicle and light truck tires are new pneumatic tires, of rubber, with a passenger vehicle or light truck size designation. Tires covered by this investigation may be tube-type, tubeless, radial, or non-radial, and they may be intended for sale to original equipment manufacturers or the replacement market.
Subject tires have, at the time of importation, the symbol “DOT” on the sidewall, certifying that the tire conforms to applicable motor vehicle safety standards. Subject tires may also have the following prefixes or suffix in their tire size designation, which also appears on the sidewall of the tire:
Prefix designations:
P—Identifies a tire intended primarily for service on passenger cars.
LT—Identifies a tire intended primarily for service on light trucks.
Suffix letter designations:
LT—Identifies light truck tires for service on trucks, buses, trailers, and multipurpose passenger vehicles used in nominal highway service.
All tires with a “P” or “LT” prefix, and all tires with an “LT” suffix in their sidewall markings are covered by these investigations regardless of their intended use.
In addition, all tires that lack a “P” or “LT” prefix or suffix in their sidewall markings, as well as all tires that include any other prefix or suffix in their sidewall markings, are included in the scope, regardless of their intended use, as long as the tire is of a size that fits passenger cars or light trucks. Sizes that fit passenger cars and light trucks include, but are not limited to, the numerical size designations listed in the passenger car section or light truck section of the Tire and Rim Association Year Book, as updated annually. The scope includes all tires that are of a size that fits passenger cars or light trucks, unless the tire falls within one of the specific exclusions set out below.
Passenger vehicle and light truck tires, whether or not attached to wheels or rims, are included in the scope. However, if a subject tire is imported attached to a wheel or rim, only the tire is covered by the scope.
Specifically excluded from the scope are the following types of tires:
(1) Racing car tires; such tires do not bear the symbol “DOT” on the sidewall and may be marked with “ZR” in size designation;
(2) pneumatic tires, of rubber, that are not new, including recycled and retreaded tires;
(3) non-pneumatic tires, such as solid rubber tires;
(4) tires designed and marketed exclusively as temporary use spare tires for passenger vehicles which, in addition, exhibit each of the following physical characteristics:
(a) The size designation and load index combination molded on the tire's sidewall are listed in Table PCT–1R (“T” Type Spare Tires for Temporary Use on Passenger Vehicles) or PCT–1B (“T” Type Diagonal (Bias) Spare Tires for Temporary Use on Passenger Vehicles) of the Tire and Rim Association Year Book,
(b) the designation “T” is molded into the tire's sidewall as part of the size designation, and,
(c) the tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by Tire and Rim Association Year Book, and the rated speed is 81 MPH or a “M” rating;
(5) tires designed and marketed exclusively as temporary use spare tires for light trucks which, in addition, exhibit each of the following physical characteristics:
(a) The tires have a 265/70R17, 255/80R17, 265/70R16, 245/70R17, 245/75R17, 265/70R18, or 265/70R18 size designation;
(b) “Temporary Use Only” or “Spare” is molded into the tire's sidewall;
(c) the tread depth of the tire is no greater than 6.2 mm; and
(d) Uniform Tire Quality Grade Standards (“UTQG”) ratings are not molded into the tire's sidewall with the exception of 265/70R17 and 255/80R17 which may have UTGC molded on the tire sidewall;
(6) tires designed and marketed exclusively for specialty tire (ST) use which, in addition, exhibit each of the following conditions:
(a) The size designation molded on the tire's sidewall is listed in the ST sections of the Tire and Rim Association Year Book,
(b) the designation “ST” is molded into the tire's sidewall as part of the size designation,
(c) the tire incorporates a warning, prominently molded on the sidewall, that the tire is “For Trailer Service Only” or “For Trailer Use Only”,
(d) the load index molded on the tire's sidewall meets or exceeds those load indexes listed in the Tire and Rim Association Year Book for the relevant ST tire size, and
(e) either
(i) the tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by Tire and Rim Association Year Book, and the rated speed does not exceed 81 MPH or an “M” rating; or
(ii) the tire's speed rating molded on the sidewall is 87 MPH or an “N” rating, and in either case the tire's maximum pressure and maximum load limit are molded on the sidewall and either
(1) both exceed the maximum pressure and maximum load limit for any tire of the same size designation in either the passenger car or light truck section of the Tire and Rim Association Year Book; or
(2) if the maximum cold inflation pressure molded on the tire is less than any cold inflation pressure listed for that size designation in either the passenger car or light truck section of the Tire and Rim Association Year Book, the maximum load limit molded on the tire is higher than the maximum load limit listed at that cold inflation pressure for that size designation in either the passenger car or light truck section of the Tire and Rim Association Year Book;
(7) tires designed and marketed exclusively for off-road use and which, in addition, exhibit each of the following physical characteristics:
(a) The size designation and load index combination molded on the tire's sidewall are listed in the off-the-road, agricultural, industrial or ATV section of the Tire and Rim Association Year Book,
(b) in addition to any size designation markings, the tire incorporates a warning, prominently molded on the sidewall, that the tire is “Not For Highway Service” or “Not for Highway Use”,
(c) the tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by the Tire and Rim Association Year Book, and the rated speed does not exceed 55 MPH or a “G” rating, and
(d) the tire features a recognizable off-road tread design;
(8) Tires designed and marketed for off-road use as all-terrain-vehicle (ATV) tires or utility-terrain-vehicle (UTV) tires, and which, in addition, exhibit each of the following characteristics:
(a) The tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by the Tire and Rim Association Year Book, and the rated speed does not exceed 87 MPH or an “N” rating, and
(b) both of the following physical characteristics are satisfied:
(i) The size designation and load index combination molded on the tire's sidewall does not match any of those listed in the passenger car or light truck sections of the Tire and Rim Association Year Book, and
(ii) The size designation and load index combination molded on the tire's sidewall matches any of the following size designation (American standard or metric) and load index combinations:
The products covered by this investigation are currently classified under the following Harmonized Tariff Schedule of the United States (HTSUS) subheadings: 4011.10.10.10, 4011.10.10.20, 4011.10.10.30, 4011.10.10.40, 4011.10.10.50, 4011.10.10.60, 4011.10.10.70, 4011.10.50.00, 4011.20.10.05, and 4011.20.50.10. Tires meeting the scope description may also enter under the following HTSUS subheadings: 4011.90.10.10, 4011.90.10.50, 4011.90.20.10, 4011.90.20.50, 4011.90.80.10, 4011.90.80.50, 8708.70.45.30, 8708.70.45.46, 8708.70.45.48, 8708.70.45.60, 8708.70.60.30, 8708.70.60.45,
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (Commerce) has received requests to conduct administrative reviews of various antidumping duty (AD) and countervailing duty (CVD) orders and findings with November anniversary dates. In accordance with Commerce's regulations, we are initiating those administrative reviews.
Applicable January 6, 2021.
Brenda E. Brown, AD/CVD Operations, Customs Liaison Unit, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230, telephone: (202) 482–4735.
Commerce has received timely requests, in accordance with 19 CFR 351.213(b), for administrative reviews of various AD and CVD orders and findings with November anniversary dates.
All deadlines for the submission of various types of information, certifications, or comments or actions by Commerce discussed below refer to the number of calendar days from the applicable starting time.
If a producer or exporter named in this notice of initiation had no exports, sales, or entries during the period of review (POR), it must notify Commerce within 30 days of publication of this notice in the
In the event Commerce limits the number of respondents for individual examination for administrative reviews initiated pursuant to requests made for the orders identified below, Commerce intends to select respondents based on U.S. Customs and Border Protection (CBP) data for U.S. imports during the POR. We intend to place the CBP data on the record within five days of publication of the initiation notice and to make our decision regarding respondent selection within 30 days of publication of the initiation
In the event Commerce decides it is necessary to limit individual examination of respondents and conduct respondent selection under section 777A(c)(2) of the Act, the following guidelines regarding collapsing of companies for purposes of respondent selection will apply. In general, Commerce has found that determinations concerning whether particular companies should be “collapsed” (
Pursuant to 19 CFR 351.213(d)(1), a party that has requested a review may withdraw that request within 90 days of the date of publication of the notice of initiation of the requested review. The regulation provides that Commerce may extend this time if it is reasonable to do so. Determinations by Commerce to extend the 90-day deadline will be made on a case-by-case basis.
Section 504 of the Trade Preferences Extension Act of 2015 amended the Act by adding the concept of a particular market situation (PMS) for purposes of constructed value under section 773(e) of the Act.
Neither section 773(e) of the Act nor 19 CFR 351.301(c)(2)(v) set a deadline for the submission of PMS allegations and supporting factual information. However, in order to administer section 773(e) of the Act, Commerce must receive PMS allegations and supporting factual information with enough time to consider the submission. Thus, should an interested party wish to submit a PMS allegation and supporting new factual information pursuant to section 773(e) of the Act, it must do so no later than 20 days after submission of initial responses to section D of the questionnaire.
In proceedings involving non-market economy (NME) countries, Commerce begins with a rebuttable presumption that all companies within the country are subject to government control and, thus, should be assigned a single antidumping duty deposit rate. It is Commerce's policy to assign all exporters of merchandise subject to an administrative review in an NME country this single rate unless an exporter can demonstrate that it is sufficiently independent so as to be entitled to a separate rate.
To establish whether a firm is sufficiently independent from government control of its export activities to be entitled to a separate rate, Commerce analyzes each entity exporting the subject merchandise. In accordance with the separate rates criteria, Commerce assigns separate rates to companies in NME cases only if respondents can demonstrate the absence of both
All firms listed below that wish to qualify for separate rate status in the administrative reviews involving NME countries must complete, as appropriate, either a separate rate application or certification, as described below. For these administrative reviews, in order to demonstrate separate rate eligibility, Commerce requires entities for whom a review was requested, that were assigned a separate rate in the most recent segment of this proceeding in which they participated, to certify that they continue to meet the criteria for obtaining a separate rate. The Separate Rate Certification form will be available on Commerce's website at
Entities that currently do not have a separate rate from a completed segment of the proceeding
For exporters and producers who submit a Separate Rate Application or Certification and subsequently are selected as mandatory respondents, these exporters and producers will no longer be eligible for separate rate status unless they respond to all parts of the questionnaire as mandatory respondents.
In accordance with 19 CFR 351.221(c)(1)(i), we are initiating administrative reviews of the following AD and CVD orders and findings. We intend to issue the final results of these reviews not later than November 30, 2021.
None.
During any administrative review covering all or part of a period falling between the first and second or third
For the first administrative review of any order, there will be no assessment of antidumping or countervailing duties on entries of subject merchandise entered, or withdrawn from warehouse, for consumption during the relevant “gap” period of the order (
Interested parties must submit applications for disclosure under administrative protective orders in accordance with the procedures outlined in Commerce's regulations at 19 CFR 351.305. Those procedures apply to administrative reviews included in this notice of initiation. Parties wishing to participate in any of these administrative reviews should ensure that they meet the requirements of these procedures (
Commerce's regulations identify five categories of factual information in 19 CFR 351.102(b)(21), which are summarized as follows: (i) Evidence submitted in response to questionnaires; (ii) evidence submitted in support of allegations; (iii) publicly available information to value factors under 19 CFR 351.408(c) or to measure the adequacy of remuneration under 19 CFR 351.511(a)(2); (iv) evidence placed on the record by Commerce; and (v) evidence other than factual information described in (i)–(iv). These regulations require any party, when submitting factual information, to specify under which subsection of 19 CFR 351.102(b)(21) the information is being submitted and, if the information is submitted to rebut, clarify, or correct factual information already on the record, to provide an explanation identifying the information already on the record that the factual information seeks to rebut, clarify, or correct. The regulations, at 19 CFR 351.301, also provide specific time limits for such factual submissions based on the type of factual information being submitted. Please review the
Any party submitting factual information in an AD or CVD proceeding must certify to the accuracy and completeness of that information using the formats provided at the end of the
Parties may request an extension of time limits before a time limit established under Part 351 expires, or as otherwise specified by Commerce.
These initiations and this notice are in accordance with section 751(a) of the Act (19 U.S.C. 1675(a)) and 19 CFR 351.221(c)(1)(i).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (Commerce) preliminarily determines that passenger vehicle and light truck tires (passenger tires) from Thailand are being, or are likely to be, sold in the United States at less than fair value (LTFV). The period of investigation is April 1, 2019 through March 31, 2020. Interested parties are invited to comment on this preliminary determination.
Applicable January 6, 2021.
Myrna Lobo or Leo Ayala, AD/CVD Operations, Office VII, Enforcement and Compliance, International Trade
This preliminary determination is made in accordance with section 733(b) of the Tariff Act of 1930, as amended (the Act). Commerce published the notice of initiation of this investigation on June 29, 2020.
The products covered by this investigation are passenger tires from Thailand . For a complete description of the scope of this investigation,
In accordance with the preamble to Commerce's regulations,
The deadline to submit scope case briefs is established in the Preliminary Scope Decision Memorandum. There will be no further opportunity to comment on scope-related issues.
Commerce is conducting this investigation in accordance with section 731 of the Act. Commerce has calculated export prices and constructed export prices in accordance with sections 772(a) and 772(b) of the Act, respectively. Normal value (NV) is calculated in accordance with section 773 of the Act. For a full description of the methodology underlying the preliminary determination,
Sections 733(d)(1)(ii) and 735(c)(5)(A) of the Act provide that in the preliminary determination Commerce shall determine an estimated all-others rate for all exporters and producers not individually examined. This rate shall be an amount equal to the weighted average of the estimated weighted-average dumping margins established for exporters and producers individually investigated, excluding any zero and
Commerce preliminarily determines that the following estimated weighted-average dumping margins exist:
In accordance with section 733(d)(2) of the Act, Commerce will direct U.S. Customs and Border Protection (CBP) to suspend liquidation of entries of subject merchandise, as described in Appendix I, entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice in the
Commerce intends to disclose its calculations and analysis performed to interested parties in this preliminary determination within five days of any public announcement or, if there is no public announcement, within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b).
As provided in section 782(i)(1) of the Act, Commerce intends to verify the information relied upon in making its final determination. Normally, Commerce verifies information using standard procedures, including an on-site examination of original accounting, financial, and sales documentation. However, due to current travel restrictions in response to the global COVID–19 pandemic, Commerce is unable to conduct on-site verification in this investigation. Accordingly, we intend to verify the information relied upon in making the final determination through alternative means in lieu of an on-site verification.
Case briefs or other written comments may be submitted to the Assistant Secretary for Enforcement and Compliance. Interested parties will be notified of the timeline for the submission of such case briefs and written comments at a later date. Rebuttal briefs, limited to issues raised in case briefs, may be submitted no later than seven days after the deadline date for case briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing, limited to issues raised in the case and rebuttal briefs, must submit a written request to the Assistant Secretary for Enforcement and Compliance, U.S. Department of Commerce, within 30 days after the date of publication of this notice. Requests should contain the party's name, address, and telephone number, the number of participants, whether any participant is a foreign national, and a list of the issues to be discussed. If a request for a hearing is made, Commerce intends to hold the hearing at a time and date to be determined. Parties should confirm by telephone the date and time of the hearing two days before the scheduled date.
Section 735(a)(2) of the Act provides that a final determination may be postponed until not later than 135 days after the date of the publication of the preliminary determination if, in the event of an affirmative preliminary determination, a request for such postponement is made by exporters who account for a significant proportion of exports of the subject merchandise, or in the event of a negative preliminary determination, a request for such postponement is made by the petitioner. Section 351.210(e)(2) of Commerce's regulations requires that a request by exporters for postponement of the final determination be accompanied by a request for extension of provisional measures from a four-month period to a period not more than six months in duration.
On December 4, 2020, pursuant to 19 CFR 351.210(e), LLIT requested that Commerce postpone the final determination and that provisional measures be extended to a period not to exceed six months.
In accordance with section 733(f) of the Act, Commerce will notify the International Trade Commission (ITC) of its preliminary determination. If the final determination is affirmative, the ITC will determine before the later of 120 days after the date of this preliminary determination or 45 days after the final determination whether imports of the subject merchandise are materially injuring, or threaten material injury to, the U.S. industry.
This determination is issued and published in accordance with sections 733(f) and 777(i)(1) of the Act and 19 CFR 351.205(c).
The scope of this investigation is passenger vehicle and light truck tires. Passenger vehicle and light truck tires are new pneumatic tires, of rubber, with a passenger vehicle or light truck size designation. Tires covered by this investigation may be tube-type, tubeless, radial, or non-radial, and they may be intended for sale to original equipment manufacturers or the replacement market.
Subject tires have, at the time of importation, the symbol “DOT” on the sidewall, certifying that the tire conforms to applicable motor vehicle safety standards. Subject tires may also have the following prefixes or suffix in their tire size designation, which also appears on the sidewall of the tire:
P—Identifies a tire intended primarily for service on passenger cars.
LT—Identifies a tire intended primarily for service on light trucks.
LT—Identifies light truck tires for service on trucks, buses, trailers, and multipurpose
All tires with a “P” or “LT” prefix, and all tires with an “LT” suffix in their sidewall markings are covered by these investigations regardless of their intended use.
In addition, all tires that lack a “P” or “LT” prefix or suffix in their sidewall markings, as well as all tires that include any other prefix or suffix in their sidewall markings, are included in the scope, regardless of their intended use, as long as the tire is of a size that fits passenger cars or light trucks. Sizes that fit passenger cars and light trucks include, but are not limited to, the numerical size designations listed in the passenger car section or light truck section of the Tire and Rim Association Year Book, as updated annually. The scope includes all tires that are of a size that fits passenger cars or light trucks, unless the tire falls within one of the specific exclusions set out below.
Passenger vehicle and light truck tires, whether or not attached to wheels or rims, are included in the scope. However, if a subject tire is imported attached to a wheel or rim, only the tire is covered by the scope.
Specifically excluded from the scope are the following types of tires:
(1) Racing car tires; such tires do not bear the symbol “DOT” on the sidewall and may be marked with “ZR” in size designation;
(2) pneumatic tires, of rubber, that are not new, including recycled and retreaded tires;
(3) non-pneumatic tires, such as solid rubber tires;
(4) tires designed and marketed exclusively as temporary use spare tires for passenger vehicles which, in addition, exhibit each of the following physical characteristics:
(a) The size designation and load index combination molded on the tire's sidewall are listed in Table PCT–1R (“T” Type Spare Tires for Temporary Use on Passenger Vehicles) or PCT–1B (“T” Type Diagonal (Bias) Spare Tires for Temporary Use on Passenger Vehicles) of the Tire and Rim Association Year Book,
(b) the designation “T” is molded into the tire's sidewall as part of the size designation, and,
(c) the tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by Tire and Rim Association Year Book, and the rated speed is 81 MPH or a “M” rating;
(5) tires designed and marketed exclusively as temporary use spare tires for light trucks which, in addition, exhibit each of the following physical characteristics:
(a) The tires have a 265/70R17, 255/80R17, 265/70R16, 245/70R17, 245/75R17, 265/70R18, or 265/70R18 size designation;
(b) “Temporary Use Only” or “Spare” is molded into the tire's sidewall;
(c) the tread depth of the tire is no greater than 6.2 mm; and
(d) Uniform Tire Quality Grade Standards (“UTQG”) ratings are not molded into the tire's sidewall with the exception of 265/70R17 and 255/80R17 which may have UTGC molded on the tire sidewall;
(6) tires designed and marketed exclusively for specialty tire (ST) use which, in addition, exhibit each of the following conditions:
(a) The size designation molded on the tire's sidewall is listed in the ST sections of the Tire and Rim Association Year Book,
(b) the designation “ST” is molded into the tire's sidewall as part of the size designation,
(c) the tire incorporates a warning, prominently molded on the sidewall, that the tire is “For Trailer Service Only” or “For Trailer Use Only”,
(d) the load index molded on the tire's sidewall meets or exceeds those load indexes listed in the Tire and Rim Association Year Book for the relevant ST tire size, and
(e) either
(i) the tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by Tire and Rim Association Year Book, and the rated speed does not exceed 81 MPH or an “M” rating; or
(ii) the tire's speed rating molded on the sidewall is 87 MPH or an “N” rating, and in either case the tire's maximum pressure and maximum load limit are molded on the sidewall and either
(1) both exceed the maximum pressure and maximum load limit for any tire of the same size designation in either the passenger car or light truck section of the Tire and Rim Association Year Book; or
(2) if the maximum cold inflation pressure molded on the tire is less than any cold inflation pressure listed for that size designation in either the passenger car or light truck section of the Tire and Rim Association Year Book, the maximum load limit molded on the tire is higher than the maximum load limit listed at that cold inflation pressure for that size designation in either the passenger car or light truck section of the Tire and Rim Association Year Book;
(7) tires designed and marketed exclusively for off-road use and which, in addition, exhibit each of the following physical characteristics:
(a) The size designation and load index combination molded on the tire's sidewall are listed in the off-the-road, agricultural, industrial or ATV section of the Tire and Rim Association Year Book,
(b) in addition to any size designation markings, the tire incorporates a warning, prominently molded on the sidewall, that the tire is “Not For Highway Service” or “Not for Highway Use”,
(c) the tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by the Tire and Rim Association Year Book, and the rated speed does not exceed 55 MPH or a “G” rating, and
(d) the tire features a recognizable off-road tread design;
(8) Tires designed and marketed for off-road use as all-terrain-vehicle (ATV) tires or utility-terrain-vehicle (UTV) tires, and which, in addition, exhibit each of the following characteristics:
(a) The tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by the Tire and Rim Association Year Book, and the rated speed does not exceed 87 MPH or an “N” rating, and
(b) both of the following physical characteristics are satisfied:
(i) The size designation and load index combination molded on the tire's sidewall does not match any of those listed in the passenger car or light truck sections of the Tire and Rim Association Year Book, and
(ii) The size designation and load index combination molded on the tire's sidewall matches any of the following size designation (American standard or metric) and load index combinations:
The products covered by this investigation are currently classified under the following Harmonized Tariff Schedule of the United States (HTSUS) subheadings: 4011.10.10.10, 4011.10.10.20, 4011.10.10.30, 4011.10.10.40, 4011.10.10.50, 4011.10.10.60, 4011.10.10.70, 4011.10.50.00, 4011.20.10.05, and 4011.20.50.10. Tires meeting the scope description may also enter under the following HTSUS subheadings: 4011.90.10.10, 4011.90.10.50, 4011.90.20.10, 4011.90.20.50, 4011.90.80.10, 4011.90.80.50, 8708.70.45.30, 8708.70.45.46, 8708.70.45.48, 8708.70.45.60, 8708.70.60.30, 8708.70.60.45, and 8708.70.60.60. While HTSUS subheadings are provided for convenience and for customs purposes, the written description of the subject merchandise is dispositive.
National Marine Fisheries Service (NMFS), National Oceanic and
Notice of public hearings.
The New England Fishery Management Council is convening Supplemental Scoping Hearings on Draft Amendment 5 to the Northeast Skate Complex Fishery Management Plan via webinar to consider actions affecting New England fisheries in the exclusive economic zone. The public input received will be brought to the full Council for formal consideration and action, if appropriate.
These webinars will be held on Thursday, January 21, 2021 from 3:30 p.m. to 5:30 p.m. and Monday, February 8, 2021, from 4 p.m. to 6 p.m.
All interested parties can register to join the webinars, for the January 21 webinar:
Thomas A. Nies, Executive Director, New England Fishery Management Council; telephone: (978) 465–0492.
During the hearings, Council staff will brief the public on Draft Amendment 5 before receiving comments on the amendment. The hearing will begin promptly at the time indicated above. If all attendees who wish to do so have provided their comments prior to the end time indicated, the hearing may conclude early. To the extent possible, the Council may extend hearings beyond the end time indicated above to accommodate all attendees who wish to speak.
Although non-emergency issues not contained on the agenda may come before this Council for discussion, those issues may not be the subject of formal action during this hearing. Council action will be restricted to those issues specifically listed in this notice and any issues arising after publication of this notice that require emergency action under section 305(c) of the Magnuson-Stevens Act, provided the public has been notified of the Council's intent to take final action to address the emergency. The public also should be aware that the meeting will be recorded. Consistent with 16 U.S.C. 1852, a copy of the recording is available upon request.
These hearings are physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Thomas A. Nies, Executive Director, at (978) 465–0492, at least 5 days prior to the hearing date.
16 U.S.C. 1801
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of public meeting.
The New England Fishery Management Council (Council) is scheduling a public meeting via webinar of its Groundfish Recreational Advisory Panel to consider actions affecting New England fisheries in the exclusive economic zone (EEZ). Recommendations from this group will be brought to the full Council for formal consideration and action, if appropriate.
This webinar will be held on Wednesday, January 20, 2021 at 9 a.m. Webinar registration URL information:
Thomas A. Nies, Executive Director, New England Fishery Management Council; telephone: (978) 465–0492.
The Recreational Advisory Panel will discuss and develop recommendations to the Groundfish Committee on fishing year 2021 recreational measures for Gulf of Maine cod and Gulf of Maine haddock. They will receive a summary of public feedback on developing a strawman proposal for a potential limited entry program for party/charter vessels in the recreational groundfish fishery, discuss the proposal, and develop recommendations for next steps to the Groundfish Committee. The Panel will also receive an update on work to revise acceptable biological catch (ABC) control rules for groundfish stocks. Other business will be discussed, as necessary.
Although non-emergency issues not contained in this agenda may come before this group for discussion, those issues may not be the subject of formal action during this meeting. Action will be restricted to those issues specifically listed in this notice and any issues arising after publication of this notice that require emergency action under section 305(c) of the Magnuson-Stevens Act, provided the public has been notified of the Council's intent to take final action to address the emergency
This meeting is physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Thomas A. Nies, Executive Director, at (978) 465–0492, at least 5 days prior to the meeting date. This meeting will be recorded. Consistent with 16 U.S.C. 1852, a copy of the recording is available upon request.
16 U.S.C. 1801
National Oceanic & Atmospheric Administration (NOAA), Commerce.
Notice of information collection, request for comment.
The Department of Commerce, in accordance with the Paperwork Reduction Act of 1995 (PRA), invites the general public and other Federal agencies to comment on proposed, and continuing information collections, which helps us assess the impact of our information collection requirements and minimize the public's reporting burden. The purpose of this notice is to allow for 60 days of public comment preceding submission of the collection to OMB.
To ensure consideration, comments regarding this proposed information collection must be received on or before March 8, 2021.
Interested persons are invited to submit written comments to Adrienne Thomas, NOAA PRA Officer, at
Requests for additional information or specific questions related to collection activities should be directed to Matt Dunlap, Fishery Policy Analyst, West Coast Regional Office, 7600 Sand Point Way NE, Seattle, WA 98115, (206) 526–6119, or
In 2011, the National Marine Fisheries Service (NMFS) mandated observer requirements for the West Coast groundfish trawl catch shares program. For all fishery sectors, observers must be obtained through third-party observer provider companies operating under permits issued by NMFS. The regulations at §§ 660.140(h), 660.150(j), and 660.160(g), specify observer coverage requirements for trawl vessels and define the responsibilities for observer providers, including reporting requirements. Regulations at § 660.140(i) specify requirements for catch monitor coverage for first receivers. Data collected by observers are used by NMFS to estimate total landed catch and discards, monitor the attainment of annual groundfish allocations, estimate catch rates of prohibited species, and as a component in stock assessments. These data are necessary to comply with the Magnuson-Stevens Act requirements to prevent overfishing. In addition, observer data is used to assess fishing related mortality of protected and endangered species.
This collection utilizes both electronic and paper forms, depending on the specific item. Methods of submittal include email of electronic forms, and mail and facsimile transmission of paper forms. Additionally, this collection utilizes interviews for some information collection and phone calls for transmission of other information.
We are soliciting public comments to permit the Department/Bureau to: (a) Evaluate whether the proposed information collection is necessary for the proper functions of the Department, including whether the information will have practical utility; (b) Evaluate the accuracy of our estimate of the time and cost burden for this proposed collection, including the validity of the methodology and assumptions used; (c) Evaluate ways to enhance the quality, utility, and clarity of the information to be collected; and (d) Minimize the reporting burden on those who are to respond, including the use of automated collection techniques or other forms of information technology.
Comments that you submit in response to this notice are a matter of public record. We will include or summarize each comment in our request to OMB to approve this ICR. Before including your address, phone number, email address, or other personal identifying information in your comment, you should be aware that your entire comment—including your personal identifying information—may be made publicly available at any time. While you may ask us in your comment to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of web conference.
The North Pacific Fishery Management Council (Council) Crab Plan Team will meet January 11, 2021 through January 14, 2021.
The meeting will be held on Monday, January 11, 2021 through Wednesday, January 13, 2021, from 8 a.m. to 4 p.m., and from 8 a.m. to 11 a.m. on Thursday, January 14, 2021 Alaska Time.
The meeting will be a web conference. Join online through the link at
Jim Armstrong, Council staff; phone; (907) 271–2809; email:
The Crab Plan Team will review the final 2021 stock assessment for Norton Sound red king crab. Additionally the Crab Plan Team will discuss model scenarios for the May 2021 stock assessment for Aleutian Island golden king crab, the 2021 crab survey, a crab risk matrix, VAST modeling, the 2020 economic SAFE report, crab bycatch, a range of crab research topics, plans for the Team's May 2021 meeting, and a workshop discussion of crab stock assessment challenges within the GMACS modeling framework. The agenda is subject to change, and the latest version will be posted at
You can attend the meeting online using a computer, tablet, or smart phone; or by phone only. Connection information will be posted online at:
Public comment letters will be accepted and should be submitted electronically to
16 U.S.C. 1801
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; public meeting.
The New England Fishery Management Council (Council) is scheduling a public meeting of its Scallop Committee via webinar to consider actions affecting New England fisheries in the exclusive economic zone (EEZ). Recommendations from this group will be brought to the full Council for formal consideration and action, if appropriate.
This meeting will be held on Friday, January 22, 2021 at 9 a.m. via webinar.
All meeting participants and interested parties can register to join the webinar at
Thomas A. Nies, Executive Director, New England Fishery Management Council; telephone: (978) 465–0492.
The Scallop Committee will discuss Framework Adjustment 33 (FW 33): specifically, a review of specifications alternatives in FW 33 and make final recommendations. FW 33 will set specifications including acceptable biological catch/annual catch limit (ABC/ACLs), days-at-sea (DAS), access area allocations for Limited Access (LA) and Limited Access General Category (LAGC), Total Allowable Catch (TAC) for Northern Gulf of Maine (NGOM) management area, target-TAC for LAGC incidental catch and set-asides for the observer and research programs for fishing year 2021 and default specifications for fishing year 2022. Review options for mitigating impacts on Georges Bank yellowtail flounder and northern windowpane flounder and make final recommendations. They will also discuss Scallop Priorities: Reviewing the existing 2021 scallop work priorities and correspondence from the Scallopers Campaign requesting the Council consider changing the scallop priorities by adding LA scallop leasing listening sessions to the priority list and develop a recommendation for the Council to consider. The Committee may recommend deleting a priority if a new priority is added. Other business may be discussed, as necessary.
Although non-emergency issues not contained in this agenda may come before this group for discussion, those issues may not be the subject of formal action during this meeting. Action will be restricted to those issues specifically listed in this notice and any issues arising after publication of this notice that require emergency action under section 305(c) of the Magnuson-Stevens Act, provided the public has been notified of the Council's intent to take final action to address the emergency.
This meeting is physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Thomas A. Nies, Executive Director, at (978) 465–0492, at least 5 days prior to the meeting date. Consistent with 16 U.S.C. 1852, a copy of the recording is available upon request.
16 U.S.C. 1801
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; public meeting.
The New England Fishery Management Council (Council) is scheduling a public meeting of its Scallop Advisory Panel via webinar to consider actions affecting New England fisheries in the exclusive economic zone (EEZ). Recommendations from this group will be brought to the full Council for formal consideration and action, if appropriate.
This meeting will be held on Thursday, January 21, 2021 at 9 a.m.
All meeting participants and interested parties can register to join the webinar at
Thomas A. Nies, Executive Director, New England Fishery Management Council; telephone: (978) 465–0492.
The Scallop Advisory Panel (AP) will discuss Framework Adjustment 33 (FW 33): Specifically, a review of specifications alternatives in FW 33 and make final recommendations. FW 33 will set specifications including acceptable biological catch/annual catch limit (ABC/ACLs), days-at-sea (DAS), access area allocations for Limited Access (LA) and Limited Access General Category (LAGC), Total Allowable Catch (TAC) for Northern Gulf of Maine (NGOM) management area, target-TAC for LAGC incidental catch and set-asides for the observer and research programs for fishing year 2021 and default specifications for fishing year 2022. Review options for mitigating impacts on Georges Bank yellowtail flounder and northern windowpane flounder and make final recommendations. They will also discuss Scallop Priorities: Reviewing the existing 2021 scallop work priorities and correspondence from the Scallopers Campaign requesting the Council consider changing the scallop priorities by adding LA scallop leasing listening sessions to the priority list and develop a recommendation for the Council to consider. The AP may recommend deleting a priority if a new priority is added. Other business may be discussed, as necessary.
Although non-emergency issues not contained in this agenda may come before this group for discussion, those issues may not be the subject of formal action during this meeting. Action will be restricted to those issues specifically listed in this notice and any issues arising after publication of this notice that require emergency action under section 305(c) of the Magnuson-Stevens Act, provided the public has been notified of the Council's intent to take final action to address the emergency.
This meeting is physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Thomas A. Nies, Executive Director, at (978) 465–0492, at least 5 days prior to the meeting date. Consistent with 16 U.S.C. 1852, a copy of the recording is available upon request.
16 U.S.C. 1801
The Department of Commerce will submit the following information collection request to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995, on or after the date of publication of this notice. We invite the general public and other Federal agencies to comment on proposed, and continuing information collections, which helps us assess the impact of our information collection requirements and minimize the public's reporting burden. Public comments were previously requested via the
First-time vessel permit holders in the affected categories must obtain and set up an IBQ account in the online “Catch Shares Online System” in order to be issued IBQ shares and resultant allocation, to lease IBQ, and to resolve quota debt. To use the electronic IBQ System, first–time participants will need to request an account and set their account up with background information. The information collected during account issuance and set-up will be used by NMFS to verify the identity of the individual/business and whether they qualify for IBQ allocation leasing.
The lease monitoring information collected by the online system will be used by each permit holder to keep track of their individual IBQ allocation, and document allocation leases with other IBQ participants. NMFS will use these data to ensure proper accounting of allocations among participants, and
This information collection request may be viewed at
Written comments and recommendations for the proposed information collection should be submitted within 30 days of the publication of this notice on the following website
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of public meeting.
The New England Fishery Management Council (Council) is scheduling a public meeting via webinar of its Groundfish Advisory Panel to consider actions affecting New England fisheries in the exclusive economic zone (EEZ). Recommendations from this group will be brought to the full Council for formal consideration and action, if appropriate.
This webinar will be held on Wednesday, January 20, 2021 at 1:30 p.m. Webinar registration URL information:
Thomas A. Nies, Executive Director, New England Fishery Management Council; telephone: (978) 465–0492.
The Groundfish Advisory Panel will discuss the last component of the Framework Adjustment 61/Specifications and Management Measures action—a proposed universal sector exemption to allow fishing for redfish and make preferred alternative recommendations to the Groundfish Committee. They will also receive an update on work to revise ABC control rules for groundfish stocks. Other business will be discussed, as necessary.
Although non-emergency issues not contained in this agenda may come before this group for discussion, those issues may not be the subject of formal action during this meeting. Action will be restricted to those issues specifically listed in this notice and any issues arising after publication of this notice that require emergency action under section 305(c) of the Magnuson-Stevens Act, provided the public has been notified of the Council's intent to take final action to address the emergency.
This meeting is physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Thomas A. Nies, Executive Director, at (978) 465–0492, at least 5 days prior to the meeting date. This meeting will be recorded. Consistent with 16 U.S.C. 1852, a copy of the recording is available upon request.
16 U.S.C. 1801
Department of the Army, DoD.
Notice of Federal Advisory Committee meeting; cancellation.
The Department of the Army published a notice of a Federal Advisory Committee meeting of the U.S. Army Science Board (ASB) in the
Ms. Heather J. Gerard, (703) 545–8652,
Due to circumstances beyond the control of the Department of Defense and the Designated Federal Officer for the U.S. Army Science Board was unable to provide public notification required by 41 CFR 102–3.150(a) concerning the cancellation of the previously noticed January 5, 2021 meeting of the U.S. Army Science Board. Accordingly, the Advisory Committee Management Officer for the Department of Defense, pursuant to 41 CFR 102–3.150(b), waives the 15-calendar day notification requirement.
Defense Finance and Accounting Service, Department of Defense (DoD).
Information collection notice.
In compliance with the
Consideration will be given to all comments received by April 1, 2021.
You may submit comments, identified by docket number and title, by any of the following methods:
To request more information on this proposed information collection or to obtain a copy of the proposal and associated collection instruments, please write to Defense Finance and Accounting Services, Kellen Stout, 8899 E 56th St, Indianapolis, IN 46249 or call (317) 212–1801.
Department of Defense (DoD).
Notice of a modified system of records.
In accordance with the Privacy Act of 1974, the DoD is modifying and reissuing a current system of records titled, “Defense Repository for Common Enterprise Data (DRCED),” DUSDC 01. This system of records was originally established by the Office of the Under Secretary of Defense (Comptroller) to collect and maintain records on various individuals, including active and retired Military Service personnel, their dependents, DoD civilian personnel, and other DoD-affiliated individuals, to support the DoD's defense business enterprise by using technology to synchronize and normalize data to improve affordability, performance, reporting, and mission readiness. This system of records notice (SORN) is being updated to support additional information systems being established within the DoD using the same categories of data for the same purposes. The system number is changing from DUSDC 01 to DoD 0004, to reflect its status as a DoD-wide system of records. The DoD is also modifying the system location, system managers, authority for maintenance of the system, purpose of the system, individuals covered by the system, record source categories, and notification procedures. Additionally, the DoD is issuing a Notice of Proposed Rulemaking proposing to exempt this system of records from certain provisions of the Privacy Act, in today's issue of the
This system of records modification is effective upon publication; however, comments on the Routine Uses will be accepted on or before February 5, 2021. The Routine Uses are effective at the close of the comment period.
You may submit comments, identified by docket number and title, by any of the following methods:
•
Follow the instructions for submitting comments.
•
Ms. Lyn Kirby, Chief, Defense Privacy, Civil Liberties, and Transparency Division, Directorate for Oversight and Compliance, Department of Defense, 4800 Mark Center Drive, Mailbox #24, Suite 08D09, Alexandria, VA 22350–1700;
The DRCED system of records is being updated to clarify that it serves as a DoD-wide system of records and to support new information systems being established within the DoD using the same categories of data for the same purposes. The original system of records was established to support a single information system with the Office of the Undersecretary of Defense (Comptroller) as the system manager. The expanded system of records will support multiple information systems that provide DoD-wide and component-level enterprise solutions for integrating and analyzing targeted data from existing DoD systems to develop timely, actionable, and insightful conclusions in support of national strategies.
These information systems may also create and use predictive analytic models based upon specific data streams to equip decision makers with critical data necessary for execution of fiscal and operational requirements. These systems automate financial and business transactions, perform cost-management analysis, produce oversight and audit reports, and provide critical data expected to improve performance of mission objectives, providing a significant benefit to the DoD.
This SORN is modifying the system number from DUSDC 01 to DoD 0004, to reflect its status as a DoD-wide system of records. The remaining modifications principally change the SORN to reflect the broad intended use of this system of records to cover data stored in multiple information systems. The other modifications are (1) to the System Location section to reflect the various locations in which these information systems may reside; (2) to the System Manager section to include system managers for the additional information systems expected to operate under this system of records; (3) to the Authority for Maintenance of the System section to update citations, add additional authorities, and cite the authorities in the appropriate order; (4) to the Purpose of the System section to list the functions of the system with additional clarity; (5) to the Categories of Individuals covered by the system to add examples of Department affiliation; (6) to the Record Source Categories section to remove systems and update system names; (7) to the Record Access Procedures section to reflect the need for individuals to identify the appropriate DoD office or component to which their request should be directed; (8) to the Notification Procedures section to include additional system managers; and (9) to the Exemptions Promulgated for the System section to claim exemptions from certain provisions of the Privacy Act for classified information in this system of records.
A Notice of Proposed Rulemaking is being published in today's issue of the
The DoD notices for systems of records subject to the Privacy Act of 1974, as amended, have been published in the
In accordance with 5 U.S.C. 552a(r) and OMB Circular No. A–108, the DoD has provided a report of this system of records to the Office of Management and Budget and to Congress.
Defense Repository for Common Enterprise Data (DRCED), DoD 0004.
Unclassified and Classified.
Department of Defense (DoD), located at 1000 Defense Pentagon, Washington, DC 20301–1000, and other Department installations, offices, or mission locations. Information may also be stored within a government-certified cloud, implemented and overseen by the Department's Chief Information Officer (CIO), 6000 Defense Pentagon, Washington, DC 20301–6000.
The system managers are as follows:
A. Chief Data Officer, Department of Defense, 6000 Defense Pentagon, Washington, DC 20301–6000;
B. Director, CFO Data Transformation Office, Office of the Undersecretary for Defense (Comptroller), 1100 Defense Pentagon, Washington, DC 20301–1100;
C. Chief Data Officer, Department of the Air Force, 1600 Air Force Pentagon, Room 5E811, Washington, DC 20330;
D. Chief Data Officer, Department of the Navy, 1000 Navy Pentagon, Room 4E623, Washington, DC 20350;
E. Chief Data Officer, Army CIO/G–6 Director, Cybersecurity, 5850 23rd Street, Fort Belvoir, VA 22060;
Public Law 113–101, Digital Accountability and Transparency Act of 2006, as amended in 2014; Public Law 113–291, Federal Information Technology Acquisition Reform, 2015; 10 U.S.C. 2222, Defense Business Systems: Business Process Reengineering; Enterprise Architecture; Management; 10 U.S.C. 117, Readiness Reporting System; 10 U.S.C. 482, Readiness Reports; 31 U.S.C. 902, Authority and Functions of Agency Chief Financial Officers, as amended; 31 U.S.C. 3512(b), Executive Agency Accounting and Other Financial Management Reports and Plans; DoD Directive 7045.14, The Planning, Programming, Budgeting, and Execution (PPBE) Process; DoD Directive 7730.65, Department of Defense Readiness Reporting System; DoD Instruction 8320.02, Sharing Data, Information, and Information Technology (IT) Services in the Department of Defense; DoD Instruction 8320.07, Implementing the Sharing of Data, Information, and Information Technology (IT) Services in the Department of Defense; and E.O. 9397, Numbering Systems for Federal Accounts Relating to Individual Persons, as amended.
A. To improve data quality, data automation, and data linking of common enterprise data across the DoD for financial, business, and mission readiness reporting.
B. To implement shared internal compliance controls for data governance including enhanced auditing capabilities across the enterprise.
C. To provide a platform for shared service and business system optimization analytics across the enterprise, to include predictive models used to measure the effectiveness of combat units and operational readiness.
D. To make data more easily accessible, standardized, efficiently processed, and useful across the DoD.
All Military Services personnel, including National Guard and Reserve components; former members and retirees of the Military Services; dependent family members of Military Services members; DoD “affiliated” individuals (
A. Personal Information: Name; DoD ID number; Social Security Number (SSN); address; email address(es); date of birth; gender; branch of service; citizenship; Defense Enrollment Eligibility Reporting System benefit number; sponsorship and beneficiary information; race and ethnic origin.
B. Employment Information: Employment status; duty position; leave balances and history; work schedules; individual personnel records; time and attendance records; retirement records, sponsor duty location, unit of assignment; occupation; rank; skill specialty; security clearance information.
C. Personal Financial Information: Pay, wage, earnings information; separation information; financial benefit records; income tax withholding records; accounting records.
D. Medical Readiness and Deployment Information: Inpatient and outpatient medical records; pharmacy records; immunization records; Medical and Physical Evaluation Board records; neuropsychological functioning and cognitive testing data; periodic and deployment-related health assessments.
Records and information stored in this system of records are obtained from:
A. Individuals.
B. All DoD databases flowing into or accessed through the following integrated data systems, environments, applications, and tools: Defense Finance and Accounting Services financial business feeder systems, Procurement Integrated Enterprise Environment, Defense Manpower Data Center including the Defense Eligibility Enrollment System, Defense Readiness Reporting System (DRRS) enterprise (including DRRS-Strategic and DRRS-Army Database), Defense Medical Logistics—Enterprise Solution, Digital Training Management System, Defense Occupational and Environmental Health Readiness System, Global Force Management Data Initiative, Medical Operational Data System, Force Risk Reduction, Medical Readiness Reporting System, Medical Health System Data Repository, Army National Guard Human/Personnel, Resource, and Manpower Systems, and commensurate data from National Guard Bureau Systems.
C. The following standalone DoD systems and datasets: Drug and Alcohol Management Information System; Physical Disability Case Processing System; TRANSCOM Patient Regulating Command & Control Evaluation System; DoD Suicide Event Report System; Army National Guard Unit Risk Inventory; Global Assessment Tool; Defense Organizational Climate Survey; Learning Management System; Total Human Resource Managers Information System; Navy Manpower Program and Budget System; and Army Training Requirements and Resources System.
In addition to those disclosures generally permitted under 5 U.S.C. 552a(b) of the Privacy Act of 1974, as amended, all or a portion of the records or information contained herein may specifically be disclosed outside the DoD as a routine use pursuant to 5 U.S.C. 552a(b)(3) as follows:
A. To contractors, grantees, experts, consultants, students, and others performing or working on a contract, service, grant, cooperative agreement, or other assignment for the federal government when necessary to accomplish an agency function related to this system of records.
B. To the appropriate Federal, State, local, territorial, tribal, foreign, or international law enforcement authority or other appropriate entity where a record, either alone or in conjunction with other information, indicates a violation or potential violation of law, whether criminal, civil, or regulatory in nature.
C. To any component of the Department of Justice for the purpose of representing the DoD, or its components, officers, employees, or members in pending or potential litigation to which the record is pertinent.
D. In an appropriate proceeding before a court, grand jury, or administrative or adjudicative body or official, when the DoD or other Agency representing the DoD determines the records are relevant and necessary to the proceeding; or in an appropriate proceeding before an administrative or adjudicative body when the adjudicator determines the records to be relevant to the proceeding.
E. To the National Archives and Records Administration for the purpose of records management inspections conducted under the authority of 44 U.S.C. 2904 and 2906.
F. To a Member of Congress or staff acting upon the Member's behalf when the Member or staff requests the information on behalf of, and at the request of, the individual who is the subject of the record.
G. To appropriate agencies, entities, and persons when (1) the DoD suspects or confirms a breach of the system of records; (2) the DoD determines as a result of the suspected or confirmed breach there is a risk of harm to individuals, the DoD (including its information systems, programs, and operations), the Federal Government, or national security; and (3) the disclosure made to such agencies, entities, and persons is reasonably necessary to assist in connection with the DoD's efforts to respond to the suspected or confirmed breach or to prevent, minimize, or remedy such harm.
H. To another Federal agency or Federal entity, when the DoD determines that information from this system of records is reasonably necessary to assist the recipient agency or entity in (1) responding to a suspected or confirmed breach or (2) preventing, minimizing, or remedying the risk of harm to individuals, the recipient agency or entity (including its information systems, programs and operations), the Federal Government, or national security, resulting from a suspected or confirmed breach.
Records are stored on electronic media.
In instances where records are retrieved by a personal identifier, they will typically be retrieved by an individual's full name and/or DoD ID number.
Records are retained and disposed of in accordance with the applicable records schedule for the systems from which they were collected.
Multifactor log-in authentication including CAC authentication and password; SIPR token as required. Access controls enforce need-to-know policies so only authorized users have access to PII. Additionally, security audit and accountability policies and procedures directly support privacy and accountability procedures. Network encryption protects data transmitted over the network while disk encryption secures the disks storing data. Key management services safeguards encryption keys. Sensitive data is identified and masked as practicable. All individuals granted access to this system of records must complete requisite training to include Information Assurance and Privacy Act training. Sensitive data will be identified, properly marked with access by only those with a need to know, and safeguarded as appropriate. Physical access to servers are controlled at building access points utilizing detection systems other electronic alert systems. Electronic intrusion detection systems are installed within the facilities to monitor, detect, and automatically alert appropriate personnel of security incidents. Access to server rooms are secured with devices that require each individual to provide multi-factor authentication before granting entry or exit.
Individuals seeking access to their records should address written inquiries to the DoD office with oversight of the records. The public may identify the appropriate DoD office through the following website:
If executed outside the United States: “I declare (or certify, verify, or state) under penalty of perjury under the laws of the United States of America that the foregoing is true and correct. Executed on (date). (Signature).”
If executed within the United States, its territories, possessions, or commonwealths: “I declare (or certify, verify, or state) under penalty of perjury that the foregoing is true and correct. Executed on (date). (Signature).”
The DoD rules for accessing records, contesting contents, and appealing initial agency determinations are contained in 32 CFR part 310, or may be obtained from the system manager.
Individuals seeking to determine whether information about themselves is contained in this system should address written inquiries to the appropriate system mangers(s). Signed written requests should contain the full name, identifier (
If executed outside the United States: “I declare (or certify, verify, or state) under penalty of perjury under the laws of the United States of America that the foregoing is true and correct. Executed on (date). (Signature).”
If executed within the United States, its territories, possessions, or commonwealths: “I declare (or certify, verify, or state) under penalty of perjury that the foregoing is true and correct. Executed on (date). (Signature).”
The DoD has exempted records maintained in this system from 5 U.S.C. 552a(c)(3), (d)(1), (2), (3), and (4) of the Privacy Act, pursuant to 5 U.S.C. 552a(k)(1). In addition, when exempt records received from other systems of records become part of this system, the DoD also claims the same exemptions for those records that are claimed for the original primary systems of records from which they originated and claims any additional exemptions set forth here. An exemption rule for this system has been promulgated in accordance with requirements of 5 U.S.C. 553(b)(1), (2), and (3), (c), and published in 32 CFR part 310.
March 17, 2020, 85 FR 15150.
The Office of the Under Secretary of Defense Comptroller, Department of Defense (DoD).
Information collection notice.
In compliance with the
Consideration will be given to all comments received by April 1, 2021.
You may submit comments, identified by docket number and title, by any of the following methods:
To request more information on this proposed information collection or to obtain a copy of the proposal and associated collection instruments, please write to Kellen Stout, 8899 E 56th St, Indianapolis, IN 46249 or call (317) 212–1801.
Office of the Under Secretary of Defense for Acquisition and Sustainment, Department of Defense (DoD).
30-Day information collection notice.
The DoD has submitted to OMB for clearance the following proposal for collection of information under the provisions of the Paperwork Reduction Act.
Consideration will be given to all comments received by February 5, 2020.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
Angela James, 571–372–7574, or
You may also submit comments and recommendations, identified by Docket ID number and title, by the following method:
•
Requests for copies of the information collection proposal should be sent to Ms. James at
Washington Headquarters Services, Department of Defense (DoD).
Information collection notice.
In compliance with the
Consideration will be given to all comments received by April 1, 2021.
You may submit comments, identified by docket number and title, by any of the following methods:
To request more information on this proposed information collection or to obtain a copy of the proposal and associated collection instruments, please write to Washington Headquarters Services, 1155 Defense Pentagon BF739, Washington, DC ATTN: Ms. Julia Shmirkin, 703–697–2245.
Defense Finance Accounting Service, Department of Defense (DoD).
Information collection notice.
In compliance with the
Consideration will be given to all comments received by April 1, 2021.
You may submit comments, identified by docket number and title, by any of the following methods:
To request more information on this proposed information collection or to obtain a copy of the proposal and associated collection instruments, please write to Defense Finance and Accounting Services, Kellen Stout, 8899 E 56th St, Indianapolis, IN 46249 or call (317) 212–1801.
Office of Postsecondary Education, Department of Education.
Notice; clarification.
The Secretary is providing notice that the newly-enacted Consolidated Appropriations Act, 2021 (the 2021 Appropriations Act) supersedes the Department of Education's (Department's) notice published in the
Karen Epps, U.S. Department of Education, 400 Maryland Avenue SW, Room 250–64, Washington, DC 20202. Email:
If you use a telecommunications device for the deaf (TDD) or a text telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1–800–877–8339.
On December 23, 2020 (85 FR 83917), the Department published the Reopening Notice, which reopened the HEERF application period for applicants that met one of the five conditions described in the Reopening Notice and that we verified previously had attempted to apply through
The 2021 Appropriations Act (H.R. 133) was signed into law by President Donald Trump on December 27, 2020. It supersedes, in part, the Reopening Notice and requires that any unobligated CARES Act section 18004(a)(1) funds be used by the Department to carry out section 314(a)(1) of the 2021 Appropriations Act, which allocates funds to certain institutions of higher education under a new formula. Therefore, there are no
The requirements described in this notice apply only to CARES Act section 18004(a)(1) HEERF funds not yet awarded by the Department to institutions. They do not apply to funds that were awarded to institutions by the Department prior to the enactment of the 2021 Appropriations Act, but that have not yet been spent by institutions. Institutions that received awards under section 18004(a)(1) of the CARES Act continue to have one calendar year from the date of their award to expend funds under their grant period of performance.
The Department intends to issue guidance at a future date regarding the grant opportunities created by section 314 of the 2021 Appropriations Act, including the circumstances under which institutions that did not receive funds under section 18004(a)(1) of the CARES Act can apply for funding under the 2021 Appropriations Act.
You may also access documents of the Department published in the
U.S. Department of Education, National Advisory Committee on Institutional Quality and Integrity (NACIQI).
Notice of membership.
This notice lists the members of the National Advisory Committee on Institutional Quality and Integrity (NACIQI). This notice is required under Section 114(e)(1) of the Higher Education Act of 1965, as amended (HEA).
U.S. Department of Education, Office of Postsecondary Education, 400 Maryland Ave. SW, Room 2C159, Washington, DC 20202.
George Alan Smith, Executive Director/Designated Federal Official, NACIQI, U.S. Department of Education, 400 Maryland Ave. SW, Room 2C159, Washington, DC 20202, telephone: (202) 453–7757, or email
The NACIQI is established under Section 114 of the HEA, and is composed of 18 members appointed—
(A) On the basis of the individuals' experience, integrity, impartiality, and good judgment;
(B) From among individuals who are representatives of, or knowledgeable concerning, education and training beyond secondary education, representing all sectors and types of institutions of higher education; and,
(C) On the basis of the individuals' technical qualifications, professional standing, and demonstrated knowledge in the fields of accreditation and administration of higher education.
The NACIQI meets at least twice a year and advises the Secretary of Education with respect to:
• The establishment and enforcement of the standards of accrediting agencies or associations under subpart 2 of part H of Title IV of the HEA;
• The recognition of specific accrediting agencies or associations;
• The preparation and publication of the list of nationally recognized accrediting agencies and associations;
• The eligibility and certification process for institutions of higher education under Title IV of the HEA, together with recommendations for improvements in such process;
• The relationship between (1) accreditation of institutions of higher education and the certification and eligibility of such institutions, and (2) State licensing responsibilities with respect to such institutions; and
• Any other advisory functions relating to accreditation and institutional eligibility that the Secretary of Education may prescribe by regulation.
The term of office of each member is six years. Any member appointed to fill a vacancy occurring prior to the expiration of the term for which the member's predecessor was appointed shall be appointed for the remainder of such term.
The current members of the NACIQI are:
• Ronnie L. Booth, Ph.D., President Emeritus, Tri-County Technical College, Anderson, South Carolina.
• Wallace E. Boston, Ph.D., President Emeritus, American Public University System, Inc., Charles Town, West Virginia.
• Amanda Delekta, Student, Michigan State University College of Law, East Lansing, Michigan.
• David A. Eubanks, Ph.D., Assistant Vice President for Assessment and Institutional Effectiveness, Furman University, Greenville, South Carolina.
• D. Michael Lindsay, Ph.D., President, Gordon College, Wenham, Massachusetts.
• Mary Ellen Petrisko, Ph.D., Former President, WASC Senior College and University Commission, Pittsburgh, Pennsylvania.
• Kathleen Sullivan Alioto, Ed.D., Strategic Advisor, Fundraiser, and Consultant, New York, New York, San Francisco, California, and Boston, Massachusetts.
• Roslyn Clark Artis, Ed.D., President, Benedict College, Columbia, South Carolina.
• Jennifer Blum, J.D., Principal, Blum Higher Education Advising, PLLC, Washington, DC.
• Arthur E. Keiser, Ph.D., Chancellor, Keiser University, Fort Lauderdale, Florida.
• Robert Mayes, Jr., CEO, Columbia Southern Education Group, Elberta, Alabama.
• Robert Shireman, Director of Higher Education Excellence and Senior Fellow, The Century Foundation, Berkeley, California.
• Jill Derby, Ph.D., Senior Consultant, Association of Governing Boards of Universities and Colleges, Gardnerville, Nevada.
• Paul J. LeBlanc, Ph.D., President, Southern New Hampshire University, Manchester, New Hampshire.
• Anne D. Neal, J.D., President, National Association for Olmsted Parks, Washington, DC.
• Richard F. O'Donnell, Founder and CEO, Skills Fund, Austin, Texas.
• Claude O. Pressnell Jr., Ed.D., President, Tennessee Independent Colleges and Universities Association, Nashville, Tennessee.
• Steven Van Ausdle, Ph.D., President Emeritus, Walla Walla Community College, Walla Walla, Washington.
20 U.S.C. 1011c.
Office of Electricity, Department of Energy.
Prohibition Order.
The U.S. Department of Energy (Department or DOE) gives notice of this Prohibition Order prohibiting the acquisition, importation, transfer, or installation of specified bulk-power system (BPS) electric equipment that directly serves Critical Defense Facilities (CDFs), pursuant to Executive Order 13920.
The effective date of this Prohibition Order (Effective Date) is January 16, 2021. This Prohibition Order shall apply to any Prohibited Transaction initiated on or after the Effective Date. The Department shall notify each Responsible Utility of the applicability of this Prohibition Order no later than five (5) business days after the issuance of this Prohibition Order. Notice under this section shall be deemed made when personally delivered or when mailed, three (3) calendar days after deposit in the U.S. Mail, first class postage prepaid and addressed to the Responsible Utility at its applicable address. Actual notice shall be deemed adequate notice on the date actual notice occurred, regardless of the method of service.
Mr. Charles Kosak, Deputy Assistant Secretary, Energy Resilience Division, U.S. Department of Energy, Office of Electricity, Mailstop OE–20, Room 8G–042, 1000 Independence Avenue SW, Washington, DC 20585; (202) 586–2036; or
The PRC has a military rationale for its disruption capabilities. Broadly speaking, it is targeting operational systems that can be undermined as a way to degrade an opponent's capabilities or to coerce an opponent's decision-making or political will. China calls this “system destruction warfare”—a way to cripple an opponent at the outset of conflict, by deploying sophisticated electronic warfare, counter-space, and cyber-capabilities to disrupt what are known as C4ISR networks (command, control, communications, computers, intelligence, surveillance, and reconnaissance), thereby disrupting U.S. military logistics required to defend the homeland, support Allies and partners, and protect key U.S. national security interests.
Such attacks are most likely during crises abroad where Chinese military planning envisions early cyberattacks against the electric power grids around CDFs in the U.S. to prevent the deployment of military forces and to incur domestic turmoil. Underscoring this, the Department of Defense's
U.S. intelligence analyses validate this growing threat from China, concluding that “China presents a persistent cyber espionage threat and a growing attack threat to our core military and critical infrastructure systems,” and “has the ability to launch cyberattacks that cause localized, temporary disruptive effects on critical infrastructure—such as disruption of a natural gas pipeline for days to weeks—in the United States.”
Furthermore, China's laws, specifically the National Intelligence Law and the National Cybersecurity Law, authorize government officials to exercise control over individuals and companies to conduct national intelligence work and access private company data, which provide opportunities for China to identify and exploit vulnerabilities in Chinese-manufactured or supplied equipment that are used in U.S. critical infrastructure that rely on these sources.
For example, the National Intelligence Law compels individuals and organizations to comply with and assist PRC officials in carrying out intelligence and national security objectives. Specifically, Article 7 requires organizations and citizens to support, assist, and cooperate with the state intelligence work in accordance with the law and to keep confidential the national intelligence work known to them. Article 14 gives authority to state intelligence agencies to require citizens and organizations to support, assist, and cooperate in intelligence work. Article 16 authorizes government officials to “enter the relevant areas and places that restrict access,” where they can examine and retrieve files, materials, and articles related to intelligence work, potentially including sensitive information. Finally, Article 17 allows Chinese intelligence agencies to assume control over an individual or organization's means of transport, communication tools, sites, and buildings and to set up workplaces and equipment in those facilities. In sum, Chinese entities providing goods in critical supply chains may be compelled to conduct intelligence work on behalf of the PRC and provide sensitive information to PRC officials related to the security of U.S. critical infrastructure that rely on these sources.
In addition, the National Cybersecurity Law requires cybersecurity protection measures for critical information infrastructure and compels companies to report and provide assistance to the PRC state security and intelligence services. Article 31 identifies power and water resources, among other sectors, as critical information infrastructure. Article 38 requires critical information infrastructure operators to conduct an inspection and assessment of their networks' security and risks that might exist and submit a cybersecurity report on the circumstances. Additionally, Article 39 requires state cybersecurity and information departments to conduct spot testing of critical information infrastructure security risks and promote cybersecurity information sharing among relevant departments, critical information infrastructure operators, and also relevant research institutions and cybersecurity services organizations. Finally, Article 28 requires network operators to provide “technical support and assistance to public security organs and national security organs that are safeguarding national security and investigating criminal activities in accordance with the law.” Thus, provisions within this law provide PRC officials access to information on cyber vulnerabilities across a number of sectors and thus the opportunity to obtain data potentially impacting the security of U.S. critical infrastructure companies.
Under authority delegated to the Secretary of the U.S. Department of Energy by the President in E.O. 13920, I adopt the findings in this Prohibition Order and order and direct the following:
A Responsible Utility under this Prohibition Order is an electric utility that owns or operates Defense Critical Electric Infrastructure (DCEI), as defined by section 215A(a)(4) of the Federal Power Act (FPA), that actively serves a CDF, as designated by the Secretary under section 215A(c) of the FPA. Each Responsible Utility is hereby prohibited from acquiring, importing, transferring, or installing BPS electric equipment identified in Attachment 1 (Regulated Equipment) that (i) has been manufactured or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of the PRC, and (ii) is for use by the Responsible Utility as a component of its DCEI serving the CDF at a service voltage level of 69 kV or higher, from the point of electrical interconnection (at a service voltage level of 69 kV of higher) with the CDF up to and including the next “upstream” transmission substation. A transaction that meets the conditions set forth in the preceding sentence is referred to herein as a Prohibited Transaction.
The term Regulated Equipment includes software, firmware and digital components that control the operation of Regulated Equipment and are manufactured or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of the PRC.
By this Prohibition Order, each Responsible Utility shall work with DOE to assist in the identification of DCEI and any load shedding and system restoration contingency planning required to assure the energy and missions of CDFs.
Each Responsible Utility is hereby directed to designate (or to take all action reasonably available to it to cause the relevant regional entity to designate) each CDF as a priority load in the applicable load shedding and system restoration plans. The term “regional entity” is defined at section 215(a)(7) of the FPA.
The effective date of this Prohibition Order (Effective Date) is January 16,
On May 1, 2020, the President issued E.O. 13920. Actions authorized under E.O. 13920 are rooted in its finding that “unrestricted acquisition or use in the United States of bulk-power system electric equipment designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of foreign adversaries augments the ability of foreign adversaries to create and exploit vulnerabilities in bulk-power system electric equipment,” and that “the unrestricted foreign supply of bulk-power system electric equipment [therefore] constitutes an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States.” By declaring a “national emergency with respect to the threat to the United States bulk-power system” in the E.O. and under the National Emergencies Act, E.O. 13920 invokes the President's authority under the International Emergency Economic Powers Act (IEEPA) to direct responsive measures.
Section 1 of E.O. 13920 authorizes the Secretary of Energy (Secretary) to prohibit any transaction by any person, or with respect to any property, subject to the jurisdiction of the United States, where the transaction involves any property in which any foreign country or a national thereof has any interest (including through an interest in a contract for the provision of the equipment), where the transaction was initiated after May 1, 2020, and where the Secretary, in coordination with the Director of the Office of Management and Budget and in consultation with the Secretary of Defense, the Secretary of Homeland Security, the Director of National Intelligence, and, as appropriate, the heads of other relevant agencies, has determined that:
(a) The transaction involves BPS electric equipment designed, developed, manufactured, or supplied, by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary; and
(b) The transaction:
(i) Poses an undue risk of sabotage to or subversion of the design, integrity, manufacturing, production, distribution, installation, operation, or maintenance of the BPS in the United States;
(ii) Poses an undue risk of catastrophic effects on the security or resiliency of United States critical infrastructure or the economy of the United States; or
(iii) Otherwise poses an unacceptable risk to the national security of the United States or the security and safety of United States persons.
Section 2(a) of E.O. 13920 authorizes the Secretary “to take such actions, including directing the timing and manner of the cessation of pending and future transactions prohibited pursuant to section 1 of this order.” Section 2(a) of E.O. 13920 also authorizes the Secretary to “adopt appropriate rules and regulations” to implement E.O. 13920, and DOE has initiated rulemaking proceedings. Notwithstanding the pendency of such a rulemaking or the adoption of any such regulations, the Secretary has the authority at any time to prohibit transactions in order to effectuate the purposes of E.O. 13920.
For the reasons noted above, the Secretary has determined that this Prohibition Order is reasonably necessary to address the threat posed to the BPS by the PRC as a foreign adversary within the meaning of E.O. 13920. Because the equipment identified in this Prohibition Order as Regulated Equipment could serve as instruments or tools to threaten the BPS and the national security of the U.S., the Secretary is taking the protective action set forth herein to prevent Prohibited Transactions.
This Prohibition Order is in addition to other action that the Secretary may undertake pursuant to E.O. 13920, including, but not limited to, rulemaking and further orders of the Secretary.
This order addresses a subset of E.O. 13920 BPS electric equipment (listed in Attachment 1) identified by the North American Electric Reliability Corporation (NERC) in its Recommendation to Industry.
Items used in bulk-power system substations, control rooms, or power generating stations, including reactors, capacitors, substation transformers, current coupling capacitors, large generators, backup generators, substation voltage regulators, shunt capacitor equipment, automatic circuit reclosers, instrument transformers, coupling capacitor potential devices [expressed in the E.O. as current coupling capacitors and coupling capacity voltage transformers], protective relaying, metering equipment, high voltage circuit breakers, generation turbines, industrial control systems, distributed control systems, and safety instrumented systems. Items not included in the preceding list and that have broader application of use beyond the bulk-power system are outside the scope of [E.O. 13920].
Section 4(a) of E.O. 13920 defines “bulk-power system” as
(i) Facilities and control systems necessary for operating an interconnected electric energy transmission network (or any portion thereof); and
(ii) Electric energy from generation facilities needed to maintain transmission reliability. For purposes of [E.O. 13920], this definition includes transmission lines rated at 69,000 volts (69 kV) or more, but does not include facilities used in the local distribution of electric energy.
Not later than March 17, 2021 and once every three years thereafter for as long as this Prohibition Order is in effect, each Responsible Utility shall file a certification with the Department, under penalty of perjury, that since the Effective Date:
(a) It has not entered into a Prohibited Transaction; and
(b) It has established an internal monitoring process to accurately track future compliance with this Prohibition Order.
Not later than February 15, 2021, each Responsible Utility shall file a certification with the Department, under penalty of perjury, that since the Effective Date:
(a) It has designated (or taken all action reasonably available to it to cause the relevant regional entity to designate) each CDF as a priority load in the applicable system load shedding and restoration plans.
Certifications may be delivered to: Charles Kosak, Deputy Assistant Secretary, Energy Resilience Division, U.S. Department of Energy, Office of Electricity, Mailstop OE–20, Room 8G–042, 1000 Independence Avenue SW, Washington, DC 20585; (202) 586–2036; or
The Secretary may waive any term of this Prohibition Order with respect to a Responsible Utility for good cause shown.
(a)
(1)
Notice of the penalty, including a written explanation of the penalized conduct and the amount of the proposed penalty, and notifying the recipient of a right to make a written petition within thirty (30) calendar days as to why a penalty should not be imposed, shall be served on the party or parties that the Secretary has determined to be in violation hereunder.
The Secretary shall review any presentation and issue a final administrative decision within thirty (30) calendar days of receipt of the petition.
(2)
(b)
(1) The civil penalties provided in IEEPA are subject to adjustment pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990 (Pub. L. 101–410, as amended, 28 U.S.C. 2461 note).
(2) The criminal penalties provided in IEEPA are subject to adjustment pursuant to 18 U.S.C. 3571.
(c) The penalties available under this section are without prejudice to other penalties, civil or criminal, available under law. Attention is directed to 18 U.S.C. 1001, which provides that whoever, in any matter within the jurisdiction of any department or agency in the U.S., knowingly and willfully falsifies, conceals, or covers up by any trick, scheme, or device a material fact, or makes any false, fictitious, or fraudulent statements or representations, or makes or uses any false writing or document knowing the same to contain any false, fictitious, or fraudulent statement or entry, shall be fined under title 18, U.S. Code, or imprisoned not more than five (5) years, or both.
Any person aggrieved by this Prohibition Order may petition the Secretary for a rehearing no later than March 2, 2021. The application for rehearing shall set forth specifically the ground or grounds upon which such application is based. Upon such application, the Secretary shall have power to grant or deny rehearing or to abrogate or modify this Prohibition Order without further hearing. Unless the Secretary acts upon the application for rehearing within thirty (30) calendar days after it is filed, such application may be deemed to be denied. Until the record in a proceeding seeking rehearing of this Prohibition Order shall have been filed for judicial review in a court of competent jurisdiction, the Secretary may at any time, upon reasonable notice and in such manner as it shall deem proper, modify or set aside, in whole or in part, any findings or this Prohibition Order.
This document of the Department of Energy was signed on December 17, 2020, by Dan Brouillette, Secretary of Energy. That document with the original signature and date is maintained by DOE. For administrative purposes only, and in compliance with requirements of the Office of the Federal Register, the undersigned DOE Federal Register Liaison Officer has been authorized to sign and submit the document in electronic format for publication, as an official document of the Department of Energy. This administrative process in no way alters the legal effect of this document upon publication in the
1. Power transformers with low-side voltage rating of 69 thousand volts (kV) or higher and associated control and protection systems like load tap changer, cooling system, and Sudden Pressure relay.
2. Generator step up (GSU) transformers with high-side voltage rating of 69 kV or higher and associated control and protection systems like load tap changer, cooling system, and Sudden Pressure relay.
3. Circuit breakers operating at 69 kV or higher.
4. Reactive power equipment (Reactors and Capacitors) 69 kV or higher.
5. Associated software and firmware installed in any equipment or used in the operation of items listed in 1 through 4.
Take notice that the Commission received the following electric rate filings:
The filings are accessible in the Commission's eLibrary system (
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
Take notice that on December 23, 2020, Michigan Public Power Agency submitted the annual revenue requirement for the provision of Reactive Supply and Voltage Control from Generation or Other Sources from the reactive power production capability of the Belle River generating station, Units 1 and 2, in the above captioned proceeding.
Any person desiring to intervene or to protest this filing must file in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211, 385.214). Protests will be considered by the Commission in determining the appropriate action to be taken, but will not serve to make protestants parties to the proceeding. Any person wishing to become a party must file a notice of intervention or motion to intervene, as appropriate. Such notices, motions, or protests must be filed on or before the comment date. On or before the comment date, it is not necessary to serve motions to intervene or protests on persons other than the Applicant.
The Commission encourages electronic submission of protests and interventions in lieu of paper using the eFiling link at
In addition to publishing the full text of this document in the
Take notice that on December 21, 2020, pursuant to Rule 207 of the Federal Energy Regulatory Commission's (Commission) Rules of Practice and Procedure, 18 CFR 385.207, Citrus World, Inc. (Petitioner), filed a petition for declaratory order (Petition) requesting that the Commission issue a declaratory order granting partial waiver of Commission regulations applicable to cogeneration qualifying facilities (excepting sections 205 and 206 of the Federal Power Act) and accepting refund report, as more fully explained in the petition.
Any person desiring to intervene or to protest this filing must file in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211, 385.214). Protests will be considered by the Commission in determining the appropriate action to be taken, but will not serve to make protestants parties to the proceeding. Any person wishing to become a party must file a notice of intervention or motion to intervene, as appropriate. Such notices, motions, or protests must be filed on or before the comment date. Anyone filing a motion to intervene or protest must serve a copy of that document on the Petitioner.
In addition to publishing the full text of this document in the
The Commission strongly encourages electronic filings of comments, protests and interventions in lieu of paper using the eFiling link at
The companies listed in this notice have applied to the Board for approval, pursuant to the Bank Holding Company Act of 1956 (12 U.S.C. 1841
The public portions of the applications listed below, as well as other related filings required by the Board, if any, are available for immediate inspection at the Federal Reserve Bank(s) indicated below and at the offices of the Board of Governors. This information may also be obtained on an expedited basis, upon request, by contacting the appropriate Federal Reserve Bank and from the Board's Freedom of Information Office at
Comments regarding each of these applications must be received at the Reserve Bank indicated or the offices of the Board of Governors, Ann E. Misback, Secretary of the Board, 20th Street and Constitution Avenue NW, Washington, DC 20551–0001, not later than February 5, 2021.
1.
The notificants listed below have applied under the Change in Bank Control Act (Act) (12 U.S.C. 1817(j)) and § 225.41 of the Board's Regulation Y (12 CFR 225.41) to acquire shares of a bank or bank holding company. The factors that are considered in acting on the applications are set forth in paragraph 7 of the Act (12 U.S.C. 1817(j)(7)).
The public portions of the applications listed below, as well as other related filings required by the Board, if any, are available for immediate inspection at the Federal Reserve Bank(s) indicated below and at the offices of the Board of Governors. This information may also be obtained on an expedited basis, upon request, by contacting the appropriate Federal Reserve Bank and from the Board's Freedom of Information Office at
Comments regarding each of these applications must be received at the Reserve Bank indicated or the offices of the Board of Governors, Ann E. Misback, Secretary of the Board, 20th Street and Constitution Avenue NW, Washington, DC 20551–0001, not later than January 21, 2021.
1.
In addition, the Mark C. Hewitt 2014 Trust and the Amy J. Hewitt By-Pass Trust fbo Mark C. Hewitt, Mark C. Hewitt, as trustee of both trusts, all of Mason City, Iowa, and the Ray V. Hewitt 2008 Trust, Ray V. Hewitt, as trustee, both of Clear Lake, Iowa, together with Carrie Hewitt-Nichols, Iowa City, Iowa, to form the Hewitt Family Control Group, a group acting in concert, to retain voting shares of Arneson Bancshares, Inc., and thereby indirectly acquire voting shares of Clear Lake Bank & Trust.
Centers for Disease Control and Prevention (CDC), Department of Health and Human Services (HHS).
Notice with comment period.
The Centers for Disease Control and Prevention (CDC), as part of its continuing effort to reduce public burden and maximize the utility of government information, invites the general public and other Federal agencies the opportunity to comment on a proposed and/or continuing information collection, as required by the Paperwork Reduction Act of 1995. This notice invites comment on a proposed information collection project titled “Temporary Halt In Residential Evictions To Prevent The Further Spread Of Covid–19” The information collection originally pertained to the September 4, 2020 CDC order of the same name that temporarily halts residential evictions of covered persons for nonpayment of rent during September 4, 2020, through December 31, 2020. The Consolidated Appropriations Act, 2021, statutorily extended CDC's order until January 31, 2021. The declaration in this information collection request will serve as an attestation by a tenant, lessee, or resident that they meet the criteria therein to prevent an eviction proceeding per the order issued by the CDC.
CDC must receive written comments on or before March 8, 2021.
You may submit comments, identified by Docket No. CDC–2020–0127 by any of the following methods:
•
•
To request more information on the proposed project or to obtain a copy of the information collection plan and instruments, contact Jeffrey M. Zirger, of the Information Collection Review Office, Centers for Disease Control and Prevention, 1600 Clifton Road NE, MS–D74, Atlanta, Georgia 30329; phone: 404–639–7570; Email:
Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501–3520), Federal agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. In addition, the PRA also requires Federal agencies to provide a 60-day notice in the
The OMB is particularly interested in comments that will help:
1. Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
2. Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
3. Enhance the quality, utility, and clarity of the information to be collected; and
4. Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology,
5. Assess information collection costs.
Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID–19—NEW—National Center for Emerging Zoonotic and Infectious Diseases (NCEZID), Centers for Disease Control and Prevention (CDC).
Recent CDC actions in response to COVID included a temporary eviction moratorium published on September 4, 2020 and effective through December 31, 2020. The conditions that originally necessitated the original Order continue to exist and, in many jurisdictions, have significantly worsened. As of December 22, 2020, 17,790,000 cases have been identified in the United States, with new cases reported daily, and over 316,000 deaths due to the disease. On December 22, 2020, 197,616 COVID–19 cases in the U.S. were reported to CDC.
To qualify for the order's protections, tenants, lessees, or residents of residential properties must provide a copy of the declaration to the landlord, owner of the residential property, or other person who has a right to have the individual evicted or removed. The declaration provides notification and attestation on behalf of the submitting party that they have met the required
As stated in the Supporting Statement for OMB Control Number 0920–1303, under the request for an emergency clearance, OIRA has waived the 60-day comment period. Because this collection is exceeding 60 days, CDC is seeking additional notice and comment.
Estimated annual burden for Tenants, Lessees, or Residents who make a maximum of $99,000 annually is estimated to be 2,916,667 hours. There will be no anticipated costs to respondents other than time.
Office of Planning, Research, and Evaluation, Administration for Children and Families, HHS.
Request for public comment.
The Office of Planning, Research, and Evaluation (OPRE) within the Administration for Children and Families (ACF) is proposing revisions to data collection activities conducted for the Next Generation of Enhanced Employment Strategies (NextGen) Project, which is rigorously evaluating innovative interventions designed to promote employment and economic security among low-income individuals with complex challenges to employment. The project includes an experimental impact study, descriptive study, and cost study. The project is seeking clearance for changes to the previously approved Phase 1 instruments, updates to the previously approved consent form, and clearance for a parent/guardian consent form and a youth assent form for use in evaluations of programs for youth. The project also seeks approval to use a subset of Phase 2 instruments with programs selected for inclusion in the project with some changes made to those instruments. The requested changes do not change the previously submitted burden estimates.
Copies of the proposed collection of information can be obtained and comments may be forwarded by emailing
As the NextGen Project has engaged in assessing promising programs for inclusion in the study, we have gained knowledge that suggests necessary refinements to the Phase 1 instruments. In response to this knowledge and the 2019 novel coronavirus disease (COVID–19) pandemic, we are seeking changes to the Phase 1 data collection instruments and the study's informed consent form. We also seek clearance for a parent/guardian consent form and a youth assent form for use in evaluations of programs that serve youth, and approval to use two of the Phase 2 instruments with minor revisions. Below are additional details regarding these requests and further information regarding the changes requested is available (Appendix Q). The requested changes do not change the previously submitted burden estimates.
We propose revisions to the study's consent form to reflect recent study design changes, specifically to allow programs to share additional information about study participants (mental health diagnoses, referral
We propose changes to the baseline survey based on the study team's ongoing assessment of promising programs. Changes include:
• Minor revisions to the wording of some items, for clarity, and to skip patterns.
• Modifications to the items about emergency support (B18 and B19) to ask how many people someone can turn to for help, to better measure social support outcomes.
• Addition of items to collect information on social trust (B20, B21, and B22).
• Revisions to current items and addition of a few items to collect data on variables that may predict employment outcomes for respondents that were recently released from jail or prison, specifically:
○ Revision to the item asking whether the respondent was ever convicted (C9) to collect number of convictions and addition of an item (C9a) to collect the number of felony convictions.
○ Revisions to collect more detail about parole or probation (C10).
○ Addition of an item (C10a) to collect the type of crime committed and an item to collect time spent in last incarceration (C12a).
• Addition of items (C4b, C5a, C6e1, C6e2, C6r, C6s, D1a) to collect information on whether COVID–19 posed specific challenges to employment for study participants and to ask if participants have been vaccinated against COVID–19 (D1a), as this is likely to be associated with employment outcomes.
We propose changes to the identifying and contact information collection. Changes include:
• Addition of the Center for Epidemiologic Studies Depression Scale Revised (CESD–R, added as item B2) for use by one program under consideration for evaluation that uses the scale as a programmatic eligibility screening tool. The CESD–R will only display for this program to facilitate program intake; other programs will skip these items. The study team will maintain CESD–R scores for those who are eligible for the program and also consent to participate in the study (as noted in the consent form).
• Addition of items (in item B3 and B4) that will only display for programs that work with school districts and/or youth to ask if a study applicant is in a prefilled school district, and obtain consent for being recorded, if such consent is required by the district.
• Addition of a question (item B9) about the likelihood that the study participant will be assigned to a career navigator for programs that use this intervention.
We request approval to use the Phase 2 service receipt tracking instrument to collect information from most programs selected for the NextGen Project, with the following proposed changes: Inclusion of additional modes of service delivery; addition of in-person service locations; allowance of program-specific responses to how services were terminated; and tailoring for certain items' response options to ensure service receipt data collection captures program-specific services.
We request approval to use the Phase 2 employer discussion guide to collect information from all programs selected for the NextGen Project. We propose minor revisions to the instrument to add probes about changes to the employer's relationship with the program as a result of the pandemic.
The annual burden estimates for the instruments included in this request are presented below. All currently approved materials under OMB #0970–0545 and the associated burden can be found at
Section 413 of the Social Security Act, as amended by the FY 2017 Consolidated Appropriations Act, 2017 (Pub. L. 115–31).
Office of Planning, Research, and Evaluation, Administration for Children and Families, HHS.
Request for public comment.
The Office of Planning, Research, and Evaluation (OPRE), Administration for Children and Families (ACF), U.S. Department of Health and Human Services (HHS), is requesting a 3-year extension with changes to continue collecting data for the study Variations in Implementation of Quality Interventions (VIQI). In addition to extending data collection, OPRE proposes to update burden estimates to accommodate a different sample size of centers, administrators, teachers, and coaches; to revise data collection instruments and activities for the impact evaluation and process study in line with lessons learned during the pilot study; to add a second timepoint of data collection for the teacher reports to questions about children; to provide one new instrument to collect parent report of children's skills and behaviors; and to provide one new instrument in anticipation of COVID–19 necessitating further information gathering to contextualize findings from the impact evaluation and process study.
Copies of the proposed collection of information can be obtained and comments may be forwarded by emailing
The VIQI Project will consist of a 3-group experimental design where the initial quality and other characteristics of ECE centers are measured. For details about the study design, see the Supporting Statements at
In anticipation of changes to center characteristics due to COVID–19, annual burden estimates and instruments have been updated to accommodate a different sample size of centers, administrators, teachers, and coaches for the impact evaluation and process study.
The previously approved data collection instruments for the impact evaluation and process study include the following:
(1) Instruments for Screening and Recruitment of ECE Centers. We do not propose any changes to these materials;
(2) Baseline Instruments. Modifications made to surveys remove items that showed little variation in the pilot study, edit item wording to increase clarity and ease of understanding, and add a few new items to capture new constructs of interest based upon the insights gained from the pilot study. The child assessment and classroom observation instruments have been updated to reflect the selected assessments and observations. We added an additional time point of data collection (baseline) for teacher reports on questions about children in the classroom and have added in questions about children's academic skills. Parent/guardian reports to questions about children have been added to gather information about children's skills at the beginning of the impact evaluation and process study. Administrator/teacher COVID–19 supplemental survey questions have been added to gather information about how the pandemic has changed typical center and classroom programming and functioning, if there is a need to contextualize findings from the impact evaluation and process study due to circumstances surrounding the COVID–19 pandemic at the time of data collection;
(3) Follow-Up Instruments. Modifications made to surveys remove items that showed little variation in the pilot study, edit item wording to increase clarity and ease of understanding, and add a few new items to capture new constructs of interest based upon insights gained from the pilot study. The child assessment and classroom observation instruments have been updated to reflect the selected assessments and observations. We added in questions about children's academic skills to the teacher reports on questions about children in the classroom. Parent/guardian reports to questions about children have been added to gather information about children's skills at the end of the impact evaluation and process study; and
(4) Fidelity of Implementation Instruments. Modifications to the Coach Log have been made to remove or consolidate items that showed little variation or proved less useful in the pilot study and to edit item wording to increase clarity and ease of understanding.
Office of Refugee Resettlement, Administration for Children and Families, Department of Health and Human Services.
Request for public comment.
The Office of Refugee Resettlement (ORR), Administration for Children and Families (ACF), U.S. Department of Health and Human Services (HHS), is inviting public comments on revisions to an approved information collection. The request consists of several forms that allow the Unaccompanied Alien Children (UAC) Program to monitor care provider facility compliance with federal laws and regulations, legal agreements, and ORR policies and procedures; and perform other administrative tasks.
Copies of the proposed collection of information can be obtained and comments may be forwarded by emailing
○ Added a section in which ORR-funded legal service providers are required to certify their representation of the child.
○ Added a separate area where sponsors may authorize the release of their records.
○ Updated the required supporting documentation for a representative of a federal/state government agency or the National Center for Missing and Exploited Children to further require that the requester specify the scope of their investigation and provide a case reference number.
○ Clarified in the instructions that ORR will not release any records that are clearly outside of the scope of a government agency's investigation absent a court-issued subpoena or order.
○ Revised the available options for the category and subcategory fields.
○ Added a question asking whether the incident is related to gang/cartel crimes, activities, or affiliation.
○ Added fields to capture additional detail on individuals involved in the incident, actions taken, and video footage.
○ Added fields to capture additional information related to reporting of incidents to child protective services, state licensing agencies, and local law enforcement.
○ Added a disposition field to indicate whether the incident is closed or if the incident is open and further action is required.
○ Updated functionality for the list of individuals who need to be notified of the incident so that it is auto-populated
○ Updated internal form numbering so that reports and addendums are fall under the same form number.
○ Revised the available options for the category and subcategory fields.
○ Added a question asking whether the incident is related to gang/cartel crimes, activities, or affiliation.
○ Added fields to capture additional detail on individuals involved in the incident, actions taken, and video footage.
○ Added fields to capture additional information related to reporting of incidents to child protective services, state licensing agencies, and local law enforcement.
○ Added a disposition field to indicate whether the incident is closed or if the incident is open and further action is required.
○ Updated functionality for the list of individuals who need to be notified of the incident so that it is auto-populated and notification emails can be sent from within the UAC Path system.
○ Updated internal form numbering so that reports and addendums are fall under the same form number.
○ Revised the available options for the category and subcategory fields.
○ Added a question asking whether the incident is related to gang/cartel crimes, activities, or affiliation.
○ Added fields to capture additional detail on individuals involved in the incident, actions taken, and video footage.
○ Added fields to capture additional information related to reporting of incidents to child protective services, state licensing agencies, and local law enforcement.
○ Added a disposition field to indicate whether the incident is closed or if the incident is open and further action is required.
○ Updated functionality for the list of individuals who need to be notified of the incident so that it is auto-populated and notification emails can be sent from within the UAC Path system.
○ Updated internal form numbering so that reports and addendums are fall under the same form number.
○ Revised the available options for the category and subcategory fields.
○ Added a question asking whether the incident is related to gang/cartel crimes, activities, or affiliation.
○ Added fields to capture additional detail on individuals involved in the incident, actions taken, and video footage.
○ Added fields to capture additional information related to reporting of incidents to child protective services, state licensing agencies, and local law enforcement.
○ Added a disposition field to indicate whether the incident is closed or if the incident is open and further action is required.
○ Updated functionality for the list of individuals who need to be notified of the incident so that it is auto-populated and notification emails can be sent from within the UAC Path system.
○ Updated internal form numbering so that reports and addendums are fall under the same form number.
Food and Drug Administration, HHS.
Notice of availability.
The Food and Drug Administration (FDA or Agency) is announcing the availability of a final guidance entitled “Safer Technologies Program for Medical Devices.” This final guidance describes a new, voluntary program for certain medical devices and device-led combination products that are reasonably expected to significantly improve the safety of currently available treatments or diagnostics that target an underlying disease or condition associated with morbidities and mortalities less serious than those eligible for the Breakthrough Devices Program. Devices and device-led combination products are eligible for this program if they are subject to review under a premarket approval application (PMA), De Novo classification request (“De Novo request”), or premarket notification (510(k)), taking into account the specific eligibility factors described in this guidance. Consistent with the Agency's statutory mission to protect and promote public health, FDA believes that this “Safer Technologies Program” or “STeP” will help patients have more timely access to these medical devices and device-led combination products by expediting their development, assessment, and review, while preserving the statutory standards for premarket approval, De Novo marketing authorization, and 510(k) clearance.
The announcement of the guidance is published in the
You may submit either electronic or written comments on Agency guidances at any time as follows:
Submit electronic comments in the following way:
•
• If you want to submit a comment with confidential information that you do not wish to be made available to the public, submit the comment as a written/paper submission and in the manner detailed (see “Written/Paper Submissions” and “Instructions”).
Submit written/paper submissions as follows:
•
• For written/paper comments submitted to the Dockets Management Staff, FDA will post your comment, as well as any attachments, except for information submitted, marked and identified, as confidential, if submitted as detailed in “Instructions.”
• Confidential Submissions—To submit a comment with confidential information that you do not wish to be made publicly available, submit your comments only as a written/paper submission. You should submit two copies total. One copy will include the information you claim to be confidential with a heading or cover note that states “THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION.” The Agency will review this copy, including the claimed confidential information, in its consideration of comments. The second copy, which will have the claimed confidential information redacted/blacked out, will be available for public viewing and posted on
You may submit comments on any guidance at any time (see 21 CFR 10.115(g)(5)).
An electronic copy of the guidance document is available for download from the internet. See the
Christina Savisaar, Center for Devices
FDA is introducing a new, voluntary program for certain medical devices and device-led combination products that are reasonably expected to significantly improve the safety of currently available treatments or diagnostics that target an underlying disease or condition associated with morbidities and mortalities less serious than those eligible for the Breakthrough Devices Program; for example, this may include devices treating or diagnosing non-life-threatening or reasonably reversible conditions. Devices and device-led combination products are eligible for this program if they are subject to review under a premarket approval application (PMA), De Novo classification request (“De Novo request”), or premarket notification (510(k)), taking into account the specific eligibility factors described in this guidance. Consistent with the Agency's statutory mission to protect and promote public health, FDA believes that this “Safer Technologies Program” or “STeP” will help patients have more timely access to these medical devices and device-led combination products by expediting their development, assessment, and review, while preserving the statutory standards for premarket approval, De Novo marketing authorization, and 510(k) clearance. FDA has modeled STeP on the key principles and features of FDA's Breakthrough Devices Program as mandated in section 515B of the Federal Food, Drug and Cosmetic Act (21 U.S.C. 360e-3) and further described in the FDA guidance document entitled “Breakthrough Devices Program” (
FDA recognizes and anticipates that the Agency may need up to 60 days to perform activities to operationalize STeP following issuance of the final guidance. FDA does not intend to accept requests for inclusion in STeP within this time period.
A notice of availability of the draft guidance appeared in the
This guidance is being issued consistent with FDA's good guidance practices regulation (21 CFR 10.115). The guidance represents the current thinking of FDA on Safer Technologies Program for Medical Devices. It does not establish any rights for any person and is not binding on FDA or the public. You can use an alternative approach if it satisfies the requirements of the applicable statutes and regulations.
Persons interested in obtaining a copy of the guidance may do so by downloading an electronic copy from the internet. A search capability for all Center for Devices and Radiological Health guidance documents is available at
While this guidance contains no collection of information, it does refer to previously approved FDA collections of information. Therefore, clearance by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501–3521) is not required for this guidance. The previously approved collections of information are subject to review by OMB under the PRA. The collections of information in the following FDA regulations and guidance have been approved by OMB as listed in the following table:
Food and Drug Administration, HHS.
Notice of availability.
The Food and Drug Administration (FDA or Agency) is announcing the availability of a draft document entitled “Human Gene Therapy for Neurodegenerative Diseases; Draft Guidance for Industry.” Neurodegenerative diseases are a heterogeneous group of disorders characterized by progressive degeneration of the structure and function of the central nervous system or peripheral nervous system. The draft guidance document provides recommendations to sponsors developing a human gene therapy (GT) product for neurodegenerative diseases affecting adult and pediatric patients. The guidance focuses on considerations for product development, preclinical testing, and clinical trial design.
Submit either electronic or written comments on the draft guidance by April 6, 2021 to ensure that the Agency considers your comment on this draft guidance before it begins work on the final version of the guidance.
You may submit comments on any guidance at any time as follows:
Submit electronic comments in the following way:
•
• If you want to submit a comment with confidential information that you do not wish to be made available to the public, submit the comment as a written/paper submission and in the manner detailed (see “Written/Paper Submissions” and “Instructions”).
Submit written/paper submissions as follows:
•
• For written/paper comments submitted to the Dockets Management Staff, FDA will post your comment, as well as any attachments, except for information submitted, marked and identified, as confidential, if submitted as detailed in “Instructions.”
• Confidential Submissions—To submit a comment with confidential information that you do not wish to be made publicly available, submit your comments only as a written/paper submission. You should submit two copies total. One copy will include the information you claim to be confidential with a heading or cover note that states “THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION.” The Agency will review this copy, including the claimed confidential information, in its consideration of comments. The second copy, which will have the claimed confidential information redacted/blacked out, will be available for public viewing and posted on
You may submit comments on any guidance at any time (see 21 CFR 10.115(g)(5)).
Submit written requests for single copies of the guidance to the Office of Communication, Outreach and Development, Center for Biologics Evaluation and Research (CBER), Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 71, Rm. 3128, Silver Spring, MD 20993–0002. Send one self-addressed adhesive label to assist the office in processing your requests. The draft guidance may also be obtained by mail by calling CBER at 1–800–835–4709 or 240–402–8010. See the
Shruti Modi, Center for Biologics Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 71, Rm. 7301, Silver Spring, MD 20993–0002, 240–402–7911.
FDA is announcing the availability of a draft document entitled “Human Gene Therapy for Neurodegenerative Diseases; Draft Guidance for Industry.” Neurodegenerative diseases are a heterogeneous group of disorders characterized by progressive degeneration of the structure and function of the central nervous system or peripheral nervous system. The draft guidance document provides recommendations to sponsors developing a GT product for neurodegenerative diseases affecting adult and pediatric patients. This guidance focuses on considerations for product development, preclinical testing, and clinical trial design.
This draft guidance is being issued consistent with FDA's good guidance practices regulation (21 CFR 10.115). The draft guidance, when finalized, will represent the current thinking of FDA on recommendations for sponsors developing human GT products for neurodegenerative disorders affecting adult and pediatric patients. It does not establish any rights for any person and is not binding on FDA or the public. You can use an alternative approach if it satisfies the requirements of the applicable statutes and regulations.
While this guidance contains no collection of information, it does refer to previously approved FDA collections of information. Therefore, clearance by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501–3521) is not required for this guidance. The previously approved collections of information are subject to review by OMB under the PRA. The collections of information in 21 CFR part 50 have been approved under OMB control number 0910–0755; the collections of information in 21 CFR part 312 have been approved under OMB control number 0910–0014; the collections of information in 21 CFR part 601 have been approved under OMB control number 0910–0338; and the collections of information in the guidance entitled “Expedited Programs for Serious Conditions—Drugs and Biologics” have been approved under OMB control number 0910–0765.
Persons with access to the internet may obtain the draft guidance at either
Department of Health and Human Services (HHS), Food and Drug Administration (FDA).
Notice; withdrawal.
The Department of Health and Human Services is issuing this Notice to withdraw FDA's December 29, 2020
The Notice, published in the
David Haas, Office of Financial Management, Food and Drug Administration, 4041 Powder Mill Rd., Rm. 61075, Beltsville, MD 20705–4304, 240–402 4585.
On December 29, 2020, FDA published a Notice in the
FDA has also been ordered to cease collections activities related to the Over-the-Counter Monograph User Fee Program (“OMUFA”) until, with the approval of the Secretary, the Department issues further direction concerning FDA's administration of OMUFA which provides the public with notice and opportunity for comment.
Notice of meetings.
This notice announces the 2021 meetings of the Physician-Focused Payment Model Technical Advisory Committee (PTAC). These meetings include deliberation and voting on proposals for physician-focused payment models (PFPMs) submitted by individuals and stakeholder entities and may include discussions on topics related to current or previously submitted PFPMs. All meetings are open to the public.
The 2021 PTAC meetings will occur on the following dates:
Please note that times are subject to change. If the times change, the ASPE PTAC website will be updated (
All PTAC meetings will be held virtually or in the Great Hall of the Hubert H. Humphrey Building, 200 Independence Avenue SW, Washington, DC 20201.
Stella Mandl, Designated Federal Officer at
PTAC is governed by provisions of the Federal Advisory Committee Act, as amended (5 U.S.C App.), which sets forth standards for the formation and use of federal advisory committees.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The contract proposals and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the contract proposals, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The contract proposals and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the contract proposals, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Notice is hereby given of a change in the meeting of the Board of Scientific Counselors, National Institute of Mental Health, January 19, 2021, 3:00 p.m. to January 22, 2021, 6:00 p.m., PORTER NEUROSCIENCE RESEARCH CENTER, Building 35A, 35 Convent Drive, Bethesda, MD 20892 which was
This notice is being amended to update the dates of the meeting. The meeting will now be held on January 21–22, 2021 only. The format remains virtual. The meeting is closed to the public.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for the State of New York (FEMA–4472–DR), dated December 19, 2019, and related determinations.
This change occurred on December 3, 2020.
Dean Webster, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW, Washington, DC 20472, (202) 646–2833.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, Lai Sun Yee, of FEMA is appointed to act as the Federal Coordinating Officer for this disaster.
This action terminates the appointment of Seamus K. Leary as Federal Coordinating Officer for this disaster.
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for the State of Ohio (FEMA–4447–DR), dated June 18, 2019, and related determinations.
This change occurred on December 28, 2020.
Dean Webster, Office of Response and
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, Joseph Cirone, of FEMA is appointed to act as the Federal Coordinating Officer for this disaster.
This action terminates the appointment of Steven W. Johnson as Federal Coordinating Officer for this disaster.
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for the State of New Jersey (FEMA–4488–DR), dated March 25, 2020, and related determinations.
This change occurred on December 13, 2020.
Dean Webster, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW, Washington, DC 20472, (202) 646–2833.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, David Maurstad, of FEMA is appointed to act as the Federal Coordinating Officer for this disaster.
This action terminates the appointment of Thomas Von Essen as Federal Coordinating Officer for this disaster.
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for the State of North Dakota (FEMA–4553–DR), dated July 9, 2020, and related determinations.
This amendment was issued December 18, 2020.
Dean Webster, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW, Washington, DC 20472, (202) 646–2833.
The notice of a major disaster declaration for the State of North Dakota is hereby amended to include the following areas among those areas determined to have been adversely affected by the event declared a major disaster by the President in his declaration of July 9, 2020.
Kidder and Wells Counties for Public Assistance.
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for the Commonwealth of Puerto Rico (FEMA–4493–DR), dated March 27, 2020, and related determinations.
This change occurred on December 13, 2020.
Dean Webster, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW, Washington, DC 20472, (202) 646–2833.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, David Maurstad, of FEMA is appointed to act as the Federal Coordinating Officer for this disaster.
This action terminates the appointment of Thomas Von Essen as Federal Coordinating Officer for this disaster.
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for the territory of the U.S. Virgin Islands (FEMA–4513–DR), dated Aril 2, 2020, and related determinations.
This change occurred on December 13, 2020.
Dean Webster, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW, Washington, DC 20472, (202) 646–2833.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, David Maurstad, of FEMA is appointed to act as the Federal Coordinating Officer for this disaster.
This action terminates the appointment of Thomas Von Essen as Federal Coordinating Officer for this disaster.
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for the State of New York (FEMA–4480–DR), dated March 20, 2020, and related determinations.
This change occurred on December 13, 2020.
Dean Webster, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW, Washington, DC 20472, (202) 646–2833.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, David Maurstad, of FEMA is appointed to act as the Federal Coordinating Officer for this disaster.
This action terminates the appointment of Thomas Von Essen as Federal Coordinating Officer for this disaster.
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of an emergency declaration for the State of Florida (FEMA–3551–EM), dated November 11, 2020, and related determinations.
This amendment was issued December 9, 2020.
Dean Webster, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW, Washington, DC 20472, (202) 646–2833.
Notice is hereby given that the incident period for this emergency is closed effective November 12, 2020.
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for the State of Ohio (FEMA–4424–DR), dated April 8, 2019, and related determinations.
This change occurred on December 28, 2020.
Dean Webster, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW, Washington, DC 20472, (202) 646–2833.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, Joseph Cirone, of FEMA is appointed to act as the Federal Coordinating Officer for this disaster.
This action terminates the appointment of Steven W. Johnson as Federal Coordinating Officer for this disaster.
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for the State of Louisiana (FEMA–4570–DR), dated October 16, 2020, and related determinations.
This amendment was issued December 23, 2020.
Dean Webster, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW, Washington, DC 20472, (202) 646–2833.
The notice of a major disaster declaration for the State of Louisiana is hereby amended to include the following areas among those areas determined to have been adversely affected by the event declared a major disaster by the President in his declaration of October 16, 2020.
Allen and Iberia Parishes for Individual Assistance (already designated for debris removal and emergency protective measures [Categories A and B], including direct federal assistance, under the Public Assistance program).
Caldwell Parish for debris removal and emergency protective measures [Categories A and B] (already designated for emergency protective measures [Category B], limited to direct federal assistance, under the Public Assistance program).
Beauregard Parish for debris removal [Category A] and permanent work [Categories C–G] (already designated for Individual Assistance and emergency protective measures [Category B], including direct federal assistance, under the Public Assistance program).
East Baton Rouge, Point Coupee, St. Mary, West Baton Rouge, and Winn Parishes for debris removal [Category A] and permanent work [Categories C–G] (already designated for emergency protective measures [Category B], including direct federal assistance, under the Public Assistance program).
Calcasieu, Lafayette, Rapides, St. Landry, St. Martin, and Vermilion Parishes for permanent work [Categories C–G] (already designated for Individual Assistance and debris removal and emergency protective measures [Categories A and B], including direct federal assistance, under the Public Assistance program).
Allen, Iberia, and Grant Parishes for permanent work [Categories C–G] (already designated for debris removal and emergency protective measures [Categories A and B], including direct federal assistance, under the Public Assistance program).
Federal Emergency Management Agency, DHS.
Notice.
This is a notice of the Presidential declaration of a major disaster for the State of Texas (FEMA–4572–DR), dated December 9, 2020, and related determinations.
The declaration was issued December 9, 2020.
Dean Webster, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW, Washington, DC 20472, (202) 646–2833.
Notice is hereby given that, in a letter dated December 9, 2020, the President issued a major disaster declaration under the
I have determined that the damage in certain areas of the State of Texas resulting from Hurricane Laura during the period of August 23 to August 27, 2020, is of sufficient severity and magnitude to warrant a major disaster declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121
In order to provide Federal assistance, you are hereby authorized to allocate from funds available for these purposes such amounts as you find necessary for Federal disaster assistance and administrative expenses.
You are authorized to provide Public Assistance in the designated areas and Hazard Mitigation throughout the State. Consistent with the requirement that Federal assistance be supplemental, any Federal funds provided under the Stafford Act for Public Assistance and Hazard Mitigation will be limited to 75 percent of the total eligible costs.
Further, you are authorized to make changes to this declaration for the approved assistance to the extent allowable under the Stafford Act.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, Jerry S. Thomas, of FEMA is appointed to act as the Federal Coordinating Officer for this major disaster.
The following areas of the State of Texas have been designated as adversely affected by this major disaster:
Galveston, Jasper, Jefferson, Newton, and Orange Counties for Public Assistance.
All areas within the State of Texas are eligible for assistance under the Hazard Mitigation Grant Program.
Federal Emergency Management Agency, DHS.
Notice.
This is a notice of the Presidential declaration of an emergency for the State of Florida (FEMA–3551–EM), dated November 11, 2020, and related determinations.
The declaration was issued November 11, 2020.
Dean Webster, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW, Washington, DC 20472, (202) 646–2833.
Notice is hereby given that, in a letter dated November 11, 2020, the President issued an emergency declaration under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121
I have determined that the emergency conditions in certain areas of the State of Florida resulting from Hurricane Eta beginning on November 7, 2020, and continuing, are of sufficient severity and magnitude to warrant an emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121
You are authorized to provide appropriate assistance for required emergency measures, authorized under title V of the Stafford Act, to save lives and to protect property and public health and safety, and to lessen or avert the threat of a catastrophe in the designated areas. Specifically, you are authorized to provide assistance for emergency protective measures (Category B), limited to direct Federal assistance and reimbursement for mass care including evacuation and shelter support.
Consistent with the requirement that Federal assistance be supplemental, any Federal funds provided under the Stafford Act for Public Assistance will be limited to 75 percent of the total eligible costs. In order to provide Federal assistance, you are hereby authorized to allocate from funds available for these purposes such amounts as you find necessary for Federal emergency assistance and administrative expenses.
Further, you are authorized to make changes to this declaration for the approved assistance to the extent allowable under the Stafford Act.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, Jeffrey L. Coleman, of FEMA is appointed to act as the Federal Coordinating Officer for this declared emergency.
The following areas of the State of Florida have been designated as adversely affected by this declared emergency:
Alachua, Citrus, Dixie, Gilchrist, Hernando, Hillsborough, Levy, Manatee, Marion, Pasco, Pinellas, Sarasota, and Sumter Counties for emergency protective measures (Category B), limited to direct Federal assistance and reimbursement for mass care including evacuation and shelter support.
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for the State of Illinois (FEMA–4461–DR), dated September 19, 2019, and related determinations.
This change occurred on December 28, 2020.
Dean Webster, Office of Response and Recovery, Federal Emergency
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, Brian Schiller, of FEMA is appointed to act as the Federal Coordinating Officer for this disaster.
This action terminates the appointment of Steven W. Johnson as Federal Coordinating Officer for this disaster.
Federal Emergency Management Agency, DHS.
Notice.
This is a notice of the Presidential declaration of a major disaster for the State of Oklahoma (FEMA–4575–DR), dated December 21, 2020, and related determinations.
The declaration was issued December 21, 2020.
Dean Webster, Office of Response and Recovery, Federal Emergency Management Agency, 500 C Street SW, Washington, DC 20472, (202) 646–2833.
Notice is hereby given that, in a letter dated December 21, 2020, the President issued a major disaster declaration under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121
I have determined that the damage in certain areas of the State of Oklahoma resulting from a severe winter storm during the period of October 26 to October 29, 2020, is of sufficient severity and magnitude to warrant a major disaster declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121
In order to provide Federal assistance, you are hereby authorized to allocate from funds available for these purposes such amounts as you find necessary for Federal disaster assistance and administrative expenses.
You are authorized to provide Public Assistance in the designated areas and Hazard Mitigation throughout the State. Consistent with the requirement that Federal assistance be supplemental, any Federal funds provided under the Stafford Act for Public Assistance and Hazard Mitigation will be limited to 75 percent of the total eligible costs.
Further, you are authorized to make changes to this declaration for the approved assistance to the extent allowable under the Stafford Act.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, Traci L. Brasher, of FEMA is appointed to act as the Federal Coordinating Officer for this major disaster.
The following areas of the State of Oklahoma have been designated as adversely affected by this major disaster:
Caddo, Canadian, Cleveland, Dewey, Grady, Kingfisher, Kiowa, Logan, Noble, Oklahoma, Payne, Pottawatomie, and Roger Mills Counties for Public Assistance.
All areas within the State of Oklahoma are eligible for assistance under the Hazard Mitigation Grant Program.
Office of the Assistant Secretary for Public and Indian Housing (PIH), Department of Housing and Urban Development (HUD).
Notice of restrictions.
On July 15, 2020, HUD published a notice (“HCV Mobility Demonstration Notice”) implementing the Housing Choice Voucher (HCV) mobility demonstration (“HCV mobility demonstration”) authorized by the Consolidated Appropriations Act, 2019. Through that Notice, HUD is making available up to $50,000,000 to participating Public Housing Agencies (“PHAs”) throughout the country to implement housing mobility programs by offering mobility-related services to increase the number of voucher families with children living in opportunity areas. HUD now supplements the July 15, 2020 notice to partially restrict participation in both the HCV mobility demonstration program and the Moving to Work demonstration expansion (“MTW expansion”) program. These restrictions are necessary to ensure the integrity of the Congressionally-mandated evaluations of both demonstrations. This notice also provides two minor technical corrections to definitions provided in the July 15, 2020, HCV Mobility Demonstration Notice.
Rebecca Primeaux, Director, Housing Voucher Management and Operations Division, Department of Housing and Urban Development, 451 Seventh Street SW, Room 4214, Washington, DC 20410, telephone number (202) 708–1112. (This is not a toll-free number.) Individuals with hearing or speech impediments may access this number via TTY by calling the Federal Relay during working hours at 800–877–8339. (This
On July 15, 2020, HUD published its HCV Mobility Demonstration Notice in the
On August 28, 2020, HUD published the “Operations Notice for the Expansion of the Moving to Work Program” (“MTW Operations Notice”) in the
HUD issued PIH Notices for the first two of the five cohorts to solicit applications from eligible PHAs for participation in the MTW expansion. The PIH Notices describe specific application submission requirements, evaluation criteria, and the process HUD will use when selecting PHAs for cohorts one and two of the MTW expansion. PIH Notices for the remaining three cohorts will be issued at a later date.
The evaluation of the first cohort, MTW flexibility on small PHAs, will evaluate the overall impact of MTW flexibilities on PHAs with less than 1,000 units. The evaluation of the second cohort, rent reform, will evaluate the impacts of different rent structures. The third cohort will focus on work requirements and the fourth cohort will examine landlord incentives. The fifth cohort, MTW flexibility on PHAs with fewer than 27,000 units, will be similar to the first cohort.
After careful consideration, HUD's office of Policy Development and Research (PD&R), which has been directed by Congress to evaluate both the HCV mobility demonstration and the MTW expansion, has determined that the Congressionally mandated rigorous evaluation of the demonstrations create significant barriers for PHAs to participate fully in both programs. More specifically, without these reasonable and tailored restrictions of MTW participation, the evaluations could become so skewed that it would defeat the legislative mandate to conduct an objective analysis of the mobility demonstration. This is because MTW agencies already have flexibility to engage in their own directed mobility programs that non-MTW PHAs are currently unlikely to be able to implement with their existing federal funds. Therefore, HUD is establishing additional requirements for participation in the HCV mobility demonstration.
PHAs may apply to all cohorts the MTW expansion and also apply to the HCV mobility demonstration. However, HUD will restrict participation for PHAs selected for both the MTW expansion and the HCV mobility demonstration programs as follows:
• PHAs selected for cohorts one and five (MTW flexibilities) may participate in both the HCV mobility demonstration and the MTW expansion. However, they must agree to limit the adoption of certain MTW flexibilities, for the HCV program only, during the term of HCV mobility demonstration participation described in the initial HCV Mobility Demonstration Notice. HUD will document these limitations in the HCV mobility demonstration memorandum of understanding (“MOU”) to be executed between the PHA and HUD. There will be no restriction on the public housing activities the PHA may undertake.
• PHAs may not participate in both the HCV mobility demonstration and cohorts two (rent reform), three (work requirements) or four (landlord incentives) of the MTW expansion.
○ Applications for cohort two (rent reform) are due on January 8, 2021. If a PHA is selected for both cohort two (rent reform) and the HCV mobility demonstration, the PHA must choose which demonstration to participate in and withdraw from the other demonstration within 21 calendar days after notifications of selection have been made for both programs.
○ For cohorts three and four, if a PHA has already been selected for the HCV mobility demonstration, it may not apply for cohort three (work requirements) or cohort four (landlord incentives) of the MTW expansion. In the unlikely event that selection notifications for the HCV mobility demonstration have not been made by the application due date for cohorts three and four, PHAs may submit an application for those MTW expansion cohorts. If a PHA is selected for either cohort three (work requirements) or cohort four (landlord incentives) and the HCV mobility demonstration, the PHA must choose which demonstration to participate in and withdraw from the other demonstration within 21 calendar days after notifications of selection have been made for both programs.
PHAs participating in cohorts one and five of the MTW expansion are allowed to adopt MTW flexibilities as outlined in the MTW Operations Notice. HUD is restricting certain MTW flexibilities for PHAs participating in both the HCV mobility demonstration and cohorts one and five (MTW flexibilities) of the MTW expansion for three primary reasons:
• Potential for offering additional services to families in the HCV mobility demonstration treatment and control groups that would result in a noncomparable intervention when compared to other HCV mobility demonstration sites;
• Potential to influence residential locational choices for families based on unit rents and required family rent share; and
• Potential for interfering with the PHA being able to meet the minimum enrollment requirements for the HCV mobility demonstration treatment and control groups.
For PHAs participating in MTW expansion cohorts one and five and in the HCV mobility demonstration, the following MTW flexibilities may not be implemented without the express written permission of HUD: Work requirements, vacancy loss, damage claims, other landlord incentives, pre-qualifying unit inspections, and reasonable penalty payments for landlords may not be implemented due to the potential for the offering of additional services to families and landlords in the HCV mobility demonstration treatment and control groups that would result in noncomparable intervention when compared to other HCV mobility demonstration sites.
Additionally, PHAs may not make Family Self-Sufficiency (“FSS”) programs mandatory under “alternative family selection procedures” for MTW self-sufficiency programs or FSS programs with MTW flexibility for similar reasons. PHAs that operate a mandatory FSS program also will not be allowed to waive operating the FSS program for the HCV program. However, service provision under local non-traditional activities could potentially be implemented with prior approval by HUD.
PHAs participating in the HCV mobility demonstration and the MTW expansion cohort one or cohort five may not implement the following MTW flexibilities without the express written permission of HUD: Term limits, tenant payment as a modified percentage of income, fixed subsidy, initial rent burden, and imputed income activities. This is due to the potential to influence residential locational choices for families based on unit rents and required family rent share. HUD has not fully determined whether PHAs would be able to limit portability for project-based voucher (“PBV”) units and will work with the research team to make a final determination.
MTW flexibilities related to short term assistance and increasing the PBV program cap may be implemented as long as HUD provides prior approval. These activities may be restricted due to the potential for interfering with the PHA being able to meet the minimum enrollment requirements for the HCV mobility demonstration.
PHAs may not participate in cohorts two (rent reform), three (work requirements), or four (landlord incentives) of the MTW expansion and the HCV mobility demonstration. The evaluation in cohorts two (rent reform) and three (work requirements) will require family level randomization, which will create significant conflicts for the integrity of the HCV mobility demonstration evaluation, which also requires family level randomization.
Inclusion of PHAs in the MTW expansion cohort four (landlord incentives) and the mobility demonstration would also create significant research complications, due to the HCV mobility demonstration requiring a standard set of landlord incentives which would likely differ from the landlord incentive research requirements of the MTW expansion.
After selection, and for the duration of participation in the HCV mobility demonstration, PHAs that participate in cohorts one and five of the MTW expansion, legacy MTW PHAs, and all non-MTW PHAs, must also work closely with HUD and the evaluator before any new policy changes can be implemented. The process and terms for adoption of new policy changes will be described in the HCV mobility demonstration MOU executed between HUD and the PHA. This is consistent with the initial HCV Mobility Demonstration Notice, which asked PHAs to identify any potential conflicts between their programs and the HCV mobility demonstration. The initial HCV Mobility Demonstration Notice states, “After the program and research design is finalized, HUD will draft a memorandum of understanding (MOU) that outlines roles, responsibilities, the program and research design, services to be offered, and descriptions of administrative policies, among other things. HUD also will draft a performance standards agreement that outlines programmatic goals, recapture and reallocation terms, a budget, and a payment schedule for mobility-related services.”
In other words, and similar to other evaluations conducted by HUD, PHAs that participate in the HCV mobility demonstration will not be permitted to adopt any policy changes during the duration of their participation that conflict with the HCV mobility demonstration implementation and research.
HUD anticipates that the announcement of the selection of PHAs for the HCV mobility demonstration and the first and second cohorts of the MTW expansion will happen around the same time in early 2021. PHAs that are selected for the HCV mobility demonstration and cohort one of the MTW expansion will be required to limit certain MTW flexibilities in order to participate in both programs. HUD will document these limitations in the HCV mobility demonstration memorandum of understanding to be executed between the PHA and HUD. PHAs selected for cohort two (rent reform) of the MTW expansion and the HCV mobility demonstration will be asked to decide which program the PHA will participate in and withdraw from the other program. The PHA must choose which demonstration to participate in and withdraw from the other demonstration within 21 calendar days after notifications of selection have been made for both programs.
If a PHA applied as a single PHA or as part of a joint application to the HCV mobility demonstration and decides to participate in cohort two (rent reform) of MTW expansion, the application to the HCV mobility demonstration will be withdrawn. Given the extensive nature of both applications, HUD strongly encourages PHAs that are part of a joint HCV mobility demonstration application to discuss whether any of the PHAs intend to participate in the MTW expansion.
However, PHAs submitting a joint application to the HCV mobility demonstration with a PHA that also is applying for cohort two (rent reform) of the MTW expansion may submit a second application for the HCV mobility demonstration if they otherwise qualify under one of the statutory eligibility categories. HUD will score second applications along with the rest of the applications, but would only consider the score of the second application (which may be different than the score of the first application) if a PHA as part of a joint application chooses to participate in cohort two (rent reform) of the MTW expansion rather than the HCV mobility demonstration. No applications will be considered after the application deadline.
In FR Notice 6191–N–01, published in the
In FR Notice 6191–N–01, Section VII Application Format, Part 3, Capacity of the Organization of the Mobility Demonstration Notice, HUD requested PHAs to submit, “Number of recertifications completed for families with children between January 1, 2010 and December 31, 2019.” PHAs should submit the number of recertifications completed for families with children between January 1, 2019 and December 31, 2019.
Office of the Assistant Secretary for Community Planning and Development, HUD.
Notice.
This notice allocates over $186 million in Community Development Block Grant Mitigation (CDBG–MIT) funds to grantees recovering from qualifying 2018 disasters. Funds allocated by this notice were made available by the Additional Supplemental Appropriations for Disaster Relief Act, 2019. This notice describes grant requirements and procedures, including waivers and alternative requirements, applicable to CDBG–MIT funds only. Funds allocated pursuant to this notice shall be subject only to the provisions of this notice and the applicable prior notices, unless otherwise provided herein. This notice also clarifies the applicability of certain previous waivers and alternative requirements provided for CDBG–MIT grantees.
Jessie Handforth Kome, Director, Office of Block Grant Assistance, Department of Housing and Urban Development, 451 7th Street SW, Room 7282, Washington, DC 20410, telephone number 202–708–3587. Persons with hearing or speech impairments may access this number via TTY by calling the Federal Information Relay Service at 800–877–8339. Facsimile inquiries may be sent to Ms. Kome at 202–708–0033. (Except for the “800” number, these telephone numbers are not toll-free). Email inquiries may be sent to
The Additional Supplemental Appropriations for Disaster Relief Act, 2019 (Pub. L. 116–20, approved June 6, 2019) (Appropriations Act) made $2,431,000,000 in Community Development Block Grant disaster recovery (CDBG–DR) funds available for major disasters occurring in 2017, 2018, or 2019, of which $431,000,000 was for grantees that received funds in response to disasters occurring in 2017. On January 27, 2020, HUD allocated $2,153,928,000 in CDBG–DR funds in accordance with the Appropriations Act, to address unmet disaster recovery needs through activities authorized under title I of the Housing and Community Development Act of 1974 (42 U.S.C. 5301
HUD has determined that its CDBG–DR allocations pursuant to the Appropriations Act are sufficient to address unmet disaster recovery needs in MID areas arising from 2018 and 2019 disasters. Therefore, this notice allocates the remaining $186,781,000 in funds made available in the Appropriations Act as CDBG–MIT funds to grantees recovering from qualifying 2018 disasters.
HUD described the grant requirements and procedures, including waivers and alternative requirements applicable to CDBG–MIT funds, for CDBG–MIT grantees in the following
• 84 FR 45838, published August 30, 2019 (the “Main CDBG–MIT Notice”); and
• 85 FR 60821, published September 28, 2020 (the “2020 Omni Notice”).
CDBG–MIT funds allocated in the Prior Notices are made available by the Further Additional Supplemental Appropriations for Disaster Relief Requirements Act, 2018 (Pub. L. 115–123). Pursuant to that appropriation, HUD allocated $6.875 billion in CDBG–MIT funds in the Main CDBG–MIT Notice to grantees recovering from a qualifying 2015, 2016, and 2017 disaster for mitigation activities.
In the Main CDBG–MIT Notice, HUD recognized that CDBG–MIT funds are to be used for distinctly different purposes than CDBG–DR funds. In that notice, HUD defined “mitigation activities” to mean those activities that increase resilience to disasters and reduce or eliminate the long-term risk of loss of life, injury, damage to and loss of property, and suffering and hardship, by lessening the impact of future disasters.
The nature of programs and projects that are likely to be funded require all CDBG–MIT grantees and their subrecipients to strengthen their program management capacity, financial management, and internal controls. The Main CDBG–MIT Notice also states the Department's intent to establish special grant conditions for individual CDBG–MIT grants based upon the risks posed by the grantee, including risks related to the grantee's capacity to carry out the specific programs and projects proposed in its action plan. These conditions are designed to provide additional assurances that oversight of CDBG–MIT funds addresses grantee-specific risks, such as the potential for waste, fraud, and abuse, or the potential failure to effectively operate and maintain mitigation projects.
This notice imposes the requirements of the Prior Notices as amended by provisions in this notice or by subsequent notices, to the CDBG–MIT grants allocated by this notice.
Funds allocated under this notice are subject to the requirements of the Prior Notices, as amended by this notice or subsequent notices. This notice outlines additional requirements imposed by the Appropriations Act that apply to funds allocated under this notice.
HUD recognizes that grantees receiving an allocation of CDBG–MIT funds of less than $5,000,000 may realize meaningful mitigation outcomes and minimize associated administrative costs by using these funds for a limited number of targeted mitigation activities and projects. HUD will provide technical assistance, when appropriate, for grantees receiving an allocation of less than $5 million in CDBG–MIT funds and who adopt this targeted approach. Like all uses of CDBG–MIT funds, use of funds for a targeted number of activities must mitigate specific current and future risks identified in the grantee's Mitigation Needs Assessment and benefit MID areas. All grantees should also maximize the impact of available funds by encouraging leverage, private-public partnerships, and coordination with other Federal programs.
As discussed in section III.B. of this notice, grantees that received a CDBG–MIT allocation pursuant to Public Law 115–123 must submit a substantial amendment to its approved CDBG–MIT action plan.
The Appropriations Act made CDBG–MIT funds available for eligible activities related to the mitigation of risks within the MID areas resulting from 2018 disasters. Table 1 identifies the HUD-identified MID areas for CDBG–MIT funds under this notice only. The amount of funding grantees must expend to mitigate risks within the HUD-identified MID areas under this notice is also listed in Table 1. In some instances, HUD has identified the entire jurisdiction of a grantee as the HUD-identified MID area. For all other CDBG–MIT grantees, HUD is requiring that at least 50 percent of all CDBG–MIT funds must be used for mitigation activities that address identified risks within the HUD-identified MID areas.
Note that if HUD designates a ZIP Code for 2018 disasters as a MID area for purposes of allocating funds, the grantee may expand program operations to the whole county (county is indicated in parentheses next to the ZIP Code) as a MID area. For CDBG–MIT funds under this notice only, a grantee should indicate its decision to expand eligibility to the whole county in its action plan.
A grantee may use up to 5 percent of the total grant award (plus 5 percent of program income generated by the grant) for grant administration and no more than 15 percent of its total grant amount on planning costs. HUD will include 50 percent of a grantee's expenditures for grant administration in its determination that 50 percent of the total award has been expended in the HUD-identified MID areas. Additionally, expenditures for planning activities may be counted towards a grantee's 50 percent MID expenditure requirement, provided that the grantee describes in its action plan how those planning activities benefit the HUD-identified MID areas.
HUD may approve a grantee's request to add other areas to the HUD-identified MID areas based upon the grantee's submission of a data-driven analysis that illustrates the basis for designating the additional area as most impacted and distressed as a result of the qualifying 2018 disaster. A grantee seeking to amend its HUD-identified MID area for purposes of its CDBG–MIT grant for 2018 disasters must also amend the HUD-identified MID area for its corresponding CDBG–DR grant(s) for 2018 disasters. Grantees proposing to add to the HUD-identified MID area for their existing CDBG–DR grant do so through a substantial amendment that includes a consideration of unmet housing recovery needs. The grantee must also undertake a substantial amendment to its CDBG–MIT action plan so that the HUD-identified MID areas are the same across both grants. The grantee may submit the substantial amendments for both grants simultaneously.
Grantees may determine where to use the remaining 50 percent of the CDBG–MIT grant (
Grantee expenditures for eligible mitigation activities outside of the HUD-identified or grantee-identified MID areas for 2018 disasters may be counted toward the MID area expenditure requirements provided that the grantee can demonstrate how the expenditure of CDBG–MIT funds outside of this area will measurably mitigate risks identified within the HUD-identified or grantee-identified MID area for 2018 disasters (
Grantees that have not received a previous CDBG–MIT allocation (Alaska, American Samoa, Hawaii County, Kauai County, the Commonwealth of the Northern Mariana Islands, and Wisconsin) must submit an action plan pursuant to the requirements in section V.A.2 of the Main CDBG–MIT Notice, as superseded by section IV.A.3.b. of this notice (
Grantees that received allocations under the January 2020 Notice for 2018 and 2019 disasters submitted information described in section VI.A.1. of the February 9, 2018 notice (as amended and updated by section IV.B.1. of the January 27, 2020 notice). These submissions supported the Secretary's evaluation of grantee capacity and the Secretary's certification of proficient financial controls and procurement processes and adequate procedures for proper grant management required by the Appropriations Act. Rather than resubmit the same information for allocations under this notice, grantees are required to update those submissions to reflect any material changes. This includes updates to the information required by section VI.A.1.a. of the February 9, 2018 notice (83 FR 5847), paragraphs (1)–(6), as updated and amended by section IV.B.1. of the January 2020 Notice (85 FR 4686). HUD will consider these updates before granting funds allocated by this notice. The submission deadlines in the notices referenced in the previous two paragraphs are superseded by deadlines set by this notice. HUD will direct grantees to checklists for submitting information required by this paragraph.
Grantees must also submit additional information that the Main CDBG–MIT Notice requires of grantees that do not apply to CDBG–DR grants. The required information must be submitted by completing the checklist on HUD's website titled “CDBG–MIT Certification Addendum C to the Public Law 116–20 and 115–254 CDBG–DR Financial Management and Grant Compliance Certification Checklist.” In the checklist, a CDBG–MIT grantee must: Indicate how it will strengthen its internal audit function; specify the criteria for subrecipient selection and its plans to increase subrecipient monitoring, and establish a process for promptly identifying and addressing conflicts under the grantee's conflict of interest policy.
If the CDBG–MIT grant is to be administered by an agency that does not administer a grantee's corresponding CDBG–DR grant, the administering agency for the CDBG–MIT grant must submit the documentation for the certification of financial controls and procurement processes, and adequate procedures for proper grant management as described in section V.A.1.a. of the Main CDBG–MIT Notice.
To begin expending CDBG–MIT funds, the following steps are necessary:
• Grantee develops or amends its citizen participation plan for disaster recovery per the requirements in section V.A.3 of the Main CDBG–MIT Notice.
• Grantee consults with stakeholders, including required consultation with affected local governments, Indian Tribes, and public housing authorities (as required by section V.A.7 of the Main CDBG–MIT Notice).
• Within 210 days of the applicability date of this notice, the grantee must submit material updates to documentation for the certification of financial controls and procurement processes, and adequate procedures for grant management and the Addendum C added to Public Law 116–20 and 115–254 CDBG–DR Financial Management and Grant Compliance Certification Checklist, as described above.
• Grantee publishes its action plan for mitigation on the grantee's required public website for no less than 45 calendar days to solicit public comment and convenes the required number of public hearings on the proposed plan as required by the Main CDBG–MIT Notice. The grantee may convene virtual hearings in lieu of in-person hearings, pursuant to the authorization provided below in section IV.A.3.d. of this notice.
• Within 270 days of the applicability date of this notice, the grantee responds to public comment and submits its action plan (which includes Standard Form 424 (SF–424) and certifications), its implementation plan and capacity assessment submissions in accordance with the requirements in section V.A.1.b. and V.A.2. of the Main CDBG–MIT Notice, and projection of expenditures and outcomes to HUD as described in section IV.A.3.b. and IV.A.3.c. of this notice.
• Grantee requests and receives Disaster Recovery Grant Reporting (DRGR) system access and may enter activities into the DRGR system before or after submission of the action plan to HUD. Any activities that are changed as a result of HUD's review must be updated once HUD approves the action plan.
• HUD reviews (within 60 days from date of receipt) the action plan according to criteria identified for CDBG–MIT funds, and either approves or disapproves the plan as described in section IV.A.2 of this notice.
• If the action plan is not approved, HUD will notify the grantee of the deficiencies. The grantee must then resubmit the action plan within 45 days of the notification.
• After the action plan is approved, HUD sends an action plan approval letter.
• Prior to transmittal of the grant agreement, HUD notifies grantees of its certification of the grantee's financial controls, procurement processes and grant management procedures and its acceptance of the implementation plan and capacity assessment.
• HUD sends the grant agreement to the grantee.
• Grantee signs and returns the grant agreement to HUD.
• HUD will sign the grant agreement and establish the grantee's line of credit to reflect the amount of available funds.
• Grantee posts the final HUD approved action plan on its official website.
• Grantee enters the activities from its approved action plan into the DRGR system if it has not previously done so and submits its DRGR action plan to HUD (funds can be drawn from the line of credit only for activities that are established in the DRGR system).
• The grantee must publish (on its website) policies for programs and activities implemented by the grantee with CDBG–MIT funds.
• The grantee may draw down funds from the line of credit, consistent with the applicable draw down requirements, after the Responsible Entity completes applicable environmental review(s) pursuant to 24 CFR part 58 or as authorized by the Appropriations Act and, as applicable, receives from HUD or the state the Authority to Use Grant Funds (AUGF) form and certification.
• Substantial amendments are subject to a 30-day public comment period, including posting to the grantee's website, followed by a 60-day review period for HUD.
A single CDBG–MIT action plan will be used to describe the uses of both the existing CDBG–MIT grant under Public Law 115–123 and the new CDBG–MIT grant under Public Law 116–20. While each grant remains separate, with separate purposes, financial controls, and some other distinctions, this combined administrative approach should ease grantee burden. Each grantee that previously received a CDBG–MIT allocation under the Main CDBG–MIT Notice pursuant to Public Law 115–123 (California, Florida, Georgia, North and South Carolina, and Texas) is required to submit a substantial amendment to its approved CDBG–MIT action plan. The substantial amendment must be submitted not later than 180 days after HUD's full or partial approval of the Public Law 115–123 CDBG–MIT action plan or not later than 180 days after the applicability date of this notice, whichever is later, unless the grantee has requested, and HUD has approved an extension of this submission deadline. The substantial amendment must include the CDBG–MIT funds allocated under this notice and address the requirements of the Prior Notices and this notice.
Grantees that received a CDBG–MIT allocation under the Main CDBG–MIT Notice have submitted documentation for the certification of financial controls and procurement processes, and adequate procedures for grant management in section V.A.1.a of the Main CDBG–MIT Notice entitled, “Certification of financial controls and procurement processes, and adequate procedures for proper grant management.” A grantee may request that HUD rely on this CDBG–MIT Financial Management and Grant Compliance Certification Checklist and supporting documentation for the purposes of this mitigation allocation, provided, however, that the grantee must update its submissions as described in section V.A.1.a. (1)–(6) of the Main CDBG–MIT Notice to reflect any material changes in the submissions.
Additionally, each grantee that received an allocation under the Main CDBG–MIT Notice must meet the following requirements to amend its approved CDBG–MIT action plan. These steps are only applicable to the substantial amendment process to add the CDBG–MIT funds allocated under this notice.
• Grantee must consult with stakeholders, including required consultation with affected local governments, Indian Tribes, and public housing authorities to update its Mitigation Needs Assessment as required by section V.A.7. of the Main CDBG–MIT Notice.
• Within 120 days of the applicability date of this notice, the grantee updates its submissions for the certification of financial controls and procurement processes, and adequate procedures for grant management described in section V.A.1.a. of the Main CDBG–MIT Notice to reflect any material changes in the submissions.
• Grantee must amend its CDBG–MIT action plan to update its Mitigation Needs Assessment in accordance with the requirements described in section IV.A.3.a. of this notice. At a minimum, this must include the HUD-identified MID areas under this notice in addition to those identified in the Main CDBG–MIT Notice and to add in the new grant funds allocated by this notice. The grantee may also modify or create new activities from its existing CDBG–MIT grant.
• Grantee must publish the substantial amendment to its current approved CDBG–MIT action plan on the grantee's required public website in a manner that affords citizens, affected local governments, Indian Tribes, public housing authorities, and other interested parties a reasonable opportunity to examine the amendment's contents and provide feedback. The manner of publication must include, at a minimum, prominent posting on the grantee's official website for no less than 30 calendar days to solicit public comment and convene one public hearing on the proposed amendment. Each grantee must ensure that mitigation program information is available in the appropriate languages for the geographic areas to be served (see HUD's LEP Guidance, 72 FR 2732 (2007)) and take appropriate steps to ensure effective communications with persons with disabilities under Section 504 (see, 24 CFR 8.6) and the Americans with Disabilities Act (see 28 CFR 35.106).
• Grantee must respond to public comment and submit its substantial amendment to HUD (together with SF–424 and the certifications in paragraph VI.1. of the Main CDBG–MIT Notice) no later than 180 days after the applicability date of this notice.
• HUD will review the substantial amendment within 60 days from date of receipt as described in section of IV.A.2. of this notice and determine whether to approve the substantial amendment per criteria identified in this notice and the Prior Notices.
• HUD will send a substantial amendment approval letter, and a new grant agreement to the grantee. If the substantial amendment is not approved, a letter will be sent identifying its deficiencies and the grantee must then re-submit the substantial amendment within 45 days of the notification letter.
• Grantee may enter activities into the DRGR system before or after submission of the substantial amendment to HUD. Note that, while the action plan is consolidated, the DRGR system will maintain the necessary and appropriate separations between the two distinct CDBG–MIT grants. Any activities that are changed as a result of HUD's review must be updated once HUD approves the substantial amendment.
• Grantee must ensure that the HUD-approved substantial amendment and currently approved CDBG–MIT action plan are posted prominently on its official website. Each grantee's current version of its entire action plan must be accessible for viewing as a single document at any given point in time, rather than the public or HUD having to view and cross-reference changes among multiple amendments.
• Grantee must enter the activities from its published substantial amendment into the Disaster Recovery Grant Reporting (DRGR) system and submit the updated DRGR action plan (revised to reflect the substantial amendment) to HUD within the DRGR system.
• Grantee must sign and return the grant agreement to HUD.
• HUD will sign the grant agreement and will establish the grantee's line of credit to reflect the amount of funds made available under Public Law 116–20.
• The grantee may draw down funds from the line of credit, consistent with the applicable draw down requirements, after the Responsible Entity completes applicable environmental review(s) pursuant to 24 CFR part 58 or as authorized by the Appropriations Act and, as applicable, receives from HUD
• Grantee must amend and submit its projection of CDBG–MIT expenditures and performance outcomes with the substantial amendment.
This section of the notice describes rules, statutes, waivers, and alternative requirements that apply to each grantee receiving an allocation under this notice. The Secretary has determined that good cause exists to apply each waiver and alternative requirement established in the Prior Notices, as amended by this notice, to the use of funds under this notice and that such waivers and alternative requirements are not inconsistent with the overall purpose of title I of the HCDA. The Appropriations Act authorizes the Secretary to waive or specify alternative requirements for any provision of any statute or regulation that the Secretary administers in connection with HUD's obligation or use by the recipient of these funds (except for requirements related to fair housing, nondiscrimination, labor standards, and the environment). Regulatory waiver authority is also provided by 24 CFR 5.110, 91.600, and 570.5.
Grantees may request additional waivers and alternative requirements from the Department as needed to address specific needs related to their mitigation activities. Grantee requests for waivers and alternative requirements must be accompanied by relevant data to support the request and must demonstrate to the satisfaction of the Department that there is good cause for the waiver or alternative requirement. Grantees must work with the assigned CPD representative to request any additional waivers or alternative requirements from HUD headquarters.
The following requirements apply only to the CDBG–MIT funds appropriated under the Appropriations Act (unless otherwise noted) and not to funds provided under the annual formula State or Entitlement CDBG programs, the Indian Community Development Block Grant program, or those provided under any other component of the CDBG program, such as the Section 108 Loan Guarantee Program, or any previous CDBG–MIT appropriations, unless otherwise noted. Pursuant to the requirements of the Appropriations Acts, waivers and alternative requirements are effective five days after they are published in the
Except as described in this notice or the Prior Notices, statutory and regulatory provisions governing the State CDBG program shall apply to State grantees receiving a CDBG–MIT grant and statutory and regulatory provisions governing the entitlement CDBG program shall apply to any local government receiving a CDBG–MIT grant. The provisions of 24 CFR part 570, subpart F are waived to authorize American Samoa and the Commonwealth of the Northern Mariana Islands to administer its CDBG–MIT allocation in accordance with the regulatory and statutory provisions governing the State CDBG program, as modified by rules, statutes, waivers, and alternative requirements made applicable by
HUD may disapprove an action plan or substantial action plan amendment if it is incomplete. HUD works with grantees to resolve or provide additional information during the review period to avoid the need to disapprove an action plan or substantial action plan amendments. There are several issues related to the action plan or substantial action plan amendments as submitted that can be fully resolved via further discussion and revision during an extended review period, rather than through HUD disapproval of the amendments which in turn would require grantees to take additional time to revise and resubmit their respective amendments. As such, the Secretary has determined that good cause exists to waive 24 CFR 91.500(a) to extend HUD's action plan review period from 45 days to 60 days.
(1) Identify and analyze the significant current and future disaster risks in the MID areas for 2018 disasters and provide a substantive basis for the activities proposed in those MID areas. HUD notes that a grantee's action plan and Mitigation Needs Assessment in response to the Main CDBG–MIT Notice may already include MID areas for 2018 disasters (if those areas overlap with previous disasters). In that case, the grantee must update its needs assessment. Mitigation needs evolve over time and grantees are to amend the Mitigation Needs Assessment and action plan as conditions change, additional mitigation needs are identified, and additional resources become available.
As a reminder, the agency administering the CDBG–MIT funds must consult with other jurisdictions, the private sector and other government agencies, as identified above in section III.A. and III.B. of this notice. For more information on the consultation requirements, a grantee should refer to section V.A.7. of the Main CDBG–MIT Notice.
As required by section III.A., the grantee must update its submissions for the certification of financial controls and procurement processes, and adequate procedures for grant management as described in section V.A.1.a. of the Main CDBG–MIT Notice to reflect any material changes in the submissions within 120 days of the applicability date of this notice.
For each virtual hearing, the grantee shall provide reasonable notification and access for citizens in accordance with the grantee's certifications, timely responses to all citizen questions and issues, and public access to all questions and responses.
The Appropriations Act makes funds available for obligation by HUD until expended. This notice requires each grantee to expend 50 percent of its CDBG–MIT grant for 2018 disasters on eligible activities within six years of HUD's execution of the grant agreement and 100 percent of its CDBG–MIT grant for 2018 disasters within twelve years of HUD's execution of the grant agreement. HUD may extend the period of performance administratively, if good cause for such an extension exists at that time, as requested by the grantee and approved by HUD. When the period of performance has ended, HUD will close out the grant and any remaining funds not expended by the grantee on appropriate programmatic purposes will be recaptured by HUD.
The Catalog of Federal Domestic Assistance numbers for the grants under this notice are as follows: 14.218 and 14.228.
A Finding of No Significant Impact (FONSI) with respect to the environment has been made in accordance with HUD regulations at 24 CFR part 50, which implement section 102(2)(C) of the National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). The FONSI is available for public inspection on HUD's website and in-person between 8 a.m. and 5 p.m. weekdays in the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW, Room 10276, Washington, DC 20410–0500. Due to
According to Public Law 116–20:
Provided further, That any funds made available under this heading and under the same heading in Public Law 115–254 that remain available, after the funds under such headings have been allocated for necessary expenses for activities authorized under such headings, shall be allocated to grantees, for mitigation activities in the most impacted and distressed areas resulting from a major disaster that occurred in 2018: Provided further, That such allocations shall be made in the same proportion that the amount of funds each grantee received under this Act and the same heading in division I of Public Law 115–254 bears to the amount of all funds provided to all grantees that received allocations for disasters that occurred in 2018:
The Table below shows the total unmet needs for each 2018 grantee as calculated by HUD, each grantee's share of the unmet needs for all 2018 disasters, and the amounts allocated to each 2018 grantee which are proportional to the total amount each of the grantees has been allocated for unmet needs from the aggregate of Public Law 116–20 and Public Law 115–254.
Office of the Assistant Secretary for Community Planning and Development, HUD.
Notice.
This notice allocates a total of $85,291,000 in Community Development Block Grant disaster recovery (CDBG–DR) funds appropriated by the Additional Supplemental Appropriations for Disaster Relief Act, 2019 (the Act). The $85,291,000 in CDBG–DR funds allocated by this notice is for the purpose of assisting in long-term recovery from major disasters that occurred in 2018 and 2019. The allocations in this notice add to the funding previously allocated in the January 27, 2020 notice for these disasters. The Act requires HUD to allocate any funds not identified for long-term recovery from major disasters to be allocated for mitigation activities for 2018 disasters. Accordingly, under a separate notice, HUD will allocate the remaining $185,730,000 of funds available under the Act for mitigation activities in the most impacted and distressed areas resulting from a major disaster that occurred in 2018. This notice also contains a waiver and alternative requirement addressing the income limits applicable to the Commonwealth of Puerto Rico for its CDBG–DR and CDBG–MIT grants. Additionally, this notice also provides additional flexibility to CDBG–DR grantees as they continue their disaster recovery efforts while also responding to the Coronavirus Disease 2019 (COVID–19) pandemic.
Applicability Date: January 11, 2021.
Jessie Handforth Kome, Acting Director, Office of Block Grant Assistance, Department of Housing and Urban Development, 451 7th Street SW, Room 7282, Washington, DC 20410, telephone number 202–708–3587. Persons with hearing or speech impairments may access this number via TTY by calling the Federal Information Relay Service at 800–877–8339. Facsimile inquiries may be sent to Ms. Kome at 202–708–0033. (Except for the “800” number, these telephone numbers are not toll-free.) Email inquiries may be sent to
The Additional Supplemental Appropriations for Disaster Relief Act, 2019 (Pub. L. 116–20, approved June 6, 2019) (Appropriations Act) made $2,431,000,000 in CDBG–DR funds available for major disasters occurring in 2017, 2018, or 2019, of which $431,000,000 was for grantees that received funds in response to disasters occurring in 2017. In the January 27, 2020
This notice allocates an additional $85,291,000 from the Appropriations Act to address unmet disaster recovery needs through activities authorized under title I of the Housing and Community Development Act of 1974 (42 U.S.C. 5301
HUD has described the applicable waivers and alternative requirements, relevant statutory and regulatory requirements, the grant award process, criteria for action plan approval, updates to duplication of benefits requirements, and eligible disaster recovery activities associated with grants for 2017, 2018, and 2019 disasters in the following
The Appropriations Act provides that grants shall be awarded directly to a state, unit of general local government, or Indian tribe at the discretion of the Secretary. Unless noted otherwise, the term “grantee” refers to the entity receiving a grant from HUD under this notice.
Pursuant to the Prior Notices, each grantee receiving an allocation for a 2018 or 2019 disaster is required to primarily consider and address its unmet housing recovery needs. These grantees may, however, propose the use of funds for unmet economic revitalization and infrastructure needs unrelated to the grantee's unmet housing needs if the grantee demonstrates in its needs assessment that there is no remaining unmet housing need or that the remaining unmet housing need will be addressed by other sources of funds.
Table 1 (below) shows the major disasters that grants under this notice may address and the minimum amount of funds from the Appropriations Act and Prior Appropriations that must be expended in the HUD-identified most impacted and distressed (MID) areas. The information in this table is based on HUD's review of the impacts from the qualifying disasters and estimates of unmet need.
Pursuant to the Appropriations Act, HUD has identified the MID areas based on the best available data for all eligible affected areas. A detailed explanation of HUD's allocation methodology is provided in Appendix A of this notice. In some instances, HUD has identified the entire jurisdiction of a grantee as the HUD-identified MID area. For all other grantees, at least 80 percent of the total funds provided to a grantee under this notice must address unmet disaster needs within the HUD-identified MID areas, as identified in the last column in Table 1. Note that if HUD designates a zip code as a MID area for purposes of allocating funds, the grantee may carry out activities within the whole county (county is indicated in parentheses next to the zip code) as a MID area. The grantee should indicate the decision to carry out activities throughout the whole county in its action plan.
A grantee may use up to 5 percent of the total grant award for grant administration and no more than 15 percent of the total grant award for planning activities. Therefore, HUD will include 80 percent of a grantee's expenditures for grant administration in its determination that 80 percent of the total award has been expended in the
A grantee may determine where to use the remaining 20 percent of the allocation, but that portion of the allocation may only be used to address unmet disaster needs in those areas that the grantee determines are “most impacted and distressed” and that received a presidential major disaster declaration pursuant to the disaster numbers listed in Table 1.
Funds allocated under this notice are subject to the requirements of the Prior Notices, as amended by this notice or subsequent notices. This notice outlines additional requirements imposed by the Appropriations Act that apply to funds allocated under this notice.
The Appropriations Act requires that prior to the obligation of CDBG–DR funds a grantee shall submit a plan detailing the proposed use of all funds. The plan must include criteria for eligibility, and how the use of these funds will address long-term recovery and restoration of infrastructure and housing, economic revitalization, and mitigation in the MID areas. Therefore, the action plan submitted in response to this notice must describe uses and activities that: (1) Are authorized under title I of the HCDA or allowed by a waiver or alternative requirement; and (2) respond to a disaster-related impact to infrastructure, housing, or economic revitalization in the MID areas, and if the grantee chooses to do so, how mitigation will be incorporated into recovery activities. To inform the plan, each grantee must conduct an assessment of community impacts and unmet needs and guide the development and prioritization of planned recovery activities, pursuant to section VI.A.2.a. of the February 9, 2018 notice (83 FR 5849).
While CDBG–DR funding is a valuable resource for long-term recovery and mitigation in the wake of major disasters, HUD expects that grantees will take steps to set in place substantial state and local governmental policies to enhance the impact of HUD-funded investments and limit damage from future disasters. The
For convenience, Table 2 (below) identifies clarifications and modifications to the requirements in the February 9, 2018 notice.
A grantee receiving an allocation under this notice for disasters occurring in 2019 (Commonwealth of Puerto Rico) must submit an action plan per the requirements in section VI.A.2 of the February 9, 2018 notice (83 FR 5849), as modified by the requirements of the August 14, 2018 notice (83 FR 40314), not later than 210 days after the applicability date of this notice, unless the grantee has requested, and HUD has approved an extension of this submission deadline. All requirements of the Prior Notices related to the action plan submission shall apply, including the public comment period which was extended to not less than 30 calendar days under the August 14, 2018 notice (83 FR 40318), and the manner of publication which must include prominent posting on the grantee's official website (83 FR 40317). Posting information online may not always be an effective way to solicit public comment, particularly in areas with extensive damage limiting the public's access to electricity, internet, and cellular service as a result of the disaster. Grantees should consider other ways to effectively solicit public comment, in addition to posting information. Each grantee must publish the action plan in a manner that affords citizens, affected local governments, and other interested parties a reasonable opportunity to examine the contents and provide feedback. Plan publication efforts must meet the effective communications requirements of 24 CFR 8.6 and other fair housing and civil rights requirements, such as the effective communication requirements under the Americans with Disabilities Act.
The grantee must submit an Implementation Plan and a Capacity Assessment that satisfies the requirements of paragraphs VI.A.1.b.(1) and (2) of the February 9, 2018 notice (83 FR 5848) titled
The grantee must submit information to support the Secretary's certification of proficient financial controls and procurement processes and adequate procedures for proper grant management required by the Appropriations Act. The grantee can submit all of the information required by section VI.A.1.a. of the February 9, 2018 notice (83 FR 5847), paragraphs (1)–(6), as updated and amended by section IV.B.1. of the January 2020 Notice to impose additional requirements related to the duplication of benefits (85 FR 4686) using the “Pub. L. 116–20 and 115–254 CDBG–DR Financial Management and Grant Compliance Certification Checklist” posted on HUD's website. Alternatively, the grantee may request that HUD rely on the submissions made in response to section V.A.1.a. in the August 30, 2019 Main CDBG–MIT Notice (84 FR 45844), as modified by the January 27, 2020 CDBG–MIT Notice allocating funds to the Commonwealth of Puerto Rico (85 FR 4676), to support a new HUD certification for purposes of this allocation, provided, however, that HUD's approval will be conditioned on the requirement that the grantee must update its previous submissions to reflect any material changes. The grantee can use the “Pub. L. 116–20 and 115–254 CDBG–DR Financial Management and Grant Compliance Certification Checklist” Addendum A and B posted on HUD's website to notify HUD of its intention to rely on previous submissions.
For purposes of the Implementation Plan and Capacity Assessment and submissions to support the Secretary's certification, the submission deadlines were amended by section II of the August 17, 2020 notice to provide flexibility to CDBG–DR grantees as they also respond to the impacts of the COVID–19 pandemic. Grantees must submit the required information within 150 days of the applicability date of this notice.
In the Prior Notices, the Department stated its intention to establish special grant conditions for individual CDBG–DR grants based upon the risks posed by the grantee, including risks related to the grantee's capacity to carry out the specific programs and projects proposed in its action plan. As described in the Prior Notices, these conditions will be designed to provide additional assurances that programs are implemented in a manner to prevent waste, fraud, and abuse and that the Department has established specific criteria and conditions for each grant award as provided for at 2 CFR 200.206 and 200.208,
Each grantee that received an allocation for 2018 or 2019 disasters under the January 2020 Notice and this notice (Commonwealth of the Northern Mariana Islands; Hawaii County, HI; and the State of Texas) is required to submit a substantial amendment to the action plan that was submitted in response to the January 2020 Notice.
The substantial amendment must be submitted not later than 180 days after the initial action plan is approved in whole or in part by HUD or not later than 180 days after the applicability date of this notice, whichever is later, unless the grantee has requested, and HUD has approved an extension of this submission deadline. The substantial amendment must include the additional allocation of funds and address the requirements of this notice.
Grantees that received allocations under the January 2020 Notice for 2018 and 2019 disasters submitted information described in section VI.A.1. of the February 9, 2018 notice (as amended and updated by section IV.B.1. of the January 27, 2020 notice, 85 FR 4686). These submissions supported the Secretary's evaluation of grantee capacity and the Secretary's certification of proficient financial controls and procurement processes and adequate procedures for proper grant management required by the Appropriations Act. Rather than resubmit the same information for allocations under this notice, grantees receiving a second allocation for 2018 and 2019 disasters are required to update submissions for their first allocations to reflect any material changes. This includes updates to: (a) The information required by section VI.A.1.a. of the February 9, 2018 notice (83 FR 5847), paragraphs (1)–(6), as updated and amended by section IV.B.1. of the January 2020 Notice (85 FR 4686); and (b) to the Implementation Plan and Capacity Assessment that satisfies paragraphs (1) and (2) in section VI.A.1.b. of the February 9, 2018 notice (83 FR 5848). HUD will consider these updates before granting funds allocated by this notice. The submission deadlines were amended by section II of the August 17, 2020 notice to provide flexibility to CDBG–DR grantees as they also respond to the impacts of the COVID–19 pandemic. Grantees must submit the required information within 150 days of the applicability date of this notice.
III.B.1.
• Grantee must consult with affected citizens, stakeholders, local governments, and public housing authorities to determine updates to its needs assessment (as described in paragraph A.7 of section VI of the February 9, 2018 Notice (83 FR 5854)).
• Grantee must amend its action plan to update its impact and needs assessment, modify or create new activities, or reprogram funds in accordance with requirements for substantial amendments in the Prior Notices. Each amendment must be highlighted, or otherwise identified within the context of the entire action plan. The beginning of every substantial amendment must include a: (1) Section that identifies exactly what content is being added, deleted, or changed; (2) chart or table that clearly illustrates where funds are coming from and where they are moving to; and (3) a revised budget allocation table that reflects all funds.
• Grantee must publish the substantial amendment to its previously approved action plan for disaster recovery in a manner that affords citizens, affected local governments, and other interested parties a reasonable opportunity to examine the amendment's contents and provide feedback, in accordance with requirements published in paragraph IV.A.3. of the August 14, 2018 Notice (83 FR 40318). The manner of publication must include, at a minimum, prominent posting on the grantee's official website for not less than 30 calendar days for public comment.
• Grantee must respond to public comment and submit its substantial amendment to HUD (together with SF–424 and certifications required by Section VI.E. of the February 9, 2018 Notice) no later than 180 days after the grantee's action plan is approved in whole or in part by HUD or not later than 180 days after the applicability date of this notice, whichever comes later.
• HUD will review the substantial amendment within 45 days from date of receipt and determine whether to approve the substantial amendment per criteria identified in this notice and the Prior Notices.
• HUD will send a substantial amendment approval letter, revised grant conditions, and an unsigned grant agreement to the grantee. If the substantial amendment is not approved, HUD will send a letter identifying the substantial amendment deficiencies; the grantee must then re-submit the substantial amendment within 45 days of the notification letter.
• Grantee must ensure that the HUD-approved substantial amendment and HUD-approved action plan are posted prominently on its official website. Each grantee's current version of its entire action plan (including amendments) must be accessible for viewing as a single document at any given point in time, rather than the public or HUD having to view and cross-reference changes among multiple amendments.
• Grantee must enter the activities from its published substantial amendment into the Disaster Recovery Grant Reporting (DRGR) system and submit the updated DRGR action plan (revised to reflect the HUD-approved substantial amendment) to HUD within the DRGR system.
• Grantee must sign and return the grant agreement to HUD.
• HUD will sign the grant agreement and establish the grantee's CDBG–DR line of credit amount to reflect the total amount of available funds.
• Grantee may draw down CDBG–DR funds from its line of credit after the Responsible Entity completes applicable environmental review(s) pursuant to 24 CFR part 58, or adopts another Federal agency's environmental review as authorized under the Appropriations Act and the Prior Appropriation, and, as applicable, receives from HUD or the state the Authority to Use Grant Funds (AUGF) form and certification.
• Grantee must amend and submit its projection of CDBG–DR expenditures and performance outcomes with the substantial amendment.
This section of the notice describes rules, statutes, waivers, and alternative requirements that apply to each grantee receiving an allocation under this notice (unless otherwise noted). The Secretary has determined that good cause exists to apply each waiver and alternative requirement established in the Prior Notices to grantees receiving funds under this notice and that such waivers and alternative requirements are not inconsistent with the overall purpose of title I of the HCDA. The Secretary's determination of good cause extends to each waiver or alternative requirement as amended by this notice. Grantees are reminded that all fair housing and nondiscrimination requirements, as well
A grantee may request additional waivers and alternative requirements from the Department as needed to address specific needs related to its recovery activities, accompanied by data to support the request. Grantees are reminded that requirements related to nondiscrimination cannot be waived. Grantees should work with the assigned Community Planning and Development representatives to request any additional waivers or alternative requirements from HUD. Except where noted, the waivers and alternative requirements described below apply to all grantees under this notice. Pursuant to the requirements of the Appropriations Acts, waivers and alternative requirements are effective five days after they are published in the
Except as described in this notice or the Prior Notices, statutory and regulatory provisions governing the State CDBG program shall apply to state grantees receiving a CDBG–DR grant and statutory and regulatory provisions governing the entitlement CDBG program shall apply to any local government receiving a CDBG–DR grant. State and Entitlement CDBG regulations can be found at 24 CFR part 570. References to the action plan in these regulations shall refer to the action plan for disaster recovery required by this notice and the Prior Notices.
HUD amends the Prior Notices and waives the provisions of 24 CFR part 570, subpart F to authorize the Commonwealth of the Northern Mariana Islands and American Samoa to administer its CDBG–DR allocation in accordance with the regulatory and statutory provisions governing the State CDBG program, as modified by rules, statutes, waivers, and alternative requirements made applicable by
Additionally, the February 9, 2018 notice required state grantees and subrecipients to attend fraud-related training provided by HUD OIG to assist in the proper management of CDBG–DR grant funds. With this notice, HUD is applying this provision to local government grantees allocated funds under the Prior Notices or this notice.
All references in this notice pertaining to timelines and/or deadlines are in terms of calendar days unless otherwise noted. The date of this notice shall mean the applicability date of this notice unless otherwise noted.
IV.A.1.
In the August 14, 2018 notice (83 FR 40320), HUD provided the following adjustment to Puerto Rico's income limits in accordance with section 102(a)(20)(B) of the HCDA:
“Section 102(a)(20) of the HCDA defines `persons of low- and moderate-income' and `low- and moderate-income persons.' Subparagraph (B) of this definition authorizes the Secretary to establish for any area percentages of median income that are higher or lower than the percentages defined as `low- and moderate-income' under 102(a)(20)(A), if the Secretary finds such variations to be necessary because of unusually high or low family incomes in such areas. Due to the unusually low incomes in Puerto Rico, residents that meet the CDBG program definition of `low- and moderate-income' by having incomes of 80 percent AMI or less, also remain below the Federal poverty level. Therefore, the Department is increasing the income limits for low- and moderate-income persons in Puerto Rico, which will be listed in income tables posted on HUD's website. Under this adjustment, Puerto Rico may use these alternative income limits when determining that activities undertaken with CDBG–DR funds meet the low- and moderate-income benefit CDBG national objective criteria. These income limits apply only to the use of CDBG–DR funds under this notice and the Prior Notice.”
In order to ensure consistency with the use of CDBG–DR funds that are governed by alternative income limits authorized by the Department, the Department is extending the income limit adjustments of the August 14, 2018 notice to all CDBG–DR funds allocated under Public Laws 115–56, 115–123, and 116–20 and to CDBG–MIT funds allocated to Puerto Rico for mitigation
In addition, Puerto Rico may currently choose to take advantage of the waiver HUD issued in the February 9, 2018 notice (83 FR 5861) and the August 30, 2019 notice (84 FR 45863) to provide homeownership assistance for households earning up to 120 percent of the area median income (AMI). For consistency with HUD's alternative income limits because of the unusually low incomes in Puerto Rico, the Department finds that good cause exists to make similar adjustments to the income limits for homeownership assistance activities authorized by the waiver in the February 9, 2018 notice. Therefore, HUD waives 42 U.S.C. 5302(a)(20) to the extent necessary to add the following alternative requirement. When HUD establishes percentages of median income that are higher or lower than the percentages defined as `low- and moderate-income' under section 102(a)(20)(A) of the HCDA, HUD may also apply the same adjustments to revise other income limits that apply to the use of grant funds (with adjustments for smaller and larger families). For Puerto Rico, this alternative requirement authorizes HUD to annually publish adjusted income limits that apply whenever grant requirements necessitate the calculation of 120 percent of AMI. This waiver applies to Puerto Rico's allocation of funds under the Prior Notices under Public Laws 115–56 and 115–123, funding for mitigation activities under Public Law 115–23, and funding allocated under this notice or any other notice under Public Law 116–20.
In the August 14, 2018 notice (83 FR 40322), the Department granted the Commonwealth of Puerto Rico a waiver and alternative requirement to create a new eligible tourism and marketing activity to use up to $15,000,000 of CDBG–DR funds to promote the Commonwealth in general or specific communities, consistent with the amount allocated by the Commonwealth to promote travel and to attract new businesses to disaster-impacted areas in the action plan submitted to HUD pursuant to the February 9, 2018 notice. Additionally, in the August 14, 2018 notice (83 FR 40322), HUD granted the U.S. Virgin Islands (USVI) a waiver and alternative requirement to spend up to $5,000,000 of CDBG–DR funds on tourism marketing activities to promote the Territory in general or specific components of the islands, consistent with the amount allocated by the USVI in the action plan submitted to HUD pursuant to the February 9, 2018 notice. HUD granted these waivers and alternative requirements to support economic recovery in areas that depend on the tourism industry following Hurricanes Irma and Maria. HUD increased each grantee's cap on allowable tourism marketing activities to $25 million to benefit disaster-impacted areas in a notice published February 19, 2019 (84 FR 4844–45).”
Both of these waivers and alternative requirements expire two years after the grantees' first draw of CDBG–DR funds under the respective allocations. For both Puerto Rico and USVI, it is two years after their first draw of funds allocated in the February 9, 2018 notice. HUD has determined that the rapidly emerging needs of states and local governments in responding to the COVID–19 pandemic provides good cause to allow extensions of the expiration date for these waivers and alternative requirements established in
The Appropriations Act makes the funds available for obligation by HUD until expended. This notice requires each grantee to expend 100 percent of its CDBG–DR grant on eligible activities within 6 years of HUD's initial obligation of funds under Public Laws 115–254 and 116–20 for a 2018 or 2019 disaster pursuant to an executed grant agreement. HUD may extend the period of performance administratively, if good cause for such an extension exists at that time, as requested by the grantee and approved by HUD. When the period of performance has ended, HUD will close out the grant and any remaining funds not expended by the grantee on appropriate programmatic purposes will be recaptured by HUD.
The Catalog of Federal Domestic Assistance numbers for the disaster recovery grants under this notice are as follows: 14.228 for State CDBG grantees and 14.218 for Entitlement CDBG Grantees.
A Finding of No Significant Impact (FONSI) with respect to the environment has been made in accordance with HUD regulations at 24 CFR part 50, which implement section 102(2)(C) of the National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). The FONSI is available online on HUD's website and for public inspection between 8 a.m. and 5 p.m. weekdays in the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW, Room 10276, Washington, DC 20410–0500. Due to security measures at the HUD Headquarters building, an advance appointment to review the docket file must be scheduled by calling the Regulations Division at 202–708–3055 (this is not a toll-free number). Hearing- or speech-impaired individuals may access this number through TTY by calling the Federal Information Relay Service at 800–877–8339 (this is a toll-free number).
Public Law 116–20 appropriated $2,431,000,000 through the Community Development Block Grant Disaster Recovery (CDBG–DR) program. The funds were to be used to address specific infrastructure needs of select 2017 disasters and remaining unmet disaster recovery needs for disasters in 2018 and 2019, and then provide any remaining funds to support mitigation activities for 2018 disasters. On December 3rd, HUD announced allocations for all but $272 million of available funds.
The remaining $272 million have been held pending complete data for the remaining disasters of 2019 as well as updates to other select disasters of 2018 and 2019 due to extraordinary circumstances.
Using data received from FEMA and the Small Business Administration (SBA) on May 11, 2020, HUD updated unmet needs for a select set of disasters in 2018 and 2019. The updated unmet needs are only for extraordinary circumstances:
• Hawaii County, HI (DR 4366, an additional $23,720,000).
• Northern Marianas (DR 4396 and DR 4404, an additional $10,378,000).
• Texas (DR 4466, an additional $14,769,000).
• Puerto Rico (DR 4473, $36,424,000).
U.S. Geological Survey, Interior.
Call for Nominations.
The Department of the Interior (DOI) is seeking nominations to serve on the National Geospatial Advisory Committee (NGAC). The NGAC is a Federal Advisory Committee authorized through the Geospatial Data Act of 2018 (GDA), which operates in accordance with the Federal Advisory Committee Act (FACA). The Committee provides advice and recommendations to the Secretary of the Interior through the Federal Geographic Data Committee (FGDC) related to management of Federal geospatial programs, development of the National Spatial Data Infrastructure, and the implementation of the GDA. The Committee reviews and comments on geospatial policy and management issues and provides a forum for views of non-Federal stakeholders in the geospatial community.
Nominations to participate on this Committee must be received by February 22, 2021.
Send nominations electronically to
John Mahoney, USGS, (206–220–4621). Additional information about the NGAC and the nomination process is posted on the NGAC web page at
The Committee conducts its operations in accordance with the provisions of the GDA and the FACA. It reports to the Secretary of the Interior through the FGDC and functions solely as an advisory body. The Committee provides recommendations and advice to the DOI and the FGDC on policy and management issues related to the effective operation of Federal geospatial programs.
The NGAC includes up to 30 members, selected to generally achieve a balanced representation of the viewpoints of the various stakeholders involved in national geospatial activities. NGAC members are appointed for staggered terms, and nominations received through this call for nominations may be used to fill vacancies on the Committee that will become available in 2021 and 2022. Nominations will be reviewed by the FGDC and additional information may be requested from nominees. Final selection and appointment of Committee members will be made by the Secretary of the Interior.
The Committee meets approximately 3–4 times per year. Committee members will serve without compensation, but travel and per diem costs will be provided by USGS. The USGS will also provide necessary support services to the Committee.
Committee meetings are open to the public. Notice of committee meetings are published in the
5 U.S.C. Appendix 2.
U.S. International Trade Commission.
Notice.
Notice is hereby given that the U.S. International Trade Commission has received a complaint entitled
Lisa R. Barton, Secretary to the Commission, U.S. International Trade Commission, 500 E Street SW, Washington, DC 20436, telephone (202) 205–2000. The public version of the complaint can be accessed on the Commission's Electronic Document Information System (EDIS) at
General information concerning the Commission may also be obtained by accessing its internet server at United States International Trade Commission (USITC) at
The Commission has received a complaint and a submission pursuant to § 210.8(b) of the Commission's Rules of Practice and Procedure filed on behalf of One World Technologies, Inc. and Techtronic Power Tools Technology Ltd. on December 30, 2020. The complaint alleges violations of section 337 of the Tariff Act of 1930 (19 U.S.C. 1337) in the importation into the United States, the sale for importation, and the sale within the United States after importation of certain batteries and products containing the same. The complaint names as respondents: Darui Development Limited of China; Dongguan Xinjitong Electronic Technology Co., Ltd. of China; Shenzhen Laipaili Electronics Co., Ltd. of China; Shenzhen Liancheng Weiye Industrial Co., Ltd. of China; Shenzhen MingYang Creation Electronic Co., Ltd. of China; Shenzhen Ollop Technology Co. Ltd. of China; Shenzhen Rich Hao Yuan Energy Technology Co., Ltd. of China; Shenzhen Runsensheng Trading Co., Ltd. of China; Shenzhen Saen Trading Co., Ltd. of China; Shenzhen Shengruixiang E-Commerce Co., Ltd. of China; Shenzhen Tuo Yu Technology Co., Ltd. of China; Shenzhen Uni-Sun Electronics Co., Ltd. of China; and Shenzhen Vmartego Electronic Commerce Co., Ltd. of China. The complainant requests that the Commission issue a general exclusion order or, in the alternative, issue a limited exclusion order, and cease and desist orders and impose a bond upon respondents' alleged infringing articles during the 60-day Presidential review period pursuant to 19 U.S.C. 1337(j).
Proposed respondents, other interested parties, and members of the public are invited to file comments on any public interest issues raised by the complaint or § 210.8(b) filing. Comments should address whether issuance of the relief specifically requested by the complainant in this investigation would affect the public health and welfare in the United States, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, or United States consumers.
In particular, the Commission is interested in comments that:
(i) Explain how the articles potentially subject to the requested remedial orders are used in the United States;
(ii) identify any public health, safety, or welfare concerns in the United States relating to the requested remedial orders;
(iii) identify like or directly competitive articles that complainant, its licensees, or third parties make in the United States which could replace the subject articles if they were to be excluded;
(iv) indicate whether complainant, complainant's licensees, and/or third party suppliers have the capacity to replace the volume of articles potentially subject to the requested exclusion order and/or a cease and desist order within a commercially reasonable time; and
(v) explain how the requested remedial orders would impact United States consumers.
Written submissions on the public interest must be filed no later than by close of business, eight calendar days after the date of publication of this notice in the
Persons filing written submissions must file the original document electronically on or before the deadlines stated above. Submissions should refer to the docket number (“Docket No. 3519”) in a prominent place on the cover page and/or the first page. (
Any person desiring to submit a document to the Commission in confidence must request confidential treatment. All such requests should be directed to the Secretary to the Commission and must include a full statement of the reasons why the Commission should grant such treatment.
This action is taken under the authority of section 337 of the Tariff Act of 1930, as amended (19 U.S.C. 1337), and of §§ 201.10 and 210.8(c) of the Commission's Rules of Practice and Procedure (19 CFR 201.10, 210.8(c)).
By order of the Commission.
Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice.
60-Day notice.
The Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), Department of Justice (DOJ), will submit the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995. The proposed information collection (IC) is also being published to obtain comments from the public and affected agencies.
Comments are encouraged and will be accepted for 60 days until March 8, 2021.
If you have additional comments, regarding the estimated public burden or associated response time, suggestions, or need a copy of the proposed information collection instrument with instructions, or additional information, please contact: Lakisha Gregory, Chief, Personnel Security Division, either by mail at 99 New York Avenue NE, Washington, DC 20226, by email at
Written comments and suggestions from the public and affected agencies concerning the proposed collection of information are encouraged. Your comments should address one or more of the following four points:
1.
2.
3.
4.
5.
6.
Copyright Office, Library of Congress.
Notice of Inquiry.
The U.S. Copyright Office is initiating a study to evaluate the impact on the satellite television market of the Satellite Television Community Protection and Promotion Act of 2019's adoption of new statutory requirements for certain uses of the section 119 compulsory license for distant-into-local satellite transmission, and sunsetting of other uses from the license. The Office seeks public comment on this topic to assist in preparing a report to Congress.
Written comments are due on or before March 8, 2021.
The Copyright Office is using the regulations.gov system for the submission and posting of public comments in this proceeding. All comments are therefore to be submitted electronically through
Kimberley Isbell, Deputy Director of Policy and International Affairs,
On December 20, 2019, the President signed the Satellite Television Community Protection and Promotion Act of 2019 (“STCPPA”), which makes permanent the satellite carrier distant broadcast
Simultaneously with the enactment of the STCPPA, the Appropriations Committee of the U.S. House of Representatives directed the Register of Copyrights to conduct a study on the impact of the expiration of the STCPPA's predecessor—the STELA Reauthorization Act of 2014 (“STELAR”)
In 1988, Congress enacted the Satellite Home Viewer Act (“SHVA”),
The section 119 license created by SHVA was extended for successive five year periods in 1994,
In the five years following STELAR's reauthorization of the section 119 license, use of that license sharply decreased. Royalties paid by one of the two satellite carriers in this market, AT&T's DirecTV, decreased by 86.75% between 2014 and 2018.
This decline in use of the section 119 license has been attributed primarily to the transformation of the television marketplace since 2014, which is exemplified by “over-the-top” (“OTT”) television services that offer broadcast network programming over the internet, such as Hulu with Live TV, YouTube TV, and Sling TV, none of which rely upon a statutory license to operate but instead negotiate licenses with broadcast networks in the marketplace.
With STELAR due to expire at the end of 2019, and with it the section 119 compulsory license, Congress had to decide whether to extend the license again, and, if so, whether the extension should be for another fixed-year term. Congress decided not to reauthorize several of the uses of the license and to
• Households that cannot receive a local over-the-air signal via an antenna;
• Households that receive a waiver from a local network affiliate to receive a distant signal;
• “Grandfathered” households that received distant signals via a section 119 license on or before October 31, 1999;
• Households eligible for the statutory exemption related to receiving “C-Band” satellite signals.
Additionally, the STCPPA made availability of the section 119 license for transmission of distant network signals permanent for the following “unserved households”:
• RVs and commercial trucks;
• Subscribers located in short markets.
In amending section 119, Congress was particularly concerned with satellite subscribers' ability to access local network stations. As the House Judiciary Committee described the situation in its STCPPA Report:
Most satellite television subscribers receive local broadcast programming that is retransmitted from their local network stations. When a satellite carrier provides such “local service,” subscribers have access to important local news, local weather, and local emergency information. For some (typically rural) subscribers, instead of seeing news, weather, or emergency information from their own towns, they get retransmissions of “distant” programming from outside of their local market. Those subscribers see network programming from a larger, sometimes much farther, market like New York or Los Angeles instead.
In light of that concern, Congress sought in the STCPPA to account for “the need to prioritize access to local programming”
In its Committee Print accompanying the Further Consolidated Appropriations Act, 2020, the Committee on Appropriations of the U.S. House of Representatives, in agreement with the U.S. Senate, expressed a “concern that the distant signal provision contained in the STELA Reauthorization Act of 2014 [“STELAR”] . . . may provide a below-market incentive for a mature satellite industry to restrict local news transmission.”
Pursuant to this direction, the U.S. Copyright Office is seeking public comment via this notice, as well as via a separate questionnaire that will be directed to “unserved household” subscribers both previously and currently covered by the section 119 license. A copy of this questionnaire is available at
The Copyright Office invites written comments on the subjects below. A party choosing to respond to this Notice of Inquiry need not address every subject, but the Office requests that responding parties clearly identify and separately address each subject for which a response is submitted.
a. Post-STCPPA, do households that previously did not receive local network stations from their satellite provider now receive them?
b. The STCPPA removed the use of the section 119 license for households that are unable to receive local network stations via an antenna, as well as for certain other categories of households. How do these households now receive network signals? Are they distant or local network signals?
c. The STCPPA makes a revised section 119 license permanent, on the condition that all licensees provide local-into-local service. Does this change resolve previously-voiced concerns about a subsidized distant-into-local license discouraging the provision of local network service by section 119 licensees?
d. Have the changes to the section 119 license made by STCPPA affected the availability of network retransmission service for households previously covered by the license? If so, how?
e. Have the changes to the section 119 license made by STCPPA affected the market for television service for households previously covered by the license? If so, how?
• Households that cannot receive a local over-the-air signal via an antenna;
• Households that receive a waiver from a local network affiliate to receive a distant signal;
• “Grandfathered” households that received distant signals via a section 119 license on or before October 31, 1999;
• Households eligible for the statutory exemption related to receiving “C-Band” satellite signals;
• RVs and commercial trucks;
• Households located in short markets (meaning markets that lack one or more of the four most widely available network stations).
When answering, please indicate if you receive satellite service at your residence, your RV, or your commercial truck. Please also indicate which category of “unserved household” applies to you.
a. Before June 1, 2020, did you receive distant network retransmissions (
i. If your answer is “yes,” did you continue to receive the same distant networks after June 1, 2020?
(1) If you continued to receive the same distant networks, did the price of your subscription increase or decrease? If it did, was the reason for the change explained?
(2) If you did not continue to receive the same distant networks after June 1, 2020, did you receive access to new networks that are physically closer to you as a replacement for the distant networks you no longer receive? Did the price of your subscription increase or decrease? If it did, was the reason for the change explained?
ii. If your answer is “no,” did the price of your satellite subscription increase or decrease on or after June 1, 2020? If it did, was the reason for the change explained?
b. Before June 1, 2020, did you receive local network retransmissions (
i. If your answer is “yes,” did you continue to receive local networks from DISH or DirecTV on or after June 1, 2020?
(1) If you continued to receive local networks, did the price of your subscription increase or decrease? If it did, was the reason for the change explained?
(2) If you did not continue to receive local networks, did you receive access to replacement networks? Were these replacement networks physically closer to or further from your location? Did the price of your subscription increase or decrease? If it did, was the reason for the change explained?
c. If you received distant network retransmissions from DISH or DirecTV before June 1, 2020, did you begin to receive local network retransmissions from DISH or DirecTV on or after that date?
i. If you did begin to receive local networks on or after June 1, 2020, were the local networks in addition to or instead of the distant network retransmissions?
ii. If you did begin to receive local networks on or after June 1, 2020, did the price of your subscription increase or decrease?
d. Have you changed television service providers since June 1, 2020?
i. If your answer is “yes,” did you change to a different satellite provider, or did you obtain television service from a different type of service provider (such as a cable provider)? Why did you change television service providers?
e. If you are a commercial trucker, which satellite carrier do you use?
f. If you are an RVer, which satellite carrier do you use? Do you also receive satellite service at your residence? If so, is your home satellite carrier the same as your RV satellite carrier?
a. If you relied upon the section 119 statutory license to provide distant-into-local network retransmissions before June 1, 2020, did you continue to rely upon the amended license (under the STCPPA) on or after that date?
i. If your answer is “no,” did you continue to provide distant-into-local network retransmissions after that date?
b. Do you meet the new STCPPA requirement of providing local-into-local network retransmissions to all 210 DMAs as a prerequisite for using the new section 119 statutory license to provide distant-into-local network retransmissions?
i. If your answer is “no,” what approach did you take to providing distant-into-local network retransmissions after May 31, 2020?
ii. If you declined to provide local-into-local network retransmissions for all 210 DMAs, thus forgoing the use of the section 119 license, and instead decided to make individual carriage deals with each broadcast network for distant-into-local retransmission, please explain your reasoning.
c. Did you use the transition license provided by the STCPPA from January 1, 2020 to May 31, 2020?
i. If your answer is “no,” please explain why you did not use the transition license.
ii. If you did use the transition license, did you use the new STCPPA license after May 31, 2020? If not, why not?
a. Has the expiration of certain provisions of the section 119 license impacted your ability to provide comparable television service to households previously subject to the section 119 license? If so, how?
Nuclear Regulatory Commission.
Notice of submission to the Office of Management and Budget; request for comment.
The U.S. Nuclear Regulatory Commission (NRC) has recently submitted a proposed collection of information to the Office of Management and Budget (OMB) for review. The information collection is entitled, NRC Form 446, “Request for Approval of Official Foreign Travel by Non-Government Personnel.”
Submit comments by February 5, 2021. Comments received after this date will be considered if it is practical to do so, but the Commission is able to ensure consideration only for comments received on or before this date.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
David Cullison, NRC Clearance Officer, U.S. Nuclear Regulatory Commission, Washington, DC 20555–0001; telephone: 301–415–2084; email:
Please refer to Docket ID NRC–2020–0024 when contacting the NRC about the availability of information for this action. You may obtain publicly available information related to this action by any of the following methods:
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The NRC encourages electronic comment submission through the Federal Rulemaking website (
The NRC cautions you not to include identifying or contact information in comment submissions that you do not want to be publicly disclosed in your comment submission. The NRC will post all comment submissions at
If you are requesting or aggregating comments from other persons for submission to the OMB, then you should inform those persons not to include identifying or contact information that they do not want to be publicly disclosed in their comment submission. Your request should state that comment submissions are not routinely edited to remove such information before making the comment submissions available to the public or entering the comment into ADAMS.
Under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the NRC recently submitted a proposed collection of information to OMB for review entitled, NRC Form 446, “Request for Approval of International Foreign Travel by Non-Government Personnel.” The NRC hereby informs potential respondents that an agency may not conduct or sponsor, and that a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The NRC published a
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For the Nuclear Regulatory Commission.
Postal Regulatory Commission.
Notice.
The Postal Service has filed an Annual Compliance Report on the costs, revenues, rates, and quality of service associated with its products in fiscal year 2020. Within 90 days, the Commission must evaluate that information and issue its determination as to whether rates were in compliance with title 39, chapter 36, and whether service standards in effect were met. To assist in this, the Commission seeks public comments on the Postal Service's Annual Compliance Report.
Submit comments electronically via the Commission's Filing Online system at
David A. Trissell, General Counsel, at 202–789–6820.
On December 29, 2020, the United States Postal Service (Postal Service) filed with the Commission its Annual Compliance Report (ACR) for fiscal year (FY) 2020, pursuant to 39 U.S.C. 3652.
The filing begins a review process that results in an Annual Compliance Determination (ACD) issued by the Commission to determine whether Postal Service products offered during FY 2020 were in compliance with applicable title 39 requirements.
The FY 2020 ACR includes a discussion by class of each market dominant product, including costs, revenues, and volumes, workshare discounts, and passthroughs responsive to 39 U.S.C. 3652(b), and FY 2020 promotions.
In response to the Commission's FY 2010 ACD directives,
The Commission also invites public comment on the cost coverage matters the Postal Service addresses in its filing; service performance results; levels of customer satisfaction achieved; and such other matters that may be relevant to the Commission's review.
1. The Commission establishes Docket No. ACR2020 to consider matters raised by the United States Postal Service's FY 2020 Annual Compliance Report.
2. Pursuant to 39 U.S.C. 505, the Commission appoints Kenneth E. Richardson as an officer of the Commission (Public Representative) in this proceeding to represent the interests of the general public.
3. Comments on the United States Postal Service's FY 2020 Annual Compliance Report to the Commission are due on or before February 1, 2021.
4. Reply comments are due on or before February 12, 2021.
5. The Secretary shall arrange for publication of this Order in the
By the Commission.
Pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act entitled the Payment, Clearing, and Settlement Supervision Act of 2010 (“Clearing Supervision Act”)
This advance notice of Fixed Income Clearing Corporation (“FICC”) is attached [sic] hereto as Exhibit 5 and consists of a proposal to modify the calculation of the VaR Floor (as defined below) and the corresponding description in the FICC Mortgage-Backed Securities Division (“MBSD”) Clearing Rules (“MBSD Rules”)
The proposal would necessitate changes to the Methodology and Model Operations Document—MBSD Quantitative Risk Model (the “QRM Methodology”), which is attached hereto as Exhibit 5.
In its filing with the Commission, the clearing agency included statements concerning the purpose of and basis for the Advance Notice and discussed any comments it received on the Advance Notice. The text of these statements may be examined at the places specified in Item IV below. The clearing agency has prepared summaries, set forth in sections A and B below, of the most significant aspects of such statements.
FICC has not received or solicited any written comments relating to this proposal. FICC will notify the Commission of any written comments received by FICC.
The purpose of the proposed rule change is to modify the calculation of the VaR Floor and the corresponding description in the MBSD Rules to incorporate a Minimum Margin Amount.
The proposed changes would necessitate changes to the QRM Methodology. The proposed changes are described in detail below.
A key tool that FICC uses to manage market risk is the daily calculation and collection of Required Fund Deposits from Clearing Members. The Required Fund Deposit serves as each Clearing Member's margin. The aggregate of all Clearing Members' Required Fund Deposits constitutes the Clearing Fund of MBSD, which FICC would access should a defaulting Clearing Member's own Required Fund Deposit be insufficient to satisfy losses to FICC caused by the liquidation of that Clearing Member's portfolio.
The objective of a Clearing Member's Required Fund Deposit is to mitigate
The VaR Charge is calculated using a risk-based margin methodology that is intended to capture the market price risk associated with the securities in a Clearing Member's portfolio. The VaR Charge provides an estimate of the projected liquidation losses at a 99% confidence level. The methodology is designed to project the potential gains or losses that could occur in connection with the liquidation of a defaulting Clearing Member's portfolio, assuming that a portfolio would take three days to hedge or liquidate in normal market conditions. The projected liquidation gains or losses are used to determine the amount of the VaR Charge, which is calculated to cover projected liquidation losses at 99% confidence level.
On January 24, 2017, the Commission approved FICC's VaR Filing to make certain enhancements to the MBSD value-at-risk (“VaR”) margin calculation methodology including the VaR Charge.
FICC's VaR model did not respond effectively to the recent levels of market volatility and economic uncertainty, and the VaR Charge amounts that were calculated using the profit and loss scenarios generated by FICC's VaR model did not achieve a 99% confidence level for the period beginning in March 2020 through the beginning of April 2020. FICC's VaR model calculates the risk profile of each Clearing Member's portfolio by applying certain representative risk factors to measure the degree of responsiveness of a portfolio's value to the changes of these risk factors. COVID–19 market volatility, borrower protection programs, home price outlook, and the Federal Reserve Bank of New York (“FRBNY”) authority to buy and sell mortgage-backed securities have created uncertainty in forward rates, origination/refinance pipelines, voluntary/involuntary mortgage prepayments, and supply/demand dynamics that are not reflected in the FICC VaR historical data set and the FICC VaR model incorporates this historical data to calibrate the volatilities of the risk factors and the correlations between risk factors. During this period, the market uncertainty and FRBNY purchases led to market price changes that exceeded the VaR model's projections which yielded insufficient VaR Charges—particularly for higher coupon TBAs
In addition, the VaR Floor did not effectively address the risk that the VaR model calculated too low a VaR Charge for all portfolios during the recent market volatility and economic uncertainty. The VaR Floor is currently designed specifically to account for substantial risk offsets among long and short positions in different classes of mortgage-backed securities that have a high degree of historical price correlation. The recent market volatility and economic uncertainty resulted in a variance between historical price changes and observed market price changes resulting in TBA price changes significantly exceeding those implied by the VaR model risk factors as indicated by backtesting data.
FICC employs daily backtesting to determine the adequacy of each Clearing Member's Required Fund Deposit.
FICC is proposing to introduce a new calculation called the “Minimum
The Minimum Margin Amount would be defined in the MBSD Rules as a minimum volatility calculation for specified net unsettled positions, calculated using the historical market price changes of such benchmark TBA securities determined by FICC. The definition would state that the Minimum Margin Amount would cover such range of historical market price moves and parameters as FICC from time to time deems appropriate using a look-back period of no less than one year and no more than three years.
FICC would set the range of historical market price moves and parameters from time to time in accordance with FICC's model risk management practices and governance set forth in the Clearing Agency Model Risk Management Framework (“Model Risk Management Framework”).
The MBSD Rules currently define the VaR Floor as an amount designated by FICC that is determined by multiplying the sum of the absolute values of a Clearing Member's Long Positions and Short Positions, at market value, by a percentage designated by FICC that is no less than 0.05% and no greater than 0.30%.
The “VaR Floor Percentage Amount” would be an amount derived using the current VaR Floor percentage calculation in the MBSD Rules: An amount designated by FICC that is determined by multiplying the sum of the absolute values of a Clearing Member's Long Positions and Short Positions, at market value, by a percentage designated by FICC that is no less than 0.05% and no greater than 0.30%. As with the existing VaR Floor percentage, FICC would determine the percentage within this range to be applied based on factors including but not limited to a review performed at least annually of the impact of the VaR Floor parameter at different levels within the range to the backtesting performance and to Clearing Members' margin charges. The VaR Floor percentage currently in place is 0.10%.
Likewise, as with the existing VaR Floor percentage, FICC would inform Clearing Members of the applicable percentage used in the VaR Floor Percentage Amount by Important Notice issued no later than 10 Business Days prior to implementation of such percentage. This rule change is not proposing to change the VaR Floor percentage or the manner in which this component is calculated.
The proposed Minimum Margin Amount would modify the VaR Floor to also cover circumstances where the market price volatility implied by the current VaR Charge calculation and the VaR Floor Percentage Amount is lower than market price volatility from corresponding price changes of the proposed TBA securities benchmarks observed during the lookback period. The proposed TBA securities benchmarks to be used in to calculate the Minimum Margin Amount in the QRM Methodology would be Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) conventional 30-year mortgage-backed securities (“CONV30”), Government National Mortgage Association (“Ginnie Mae”) 30-year mortgage-backed securities (“GNMA30”), Fannie Mae and Freddie Mac conventional 15-year mortgage-backed securities (“CONV15”), and Ginnie Mae 15-year mortgage-backed securities (“GNMA15”). These benchmarks were selected because they represent the majority of the trading volumes in the market.
FICC is proposing to modify the QRM Methodology to specify that the Minimum Margin Amount would be calculated per Clearing Member portfolio as follows: (i) Risk factors would be calculated using historical market prices of benchmark TBA securities and (ii) each Clearing Member's portfolio exposure would be calculated on a net position across all products and for each securitization program (
Pursuant to the QRM Methodology, FICC calculates an outright risk factor for GNMA30 and CONV30. The base risk factor for a portfolio for the Minimum Margin Amount would be based on whether GNMA30 or CONV30 constitutes the larger absolute net market value in each Clearing Member's portfolio. If GNMA30 constitute the larger absolute net market value in the portfolio, the base risk factor would be equal to the outright risk factor for GNMA30. If CONV30 constitute the larger absolute new market value in the portfolio, the base risk factor would be equal to the outright risk factor for the CONV30.
The proposed benchmark TBA securities, historical market price moves and parameters to be used to calculate the Minimum Margin Amount would be determined by FICC from time to time in accordance with FICC's model risk management practices and governance set forth in the Clearing Agency Model Risk Management Framework.
FICC is proposing to introduce the Minimum Margin Amount to complement the VaR Floor during market conditions when the TBA prices are driven by factors outside of those implied by the VaR model. The Minimum Margin Amount would use observable TBA prices and would be calculated with a shorter lookback period than the VaR model so it would be more responsive to current market conditions. This proposal provides a more transparent and market price sensitive approach than alternatives, such as a VaR model parameter adjustment and VaR model add-on, would provide to Clearing Members.
The lookback period of the Minimum Margin Amount is intended to be shorter than the lookback period used for the VaR model, which is 10 years, plus, to the extent applicable, one stressed period.
The Model Risk Management Framework would also require FICC to conduct model performance reviews of the Minimum Margin Amount methodology.
In connection with incorporating the Minimum Margin Amount, FICC would modify the MBSD Rules to:
• Add a definition of “Minimum Margin Amount” and define it as a minimum volatility calculation for specified net unsettled positions of a Clearing Member, calculated using the historical market price changes of such benchmark TBA securities determined by FICC. The definition would specify that the Minimum Margin Amount shall cover such range of historical market price moves and parameters as the Corporation from time to time deems appropriate using a look-back period of no less than one year and no more than three years;
• add a definition of “VaR Floor Percentage Amount” which would be defined substantially the same as the current calculation for the VaR Floor percentage with non-substantive modifications to reflect that the calculated amount is a separate defined term; and
• move the defined term VaR Floor out of the definition of VaR Charge and define it as the greater of (i) the VaR Floor Percentage Amount and (ii) the Minimum Margin Amount.
In connection with incorporating the Minimum Margin Amount, FICC would modify the QRM Methodology to:
• Describe how the Minimum Margin Amount, as defined in the MBSD Rules, would be calculated, including
• establishing CONV30, GNMA30, CONV15 and GNMA15 as proposed TBA securities benchmarks for purposes of the calculation and calculating risk factors using historical market prices of such benchmark TBA securities;
• using a dynamic haircut method that allows offsetting between short and long positions within a program and among different programs; and
• multiplying a “base risk factor” (based on whether GNMA30 or CONV30 constitutes the larger absolute net market value in each Clearing Member's portfolio) by the absolute value of the Clearing Member's net position across all products, plus the sum of each risk factor spread to the base risk factor multiplied by the absolute value of its corresponding position;
• describe the developmental evidence and impacts to backtesting performance and margin charges relating to Minimum Margin Amount; and
• make certain technical changes to the QRM Methodology to re-number sections and tables, and update certain section titles as necessary, to add a new section that describes the proposed Minimum Margin Amount and the selection of benchmarks.
FICC performed an impact study on Clearing Members' portfolios for the period beginning February 3, 2020 through June 30, 2020 (“Impact Study Period'). If the proposed rule changes had been in place during the Impact Study Period compared to the existing MBSD Rules:
• Aggregate average daily aggregate VaR Charges would have increased by approximately $2.2 billion or 42%; and
• aggregate average daily Backtesting Charges would have decreased by approximately $450 million or 53%.
Impact studies also indicated that if the proposed rule changes had been in place, overall margin backtesting coverage (based on 12-month trailing backtesting) would have increased from approximately 99.3% to 99.6% through January 31, 2020 and approximately 97.3% to 98.5% through June 30, 2020.
On average, at the Clearing Member level, the Minimum Margin Amount would have increased the VaR Charge by $27 million over the Impact Study Period. The largest percent increase in VaR Charge for any Clearing Member would have been 146%, or $22 million. The largest dollar increase for any Clearing Member would have been $333 million, or 37% increase in the VaR Charge. The top 10 Clearing Members based on the size of their VaR Charges would have contributed 69.3% of the aggregate VaR Charges during the Impact Study Period had the Minimum Margin Amount been in place. The same Clearing Members would have contributed to 54% of the increase resulting from the Minimum Margin Amount during the Impact Study Period.
The portfolios that would have observed large percent increases were largely made up with concentrations in higher coupon TBAs and GNMA positions. However, no Clearing Members would have triggered the Excess Capital Premium charge
FICC would implement the proposed changes no later than 20 Business Days after the later of the no objection to the advance notice and the approval of the related proposed rule change
FICC believes that the proposed change, which consists of a proposal to modify the calculation of the VaR Floor and the corresponding description in the MBSD Rules to incorporate a Minimum Margin Amount, would enable FICC to better limit its exposure to Clearing Members arising out of the activity in their portfolios. As stated above, the proposed charge is designed to enhance the MBSD VaR model performance and improve the backtesting coverage during periods of heightened market volatility and economic uncertainty. The proposed charge would help ensure that FICC maintains an appropriate level of margin to address its risk management needs.
Specifically, the proposed rule change seeks to remedy potential situations that are described above where FICC's VaR model, including the existing VaR Floor, does not respond effectively to increased market volatility and economic uncertainty and the VaR Charge amounts do not achieve a 99% confidence level. Therefore, by enabling FICC to collect margin that more accurately reflects the risk characteristics of its Clearing Members, the proposal would enhance FICC's risk management capabilities.
By providing FICC with a more effective limit on its exposures, the proposed change would also mitigate risk for Members because lowering the risk profile for FICC would in turn lower the risk exposure that Members may have with respect to FICC in its role as a central counterparty. Further, the proposal is designed to meet FICC's risk management goals and its regulatory obligations, as described below.
Although Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act entitled the Payment, Clearing, and Settlement Supervision Act of 2010 (“Clearing Supervision Act”) does not specify a standard of review for an advance notice, its stated purpose is instructive: To mitigate systemic risk in the financial system and promote financial stability by, among other things, promoting uniform risk management standards for systemically important financial market utilities and strengthening the liquidity of systemically important financial market utilities.
FICC believes that the proposal is consistent with the Clearing Supervision Act, specifically with the risk management objectives and principles of Section 805(b), and with certain of the risk management standards adopted by the Commission pursuant to Section 805(a)(2), for the reasons described below.
Section 805(b) of the Clearing Supervision Act
FICC is proposing to modify the calculation of the VaR Floor and the corresponding description in the MBSD Rules and QRM Methodology to incorporate a Minimum Margin Amount which would enable FICC to better limit its exposure to Clearing Members arising out of the activity in their portfolios. FICC believes the proposed changes are consistent with promoting robust risk management because the changes would better enable FICC to limit its exposure to Clearing Members in the event of a Clearing Member default by collecting adequate prefunded financial resources to cover its potential losses resulting from the default of a Clearing Member and the liquidation of a defaulting Clearing Member's portfolio. Specifically, the proposed Minimum Margin Amount would modify the VaR Floor to cover circumstances, such as market volatility and economic uncertainty, where the current VaR Charge calculation and the Var Floor is lower than market price volatility from corresponding TBA securities benchmarks. The proposed changes are designed to more effectively measure and address risk characteristics in situations where the risk factors used in the VaR method do not adequately predict TBA prices. As reflected in backtesting studies, FICC believes the proposed changes would appropriately limit FICC's credit exposure to Clearing Members in the event that the VaR model yields too low a VaR Charge in such situations. Such backtesting studies indicate that average daily Backtesting Charges would have decreased by approximately $450 million or 53% during the Impact Study Period and the overall margin backtesting coverage (based on 12 month trailing backtesting) would have improved from approximately 97.3% to 98.5% through June 30, 2020 if the Minimum Margin Amount calculation had been in place. Improving the overall backtesting coverage level would help FICC ensure that it maintains an appropriate level of margin to address its risk management needs.
The use of the Minimum Margin Amount would reduce risk by allowing FICC to calculate the exposure in each portfolio using the risk spread based on observed TBA price moves of TBA positions within each portfolio. As reflected by backtesting studies during the Impact Study Period, using observed market prices of such benchmark TBA securities to set risk exposure would provide a more reliable estimate than the FICC VaR historical data set for the portfolio risk level when current market conditions deviate from historical observations. This proposal would allow offsetting between short and long positions within TBA securities benchmarks given that the TBAs aggregated in each benchmark exhibit similar risk profiles and can be netted together to calculate the Minimum Margin Amount that will cover the observed market price changes for each portfolio. Adding the Minimum Margin Amount to the VaR Floor would help to ensure that the risk exposure during periods of market volatility and economic uncertainty is adequately captured in the VaR Charges. FICC believes that would help to ensure that FICC continues to accurately calculate and assess margin and in turn, collect sufficient margin from its Clearing Members and better enable FICC to limit its exposures that could be incurred when liquidating a portfolio.
For these reasons, FICC believes the proposed changes would help to promote MBSD's robust risk management, which, in turn, is consistent with reducing systemic risks and supporting the stability of the broader financial system, consistent with Section 805(b) of the Clearing Supervision Act.
FICC also believes the changes proposed in this advance notice are consistent with promoting safety and soundness, which, in turn, is consistent with reducing systemic risks and supporting the stability of the broader financial system, consistent with Section 805(b) of the Clearing Supervision Act.
Section 805(a)(2) of the Clearing Supervision Act
The Covered Clearing Agency Standards require registered clearing agencies to establish, implement, maintain, and enforce written policies and procedures that are reasonably designed to be consistent with the minimum requirements for their operations and risk management practices on an ongoing basis.
Rule 17Ad–22(e)(4)(i) under the Act
Rule 17Ad–22(e)(6)(i) under the Act
The proposed change may be implemented if the Commission does not object to the proposed change within 60 days of the later of (i) the date that the proposed change was filed with the Commission or (ii) the date that any additional information requested by the Commission is received,
Pursuant to Section 806(e)(1)(H) of the Clearing Supervision Act,
Here, as the Commission has not requested any additional information, the date that is 60 days after FICC filed the Advance Notice with the Commission is January 26, 2021. However, the Commission is extending the review period of the Advance Notice for an additional 60 days under Section 806(e)(1)(H) of the Clearing Supervision Act
The Commission believes that the changes proposed in the Advance Notice raise novel and complex issues. Specifically, FICC developed this proposal as a direct response to lessons learned during the pandemic-related market volatility experienced in March and April 2020. As noted above, the TBA price changes significantly exceeded those implied by the VaR model risk factors, which resulted in insufficient VaR Charges during that time period. Moreover, because of the variance between historical price changes and the observed market price changes in March and April 2020, the current VaR Floor did not effectively address the risk that the margin model calculated too low a VaR Charge for all portfolios during that time period. Therefore, FICC has developed the proposal described in the Advance Notice to provide a more reliable estimate for the portfolio risk level when current market conditions deviate from historical observations, as occurred in March and April 2020. Determining the appropriate method to address this particular set of circumstances in the context of FICC's VaR Model presents novel and complex issues.
Moreover, the Commission understands that comments likely would assert that the changes to FICC's risk management practices described in the Advance Notice would have a significant and lasting impact on the market participants in the mortgage market.
Accordingly, pursuant to Section 806(e)(1)(H) of the Clearing Supervision Act,
The clearing agency shall post notice on its website of proposed changes that are implemented.
The proposal shall not take effect until all regulatory actions required with respect to the proposal are completed.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the Advance Notice is consistent with the Clearing Supervision Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549.
By the Commission.
On December 18, 2020, the Operating Committee for Consolidated Audit Trail, LLC (“CAT LLC”), on behalf of the following parties to the National Market System Plan Governing the Consolidated Audit Trail (the “CAT NMS Plan” or “Plan”):
Set forth in this Section II is the statement of the purpose and summary of the amendment, along with information required by Rule 608(a)(4) and (5) under the Exchange Act,
The Proposed Amendment adds industry-standard Limitation of Liability Provisions to the Reporter Agreement and Reporting Agent Agreement.
Moreover, CAT LLC has retained Charles River Associates (“Charles River”) to conduct a comprehensive economic analysis of the liability issues presented by a potential CAT data breach. That analysis, attached to this Proposed Amendment as
On July 11, 2012, the Commission adopted Rule 613 of Regulation NMS to enhance regulatory oversight of the U.S. securities markets. The rule directed the Participants to create a “Consolidated Audit Trail” (also referred to herein as the “CAT”) that would strengthen the ability of regulators—including the Commission and the SROs—to surveil the securities markets.
In preparation for the launch of initial CAT equities reporting, in August 2019 the Participants shared with CAT LLC's Advisory Committee a draft Reporter Agreement.
On August 29, 2019, CAT LLC's Operating Committee approved the then-draft Reporter Agreement—including the limitation of liability—by unanimous written consent.
Following the approval process, the Securities Industry and Financial Markets Association (“SIFMA”) objected on behalf of certain Industry Members to the Reporter Agreement's limitation of liability provisions, particularly in relation to a potential CAT data breach. The Participants attempted to engage in a constructive dialogue with SIFMA and offered several proposed revisions to the limitation of liability provisions to address SIFMA's concerns. Among other proposals, the Participants offered: (1) To create a reserve (funded jointly by Industry Members and the Participants) to cover damages in the event of a data breach and (2) to revise the limitation of liability provision to conform with analogous provisions in the agreements that Industry Members require their retail customers to execute. Throughout those discussions, the Participants repeatedly stated that they were willing to consider any proposals offered by Industry Members whereby a limitation of liability provision would remain in the Reporter Agreement. SIFMA did not offer any substantive counterproposals; instead, it maintained its wholesale objection to any limitation of liability.
Notwithstanding SIFMA's objections, between September 2019 and May 5, 2020, over 1,300 Industry Members executed the then-operative Reporter Agreement containing the limitation of liability provision. In advance of the initial equities reporting deadline, all CAT Reporters were required to test their ability to upload data to the CAT database and then complete a certification form. To enable the approximately 60 Industry Members who did not execute the Reporter Agreement to complete the testing and certification process, CAT LLC permitted them to test with obfuscated data pursuant to a “Limited Testing Acknowledgment Form.”
In March and April 2020, 10 of those 60 Industry Members rescinded their execution of the Limited Testing Acknowledgement Forms and attempted to report production data to the CAT. Because those Industry Members had not executed the Reporter Agreement, FINRA CAT (
The settlement between SIFMA and the Participants did not resolve the underlying disagreement regarding the proper allocation of liability in the event of a loss due to a breach of the CAT. Rather, the settlement provided a path for the minority of Industry Members that had not signed the original Reporter Agreement to test data and, subsequently, report live production data to the CAT. In particular, the settlement permitted Industry Members to report data to the CAT pursuant to a revised Reporter Agreement that does not contain a limitation of liability provision, while the Participants prepared a filing with the Commission to resolve the parties' underlying disagreement regarding the proper allocation of liability. CAT LLC's and the Participants' decision to resolve the Administrative Proceeding was animated by a desire to progress unimpeded toward the CAT's June 22 compliance date.
Initial equities reporting commenced as planned on June 22, 2020. Since that time, Industry Members have been transmitting data to the CAT pursuant to the revised Reporter Agreement, which does not contain any limitation of liability provision.
The Limitation of Liability Provisions in this Proposed Amendment, each of which was included (in substance) in the original Reporter Agreement and Reporting Agent Agreement, are contained in Appendix A to this Proposed Amendment.
• Provide that CAT Reporters and CAT Reporting Agents accept sole responsibility for their access to and use of the CAT System, and that CAT LLC makes no representations or warranties regarding the CAT system or any other matter;
• Limit the liability of CAT LLC, the Participants, and their respective representatives to any individual CAT Reporter or CAT Reporting Agent to the lesser of the fees actually paid to CAT for the calendar year or $500;
• Exclude all direct and indirect damages; and
• Provide that CAT LLC, the Participants, and their respective representatives shall not be liable for the loss or corruption of any data submitted by a CAT Reporter or CAT Reporting Agent to the CAT System.
Limitations of liability are ubiquitous within the securities industry and have long governed the economic relationships between self-regulatory organizations and the entities that they regulate. The Limitation of Liability Provisions at issue here fall squarely within industry norms.
For over half of a century, U.S. securities exchanges have adopted rules to limit their liability for losses that Industry Members incur through their use of exchange facilities.
These Commission-approved limitations of liability support a foundational aspect of The Exchange Act: The self-regulatory framework. This bedrock principle of securities regulation dates back to 1934, when Congress initially codified the legal
Likewise, the Commission has concluded that it is appropriate for self-regulatory organizations to adopt agreements with terms of use in connection with regulatory reporting facilities. The Commission has approved rules requiring Industry Members to agree to terms of use that customarily limit the liability of various regulatory reporting facilities—and the individual participants that comprise or operate those facilities—in connection with the reporting of order and execution data. And as with the CAT, those reporting facilities ingest substantial volumes of sensitive transaction data. For example, from 1998 through the present, the OATS has functioned as an integrated audit trail of order, quote, and trade data for equity securities. And to comply with their OATS reporting requirements, FINRA members must acknowledge an agreement that includes a limitation of liability provision that is similar in scope to the Limitation of Liability Provisions that are the subject of this Proposed Amendment.
Congress and the Commission have recognized that these principles also apply to National Market System facilities comprised of self-regulatory organizations. In 1975, Congress enacted the Securities Act Amendments of 1975, which reinforced the importance of the self-regulatory framework. The 1975 legislation also tasked the exchanges with certain responsibilities for the creation of a “national market system” including the development and maintenance of a consolidated market data stream.
Following the adoption of the market data rules of Regulation NMS in 2007, various NMS facilities have been formed to execute the regulation's mandates. There too, the Commission has concluded that limitations of liability are consistent with the Exchange Act. Accordingly, NMS facilities that receive transaction and customer data uniformly contain broad limitations of liability protecting both the actual facility and its constituent self-regulatory organizations. For example, the Consolidated Quotation Plan vendor and subscriber agreements—approved by the Commission—provide that no disseminating party will:
As the Commission has recognized by approving limitations of liability in the rules of every self-regulatory organization and in the context of regulatory and NMS reporting facilities, limiting the liability of self-regulatory organizations to Industry Members is consistent with the Exchange Act. There is no reason to depart from the principles that served the securities markets well for over half of a century and create a different framework for CAT reporting. Indeed, to comply with the Administrative Procedure Act, the Commission may not depart from this longstanding approach without: (1) Acknowledging the change in course and (2) providing a reasoned justification for the new, conflicting policy.
The case for a limitation of liability is particularly compelling where, as here, the Participants and CAT LLC are implementing the requirements of the CAT NMS Plan in their regulatory capacities. Rule 613 of Regulation NMS tasked the SROs with creating the CAT to achieve a core regulatory function—
Notwithstanding the Commission's repeated conclusion that limiting the liability of the Participants and their facilities is consistent with the Exchange Act, during prior negotiations and during the Administrative Proceeding, SIFMA objected to
During negotiations regarding liability issues prior to the Administrative Proceeding, SIFMA focused on the allocation of liability between CAT LLC and Industry Members in the event of a data breach involving investors' personally identifiable information (“PII”). For example, SIFMA expressed concerns in correspondence dated November 11, 2019 that focused on inclusion of PII in the CAT, and in a similar letter dated January 8, 2020 expressed concerns about bulk downloading of data and PII.
This plan amendment “minimizes the risk of theft of SSNs—the most sensitive piece of PII—by allowing the elimination of SSNs from the CAT, while still facilitating the creation of a reliable and accurate Customer-ID.”
Limiting CAT LLC's and the Participants' liability in the event of a potential data breach is critical to ensuring a secure financial foundation for the CAT. In approving the CAT NMS Plan, the Commission mandated that the Operating Committee “shall seek . . . to build financial stability to support [CAT LLC] as a going concern.”
CAT LLC retained Charles River to conduct an economic analysis of liability issues in relation to a theoretical CAT data breach.
Charles River's extensive economic analysis supports CAT LLC's and the Participants' decision to limit their liability to Industry Members. As
As discussed in the White Paper, a critical component of potential litigation benefits is the extent to which permitting Industry Members to litigate against CAT LLC and the Participants would incentivize CAT LLC and the Participants to appropriately invest in cybersecurity precautions.
The Participants note that Charles River's analysis is borne out by their extensive discussions with Industry Members regarding the cybersecurity of the CAT and liability issues.
Charles River's analysis also highlights that, as heavily regulated entities, CAT LLC and the Participants have a strong incentive to comply with the Commission's rules—
In assessing the value of permitting Industry Members to sue CAT LLC and the Participants, an economic analysis also must consider the costs of litigation. Charles River's White Paper addresses this question and concludes that the costs of litigating a potential CAT data breach are likely to be both substantial and unquantifiable on an
Charles River's analysis of potential breach scenarios further supports the need for CAT LLC, the Participants, and FINRA CAT to limit their liability to Industry Members. Charles River identified eight potential scenarios in which a bad actor could unlawfully obtain, utilize, and monetize CAT data.
During the negotiations prior to the Administrative Proceeding, SIFMA focused extensively on the possibility of a hacker reverse engineering certain Industry Members' proprietary trading strategies. In that regard, Charles River's scenario analysis indicates that reverse engineering of trading algorithms—and two other potential breach scenarios—could result in “extremely” severe economic consequences (
Even if these low probability scenarios occurred, there is no economic basis for shifting liability for potential catastrophic losses to CAT LLC or the Participants.
Not applicable.
The Participants propose to implement the Limitation of Liability Provisions by requiring all CAT Reporters and CAT Reporting Agents to execute revised agreements that contain the amended provisions.
The Participants propose to require CAT Reporters and CAT Reporting Agents to execute the revised agreements upon Commission approval of this Proposed Amendment.
The Participants do not believe the Proposed Amendment will have any impact on competition. The Proposed Amendment would require all CAT Reporters and CAT Reporting Agents to execute revised agreements that contain the amended provisions. Adopting the Proposed Amendment would, however, avoid the increased costs that would otherwise arise, and therefore would promote efficiency and capital formation in the U.S. securities markets. Indeed, the White Paper provides an extensive analysis indicating that the Proposed Amendment is the most efficient manner of addressing the allocation of liability in the event of a CAT data breach, and that other approaches (such as allowing third-party litigation) would generate few, if any, benefits while imposing significant costs.
Not applicable.
Section 12.3 of the CAT NMS Plan states that, subject to certain exceptions, the Plan may be amended from time to time only by a written amendment, authorized by the affirmative vote of not less than two-thirds of all of the Participants, that has been approved by the SEC pursuant to Rule 608 or has otherwise become effective under Rule 608. The Participants, by a vote of the Operating Committee taken on December 15, 2020 have authorized the filing of this Proposed Amendment with the SEC in accordance with the Plan.
Not applicable.
Any CAT Reporter or CAT Reporting Agent that fails to execute a revised agreement with the Limitation of Liability Provisions will not be permitted to transmit data to the CAT. Pursuant to the court's decision in
Not applicable.
Not applicable.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the amendment is consistent with the Exchange Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Section 12.15.
5.4.
5.5.
5.6.
5.7.
5.4
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Charles River Associates (“CRA”)
The Participants and the securities industry agree that the CAT database contains sensitive information and the SEC has mandated extensive security requirements be implemented to protect the data from a wide range of cyber breaches. After considering the overall costs and benefits of the CAT, the SEC already has concluded that the cyber security requirements it imposed on the CAT sufficiently serve the public interest.
The analyses presented in this paper support the Participants' proposal to adopt a limitation of liability provision in the CAT Reporter Agreement. Based on (1) an examination of specific potential breach scenarios and (2) a consideration of the economic and public policy elements of various regulatory and litigation approaches to mitigate cyber risk for the CAT, this paper concludes that a limitation on liability provision would serve the public interest in several ways.
The scenario analysis also indicates that three types of breaches—reverse engineering of trading algorithms, inserting fake data to
In deciding whether to approve Participants' proposed plan amendment, an important question for the SEC to address is whether, in light of the extensive cyber requirements already imposed on CAT LLC through regulation, the SEC-mandated nature of the CAT, and the ability of the SEC to bring enforcement actions to compel compliance, it is appropriate to
By applying the economic principles of liability and regulation as a means of motivating risk-minimizing behavior and considering the crucial role of the SEC's mandates regarding cyber security for the CAT (which already incorporate the concerns of entities involved in the National Market System as a whole), we conclude that the regulatory approach leads to the socially desirable level of investment in cyber security and protection of CAT data. We further conclude that SIFMA's position, which advocates allowing Industry Members to litigate against CAT LLC and the Participants in the event of a cyber breach, would result in increased costs for various economic actors—including CAT LLC, the Participants, Industry Members, and retail investors—without any meaningful benefit to the CAT's cyber security. At a high level (and as discussed in extensive detail below), we therefore conclude that CAT LLC's proposal to limit its liability and the liability of the Participants is well supported by applicable economic principles in the framework of the SEC's mission and its mandates regarding the CAT.
As a general matter, economic theory provides that society can motivate economic actors to take appropriate precautions to minimize the likelihood and consequences of accidents and misconduct through: (a) A regulatory approach (
In light of this existing regulatory regime, the relevant question is whether the benefits of allowing Industry Members to litigate against their regulators in the event of a CAT data breach outweigh the costs. An application of economic principles indicates that they do not. As heavily regulated entities, the Participants are obligated to comply with all SEC requirements and maintain an effective cyber security program. And to the extent that CAT LLC and the Participants fail to comply with the SEC's regulatory regime, the SEC could compel compliance by bringing enforcement actions. Moreover, regulatory systems are particularly appropriate where, as here, the regulator (
It is also important to note that the CAT has no paying customers and is fully funded by Participants and Industry Members who, ultimately, pass those costs on to the investing public. CAT LLC's funding is designed to cover costs only, and its balance sheet is not intended to develop and hold assets available to compensate Industry Members or others who may be harmed in the event of a cyber breach.
We conclude, therefore, that the risk presented by a cyber breach of the CAT should be addressed through the regulatory approach that the SEC has already adopted. The limitation of liability provision in CAT LLC's proposed amended Reporter Agreement is therefore appropriate. In this regard, we note that limitations of liability are ubiquitous in the securities industry and have effectively governed the economic relationships between the Participants and Industry Members for decades. We also observe that although SIFMA has objected to a limitation of liability on behalf of Industry Members, Industry Members generally require their respective customers—many of whom are retail investors—to agree to analogous limitation of liability provisions.
An unfortunate fact of the cyber world is that the best standards, policies, and procedures all executed with perfection may not thwart every conceivable breach attempt. A successful cyber-attack on the CAT could result in injury to Industry Members. Even in a purely regulated regime, it is appropriate to consider mechanisms that provide compensation to parties injured by a cyber-attack on the regulated activity. It is worth noting that CAT LLC and the Plan Processer purchase insurance designed to provide compensation to harmed parties, up to pre-defined economically feasible limits. The cyber insurance program also provides the benefit of engaging additional third parties (
CAT LLC, the Participants, and the SEC could consider additional mechanisms beyond cyber insurance to compensate potentially harmed parties, including mechanisms similar to those used by federal vaccine programs or insolvency protections for pension funds or financial institutions. However, a careful evaluation of the costs, benefits, and incentives among the various parties associated with the CAT would need to be conducted to ensure that any new arrangement enhances economic welfare before any decision to further extend the current compensation scheme (
Section II below examines a list of potential cyber threats, identifies those that may apply to the CAT, and provides an initial quantification of the harms that may
In this section we discuss the economic risk associated with bad actors wrongfully accessing the CAT system to monetize the data or to disrupt market surveillance. The CAT will store massive quantities of data that is unavailable anywhere else on a single system, which as Commissioner Pierce recently recognized, will “undoubtedly” be a target for hackers.
Given the importance of the CAT data, there are a variety of cyber security breach scenarios that, hypothetically, could occur and harm the CAT, the Plan Processor, the Participants, Industry Members, the investing public, the SEC's ability to surveil activity in the markets, and (conceivably) the functioning of U.S. securities markets.
Below, we posit a range of potential cyber risk scenarios attendant to the CAT and derive estimated ranges of potential financial consequences arising from these exposures. We recognize cyber attacks on the CAT could vary from the scenarios we hypothesize, but we offer them to provide a framework to assess the economic exposures that flow from the gathering of a massive amount of sensitive trading, financial, and identifying data. Some of the scenarios present relatively small economic risk, while others present significant risk in terms of both financial consequence and the potential to undermine faith in the efficiency and fairness of U.S. markets.
Overall, this section is organized as follows:
“Cybercrime is a growth industry” and “produces high returns at low risk and (relatively) low cost for the hackers.”
Estimates of the worldwide cost of cybercrime are in the trillions of dollars per year and continuing to grow.
(a) $3 trillion per year in 2015 and $6 trillion annually by 2021 according to Cybersecurity Ventures.
(b) $3 trillion per year in 2019 to $5 trillion by 2024 according to Juniper Research.
In the United States, according to the Council of Economic Advisers, malicious cybercrime cost the U.S. economy between $57 billion and $109 billion in 2016.
The size of the premiums paid for cyber insurance also provides a sense of the size of the cybercrime market. A recent report stated that $4.85 billion in cyber risk premiums were paid in 2018 and projected that figure to reach $28.6 billion by 2026.
Generally, we think of parties harmed by cybercrime falling into two groups. The first group are the parties whose system was breached, and the second are the other parties affected by the breach—the clients, customers, and vendors of the parties directly suffering the breach.
But that simple delineation does not cover all significant parties involved with supplying or accessing information from the CAT. The SROs also provide information to the CAT (some of the same information that is supplied by the Industry Members). As suppliers of information to the CAT, the interests of the SROs in cyber security at the CAT align with those of the Industry Members—a successful breach would compromise information on the CAT no matter if the original source were the Industry Members or the SROs. The SROs also, however, own and (through the CAT LLC Operating Committee) run the CAT. The SROs, therefore, face two risks arising from a cyber breach at the CAT: (1) Directly from the breach of the CAT as owners of CAT LLC; and (2) indirectly from the exposure of information they supplied to the CAT (similar to the Industry Members).
The SEC is also a major user of the CAT in its efforts to regulate U.S. equity and option markets. The SEC's access to and use of CAT data is similar to that of the SROs and constitutes another source of cyber risk to CAT LLC. While the SEC does not own or directly operate the CAT, the CAT would not exist or operate absent the SEC's regulatory authority and associated oversight. The CAT, therefore, serves the regulatory needs of both the SROs and the SEC with the same functionality. In other words, the SEC's access to the CAT is every bit as broad as the SROs, who own and operate CAT LLC.
In the context of the CAT, therefore, a simple delineation of two types of affected parties is not adequate to describe and understand the parties potentially affected by a cyber breach at the CAT. In addition, there are some important atypical economic relations and regulatory considerations that
First, given that CAT and its activities are a regulatory mandate of the SEC, standard liability and indemnity approaches regarding the CAT's and the Plan Processor's scope and scale for decision-making cannot be straightforwardly applied. The CAT and the Plan Processor are substantially constrained in their cyber security program by mandates from the SEC that, in turn, involve significant input and advocacy on the part of other parties, including Industry Members.
Second, related parties include the Participants/SROs. While these parties are legally distinct from CAT and the Plan Processor, their involvement and economic linkage is substantial. For example, the Participants have ownership interests in CAT LLC and the Operating Committee of CAT LLC, on which the Participants are all members, chooses the Plan Processor. In addition, operational funding for the CAT (and therefore, the Plan Processor) comes entirely from Participants and Industry Members. Although there are regulatory users who access CAT, there are no “customers” for CAT's services in a conventional sense.
Third, CAT related decisions and actions of Industry Members are also mandated by the SEC and constrained by the SEC's oversight. There is a level of participation and information flow from and to the Industry Members (and other potentially interested groups) through the Advisory Committee, and previously the Development Advisory Group, and an attendant ability to influence the business operation and cyber security investments and practices that is not typically found in conventional business relationships.
The typical economic distinctions between harms to parties with standard commercial relationships are much more amorphous with respect to the parties involved in the CAT. Any comprehensive analysis, therefore, requires careful distinctions and delineations between standard commercial relationships and parties involved in the CAT to understand the CAT's economic considerations of cyber security.
Cybercrimes are conducted by both internal and external threat actors. According to a 2020 report by Verizon, approximately 70% of breaches in 2019 were caused by external actors with the other 30% being initiated by internal actors.
The methods used by the bad actors to perpetrate cyber breaches (alone or in combination) were around 45% hacking (use of stolen credentials), 22% error (
There are several firms that provide summary level data on the types of cybercrime events, along with information on how frequently they occur and the associated severity of economic losses. One entity, Advisen, maintains a database of over 90,000 cyber events, and allows subscribers to perform customized searches.
We have posited scenarios where malicious actors could make use of the CAT data should they successfully gain access to the data. These scenarios, while not exhaustive of every type of potential cyber breach, are the product of our understanding of the data available in the CAT and how it might be used to generate wrongful benefits for threat actors.
Below we first discuss summary descriptive statistics regarding cyber
Our review of available information on various aspects of cyber breaches led us to focus on periodic reports prepared by Ponemon Institute/IBM Security, Verizon, and Cyentia. While these entities do not report the same information in the same way, there appears to be a consensus that malicious attacks are the primary reasons for cyber breaches, and that the risk of a breach increases with firm size. The Fortune 250 are particularly frequent targets.
The CAT data is unique and valuable because it is the only data repository that collects and holds Customer and Account Attribute data and all trading data from all the U.S. equity and option exchanges.
More specifically, the CAT Customer and Account Attributes database (the CAIS database) is the only database that exists that aggregates, across all U.S. stock exchanges, elements of PII (name, address, birth year)
Given
The summary chart below displays the results of filtering the Advisen database to obtain cyber breach data over the past 10 years associated with companies with $1 billion revenue or greater that are classified as Finance and Insurance companies in the North American Industry Classification system.
Malicious breaches are the most common and the most expensive.
The asset most frequently compromised was personal financial information (“PFI”).
The data in the table above also includes frequency and losses from internal cyber related errors. These events typically include things like software errors or a when a human mistake involving a computer is made. For example, the top ten largest error-related cyber loss events from the events underlying the table above (in the corporate losses section) ranged from $472.0 million down to $7.3 million. The top two were $472.0 million for Knight Capital Group and $373.5 million for TSB Bank. Both were caused by IT errors. For Knight Capital Group, a glitch in new trading software caused Knight Capital Group's order router to send more than four million orders into the market when it was supposed to fill in just 212 customer orders.
To further refine the types of cyber breaches we believe could potentially affect the CAT, we searched public sources and relied upon our experience to posit scenarios we believe reflect how data from possible cyber breach attacks/events could be misused.
We believe threat actors could seek to breach the CAT to attempt the following:
We address the scenarios below and describe our estimation of the ease of implementation, frequency and severity risk of each.
A bad actor could seek to ransom CAT data in several ways. Many of them are derivative of the other scenarios we posit later in this report.
Each of these is discussed in further detail:
Under this scenario, if a bad actor obtained either Customer and Account Attribute data or trade data from the CAT it would be difficult for the bad actor to monetize the information without the ability to associate the trade data with the Customer and Account Attribute data to identify the parties involved in the trade as bad actors historically have done.
To limit the potential value of the information, the SEC mandated that the CAT limit the identifying information it stores. Information such as a social security number, brokerage account number, and other high value PFI items are not stored by the CAT. The CAT stores only less sensitive PII information including name, address, and birth year within the CAT Customer and Account Attributes database (CAIS).
With respect to an attempt to hold hacked CAT trade data hostage, we note that all the trade data is encrypted with the client anonymized, making it unlikely that a hacker could successfully identify who to threaten. The bad actor would need to have the CAIS data and trade data to determine which clients and client trades were associated with a broker or investor. Given that the CAT keeps encrypted CAIS data and encrypted trade data in separate databases, a data incident to obtain and exploit both sets of data would be difficult. We recognize that
If a hacker were able to disrupt the CAT and impose another level of unauthorized and malicious data encryption in an attempt to ransom its decryption, this could affect the SEC's ability to conduct investigations as well as the SROs' ability to meet their oversight obligations.
This scenario would be difficult to implement given the bad actor would need to access the trade data as well as the CAIS (assuming the bad actor could not otherwise determine the who the trade data was associated with
If a bad actor were able to use the CAT trading and CAIS data to successfully determine that an investor holds a significant short position in a particular stock, in theory, that hacker could try to threaten that investor that their position information would be made public. We deem this scenario as improbable and unlikely. First, as discussed above, determining both the investor identity and the position held by that investor would be difficult. Second, there is a significant risk to the hacker that the investor would not care that their short position was made public. Thus, we believe this scenario would be of average difficulty to implement, will occur infrequently, and have medium severity if successful.
We believe that one of the most likely goals of wrong-doers seeking to hack the CAT would be to attempt to steal Customer and Account Attribute data (within the CAIS database) for the millions of account holders in the system. We note that significant effort has been made in designing the CAT to reduce this risk. This includes encrypting of the Customer and Account Attribute data and limiting the underlying PII to less sensitive information: Name, address and birth year (no PFI data—no social security numbers, no account numbers, and no dates of birth). Importantly, there are strict limitations on access to the CAIS database. Access to the CAIS is on a “need to know” and “least privileged” basis and cannot be obtained from public internet connectivity.
An example of how a hacker could take advantage of less sensitive PII data (name, contact information, and a reservation) can be seen in the recent breach at the Ritz Carlton's London hotel. In August of 2020, the hotel suffered a cyber breach of its food and beverage system. The bad actor used the customer information in this system to pose as a Ritz employee to confirm the reservation and payment card details with individuals with the upcoming reservations. The card details received based on these calls were used to spend thousands of pounds of victims' money.
Had the CAT Customer and Account Attribute data included social security numbers and birth dates, this information could be even more easily monetized by either identity/credit theft or selling the data in bulk on the dark web. William Hardin, VP and leader of Charles River Associates Cybersecurity Incident Response Practice stated, “the most readily available easily monetized form of hacked data on the dark web is PII.”
Verizon reported that the compromise of personal data occurs in 77% of the Finance and Insurance industry cyber breaches and that cyber-attacks are mostly carried out by external actors who are financially motivated to get easily monetized data.
We reviewed the top 10 PII cyber breaches underlying these figures and summarized them in the table below. We found the lowest loss was $9.1 million while the highest was $21.6 million. While an imperfect measure, generally the more records exposed,
Based on the descriptions provided by Advisen, the most similar PII breach to what CAT might experience in the list below is the E*TRADE hack, where a bad actor accessed their customer database and exported stolen customer data including names, residential addresses, phone numbers, and email addresses. These addresses were allegedly taken so the bad actors could start their own securities brokerage. Overall, the hackers compromised customer databases containing the personal information of more than 5 million customers, leading to a $12.9 million loss.
As noted
The second highest PFI breach, after Equifax, is the $188.7 million loss suffered by Wells Fargo & Co. (Wells Fargo), which resulted from the bank allowing its employees to access customers' personal information, and in some cases forging data, to subscribe them to products, such as credit cards. Lawyers representing aggrieved customers have said the bank may have opened about 3.5 million unauthorized accounts.
If the CAT stored social security numbers and account numbers (as was originally planned before the amendments), the exposure on a successful hack would be extreme. But, because the CAT Customer and Account Attribute data is limited to name, address and birth year, we believe that risk is mitigated to some degree. In summary, we suggest CAT Customer and Account Attribute data will be of medium interest to hackers and conclude this scenario would be relatively less difficult to implement, will occur with moderate frequency, and likely have medium to high severity if successful. An extreme event cannot be ruled out primarily because of the quantity of Customer and Account Attribute data being held at the CAT.
Algorithmic trading uses a computer program that follows a defined set of instructions (an algorithm) to execute a trade. The trades can be executed at a speed and frequency that is impossible for a human trader. The algorithmic trading market size was $11.1 billion in 2019 and expected to grow to $18.8 billion by 2024.
Algorithmic trading plays an important role in making the U.S. markets more efficient. Academic research has shown that algorithmic trading significantly reduces bid-ask spreads and speeds price discovery.
Assuming the trading data of the CAT LLC was breached and decrypted, we assess that, while difficult, that data could be used to reverse engineer the proprietary trading algorithms of algorithmic trading firms. The loss to a firm whose algorithm was compromised in this way would be the cost of developing the algorithm plus any forgone profits that could have been expected to accrue to the firm over a reasonable period of time.
For example, as of January 2020, Citadel is suing a rival for allegedly taking details of a key Citadel trading strategy which Citadel has stated cost more than $100 million to develop and which generates many millions of dollars each year.
Although we assess that using the CAT data to reverse engineer a trading algorithm would take significant expertise and time, the trading strategies that use these algorithms are highly valuable. In addition, the concentration of profitability among a small number of players in this space could increase the attractiveness of attempting this type of scheme. We ultimately deem it unlikely that a bad actor would seek to use CAT data in this way because of the difficulty in both achieving the hack as well as the effort to reverse engineer an algorithm. The separation and encryption of the Customer and Account Attribute data (in the CAIS database) and trade data (in the MDS database), the fact that the trade data is anonymized, and the limitations on ways in which one can get this data (CAT data can only be accessed by the SEC and SROs via private line access; there is no public internet access and access to the CAIS is on a “need to know” and “least privileged” basis) would make this scenario very difficult to achieve. The hacker would need to successfully access all this data, decrypt it, and reverse engineer the algorithms under which the trades were made. Given the potential value (severity) of this type of information, however, bad actors could be so motivated. In particular, a state sponsored hacker could have the resources to attempt to reverse engineer successful algorithms and steal intellectual property in this way. The bad actor could also seek to ransom the algorithm to the algorithmic trading firm as discussed above or seek to sell the data to a sophisticated trading firm that was able to do the reverse engineering.
An example of a parallel type of scenario can be seen in the breach of newswire services by a group of Ukrainian hackers during 2015. The hackers gained access to corporate earnings releases for dozens of companies as much as 12 hours prior to their being made public. The hackers knew the information was valuable but did not know how to trade based on it. They therefore set up a network of traders to whom they fed the data and either sold them the releases outright or struck a deal to share in the profits.
In summary, we believe that while the implementing this type of breach would be difficult and the frequency likely low, the severity of a breach leading to the reverse engineering of an algorithmic trading firm's strategy could be high. An estimate of exposure of at least $100 million per incident (based on the cost to develop a successful strategy at Citadel) seems reasonable. Given the role that algorithmic trading firms play in adding liquidity to the markets, we deem this scenario to pose both a risk to algorithmic trading firms themselves, as well as to the efficient operation of U.S. markets. Therefore, we believe this scenario would be very difficult to implement, will occur infrequently, but have extreme severity if successful.
We posit that if a hacker were able to successfully insert false data into the CAT, they could use that ability to wrongfully incriminate an individual or company. For example, assume that a hacker inserts data into the CAT making it appear that the CEO of a company was wrongfully engaging in insider trading of its company's stock. Further assume that this data triggered an investigation at the SEC into the CEO's trading and that investigation led to a preliminary injunction hearing to prevent the CEO from further accessing his or her account. This SEC action would be public, and both the CEO's and company's reputation and value could be harmed.
According to a 2010 study, when the SEC announced an investigation on a company, the average abnormal return based on that announcement was at least negative 8%.
The negative return can be significantly larger than 8%. In November 2019, the Wall Street Journal announced that the SEC was investigating Under Armour. On the day of the announcement, Under Armour's stock fell 19%.
Given the expected negative market reaction to an SEC investigation, the hacker could position to benefit from a stock price drop. This type of trading would arguably be akin to insider trading (trading on material non-public information), where we have seen cases that have generally generated illicit profits ranging in the hundreds of thousands to tens of millions of dollars. The largest insider trading matters to date were
We recognize that this scenario seems attenuated and unlikely because the hacker would need to know information from the separately kept and encrypted CAIS and trade databases. The hacker would need gain access to the CAIS to obtain which CCID went with the person/company to be wrongfully incriminated. The hacker would then be able to search the trade data for trades related to that CCID. Other potential hacker impediments include CAT data only being accessed by the SEC and SROs via private line access; there is no public internet access and access to the CAIS is on a “need to know” and “least privileged” basis. Additionally, we believe that this false accusation would be relatively easy for the accused CEO to disprove based on simply producing his own account statements. However, this could potentially occur at or after the public injunction hearing, and the associated initial effects on stock price. We conclude that this scenario would be very difficult to implement, will occur infrequently, but have high to extreme severity if successful. The severity level is based on the potential to profit from wrongful accusations about a company and/or its management.
The SROs and the SEC monitor the securities markets for a range of wrongful activities, such as trading in a way that manipulates the market prices of securities and trading on inside information (material non-public information). If a hacker were to access the CAT and remove data relating to wrongful acts (or insert data to obfuscate their bad acts) and the wrongful acts were not detected by SRO monitoring, the hacker could successfully hide illegal trading activity from regulatory scrutiny. This has the potential to enable illegal activity to continue (and its related profits) and ultimately undermine the efficiency of the markets and public trust therein. Ultimately the investing public is harmed as they may overpay for a purchase or receive less for the sale of a security.
If a bad actor can continue to make millions of dollars on illegal activity due to the insertion of fake data or deletion of data in the CAT, those activities essentially cause those millions to come out of the accounts of investors who are following the rules. To the extent the illegal activity becomes widespread, investors could lose confidence in the market and ultimately take out their money and potentially invest it in foreign markets. This would essentially increase capital costs for all companies seeking to raise funds to grow, translating into a smaller economy.
To execute such a scheme, the bad actor would need to know how to hack into the encrypted and anonymized CAT trade data or hire someone to do so. The bad actor would also have to override or bypass the existence of two separate data feeds into CAT (one from the execution venue and one from the CAT Industry Member reporter) to delete or add fake data or access the final corrected database.
This type of criminal trading undermines both market efficiency and public confidence in the markets. The effects may be pernicious and, if left unchecked, could lead to catastrophic loss of investor confidence.
Given the nature of this scheme, including avoiding detection by SRO monitoring, we believe this scenario would be very difficult to implement, will occur infrequently, but have high to extreme severity if successful.
We posit that the non-public trading data in the CAT could be used to determine if a company or individual might be making large multi-day purchases or sales of securities of various companies. This information could indicate a potential takeover, or, in the case of a high-profile investor, a significant new position is being taken.
For example, it is not unusual for Berkshire Hathaway (“Berkshire”) to purchase large amounts of stock of a company, and for the stock of that company to go up in value both because of share demand increase based on the size of the purchases made by Berkshire, as well as the perceived value of having Berkshire as an investor once that position is public. Once the position exceeds 5% of the target company, Berkshire (or any investor for that matter) has ten days to report its holding to the SEC.
On November 14, 2016, Berkshire reported to the SEC, with the SEC making it public at 4:05 p.m. ET, a new investment in American Airlines
The hacker also could access the CAT trade data to look for new stock positions being taken in an account in a particular company that approaches 5%. This is referred to as a “toehold” position and could be an indicator that a takeover bid is likely.
As discussed above, we know hackers are motivated to find and monetize non-public information (earnings announcements hacked from press release services). Such non-public information has also been obtained by hackers on the SEC's company filing website, Edgar. In 2016, bad actors hacked into the SEC's Edgar company filing system to access the data in company filings before the SEC made then public.
In summary, we believe that a hacker could use CAT trade data to successfully trade on non-public information. The payoffs could be high enough to motivate a bad actor. Of course, the hacker would need to gain access to the encrypted and anonymized CAT trade data. If the trade data was obtained, it would be relatively easy to determine if an account was building a position in a particular stock. Thus, we believe this scenario would be relatively less difficult to implement, could occur relatively frequently across multiple stocks, and have medium to high severity if successful.
Another possible use of hacked CAT data would be to gather competitive information. A bad actor could hack into the CAT trade data and CAT CAIS data to determine which brokerage firms had which clients. For example, it could be useful to firm A to know that most of a particular pension fund's trading activity is being done at firm B, and how much trading that comprises. With that information, trading firm A could target the most profitable clients and avoid spending time on others. Access to CAT information could notably increase the scope and precision of competitive intelligence above that already available from other, more standard sources.
While this information could provide an advantage, we deem this scenario unlikely. First, as discussed above, there is difficulty in hacking two sources of encrypted and separately kept data, the CAIS (for the account owner associated with the CCID used in the trade database) and trade data as well as associating all of this to learn who the best customers are. Second, merely knowing who is working with whom does not, in and of itself, generate profits; therefore, the incentive to pursue this activity is low. In addition, taking advantage of this information would need to be undertaken by a regulated firm, and if the hacking was uncovered it would lead to severe consequences for that firm. Therefore, the combination of low value of the information and high risk for the user leads us to conclude this scenario is very unlikely. What seems a little more plausible is a bad actor asking the brokerage firm for a ransom and, if not received, the bad actor releasing the information into a public forum. Thus, we believe this scenario would be very difficult to implement, will occur infrequently, and have medium to high severity if successful.
It is our understanding that queries made by regulators on the CAT system will be saved, and that the party (
This information could be used to ransom the firm as well as purchase or sell securities to take advantage of a potential announcement of an investigation (or a resolution of an investigation) later in time. To accomplish this scheme, the hacker would need to gain access to the queries as well as the encrypted CAIS database (Customer and Account Attribute data). Importantly, access to the CAIS is on a “need to know” and “least privileged” basis and cannot be obtained from public internet connectivity. Additionally, the hacker would not know with certainty that the queries would turn into a publicly announced SEC investigation, but by pursuing this strategy across multiple examples, they have a higher likelihood of success. A hacker with access to the queries would likely need to implement a trading strategy across multiple companies to ensure at least one or more investigations were ultimately disclosed. We conclude this scenario will be of average difficulty to implement, will be of average frequency, and have medium to high severity.
In this section, we review the law and economics literature that provides normative analysis of whether the preferred method to influence the management of risky activities is via regulation or litigation. Our goal is to apply the lessons from this literature to address the question of whether it is economically optimal to mitigate CAT LLC's cyber risk exposure (and the potential resulting harm to third parties) through regulation or through litigation, or through some combination of the two methods. We start by providing a rationale for why one would want to influence the loss-producing behavior of economic agents. We then characterize the differences between regulation as an
In reviewing CAT LLC's proposed plan amendment for a limitation of liability, the Commission is faced with the choice of whether to supplement the cyber regulatory regime that the Commission has already imposed by affording Industry Members the ability to bring private litigation against CAT LLC and the Participants. Based on our application of the economic literature, we conclude that regulation alone is preferable to regulation plus litigation. As discussed below, the approach that relies largely on regulation alone would be an improvement in economic efficiency and a benefit to the investing public over a regulation plus litigation approach as proposed by Industry Members. Accordingly, the limitation on liability proposed by the Participants is appropriate from the perspective of economic theory.
The standard (legal, economic, and moral) reason for seeking to control the actions of economic agents who engage in risky activities is to maximize the social welfare of the activity. Steven Shavell, the Samuel R. Rosenthal Professor of Law and Economics at Harvard Law School, provides a useful definition of social welfare as “the benefits [each] party derives from engaging in their activities, less the sum of the costs of precautions, the harms done, and the administrative expenses associated with the means of social control.”
Regulation is one of the primary “means of social control” referenced in Shavell's definition. Regulatory control is characterized by its reliance upon rules designed to reduce to some acceptable level the likelihood of occurrence of a loss, or to minimize the size of the loss, should one occur. These rules are most often defined by professionals who are experts in the underlying risk exposure, and they are promulgated before the economic activity commences. Each party to the activity is required to follow the rules and enforcement is typically conducted using publicly observable mechanisms.
Litigation is a second “means of social control.” Economists (and others) have long recognized that the prospect of being held legally liable for harm
One-way economists examine which method of social control may be preferable is in the context of “incentive alignment” among the parties to the economic activity. That is, how do you get each party to recognize and address not only the damages they might suffer, but the damages that other parties (customers, vendors, employees, etc.) might incur because the first party suffered an adverse event?
We focus on comparing regulation vs. litigation and on systems of social control that employ the joint use of each tool for the purposes of this White Paper.
A well-established literature has developed over several decades that discusses the circumstances when regulation or litigation will be the preferred means of control to minimize the social cost of loss producing events.
A first consideration relates to the rules-based nature of regulation. Regulation relies upon each party having a clear understanding of the legal obligation they must perform before they conduct the economic activity. Regulation tends to be preferred to litigation in circumstances where the rules can be written with precision, when the marginal compliance costs associated with the rules are low, and when compliance can be transparently verified by all parties, including the first party, all third parties, and by the regulator.
One way that the reliance upon rules becomes problematic is when it is difficult to write a precise
Regulatory rules that cannot be precisely written are also problematic to the extent they cause the parties to the activity to inadvertently not follow the rule or to have different interpretations of the rule. In either circumstance, it may be possible that all parties incur the administrative costs of designing the rule and of attempting to comply with the vague rule, and then also incur the administrative costs associated with interpreting the application of the vague rule once the loss has occurred. This duplication of administrative costs, both
Regulatory systems tend to dominate when compliance with the rule(s) can be monitored by the regulator with low marginal cost and there is high transparency regarding the effort taken to comply with the rules. Litigation dominates in situations when there are significant informational asymmetries between the parties or between the parties and the regulator to determine compliance. The adversarial nature of proceedings where courts can compel the parties to reveal private case-specific information that has already taken place leads to more accurate liability assignment
Regulatory systems are preferable when the activity can result in so-called “judgment proof problems.” A judgment proof problem is synonymous with the classic externality where the actions of a responsible party imposes costs on a third party (or parties) that the responsible party is unable or unlikely to pay despite being the source of those costs. Agents can be judgement proof for several reasons. A responsible party may be judgment proof if the losses it produces are spread amongst many third parties and no single entity has a large enough incentive to hold the first party accountable for the damages it produced—the so-called “disappearing defendant” problem. A responsible party may also be judgment proof when the adverse event produces a catastrophic loss that exceeds the first party's available assets to provide compensation. Litigation systems, by definition, allow for the possibility that the catastrophic loss may happen and thereby permit the prospect that full recovery by the injured party may not be possible. Knowing the effects of a possible catastrophic event will not be fully realized by the first party reduces the first party's up-front incentives to take care.
The
It is also important to consider the joint use of each policy tool. For example, drug manufacturers are subject to testing regimes (
From an economic perspective, the joint use of both regulation and litigation should be considered only when there is sufficient incremental efficiency that can be gained by using both methods of social control collectively. In these situations, one method—either or regulation or litigation—will be the primary method, and the relevant question is whether adding the other method will improve incremental efficiency. For example, an article in the leading economics journal argues litigation supplemented by regulation can resolve a form a judgment proof problem that arises when it is possible a third party may be unable to recover damages because courts can make errors by incorrectly applying a negligence standard. Adding regulation,
Similarly, there are circumstances where it is advantageous to add litigation to mitigate the informational limitations of the regulatory policy tool. For example, the efficacy of regulation declines when a regulator monitoring a firm can observe compliance with certain rules but not others. In this case, adding liability through litigation to the regulatory regime can increase the efficiency of the entire system because
Financial services and health and safety are two areas where the informational limitations and differential ability to monitor has corroborated the co-existence of regulation and litigation as means of
The CAT is different from the examples cited here that support the co-existence of regulation and litigation to control risky behavior. The CAT does not face numerous customers with different fact-specific conditions. There are a relatively small handful of parties involved, all of whom are already regulated by the SEC. In the situation faced by the CAT, the SEC has already concluded that the existing cyber security framework is adequate and they can amend the regulatory scheme to require additional cyber security measures to enhance the
The SEC can also file enforcement actions to compel compliance with the extensive cyber security requirements for the CAT. Enforcement action brought by the SEC against the CAT would be highly informed by the SEC's pre-existing regulatory supervision and is potentially informed by Industry Members through their ability to monitor CAT via their role on the Advisory Committee. The SEC, therefore, is uniquely positioned to consider the costs and benefits of taking enforcement action, and to tailor the scope and nature of enforcement proceedings in a way that best balances the competing stakeholder and public interests the CAT is designed to serve. The SEC is also able to use information that it acquires through multiple sources including its own examinations and, potentially, investigations of the CAT in conducting that cost-benefit analysis.
The litigation ability sought by Industry Members, however, is of a substantially different nature than that held by the SEC. The possibility of the CAT being forced by Industry Member initiated litigation to take actions either in conflict with or uncoordinated with the SEC's regulatory requirements is not trivial.
Shavell suggests compulsory insurance is a potential solution to the judgment proof problem of inadequate assets as a way to compensate injured victims.
There are certain special considerations when examining the roles of regulation and litigation in aligning incentives appropriately for CAT's cyber risk. While regulation has a long history in public policy towards economic activity, cyber risk presents features that transcend prior regulatory endeavors. Much of regulation, for example, addresses relations between regulated entities and their customers or vendors—parties that enter into legal transactions willingly. Health and safety regulation, as another example, focuses on decisions and actions that are solely under the control of the regulated entities. Safety regulation of nuclear power plants, for example, is designed to avoid accidents that would create considerable harm to those living within the vicinity of the plant but for which there does not exist a contractual relationship between the parties.
The question of how best to encourage investment in protection against cybercrime is challenging because the parties harmed are varied, there exist circumstances where it may not immediately be known that a loss has occurred, and holding the perpetrators liable for their actions, even if they can be identified, is often not possible. On a very general level, entities that may be targets of cybercriminals have incentives to invest in cyber security measures up to the point where the last dollar of expenditures is expected to prevent at least that level of cyber loss to the entity. Cyber losses consist of direct costs to the breached entity and the costs that the entity expects it would pay to other parties harmed by the entity's cyber breach. The concern, therefore, is that entities may choose to not invest at a socially optimal level of protection if they do not internalize the expected direct costs of the potentially breached entity as well as the costs of all other affected parties. System administrators who have the responsibility to maintain and enhance the integrity of information assets and the systems that protect them may face situations where the benefits that might accrue from an investment in security may accrue to others outside the firm but may not be fully internalized to the firm. In these cases, markets do not provide sufficient incentive for the optimal investment in protection. Without an intervention of some sort to correct the externality, such as the cyber security regulatory regime mandated by the SEC, there may be insufficient incentive to invest in security at the economically optimal level.
Regulation of cyber security adds an additional dimension that is novel and difficult to manage—protection against malicious actors that have incentives and abilities to wreak havoc against parties with whom they have no consensual relationship while simultaneously avoiding legal sanction. Importantly, litigation against the first-party breach victims by third-party victims of cybercrime adds little, if any, incentive or ability to mitigate the frequency or severity of cybercrime when the first party is subject to an extensive, transparent, and well-functioning regulatory approach to overseeing cyber security.
For the reasons discussed in Section II, possible cyber breaches of the CAT can cause the CAT, the Plan Processor, and the Participants themselves to all experience significant harm (
Another notable information asymmetry in the cyber security arena is the ability of perpetrators to hide methods, intentions, and targets from scrutiny. Even with diligent cyber security efforts on the part of potential targets, cyber breaches may not be detected promptly enough, and first-party breach victims may not know they have been breached. Even though there are now extensive breach notification requirements (including in the CAT NMS Plan), it takes time and effort to understand the scope of the breach and the scale of the required notifications. Relatedly, breached entities may have incentives to not reveal they have been hacked. Cyber breaches occur often because of weaknesses in software design and implementation that are then exploited by the bad actors. Relevant software is most often purchased from non-parties and affected parties rely on the integrity of the purchased software. There is also a public goods nature for information about cyber breaches. Knowledge of a particular cyber breach at one victim can help other targets avoid becoming victims. The incentive to disclose a breach to support others for no private gain is a classic common goods problem.
The concerns about disclosing a cyber breach with the CAT are substantially, if not completely, mitigated. CAT LLC exists only because of an SEC mandate that a centralized database is essential to improving the monitoring and supervision of U.S. securities trading activity. The SEC has closely supervised the formation and operation of the CAT, and there are no other entities similar to the CAT to diffuse the SEC's attention. The SEC has imposed extensive and specific requirements on the CAT regarding its cyber security operations. “The security and confidentiality of CAT Data has been—and continues to be—a top priority of the Commission. The CAT NMS Plan approved by the Commission already sets forth a number of requirements regarding the security and confidentiality of CAT Data.”
These considerations present challenging obstacles to an effective litigation approach to cyber security for the CAT. An advantage of the regulatory approach to the CAT's cyber security is the ability of the SEC to require the CAT and the Plan Processor to implement cyber security initiatives, standards, policies, and procedures promulgated by entities with deep knowledge and experience in cyber matters—thereby internalizing the social benefits of investing in cyber security into their decision making. The SEC can also require CAT LLC and the Participants to amend their cyber policies, procedures, systems and controls in response to subsequent developments or newly identified vulnerabilities, to the extent consistent with applicable laws and regulations. In addition, it is important to recognize that the SEC may bring enforcement actions against Participants and the CAT should they fail to comply with best practices embodied in the CAT NMS Plan or SEC regulations, including Regulation SCI.
In this section, we apply the economic considerations discussed in Sections A through C above to analyze whether CAT's cyber security risk should be addressed through regulation, litigation, or a combination of both methods. We conclude that affording Industry Members the ability to sue CAT LLC and the Participants for damages suffered as a result of a potential CAT data breach would not meaningfully increase the incentives for CAT LLC to take appropriate cyber precautions but would increase the costs to various market participants, including the Participants, Industry Members, and individual investors. Under these circumstances, the Participants' proposed limitation of liability amendment to the CAT Reporter Agreement would serve important policy goals.
The potential for cyber breaches at the CAT exists and can result in harm to some parties is acknowledged by all, including the SEC. “The Commission acknowledges that the costs of a breach, including breach management, could be quite high, especially during periods of market stress. Furthermore, the Commission understands that a breach could seriously harm not only investors and institutions but also the broader financial markets.”
The SEC has mandated that the CAT and the Plan Processor (FINRA CAT) implement a number of specific cyber security protocols.
The SEC can employ a variety of regulatory enforcement measures to compel the CAT (and other market participants) to establish and maintain a high level of cyber security. With these and other protocols, practices, and procedures in place, “[t]he Commission discussed . . . its belief that the risks of a security breach may not be significant because certain provisions of Rule 613 and the CAT NMS Plan appear reasonably designed to mitigate these risks.”
SEC,
The SEC, therefore, after an extensive consideration of the overall costs and benefits of the CAT, already has expressed its judgment that the cyber security requirements it imposed on the CAT sufficiently serve the public interest. In its November 15, 2016
As explained in Sections A through C above, and mentioned in SIFMA's
Relying primarily upon a regulatory regime, as proposed by Participants, is reasonable based upon our analysis for several reasons.
• CAT LLC is a legal entity jointly owned by the Participants. The Participants, as SROs, are already overseen by the SEC and are therefore subject to significant regulatory requirements to limit their exposure to cyber risk. The SROs also use the CAT to fulfill their regulatory functions under supervision of the SEC. A cyber breach at the CAT would affect the SROs' ability to perform their regulatory function—meaning that the SROs, as users of the CAT, have a strong interest in the CAT's cyber security. As discussed above, the SEC can impose—and has in fact imposed—additional cyber regulations in response to subsequent developments or to address newly identified threats. As meaningfully regulated entities, the Participants are obligated to comply with regulatory requirements or face consequences. The Participants have already implemented cyber security standards, policies and procedures to protect their information from successful attack. Further, similar to the CAT, SROs have in place liability limitations with Industry Members for cyber loss.
• CAT LLC's funding principles seek to cover the annual operating costs of the company, and the financial assets are designed to be minimal and substantially lower than the maximum possible loss due to several extreme possible cyber breach scenarios. There is presently no asset reserve, and no plans to build one, on the balance sheet of CAT LLC that could cover a substantial cyber loss. Dispensing with the liability exposure will, therefore, not likely change CAT LLC's incentive to avoid losses beyond its existing minimal asset base.
• The efficiency of regulatory systems to achieve economically optimal outcomes declines when the monitor is required to oversee an industry consisting of heterogeneous firms where it is difficult to promulgate rules that apply with equal precision to all firms. As discussed in Section B above, efficiency gains may be possible in such an industry by supplementing the regulatory system with a liability system that can add context-specific information should a loss occur. In this case, however, CAT LLC is the only firm being overseen. As a result, the regulatory system is tailored specifically on an
• Regulatory arrangements can also be enhanced in situations where the monitoring costs associated with compliance are high and when the regulated activity is composed of heterogenous firms. Again, this circumstance is unique, however, as CAT LLC is the only firm being monitored. Importantly, representatives of the SEC attend all Operating Committee meetings, participate in the Security Working Group and Interpretations Working Group, and receive updates regarding various aspects of the project and system on a daily basis. In addition, the Industry Members are designated members of the Advisory Committee, which gives them access to substantial information about the cyber security circumstances at the CAT and the Plan Processor. The Industry Members' role on the Advisory Committee also provides them an ability to attend all Operating Committee meetings as well as meetings of other subcommittees and working groups and, therefore, the ability to advocate for their interests on the cyber security policy and procedures and other issues related to CAT LLC. While the Industry Members' role is advisory in nature, there is no restriction that prevents any Industry Member from raising specific concerns regarding CAT LLC's cyber security directly with the SEC. In addition, Industry Members transfer large amounts of data into the CAT, thereby contributing to the risk of a breach (
The SEC has required that CAT LLC and the Plan Processor implement and maintain an extensive cyber security regimen. Importantly, both the SEC and Industry Members can monitor and provide input on the cyber security hygiene of the CAT and the Plan Processor, and the SEC can bring enforcement actions against the Participants if they fail to meet the standards in the regulatory regime. Under these conditions, adding an ability for Industry Members to sue CAT LLC or the Plan Processor in the event of a cyber breach will not meaningfully improve the incentives to implement and maintain the security of the data residing at CAT. Those incentives already exist based on
In addition to considering the potential benefits of litigation (which appear to be minimal for the reasons discussed above), an economic analysis must also consider costs of allowing litigation by Industry Members.
At a minimum, any means of social control of a risky activity comes with administrative expense. It is important, therefore, to determine if the incremental control that comes with the associated set of benefits justifies the additional expense. The additional costs of cyber security protection or remediation (or of compensation paid to adversely affected parties who successfully litigate should a loss occur) that would be funded by CAT LLC need to be examined relative to the expected marginal benefits.
More substantively, the threat of litigation without concomitant benefits can lead to significant extra-marginal costs that reduce social welfare. For example, the threat of medical malpractice litigation has been cited as a motivation for excess medical testing.
An over-investment in cyber security, moreover, could make the CAT less effective in achieving the Commission's goals. A CAT system burdened by excess security measures could slow down database searches, surveillance programs, and other essential functions. Security measures added to hedge against litigation risk, for example, might limit the number of records that could be returned in a single query, restrict access to a less-than-optimal pool of regulatory personnel (at the SEC and the SROs), or require importation of outside data into CAT environments that would expand the CAT's overall attack surface. Indeed, as noted above, allowing third-party litigation would run the risk that a court would mandate security protocols that conflict or interfere with those adopted by the SEC.
Extending the CAT's asset base (
Although building a pool of capital in this manner might provide some level of compensation to a few entities who could suffer a loss supplying the CAT with the required information, we caution that this course of action has notable possible disadvantages. Beyond the administrative expenses associated with establishing such a business function within CAT, there are well known challenges associated with creating a largely unencumbered pool of capital within organizations as there is considerable evidence doing so can lead to substantially misaligned incentives between managers and the providers of that capital that ultimately lead to significant costs.
It is well-understood that litigation in general is an expensive and highly uncertain process. This holds with particular persuasiveness for the new, highly technical, and rapidly changing area of cyber security. The level of expertise required to establish what went wrong, who was responsible, and then the calculation of relevant losses is extremely high, placing large information burdens on the triers-of-fact. In the case of CAT LLC, there would be an additional burden of demonstrating either that the SEC's cyber security mandates were inadequately implemented or were insufficient to the task. Discovery in such litigation also runs the risk of revealing crucial cyber security information to malicious actors. There are, therefore, substantial unquantifiable direct costs associated with litigating cyber security breaches at the CAT.
We identified several marginal operating costs that would likely emanate (with no corresponding marginal benefits) if the limitation of liability provision were eliminated. These extra costs are either associated with inefficient litigation, with extra-marginal defensive investments in cyber risk protection, with reduced efficacy of the CAT system due to excess, litigation-driven security measures, or a cash build-up scheme that would be borne by the Participants/SROs and Industry Members who would ultimately pass those higher costs on to their customers, employees or owners. Research on the incidence of extra-marginal costs and taxes on organizations generally shows that these higher costs tend to fall on employees and customers rather than the owners of the organization.
We contend that this literature is applicable to adding litigation exposure from cyber breaches to CAT and the Plan Processor with minor modifications in the analysis. As noted above, litigation is an additional expense for CAT and the Plan Processor. For CAT and the Plan Processor to operate, expenses must be paid. By CAT's funding principles, the extra funds will be passed along as higher fees to the Participants and the Industry Members.
Limitations on liability provisions are ubiquitous in commercial relations and in the securities and finance businesses. While the SEC-regulated relationship between the SROs and the Industry Members limit the applicability of general commercial contractual considerations to limitations on liability regarding cyber security at CAT, there are multiple examples where public (and private) interests have been served by limitations on liability provisions imposed by regulation. Some of these instances are common in the investment business while others are in areas remote from investment but exhibit informative parallels.
Perhaps most relevant are the limitations of liability provision imposed by existing trade reporting facilities, regulatory reporting systems, and Industry Member agreements with their customers. Here, the Industry Members routinely (and unremarkably) specifically limit their liability to their respective customers, even though Industry Members hold important and sensitive customer information in their systems. The May 6, 2020
One finds limitations of liability elsewhere in the U.S. economy where the threat of litigation would raise costs and regulation exists. The examples presented below limit liability while simultaneously providing another mechanism to compensate injured parties.
The federal government, for example, has established a limitation of liability for vaccine producers. The National Childhood Vaccine Injury Act of 1986
42 U.S. Code § 300aa–22,
In 2005, Congress passed the “Public Readiness and Emergency Preparedness Act” (“PREP Act”).
In a declaration effective February 4, 2020, the Secretary of Health and Human Services “invoked the PREP Act and declared Coronavirus Disease 2019 (COVID–19) to be a public health emergency warranting liability protections for covered countermeasures.”
The parallel between the public policy for vaccines and the role of CAT LLC to improve investor protection and promote market integrity, particularly during times of market stress, while not exact, is useful. In this metaphor, cyber criminals play the role of viruses. Society has an interest to promote the development of a vaccine to combat the pandemic or to use the CAT to help regulate financial markets to promote the public good. Limiting liability is one way to do so.
There is a third, simultaneously more expansive and more focused example—financial solvency regulation. This is again ubiquitous and multifaceted—deposit insurance, pension guaranty coverage, insurance guaranty associations, etc. working across many types of financial institutions and products. These programs provide various customers and other stakeholders the
Finally, there are risks that are just part of doing business that cannot be avoided or transferred to other parties through contract or insurance. The mere act of investing entails risk, for example, and the SEC is charged with managing and mitigating this risk for investors and the economy while simultaneously obtaining the benefits of the capital markets. Industry Members, for example, assume risks associated with transacting with their customers. While most are legal and legitimate, malicious parties do transact in the securities markets. The SEC has mandated that broker-dealers “know their customer” and although broker-dealers make extensive efforts to comply with this mandate, bad actors slip through. Industry Members also assume counterparty risk. There are mechanisms in place to mitigate and remediate this risk, but it can never be completely eliminated. There are also other legislative, regulatory, and political risks associated with the securities markets.
A certain level of cyber risk is already present in the normal business operations of the Industry Members. They accept (and manage) these risks in the expectation that they will obtain a profit from the activities that embed the risks. They have expressed concern over a possible expansion of those cyber risks to themselves and their clients as a result of the mandated transmission of information to the CAT. This transmission was mandated, and is governed, by the primary federal regulator of the Industry Members' activities. The CAT does not exist to serve customers and obtain a profit, but to help the SEC and the SROs in their regulation of the U.S. equity and option markets. While the Industry Members' concern over a possible increase in cyber risk exposure may be understandable in certain contexts, their position that the CAT and the Plan Processor be denied a limitation on liability essentially shifts the burden of cyber risk onto the regulators and regulatory process. As explained above, the SEC has already implemented standards, policies, and practices to mitigate cyber risk in the system as a whole.
While we have concluded above that the regulatory approach to the CAT's cyber security is preferred over a litigation approach because overall social costs of control would be lower and there is no meaningful benefit from adding a litigation option as proposed by Industry Members, there is still a risk that Industry Members or their customers could be harmed in the case of a significant cyber breach. The current regulatory approach is generally silent on the possibility of compensating third parties in the case of a CAT cyber breach. Of concern here is the possibility of a previously unseen cyber event that results in a high damage/severity “black swan” type event.
There are, however, several approaches to designing and funding potential compensation mechanisms.
The use of cyber insurance, for example, could be advantageous. Cyber coverage can be purchased as part of a package of business insurance (property-casualty and liability) or as a stand-alone policy. According to information supplied to state regulatory authorities in the U.S., in 2019 stand-alone cyber policies exhibited somewhat higher premium receipts than cyber coverage included in broader packages—$1.26 billion and $1 billion, respectively.
The use of cyber insurance extends the assets available to compensate injured parties and therefore mitigates some of the judgement-proof problem discussed above. While the cyber insurance market is relatively new and undeveloped compared to a number of other coverages,
For many insurers, cyber coverage entails a relatively high degree of monitoring of the insureds. The insurers also have on retainer cyber mitigation and remediation experts that are independent of the insureds and focused on reducing the risk of cyber incursion. A 2017 publication by the Organisation for Economic Co-operation and Development (“OECD”) noted the following:
A manuscripted (
At present, we are aware of a few cyber-related industry loss warranties that have been issued.
We mentioned earlier in the White Paper that several funding mechanisms exist to compensate the customers of financial intermediaries, subject to limits, including banks, credit unions, and insurance companies. Under the auspices of the SEC, one could also imagine self-funding a third-party compensation program. Some combination of any of these approaches, and others, might be considered. The goal here is to mitigate the damages of a cyber breach and compensate affected third parties in the lowest cost fashion. Industry Members should recognize that, ultimately, it is they, the SROs, and especially their customers that will pay all the costs of the CAT.
This White Paper investigates the SEC's regulatory approach to the CAT's cyber security and conducts an economic analysis to examine whether adding an ability for Industry Members to litigate in the event of a CAT cyber breach creates socially optimal incentives for controlling the cyber risk exposures faced by CAT over a regulation alone approach.
As explained in this White Paper, the economic role of litigation is to provide meaningful
An economic analysis of the circumstances attending the CAT shows that regulation by the SEC already properly incentivizes the Participants to recognize and address the risks that a CAT cyber breach poses to third parties such as Industry Members. We further show that the possibility of permitting litigation by Industry Members in addition to the regulatory regime will not meaningfully increase CAT's incentives to manage its exposure to cyber risk, yet it will significantly increase the costs (which will ultimately be passed on to retail investors) that it bears to do so. Our analysis suggests that the
Accordingly, our analysis of the respective benefits of
Michael G. Mayer is a Vice President of Charles River Associates. He has performed numerous business valuation assignments and has evaluated numerous claims for economic loss in a range of business, banking, securities, derivatives and insurance disputes. He has also performed financial investigations of brokerage firms, hedge
In litigation matters, Mr. Mayer has been most actively involved in the determination of damages in securities fraud and breach of fiduciary duty cases, broker/dealer litigation, failed mergers/acquisitions, bankruptcy, lender liability, and shareholder disputes. He is regularly called upon to analyze complex securities and explain their structures. Additionally, he has significant experience in other areas of commercial litigation including antitrust, accountant's liability, breach of contract, business interruption, and insurance. He has assisted counsel with respect to discovery and document management, deposition and cross-examination assistance and trial exhibit preparation.
Outside of litigation, Mr. Mayer regularly consults on financial issues relating to mergers, acquisitions, joint ventures, and licensing. He has analyzed and negotiated deal structures on behalf of clients in a broad range of industries ranging from pharmaceuticals to industrial rubber products. Additionally, he has performed business and intangible asset valuations for some of the largest companies in the country. Mr. Mayer has been widely quoted in the press including the Wall Street Journal, CFO Magazine, Inside Counsel Magazine, Securities Law360, and the Chicago Tribune, among others.
Dr. Mark F. Meyer is a vice president and the co-leader of the Insurance Economics Practice of CRA. He has over 30 years of experience applying economic theory and quantitative methods to a range of complex business litigation and regulatory matters. Dr. Meyer's experience includes assessing liability and damages for litigations involving firms engaged in financial markets, especially insurance; investigations of insurer insolvencies; antitrust analysis of monopolization, mergers, and price discrimination in a wide range of industries; work in the economics of product distribution and marketing; analysis of regulatory initiatives involving insurance and other industries; and statistical and econometric applications to liability determination, market definition, class certification, and economic damages.
Prior to joining CRA, Dr. Meyer was a senior economist at the Princeton Economics Group, Inc.; senior managing economist and a director in the New York office of the Law & Economics Consulting Group, Inc.; and an economist at the law firm of Skadden, Arps, Slate, Meagher & Flom in New York.
Richard D. Phillips is the dean of the J. Mack Robinson College of Business, Georgia State University, and the C.V. Starr Professor of Risk Management and Insurance. He has served as a Senior Consultant to CRA since 2010.
Dr. Phillips was the associate dean for academic initiatives and innovations from 2012 until 2014 and from 2006 to 2012 he was the Kenneth Black Jr. Chair of the Department of Risk Management and Insurance. From 1997 until 2014 he held the appointment of Fellow of the Wharton Financial Institutions Center at the University of Pennsylvania. He has held visiting appointments at the Federal Reserve Bank of Atlanta (1996–1997), at the Wharton School (2003), at the Federal Reserve Bank of New York (2007–2008), and he was the Swiss Re Visiting Scholar at the University of Munich in 2008. Dr. Phillips joined Georgia State University after completing his doctoral studies at the University of Pennsylvania in 1994.
Professor Phillips' research interests lie at the intersection of corporate finance and insurance economics with specific focus on the effect of risk on corporate decision-making, and the functioning of insurance markets. He has published in academic and policy journals including the
Beyond the university, Professor Phillips has served as a consultant to numerous commercial and governmental organizations throughout his career including AIG, Allstate, ING, AXA, Deutsche Bank, Goldman Sachs, Tillinghast, Aon Capital Markets, the Casualty Actuarial Society, the Society of Actuaries, and the U.S. Office of Management and Budget. He is a member of the board of directors for the Munich American Reassurance Company. Within the non-profit sector, Professor Phillips was the Executive Director of Georgia State University's Risk Management Foundation from 2006–2012, he is a board member on the S.S. Huebner Foundation for Insurance Education Foundation, he is a board member of the World Affairs Council of Atlanta, and he is Chairman Emeritus of the Board of Trustees for the Swift School, one of the largest private-independent schools serving dyslexic students grades 1–8 in Georgia.
Ms. Seams is a Principal at CRA and has testified as an economic damages expert in federal court and has been involved in and managed numerous other engagements involving financial investigations, economic damages, and business valuations.
Ms. Seams has performed financial investigation activities in many matters including the alleged mismanagement of bank investments by its management, the alleged breach of fiduciary duty of FNMA for not detecting fraud perpetrated on an entity selling mortgages to FNMA, the alleged acquisition of life settlement policies through bid rigging, and the alleged profit made by trading on inside information.
Ms. Seams' economic damages work includes the determination of damages related to the breach of a non-compete agreement in the equipment leasing industry, the assessment of damages related to the raiding of employees in the securities industry, the calculation of damages related to fraud perpetrated on a temporary staffing company, the damages analysis for the creditors of a large bankrupt energy trading company, the valuation of damages associated with securities fraud, the determination of early contract termination damages in the securities clearing industry, and the calculation of intellectual property damages across many industries.
Ms. Seams' business valuation work includes the net worth analysis of a company to pay an award of punitive damages, the solvency analysis of a regional acute care hospital, the solvency analysis of a temporary staffing company, and the valuation of an energy storage and distribution company.
Prior to joining Charles River Associates, Ms. Seams operated her own consulting firm specializing in project finance, contract analysis, and sales and risk management. Additionally, she worked in the energy industry in various roles ranging from rate analyst, market analyst, sales representative, and management consultant.
The authors of this White Paper have thoroughly reviewed extensive publicly available documents and obtained information from CAT LLC and FINRA CAT personnel to understand the circumstances surrounding the CAT and develop their findings. We also rely on longstanding bodies of economic literature regarding cyber breaches and creating socially optimal incentives to control risk (including risk of
• Securities and Exchange Commission,
• Securities and Exchange Commission,
○ The March 3, 2014 CAT NMS Plan Request for Proposal,
○ The Limited Liability Company Agreement of CAT LLC,
○ The Participants' Discussion of Considerations, and
○ The CAT NMS Plan Processor Requirements.
• Securities and Exchange Commission,
• Securities and Exchange Commission,
• Securities and Exchange Commission,
•
In addition to the documents listed above, the authors investigated the implementation of cyber security at the CAT by thoroughly reviewing the extensive document record listed below and by obtaining information from personnel at FINRA CAT responsible for compliance and cyber security.
• Consolidated Audit Trail, LLC and FINRA CAT, LLC,
• Amazon Web Services website, “Cloud computing with AWS,” at
• Amazon Web Services website, “Cloud computing with AWS, Most secure” at
The other sources the authors relied upon to form their opinions are:
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act” or “Exchange Act”)
The Exchange is filing a proposal to amend Exchange Rule 1900, Registration Requirements, to adopt temporary Interpretation and Policy .13 (Temporary Extension of the Limited Period for Registered Persons to Function as Principals).
The text of the proposed rule change is available on the Exchange's website at
In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to adopt Interpretation and Policy .13 (Temporary Extension of the Limited Period for Registered Persons to Function as Principals) to Exchange Rule 1900, Registration Requirements. The proposed rule change would extend the 120-day period that certain individuals can function as principals without having successfully passed an appropriate qualification examination through April 30, 2021,
In response to COVID–19, earlier this year FINRA began providing temporary relief by way of frequently asked questions (“FAQs”)
FINRA published the first FAQ on March 20, 2020, providing that individuals who were designated to function as principals under FINRA Rule 1210.04
Thereafter, on December 9, 2020, FINRA filed with the Commission a proposed rule change for immediate effectiveness to extend the limited period for registered persons to function as a principal through April 30, 2021.
The Exchange continues to closely monitor the impact of the COVID–19 pandemic on Members,
In addition, firms are continuing to experience operational challenges with much of their personnel working from home due to shelter-in-place orders, restrictions on businesses and social activity imposed in various states, and adherence to other social distancing guidelines consistent with the recommendations of public health officials.
These ongoing, extenuating circumstances make it impracticable for Members to ensure that the individuals whom they have designated to function in a principal capacity, as set forth in Exchange Rule 1900, Interpretation and Policy .04, are able to successfully sit for and pass an appropriate qualification examination within the 120-calendar day period required under the rule, or to find other qualified staff to fill this position. The ongoing circumstances also require individuals to be exposed to the health risks associated with taking an in-person examination, because the General Securities Principal examination is not available online. Therefore, the Exchange is proposing to provide the temporary relief provided through the FINRA FAQs by adopting Interpretation and Policy .13 to Exchange Rule 1900 to extend the 120-day period during which an individual can function as a principal before having to pass an applicable qualification examination until April 30, 2021.
The Exchange believes that this proposed extension of time is tailored to address the needs and constraints on a Member's operations during the COVID–19 pandemic, without significantly compromising critical investor protection. The proposed extension of time will help to minimize the impact of COVID–19 on Members by providing flexibility so that Members can ensure that principal positions remain filled. The potential risks from the proposed extension of the 120-day period are mitigated by the Member's requirement to supervise the activities of these designated individuals and ensure compliance with federal securities laws and regulations, as well as Exchange rules.
The Exchange believes that its proposed rule change is consistent with Section 6(b) of the Exchange Act
The proposed rule change is intended to minimize the impact of COVID–19 on Member operations by extending the 120-day period certain individuals may function as a principal without having successfully passed an appropriate qualification examination under Exchange Rule 1900, Interpretation and Policy .04, until April 30, 2021. The
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. The proposed rule change is intended to provide temporary relief given the impacts of the COVID–19 pandemic crisis and to also maintain consistency with the rules of other self-regulatory organizations (“SROs”) with respect to the registration requirements applicable to Members and their registered personnel. In that regard, the Exchange believes that any burden on competition would be clearly outweighed by providing Members with temporary relief in this unique environment while also ensuring clear and consistent requirements applicable across SROs and mitigating any risk of SROs implementing different standards in these important areas. In its filing, FINRA provides an abbreviated economic impact assessment maintaining that the changes are necessary to temporarily rebalance the attendant benefits and costs of the obligations under FINRA Rule 1210 in response to the impacts of the COVID–19 pandemic that is equally applicable to the changes the Exchange proposes.
Written comments were neither solicited nor received.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed under Rule 19b–4(f)(6) normally does not become operative for 30 days after the date of filing. However, pursuant to Rule 19b–4(f)(6)(iii), the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposed rule change may become operative immediately upon filing. As noted above, the Exchange stated that the proposed extension of time will help minimize the impact of the COVID–19 outbreak on Members' operations by allowing them to keep principal positions filled and minimizing disruptions to client services and other critical responsibilities. The Exchange further stated that the ongoing extenuating circumstances of the COVID–19 pandemic make it impractical to ensure that individuals designated to act in these capacities are able to take and pass the appropriate qualification examination during the 120-calendar day period required under the rules. The Exchange also explained that shelter-in-place orders, quarantining, restrictions on business and social activity and adherence to social distancing guidelines consistent with the recommendations of public officials remain in place in various states.
The Commission observed that the Exchange's proposal, like FINRA's analogous filing, provides only temporary relief from the requirement to pass certain qualification examinations within the 120-day period in the rules. As proposed, this relief would extend the 120-day period that certain individuals can function as principals through April 30, 2021. If a further extension of temporary relief from the rule requirements identified in this proposal beyond April 30, 2021 is required, the Exchange noted that it may submit a separate rule filing to extend the effectiveness of the temporary relief under these rules.
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes extending the expiration date of the temporary amendments to Rules 10.9261 and 10.9830 as set forth in SR–NYSENAT–2020–31 from December 31, 2020, to April 30, 2021, in conformity with recent changes by the Financial Industry Regulatory Authority, Inc. (“FINRA”). The proposed rule change would not make any changes to the text of NYSE National Rules 10.9261 and 10.9830. The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes extending the expiration date of the temporary amendments as set forth in SR–NYSENAT–2020–31
In 2018, NYSE National adopted disciplinary rules that are, with certain exceptions, substantially the same as the disciplinary rules of its affiliate NYSE American LLC, which are in turn substantially similar to the FINRA Rule 8000 Series and Rule 9000 Series, and which set forth rules for conducting investigations and enforcement actions.
In adopting disciplinary rules modeled on FINRA's rules, NYSE National adopted the hearing and evidentiary processes set forth in Rule 10.9261 and in Rule 10.9830 for hearings in matters involving temporary and permanent cease and desist orders
In response to the spread of COVID–19, on August 31, 2020, FINRA filed with the Commission a proposed rule change for immediate effectiveness, SR–FINRA–2020–027, to temporarily grant FINRA's Office of Hearing Officers (“OHO”) and the National Adjudicatory Council (“NAC”) the authority to conduct certain hearings by video conference, if warranted by the current COVID–19-related public health risks posed by in-person hearings. Among the rules FINRA amended were Rules 9261 and 9830.
Given that FINRA and OHO administers disciplinary hearings on the Exchange's behalf, and that the public health concerns addressed by FINRA's amendments apply equally to Exchange disciplinary hearings, on September 29, 2020, the Exchange filed to temporarily amend Rule 10.9261 and Rule 10.9830 to permit FINRA to conduct virtual hearings on its behalf.
The COVID–19 conditions necessitating these temporary amendments persist, with cases rapidly escalating nationwide. Based on its assessment of current COVID–19 conditions and the lack of certainty as to when COVID–19-related health concerns will subside, on December 1, 2020, FINRA filed to extend the expiration date of the temporary rule amendments to, among other rules, FINRA Rule 9261 and 9830 from December 31, 2020, to April 30, 2021.
Consistent with FINRA's recent proposal, the Exchange proposes to extend the expiration date of the temporary rule amendments to NYSE National Rules 10.9261 and 10.9830 as set forth in SR–NYSENAT–2020–31 from December 31, 2020, to April 30, 2021.
As set forth in SR–FINRA–2020–042, based on its assessment of current COVID–19 conditions, including the recent escalation in COVID–19 cases nationwide, FINRA does not believe that the COVID–19-related health concerns necessitating this relief will subside by December 31, 2020, and has determined that there will be a continued need for this temporary relief for several months beyond December 31, 2020.
The Exchange proposes to similarly extend the expiration date of the temporary rule amendments to NYSE National Rules 10.9261 and 10.9830 as set forth in SR–NYSENAT–2020–31 from December 31, 2020, to April 30, 2021. With COVID–19 cases surging nationwide, the Exchange agrees with FINRA that the COVID–19-related public health risks necessitating this temporary relief have not yet abated and are unlikely to abate by December 31, 2020. The proposed change will permit OHO to continue to assess, based on critical COVID–19 data and criteria and the guidance of health and security consultants, whether an in-person hearing would compromise the health and safety of the hearing participants such that the hearing should proceed by video conference. FINRA has adopted a detailed and thorough protocol to ensure that hearings conducted by video conference will maintain fair process for the parties.
As noted below, the Exchange has filed the proposed rule change for immediate effectiveness and has requested that the SEC waive the requirement that the proposed rule change not become operative for 30 days after the date of the filing, so the Exchange can implement the proposed rule change immediately.
The proposed rule change is consistent with Section 6(b) of the Act,
The Exchange believes that the proposed rule change supports the objectives of the Act by providing greater harmonization between Exchange rules and FINRA rules of similar purpose, resulting in less burdensome and more efficient regulatory compliance. As such, the proposed rule change will foster cooperation and coordination with persons engaged in facilitating transactions in securities and will remove impediments to and perfect the mechanism of a free and open market and a national market system.
The proposed rule change, which extends the expiration date of the temporary amendments to Exchange rules consistent with FINRA's extension to its Rules 9261 and 9830 for four months as set forth in SR–FINRA–2020–042, will permit the Exchange to continue to effectively conduct hearings during the COVID–19 pandemic in situations where in-person hearings present likely public health risks. The ability to conduct hearings by video conference will permit the adjudicatory functions of the Exchange's disciplinary rules to continue unabated, thereby avoiding protracted delays. The Exchange believes that this is especially important in matters where temporary and permanent cease and desist orders are sought because the proposed rule change would enable those hearings to continue to proceed without delay, thereby enabling the Exchange to continue to take immediate action to stop significant, ongoing customer harm, to the benefit of the investing public.
As set forth in detail in SR–NYSENAT–2020–31, the temporary relief to permit hearings to be conducted via video conference maintains fair process and will continue to provide fair process consistent with Sections 6(b)(7) and 6(d) of the Act
Accordingly, the proposed rule change extending this temporary relief is in the public interest and consistent with the Act's purpose.
The Exchange does not believe that the proposed temporary rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is not intended to address competitive issues but is rather intended solely to provide continued temporary relief given the impacts of the COVID–19 pandemic and the related health and safety risks of conducting in-person activities. The Exchange believes that the proposed rule change will prevent unnecessary disruptions that would otherwise result if the temporary amendments were to expire on December 31, 2020.
No written comments were solicited or received with respect to the proposed rule change.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)
A proposed rule change filed under Rule 19b–4(f)(6) normally does not become operative for 30 days after the date of filing. However, pursuant to Rule 19b–4(f)(6)(iii), the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the 30-day operative delay so that the proposed rule change may become operative immediately upon filing. As noted above, the Exchange states that the COVID-related health and safety risks of conducting in-person activities, which necessitated these temporary amendments, persist and that cases are escalating nationwide. Based on FINRA's assessment of the current COVID–19 conditions and FINRA's determination that there is a continued need for this temporary relief for several months beyond December 31, 2020, the Exchange states that it agrees with FINRA that the COVID–19-related public health risks necessitating this temporary relief have not yet abated and are unlikely to abate by December 31, 2020.
The Exchange also indicates that this filing is eligible to become operative immediately because the proposal would continue to provide greater harmonization between the Exchange rules and FINRA rules that serve a similar purpose, resulting in less burdensome and more efficient regulatory compliance. This proposal would serve to extend the expiration date of the temporary amendments to the Exchange rules set forth in SR–NYSENAT–2020–31, which is consistent with FINRA's extension to its comparable rules, where FINRA requested and the Commission granted a waiver of the 30-day operative delay.
The Commission observes that this proposal, like SR–NYSENAT–2020–31 and FINRA's comparable filing,
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090.
Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSENAT–2020–39 and should be submitted on or before
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On September 22, 2020, NYSE Arca, Inc. (“NYSE Arca” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act” or “Exchange Act”)
The Exchange adopted listing standards for Managed Portfolio Shares as set forth in NYSE Arca Rule 8.900–E.
NYSE Arca Rule 8.900–E(b)(1) currently requires that the Exchange submit a proposed rule change with the Commission to list and trade each new series of Managed Portfolio Shares.
The Exchange proposes to amend Rule 8.900–E(b)(1) to state that the Exchange may approve Managed Portfolio Shares for listing and/or trading (including pursuant to unlisted trading privileges) pursuant to Rule 19b–4(e) under the Act. The Exchange would also specify within proposed Rule 8.900–E(b)(1) that components of a series of Managed Portfolio Shares listed pursuant to Rule 19b–4(e) shall satisfy the criteria set forth in Rule 8.900–E and Commentary .01 thereto upon initial listing and on a continual basis. In addition, the Exchange would specify that it will file separate proposals under Section 19(b) of the Act before the listing and trading of a series of Managed Portfolio Shares with components that do not satisfy the criteria set forth in proposed Commentary .01 or components other than those specified in proposed Commentary .01.
Proposed Commentary .01(a) to Rule 8.900–E would provide that the portfolio holdings for a series of Managed Portfolio Shares shall include only the following components:
(1) U.S. exchange-traded securities that are common stocks; preferred stocks; American Depositary Receipts; and real estate investment trusts;
(2) U.S. exchange-traded funds that are listed under the following NYSE Arca rules: Investment Company Units (Rule 5.2–E(j)(3)); Exchange-Traded Fund Shares (Rule 5.2–E(j)(8)); Portfolio Depositary Receipts (Rule 8.100–E); Managed Fund Shares (Rule 8.600–E); Active Proxy Portfolio Shares (Rule 8.601–E); and Managed Portfolio Shares (Rule 8.900–E);
(3) Equity Gold Shares (listed under NYSE Arca Rule 5.2–E(j)(5))
(4) Index-Linked Securities (listed under NYSE Arca Rule 5.2–E(j)(6));
(5) Commodity-Based Trust Shares (listed under NYSE Arca Rule 8.201–E);
(6) Currency Trust Shares (listed under NYSE Arca Rule 8.202–E);
(7) The following securities, which are required to be organized as commodity pools: Commodity Index Trust Shares (listed under NYSE Arca Rule 8.203–E); Commodity Futures Trust Shares (listed under NYSE Arca Rule 8.204–E); Trust Units (listed under NYSE Arca Rule 8.500–E); and Managed Trust Securities (listed under NYSE Arca Rule 8.700–E);
(8) The following securities if organized as commodity pools: Trust Issued Receipts (listed under NYSE Arca Rule 8.200–E) and Partnership Units (listed under NYSE Arca Rule 8.300–E);
(9) U.S. exchange-traded futures that trade contemporaneously with shares of a series of Managed Portfolio Shares in the Exchange's Core Trading Session; and
(10) Cash and cash equivalents, which cash equivalents would be limited to short-term U.S. Treasury securities, government money market funds, and repurchase agreements.
Proposed Commentary .01(b) to Rule 8.900–E would provide that a series of Managed Portfolio Shares will not hold short positions in securities and other financial instruments referenced in the list of permitted investments in proposed Commentary .01(a). Proposed Commentary .01(c) would provide that the securities referenced in proposed Commentary .01(a)(2)–(8) would also include securities listed on another national securities exchange pursuant to substantially equivalent listing rules.
The Exchange states that the securities and financial instruments enumerated in proposed Commentary .01(a) to Rule 8.900–E are consistent with, and limited to, the “permissible investments” for series of Managed Portfolio Shares previously approved by the Commission for Exchange listing and trading, as described in the Approval Orders
The Exchange also states that the regulatory staff of the Exchange, or the Financial Industry Regulatory Authority, Inc. (“FINRA”), on behalf of the Exchange, will communicate as needed regarding trading in Managed Portfolio Shares, other exchange-traded equity securities and futures contracts with other markets that are members of the Intermarket Surveillance Group (“ISG”), including U.S. exchanges on which the components are traded. In addition, the Exchange may obtain information regarding trading in
The Exchange states that the Managed Portfolio Shares will conform to the initial and continued listing criteria under Rule 8.900–E. All Managed Portfolio Shares listed and/or traded pursuant to Rule 8.900–E (including pursuant to unlisted trading privileges) are subject to all Exchange rules and procedures that currently govern the trading of equity securities on the Exchange. The issuer of a series of Managed Portfolio Shares will be required to comply with Rule 10A–3 under the Act for the initial and continued listing of Managed Portfolio Shares, as provided under NYSE Arca Rule 5.3–E.
Further, according to the Exchange, prior to listing pursuant to proposed amended Rule 8.900–E and proposed Commentary .01 thereto, an issuer would be required to represent to the Exchange that it will advise the Exchange of any failure by a series of Managed Portfolio Shares to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Act, the Exchange will monitor for compliance with the continued listing requirements. If a series of Managed Portfolio Shares is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under NYSE Arca Rule 5.5–E(m).
The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Act
Pursuant to Section 19(b)(2)(B) of the Act,
The Exchange proposes to adopt generic listing standards for Managed Portfolio Shares, which would allow the Exchange to list and trade Managed Portfolio Shares that meet the requirements of NYSE Arca Rule 8.900–E and Commentary .01 without filing a proposed rule change with the Commission. As noted above, however, the Exchange only recently adopted Rule 8.900–E to permit the listing and trading of Managed Portfolio Shares on the Exchange.
Under the Commission's Rules of Practice, the “burden to demonstrate that a proposed rule change is consistent with the Exchange Act and the rules and regulations issued thereunder . . . is on the [SRO] that proposed the rule change.”
Accordingly, the Commission is instituting proceedings to allow for additional consideration and comment on the issues raised herein, including whether the proposal is consistent with the Act.
The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the issues identified above, as well as any other concerns they may have with the proposal. In particular, the Commission invites the written views of interested persons concerning whether the proposal is consistent with Section 6(b)(5)
Interested persons are invited to submit written data, views, and arguments regarding whether the proposal should be approved or disapproved by January 27, 2021. Any person who wishes to file a rebuttal to any other person's submission must file that rebuttal by February 10, 2021. The Commission asks that commenters address the sufficiency of the Exchange's statements in support of the proposal, which are set forth in the Notice,
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act” or “Exchange Act”)
The Exchange is filing a proposal to amend Exchange Rule 3100, Registration Requirements, to adopt temporary Interpretation and Policy .13 (Temporary Extension of the Limited Period for Registered Persons to Function as Principals).
The text of the proposed rule change is available on the Exchange's website at
In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to adopt Interpretation and Policy .13 (Temporary Extension of the Limited Period for Registered Persons to Function as Principals) to Exchange Rule 3100, Registration Requirements. The proposed rule change would extend the 120-day period that certain individuals can function as principals without having successfully passed an appropriate qualification examination through April 30, 2021,
In response to COVID–19, earlier this year FINRA began providing temporary relief by way of frequently asked questions (“FAQs”)
FINRA published the first FAQ on March 20, 2020, providing that individuals who were designated to function as principals under FINRA Rule 1210.04
Thereafter, on December 9, 2020, FINRA filed with the Commission a proposed rule change for immediate effectiveness to extend the limited period for registered persons to function as a principal through April 30, 2021.
The Exchange continues to closely monitor the impact of the COVID–19 pandemic on Members,
In addition, firms are continuing to experience operational challenges with much of their personnel working from home due to shelter-in-place orders, restrictions on businesses and social activity imposed in various states, and
These ongoing, extenuating circumstances make it impracticable for Members to ensure that the individuals whom they have designated to function in a principal capacity, as set forth in Exchange Rule 3100, Interpretation and Policy .04, are able to successfully sit for and pass an appropriate qualification examination within the 120-calendar day period required under the rule, or to find other qualified staff to fill this position. The ongoing circumstances also require individuals to be exposed to the health risks associated with taking an in-person examination, because the General Securities Principal examination is not available online. Therefore, the Exchange is proposing to provide the temporary relief provided through the FINRA FAQs by adopting Interpretation and Policy .13 to Exchange Rule 3100 to extend the 120-day period during which an individual can function as a principal before having to pass an applicable qualification examination until April 30, 2021.
The Exchange believes that this proposed extension of time is tailored to address the needs and constraints on a Member's operations during the COVID–19 pandemic, without significantly compromising critical investor protection. The proposed extension of time will help to minimize the impact of COVID–19 on Members by providing flexibility so that Members can ensure that principal positions remain filled. The potential risks from the proposed extension of the 120-day period are mitigated by the Member's requirement to supervise the activities of these designated individuals and ensure compliance with federal securities laws and regulations, as well as Exchange rules.
The Exchange believes that its proposed rule change is consistent with Section 6(b) of the Exchange Act
The proposed rule change is intended to minimize the impact of COVID–19 on Member operations by extending the 120-day period certain individuals may function as a principal without having successfully passed an appropriate qualification examination under Exchange Rule 3100, Interpretation and Policy. 04, until April 30, 2021. The proposed rule change does not relieve Members from maintaining, under the circumstances, a reasonably designed system to supervise the activities of their associated persons to achieve compliance with applicable securities laws and regulations, and with applicable Exchange rules that directly serve investor protection. In a time when faced with unique challenges resulting from the COVID–19 pandemic, the Exchange believes that the proposed rule change is a sensible accommodation that will continue to afford Members the ability to ensure that critical positions are filled and client services maintained, while continuing to serve and promote the protection of investors and the public interest in this unique environment.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. The proposed rule change is intended to provide temporary relief given the impacts of the COVID–19 pandemic crisis and to also maintain consistency with the rules of other self-regulatory organizations (“SROs”) with respect to the registration requirements applicable to Members and their registered personnel. In that regard, the Exchange believes that any burden on competition would be clearly outweighed by providing Members with temporary relief in this unique environment while also ensuring clear and consistent requirements applicable across SROs and mitigating any risk of SROs implementing different standards in these important areas. In its filing, FINRA provides an abbreviated economic impact assessment maintaining that the changes are necessary to temporarily rebalance the attendant benefits and costs of the obligations under FINRA Rule 1210 in response to the impacts of the COVID–19 pandemic that is equally applicable to the changes the Exchange proposes.
Written comments were neither solicited nor received.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed under Rule 19b–4(f)(6) normally does not become operative for 30 days after the date of filing. However, pursuant to Rule 19b–4(f)(6)(iii), the Commission may designate a shorter time if such action is consistent with the protection
The Commission observed that the Exchange's proposal, like FINRA's analogous filing, provides only temporary relief from the requirement to pass certain qualification examinations within the 120-day period in the rules. As proposed, this relief would extend the 120-day period that certain individuals can function as principals through April 30, 2021. If a further extension of temporary relief from the rule requirements identified in this proposal beyond April 30, 2021 is required, the Exchange noted that it may submit a separate rule filing to extend the effectiveness of the temporary relief under these rules.
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090.
All submissions should refer to File Number SR–PEARL–2020–36 and should be submitted on or before
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act” or “Exchange Act”)
The Exchange is filing a proposal to amend Exchange Rule 1900, Registration Requirements, to adopt temporary Interpretation and Policy .13 (Temporary Extension of the Limited Period for Registered Persons to Function as Principals).
The text of the proposed rule change is available on the Exchange's website at
In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to adopt Interpretation and Policy .13 (Temporary Extension of the Limited Period for Registered Persons to Function as Principals) to Exchange Rule 1900, Registration Requirements. The proposed rule change would extend the 120-day period that certain individuals can function as principals without having successfully passed an appropriate qualification examination through April 30, 2021,
In response to COVID–19, earlier this year FINRA began providing temporary relief by way of frequently asked questions (“FAQs”)
FINRA published the first FAQ on March 20, 2020, providing that individuals who were designated to function as principals under FINRA Rule 1210.04
Thereafter, on December 9, 2020, FINRA filed with the Commission a proposed rule change for immediate effectiveness to extend the limited period for registered persons to function as a principal through April 30, 2021.
The Exchange continues to closely monitor the impact of the COVID–19 pandemic on Members,
In addition, firms are continuing to experience operational challenges with much of their personnel working from home due to shelter-in-place orders, restrictions on businesses and social activity imposed in various states, and adherence to other social distancing guidelines consistent with the recommendations of public health officials.
These ongoing, extenuating circumstances make it impracticable for Members to ensure that the individuals whom they have designated to function in a principal capacity, as set forth in Exchange Rule 1900, Interpretation and Policy .04, are able to successfully sit for and pass an appropriate qualification examination within the 120-calendar day period required under the rule, or to find other qualified staff to fill this position. The ongoing circumstances also require individuals to be exposed to the health risks associated with taking an in-person examination, because the General Securities Principal examination is not available online. Therefore, the Exchange is proposing to provide the temporary relief provided through the FINRA FAQs by adopting Interpretation and Policy .13 to Exchange Rule 1900 to extend the 120-day period during which an individual can function as a principal before having to pass an applicable qualification examination until April 30, 2021.
The Exchange believes that this proposed extension of time is tailored to address the needs and constraints on a Member's operations during the COVID–19 pandemic, without significantly compromising critical investor protection. The proposed extension of time will help to minimize the impact of COVID–19 on Members by providing flexibility so that Members can ensure that principal positions remain filled. The potential risks from the proposed extension of the 120-day period are mitigated by the Member's requirement to supervise the activities of these designated individuals and ensure compliance with federal securities laws and regulations, as well as Exchange rules.
The Exchange believes that its proposed rule change is consistent with Section 6(b) of the Exchange Act
The proposed rule change is intended to minimize the impact of COVID–19 on Member operations by extending the 120-day period certain individuals may function as a principal without having successfully passed an appropriate qualification examination under Exchange Rule 1900, Interpretation and Policy. 04, until April 30, 2021. The proposed rule change does not relieve Members from maintaining, under the circumstances, a reasonably designed system to supervise the activities of their associated persons to achieve compliance with applicable securities laws and regulations, and with applicable Exchange rules that directly serve investor protection. In a time when faced with unique challenges resulting from the COVID–19 pandemic, the Exchange believes that the proposed rule change is a sensible accommodation that will continue to afford Members the ability to ensure that critical positions are filled and client services maintained, while continuing to serve and promote the protection of investors and the public interest in this unique environment.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. The proposed rule change is intended to provide temporary relief given the impacts of the COVID–19 pandemic crisis and to also maintain consistency with the rules of other self-regulatory organizations (“SROs”) with respect to the registration requirements applicable to Members and their registered personnel. In that regard, the Exchange believes that any burden on competition would be clearly outweighed by providing Members with temporary relief in this unique environment while also ensuring clear and consistent requirements applicable across SROs and mitigating any risk of SROs implementing different standards in these important areas. In its filing, FINRA provides an abbreviated economic impact assessment maintaining that the changes are necessary to temporarily rebalance the attendant benefits and costs of the obligations under FINRA Rule 1210 in response to the impacts of the COVID–19 pandemic that is equally applicable to the changes the Exchange proposes.
Written comments were neither solicited nor received.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed under Rule 19b–4(f)(6) normally does not become operative for 30 days after the date of filing. However, pursuant to Rule 19b–4(f)(6)(iii), the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposed rule change may become operative immediately upon filing. As noted above, the Exchange stated that the proposed extension of time will help minimize the impact of the COVID–19 outbreak on Members' operations by allowing them to keep principal positions filled and minimizing disruptions to client services and other critical responsibilities. The Exchange further stated that the ongoing extenuating circumstances of the COVID–19 pandemic make it impractical to ensure that individuals designated to act in these capacities are able to take and pass the appropriate qualification examination during the 120-calendar day period required under the rules. The Exchange also explained that shelter-in-place orders, quarantining, restrictions on business and social activity and adherence to social distancing guidelines consistent with the recommendations of public officials remain in place in various states.
The Commission observed that the Exchange's proposal, like FINRA's analogous filing, provides only temporary relief from the requirement to pass certain qualification examinations within the 120-day period in the rules. As proposed, this relief would extend the 120-day period that certain individuals can function as principals through April 30, 2021. If a further extension of temporary relief from the rule requirements identified in this proposal beyond April 30, 2021 is required, the Exchange noted that it may submit a separate rule filing to extend the effectiveness of the temporary relief under these rules.
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
The Exchange proposes to waive certain fees related to non-convertible bonds listed in conjunction with their voluntary delisting from a regulated foreign exchange.
The text of the proposed rule change is available on the Exchange's website at
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
The Exchange proposes to amend Rule 5935 of the Nasdaq Listing Rules to waive the application and annual fees to list a class of non-convertible bonds on Nasdaq pursuant to Rule 5702 in conjunction with the company voluntarily delisting that bond from a regulated foreign exchange. The proposed waiver is identical to a waiver currently applied under Rule 5935 in connection with the listing of non-convertible bonds transferred from the New York Stock Exchange or NYSE American.
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,
The Exchange operates in a highly competitive marketplace when seeking to obtain listings of non-convertible debt securities. The Commission has repeatedly expressed its preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. The Exchange believes that the ever-shifting market share among the exchanges with respect to new listings and the transfer of existing listings between competitor exchanges demonstrates that issuers can choose different listing markets in response to fee changes. Accordingly, competitive forces constrain exchange listing fees. Stated otherwise, changes to exchange listing fees can have a direct effect on the ability of an exchange to compete for new listings and retain existing listings. Given this competitive environment, the Exchange believes that the proposal to waive the application and annual fees for non-convertible bonds listing in conjunction with their voluntary delisting from a foreign regulated exchange is reasonable because the cost
The Exchange believes that the waiver of the application and annual fees for listing non-convertible bonds listings in conjunction with their voluntary delisting from a foreign regulated exchange is not inequitable as it expects it will be available to a small number of issuers and is being implemented solely to relieve these issuers of the burden of duplicative payments to two exchanges.
The Exchange believes that the proposal is not unfairly discriminatory, because the proposed waivers are solely intended to avoid duplication of costs for issuers transferring their listings from foreign regulated exchanges and does not provide them with any benefit that would place them in a more favorable position than other listed companies. Finally, the Exchange believes that it is subject to significant competitive forces, as described below in the Exchange's statement regarding the burden on competition.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
The Exchange does not believe that its proposals will place any applicant at a competitive disadvantage. To the contrary, the proposed waiver will ensure that applicants who transfer their listings from a foreign exchange are not placed at a disadvantage versus other applicants. The proposed waivers will be available to all similarly situated applicants on the same basis. The Exchange does not believe that the proposed amended fees will have any meaningful effect on the competition among issuers listed on the Exchange. Moreover, applicants are free to list on other venues to the extent they believe that the waiver is not attractive.
The Exchange operates in a highly competitive market in which issuers can readily choose to list new securities on other exchanges and transfer listings to other exchanges if they deem fee levels at those other venues to be more favorable. Because competitors are free to modify their own fees in response, and because issuers may change their chosen listing venue, the Exchange does not believe its proposed fee change imposes any burden on intermarket competition.
No written comments were either solicited or received.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes to modify the NYSE American Options Fee Schedule (“Fee Schedule”) to extend the waiver of certain Floor-based fixed fees. The Exchange proposes to implement the fee change effective January 1, 2021. The proposed change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The purpose of this filing is to modify the Fee Schedule to extend the waiver of certain Floor-based fixed fees for market participants that have been unable to resume their Floor operations to a certain capacity level, as discussed below. The Exchange proposes to implement the fee change effective January 1, 2021.
On March 18, 2020, the Exchange announced that it would temporarily close the Trading Floor, effective Monday, March 23, 2020, as a precautionary measure to prevent the potential spread of COVID–19. Following the temporary closure of the Trading Floor, the Exchange waived certain Floor-based fixed fees for April, May and June 2020.
Specifically, as with the prior fee waivers, the proposed fee waiver covers the following fixed fees for Qualifying Firms, which relate directly to Floor operations, are charged only to Floor participants and do not apply to participants that conduct business off-Floor:
• Floor Access Fee;
• Floor Broker Handheld
• Transport Charges
• Floor Market Maker Podia;
• Booth Premises; and
• Wire Services.
The proposed fee change is designed to reduce monthly costs for all Qualifying Firms whose operations continue to be disrupted even though the Trading Floor has partially reopened. In reducing this monthly financial burden, the proposed change would allow Qualifying Firms that had Floor operations in March 2020 to reallocate funds to assist with the cost of shifting and maintaining their prior fully-staffed on-Floor operations to off-Floor and recoup losses as a result of the partial reopening. The Exchange believes that all Qualifying Firms would benefit from this proposed fee change.
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,
The Exchange operates in a highly competitive market. The Commission has repeatedly expressed its preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system “has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.”
There are currently 16 registered options exchanges competing for order flow. Based on publicly-available information, and excluding index-based options, no single exchange has more than 16% of the market share of executed volume of multiply-listed equity and ETF options trades.
This proposed fee change is reasonable, equitable, and not unfairly discriminatory because it would reduce monthly costs for all Qualifying Firms whose operations have been disrupted despite the fact that the Trading Floor has partially reopened because of the social distancing requirements and/or other health concerns related to resuming operation on the Floor. In reducing this monthly financial burden, the proposed change would allow Qualifying Firms that had Floor operations in March 2020 to reallocate funds to assist with the cost of shifting and maintaining their prior fully-staffed on-Floor operations to off-Floor and recoup losses as a result of the partial reopening of the Floor. The Exchange believes that all Qualifying Firms would benefit from this proposed fee change.
The Exchange believes the proposed rule change is an equitable allocation of its fees and credits as it merely continues the previous fee waiver for Qualifying Firms, which affects fees charged only to Floor participants and does not apply to participants that conduct business off-Floor. The Exchange believes it is an equitable allocation of fees and credits to extend the fee waiver for Qualifying Firms because such firms have either no more than half of their Floor staff (as measured by either the March 2020 or Exchange-approved) levels or have vacant podia—and this reduction in staffing levels on the Floor impacts the speed, volume and efficiency with which these firms can operate, which is to their financial detriment.
The Exchange believes that the proposal is not unfairly discriminatory because the proposed continuation of the fee waiver would affect all similarly-situated market participants on an equal and non-discriminatory basis.
Finally, the Exchange believes that it is subject to significant competitive forces, as described below in the Exchange's statement regarding the burden on competition.
In accordance with Section 6(b)(8) of the Act, the Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the proposed changes would encourage the continued participation of Qualifying Firms, thereby promoting market depth, price discovery and transparency and would enhance order execution opportunities for all market participants. As a result, the Exchange believes that the proposed change furthers the Commission's goal in adopting Regulation NMS of fostering integrated competition among orders, which promotes “more efficient pricing of individual stocks for all types of orders, large and small.”
The Exchange believes that the proposed rule change reflects this competitive environment because it waives fees for Qualifying Firms and is designed to reduce monthly costs for Floor participants whose operations continue to be disrupted even though the Trading Floor has partially reopened. In reducing this monthly financial burden, the proposed change would allow affected participants to reallocate funds to assist with the cost of shifting and maintaining their prior fully-staffed on-Floor operations to off-Floor.
No written comments were solicited or received with respect to the proposed rule change.
The foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A)
At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B)
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to: Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes extending the expiration date of the temporary amendments to Rules 9261 and 9830 as set forth in SR–NYSE–2020–76 from December 31, 2020, to April 30, 2021, in conformity with recent changes by the Financial Industry Regulatory Authority, Inc. (“FINRA”). The proposed rule change would not make any changes to the text of NYSE Rules 9261 and 9830. The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes extending the expiration date of the temporary amendments in SR–NYSE–2020–76
In 2013, the NYSE adopted disciplinary rules that are, with certain exceptions, substantially the same as the FINRA Rule 8000 Series and Rule 9000 Series, and which set forth rules for conducting investigations and enforcement actions.
In adopting disciplinary rules modeled on FINRA's rules, the NYSE adopted the hearing and evidentiary processes set forth in Rule 9261 and in Rule 9830 for hearings in matters involving temporary and permanent cease and desist orders under the Rule 9800 Series. As adopted, the text of Rule 9261 is identical to the counterpart FINRA rule. Rule 9830 is substantially
In response to the spread of COVID–19, on August 31, 2020, FINRA filed with the Commission a proposed rule change for immediate effectiveness, SR–FINRA–2020–027, to temporarily grant FINRA's Office of Hearing Officers (“OHO”) and the National Adjudicatory Council (“NAC”) the authority to conduct certain hearings by video conference, if warranted by the current COVID–19-related public health risks posed by in-person hearings. Among the rules FINRA amended were Rules 9261 and 9830.
Given that FINRA and OHO administers disciplinary hearings on the Exchange's behalf, and that the public health concerns addressed by FINRA's amendments apply equally to Exchange disciplinary hearings, on September 15, 2020, the Exchange filed to temporarily amend Rule 9261 and Rule 9830 to permit FINRA to conduct virtual hearings on its behalf.
The COVID–19 conditions necessitating these temporary amendments persist, with cases rapidly escalating nationwide. Based on its assessment of current COVID–19 conditions and the lack of certainty as to when COVID–19-related health concerns will subside, on December 1, 2020, FINRA filed to extend the expiration date of the temporary rule amendments to, among other rules, FINRA Rule 9261 and 9830 from December 31, 2020, to April 30, 2021.
Consistent with FINRA's recent proposal, the Exchange proposes to extend the expiration date of the temporary rule amendments to NYSE Rules 9261 and 9830 as set forth in SR–NYSE–2020–76 from December 31, 2020, to April 30, 2021.
As set forth in SR–FINRA 2020–042, based on its assessment of current COVID–19 conditions, including the recent escalation in COVID–19 cases nationwide, FINRA does not believe that the COVID–19- related health concerns necessitating this relief will subside by December 31, 2020, and has determined that there will be a continued need for this temporary relief for several months beyond December 31, 2020.
The Exchange proposes to similarly extend the expiration date of the temporary rule amendments to NYSE Rules 9261 and 9830 as set forth in SR–NYSE–2020–76 from December 31, 2020, to April 30, 2021. With COVID–19 cases surging nationwide, the Exchange agrees with FINRA that the COVID–19-related public health risks necessitating this temporary relief have not yet abated and are unlikely to abate by December 31, 2020. The proposed change will permit OHO to continue to assess, based on critical COVID–19 data and criteria and the guidance of health and security consultants, whether an in-person hearing would compromise the health and safety of the hearing participants such that the hearing should proceed by video conference. FINRA has adopted a detailed and thorough protocol to ensure that hearings conducted by video conference will maintain fair process for the parties.
As noted below, the Exchange has filed the proposed rule change for immediate effectiveness and has requested that the SEC waive the requirement that the proposed rule change not become operative for 30 days after the date of the filing, so the Exchange can implement the proposed rule change immediately.
The proposed rule change is consistent with Section 6(b) of the Act,
The Exchange believes that the proposed rule change supports the objectives of the Act by providing greater harmonization between Exchange rules and FINRA rules of similar purpose, resulting in less burdensome and more efficient regulatory compliance. As such, the proposed rule change will foster cooperation and coordination with persons engaged in facilitating transactions in securities and will remove impediments to and perfect the mechanism of a free and open market and a national market system.
The proposed rule change, which extends the expiration date of the temporary amendments to Exchange rules consistent with FINRA's extension to its Rules 9261 and 9830 for four months as set forth in SR–FINRA–2020–042, will permit the Exchange to continue to effectively conduct hearings during the COVID–19 pandemic in situations where in-person hearings present likely public health risks. The ability to conduct hearings by video conference will permit the adjudicatory functions of the Exchange's disciplinary rules to continue unabated, thereby avoiding protracted delays. The Exchange believes that this is especially important in matters where temporary and permanent cease and desist orders are sought because the proposed rule change would enable those hearings to continue to proceed without delay, thereby enabling the Exchange to continue to take immediate action to stop significant, ongoing customer harm, to the benefit of the investing public.
As set forth in detail in the SR–NYSE–2020–76, the temporary relief to permit hearings to be conducted via video conference maintains fair process and will continue to provide fair process consistent with Sections 6(b)(7) and 6(d) of the Act
Accordingly, the proposed rule change extending this temporary relief is in the public interest and consistent with the Act's purpose.
The Exchange does not believe that the proposed temporary rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is not intended to address competitive issues but is rather intended solely to provide continued temporary relief given the impacts of the COVID–19 pandemic and the related health and safety risks of conducting in-person activities. The Exchange believes that the proposed rule change will prevent unnecessary disruptions that would otherwise result if the temporary amendments were to expire on December 31, 2020.
No written comments were solicited or received with respect to the proposed rule change.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)
A proposed rule change filed under Rule 19b–4(f)(6) normally does not become operative for 30 days after the date of filing. However, pursuant to Rule 19b–4(f)(6)(iii), the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the 30-day operative delay so that the proposed rule change may become operative immediately upon filing. As noted above, the Exchange states that the COVID-related health and safety risks of conducting in-person activities, which necessitated these temporary amendments, persist and that cases are escalating nationwide. Based on FINRA's assessment of the current COVID–19 conditions and FINRA's determination that there is a continued need for this temporary relief for several months beyond December 31, 2020, the Exchange states that it agrees with FINRA that the COVID–19-related public health risks necessitating this temporary relief have not yet abated and are unlikely to abate by December 31, 2020.
The Exchange also indicates that this filing is eligible to become operative immediately because the proposal would continue to provide greater harmonization between the Exchange rules and FINRA rules that serve a similar purpose, resulting in less burdensome and more efficient regulatory compliance. This proposal would serve to extend the expiration date of the temporary amendments to the Exchange rules set forth in SR–NYSE–2020–76, which is consistent with FINRA's extension to its comparable rules, where FINRA requested and the Commission granted a waiver of the 30-day operative delay.
The Commission observes that this proposal, like SR–NYSE–2020–76 and FINRA's comparable filing,
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to: Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes extending the expiration date of the temporary amendments to Rules 10.9261 and 10.9830 as set forth in SR–NYSEArca–2020–85 from December 31, 2020, to April 30, 2021, in conformity with recent changes by the Financial Industry Regulatory Authority, Inc. (“FINRA”). The proposed rule change would not make any changes to the text of NYSE Arca Rules 10.9261 and 10.9830. The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes extending the expiration date of the temporary amendments in SR–NYSEArca–2020–85
In 2019, NYSE Arca adopted disciplinary rules based on the text of the Rule 8000 and Rule 9000 Series of its affiliate NYSE American LLC (“NYSE American”), with certain changes. The NYSE American disciplinary rules are, in turn, substantially the same as the Rule 8000 Series and Rule 9000 Series of FINRA and the New York Stock Exchange LLC.
In adopting disciplinary rules modeled on FINRA's rules, NYSE Arca adopted the hearing and evidentiary processes set forth in Rule 10.9261 and in Rule 10.9830 for hearings in matters involving temporary and permanent cease and desist orders under the Rule 10.9800 Series. As adopted, the text of Rule 10.9261 and Rule 10.9830 are
In response to the spread of COVID–19, on August 31, 2020, FINRA filed with the Commission a proposed rule change for immediate effectiveness, SR–FINRA–2020–027, to temporarily grant FINRA's Office of Hearing Officers (“OHO”) and the National Adjudicatory Council (“NAC”) the authority to conduct certain hearings by video conference, if warranted by the current COVID–19-related public health risks posed by in-person hearings. Among the rules FINRA amended were Rules 9261 and 9830.
Given that FINRA and OHO administers disciplinary hearings on the Exchange's behalf, and that the public health concerns addressed by FINRA's amendments apply equally to Exchange disciplinary hearings, on September 23, 2020, the Exchange filed to temporarily amend Rule 10.9261 and Rule 10.9830 to permit FINRA to conduct virtual hearings on its behalf.
The COVID–19 conditions necessitating these temporary amendments persist, with cases rapidly escalating nationwide. Based on its assessment of current COVID–19 conditions and the lack of certainty as to when COVID–19-related health concerns will subside, on December 1, 2020, FINRA filed to extend the expiration date of the temporary rule amendments to, among other rules, FINRA Rule 9261 and 9830 from December 31, 2020, to April 30, 2021.
Consistent with FINRA's recent proposal, the Exchange proposes to extend the expiration date of the temporary rule amendments to NYSE Arca Rules 10.9261 and 10.9830 as set forth in SR–NYSEArca–2020–85 from December 31, 2020, to April 30, 2021.
As set forth in SR–FINRA–2020–042, based on its assessment of current COVID–19 conditions, including the recent escalation in COVID–19 cases nationwide, FINRA does not believe that the COVID–19-related health concerns necessitating this relief will subside by December 31, 2020, and has determined that there will be a continued need for this temporary relief for several months beyond December 31, 2020.
The Exchange proposes to similarly extend the expiration date of the temporary rule amendments to NYSE Arca Rules 10.9261 and 10.9830 as set forth in SR–NYSEArca–2020–85 from December 31, 2020, to April 30, 2021. With COVID–19 cases surging nationwide, the Exchange agrees with FINRA that the COVID–19-related public health risks necessitating this temporary relief have not yet abated and are unlikely to abate by December 31, 2020. The proposed change will permit OHO to continue to assess, based on critical COVID–19 data and criteria and the guidance of health and security consultants, whether an in-person hearing would compromise the health and safety of the hearing participants such that the hearing should proceed by video conference. FINRA has adopted a detailed and thorough protocol to ensure that hearings conducted by video conference will maintain fair process for the parties.
As noted below, the Exchange has filed the proposed rule change for immediate effectiveness and has requested that the SEC waive the requirement that the proposed rule change not become operative for 30 days after the date of the filing, so the Exchange can implement the proposed rule change immediately.
The proposed rule change is consistent with Section 6(b) of the Act,
The Exchange believes that the proposed rule change supports the objectives of the Act by providing greater harmonization between Exchange rules and FINRA rules of similar purpose, resulting in less burdensome and more efficient regulatory compliance. As such, the proposed rule change will foster cooperation and coordination with persons engaged in facilitating transactions in securities and will remove impediments to and perfect the mechanism of a free and open market and a national market system.
The proposed rule change, which extends the expiration date of the temporary amendments to Exchange rules consistent with FINRA's extension to its Rules 9261 and 9830 for four months as set forth in SR–FINRA–2020–042, will permit the Exchange to continue to effectively conduct hearings during the COVID–19 pandemic in situations where in-person hearings present likely public health risks. The ability to conduct hearings by video conference will permit the adjudicatory functions of the Exchange's disciplinary rules to continue unabated, thereby avoiding protracted delays. The Exchange believes that this is especially important in matters where temporary and permanent cease and desist orders are sought because the proposed rule change would enable those hearings to continue to proceed without delay, thereby enabling the Exchange to continue to take immediate action to stop significant, ongoing customer harm, to the benefit of the investing public.
As set forth in detail in the SR–NYSEArca–2020–85, the temporary relief to permit hearings to be conducted via video conference maintains fair process and will continue to provide fair process consistent with Sections 6(b)(7) and 6(d) of the Act
Accordingly, the proposed rule change extending this temporary relief is in the public interest and consistent with the Act's purpose.
The Exchange does not believe that the proposed temporary rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is not intended to address competitive issues but is rather intended solely to provide continued temporary relief given the impacts of the COVID–19 pandemic and the related health and safety risks of conducting in-person activities. The Exchange believes that the proposed rule change will prevent unnecessary disruptions that would otherwise result if the temporary amendments were to expire on December 31, 2020.
No written comments were solicited or received with respect to the proposed rule change.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)
A proposed rule change filed under Rule 19b–4(f)(6) normally does not become operative for 30 days after the date of filing. However, pursuant to Rule 19b–4(f)(6)(iii), the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the 30-day operative delay so that the proposed rule change may become operative immediately upon filing. As noted above, the Exchange states that the COVID-related health and safety risks of conducting in-person activities, which necessitated these temporary amendments, persist and that cases are escalating nationwide. Based on FINRA's assessment of the current COVID–19 conditions and FINRA's determination that there is a continued need for this temporary relief for several months beyond December 31, 2020, the Exchange states that it agrees with FINRA that the COVID–19-related public health risks necessitating this temporary relief have not yet abated and are unlikely to abate by December 31, 2020.
The Exchange also indicates that this filing is eligible to become operative immediately because the proposal would continue to provide greater harmonization between the Exchange rules and FINRA rules that serve a similar purpose, resulting in less burdensome and more efficient regulatory compliance. This proposal would serve to extend the expiration date of the temporary amendments to the Exchange rules set forth in SR–NYSEArca–2020–85, which is consistent with FINRA's extension to its comparable rules, where FINRA requested and the Commission granted a waiver of the 30-day operative delay.
The Commission observes that this proposal, like SR–NYSEArca–2020–85 and FINRA's comparable filing,
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes extending the expiration date of the temporary amendments to Rules 9261 and 9830 as set forth in SR–NYSEAMER–2020–69 from December 31, 2020, to April 30, 2021, in conformity with recent changes by the Financial Industry Regulatory Authority, Inc. (“FINRA”). The proposed rule change would not make any changes to the text of NYSE American Rules 9261 and 9830. The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes extending the expiration date of the temporary amendments as set forth in SR–NYSEAMER–2020–69
In 2016, NYSE American (then known as NYSE MKT LLC) adopted disciplinary rules that are, with certain exceptions, substantially the same as the Rule 8000 Series and Rule 9000 Series of FINRA and its affiliate the New York Stock Exchange LLC (“NYSE”), and which set forth rules for conducting investigations and enforcement actions.
In adopting disciplinary rules modeled on FINRA's rules, NYSE American adopted the hearing and evidentiary processes set forth in Rule 9261 and in Rule 9830 for hearings in matters involving temporary and permanent cease and desist orders under the Rule 9800 Series. As adopted, the text of Rule 9261 and Rule 9830 are substantially the same as the FINRA rules with certain modifications.
In response to the spread of COVID–19, on August 31, 2020, FINRA filed with the Commission a proposed rule change for immediate effectiveness, SR–FINRA–2020–027, to temporarily grant FINRA's Office of Hearing Officers (“OHO”) and the National Adjudicatory Council (“NAC”) the authority to conduct certain hearings by video conference, if warranted by the current COVID–19-related public health risks posed by in-person hearings. Among the rules FINRA amended were Rules 9261 and 9830.
Given that FINRA and OHO administers disciplinary hearings on the Exchange's behalf, and that the public health concerns addressed by FINRA's amendments apply equally to Exchange disciplinary hearings, on September 15, 2020, the Exchange filed to temporarily amend Rule 9261 and Rule 9830 to permit FINRA to conduct virtual hearings on its behalf.
The COVID–19 conditions necessitating these temporary amendments persist, with cases rapidly escalating nationwide. Based on its assessment of current COVID–19 conditions and the lack of certainty as to when COVID–19-related health concerns will subside, on December 1, 2020, FINRA filed to extend the expiration date of the temporary rule amendments to, among other rules, FINRA Rule 9261 and 9830 from December 31, 2020, to April 30, 2021.
Consistent with FINRA's recent proposal, the Exchange proposes to extend the expiration date of the temporary rule amendments to NYSE American Rules 9261 and 9830 as set forth in SR–NYSEAMER–2020–69 from December 31, 2020, to April 30, 2021.
As set forth in SR–FINRA–2020–042, based on its assessment of current COVID–19 conditions, including the recent escalation in COVID–19 cases nationwide, FINRA does not believe that the COVID–19-related health concerns necessitating this relief will subside by December 31, 2020, and has determined that there will be a continued need for this temporary relief for several months beyond December 31, 2020.
The Exchange proposes to similarly extend the expiration date of the temporary rule amendments to NYSE American Rules 9261 and 9830 as set forth in SR–NYSEAMER–2020–69 from December 31, 2020, to April 30, 2021. With COVID–19 cases surging nationwide, the Exchange agrees with FINRA that the COVID–19-related public health risks necessitating this temporary relief have not yet abated and are unlikely to abate by December 31, 2020. The proposed change will permit OHO to continue to assess, based on critical COVID–19 data and criteria and the guidance of health and security consultants, whether an in-person hearing would compromise the health and safety of the hearing participants such that the hearing should proceed by video conference. FINRA has adopted a detailed and thorough protocol to ensure that hearings conducted by video conference will maintain fair process for the parties.
As noted below, the Exchange has filed the proposed rule change for immediate effectiveness and has requested that the SEC waive the requirement that the proposed rule change not become operative for 30 days after the date of the filing, so the Exchange can implement the proposed rule change immediately.
The proposed rule change is consistent with Section 6(b) of the Act,
The Exchange believes that the proposed rule change supports the objectives of the Act by providing greater harmonization between Exchange rules and FINRA rules of similar purpose, resulting in less burdensome and more efficient regulatory compliance. As such, the proposed rule change will foster cooperation and coordination with persons engaged in facilitating transactions in securities and will remove impediments to and perfect the mechanism of a free and open market and a national market system.
The proposed rule change, which extends the expiration date of the temporary amendments to Exchange rules consistent with FINRA's extension to its Rules 9261 and 9830 for four months as set forth in SR–FINRA–2020–042, will permit the Exchange to continue to effectively conduct hearings during the COVID–19 pandemic in situations where in-person hearings present likely public health risks. The ability to conduct hearings by video conference will permit the adjudicatory functions of the Exchange's disciplinary rules to continue unabated, thereby avoiding protracted delays. The Exchange believes that this is especially important in matters where temporary and permanent cease and desist orders are sought because the proposed rule change would enable those hearings to continue to proceed without delay, thereby enabling the Exchange to continue to take immediate action to stop significant, ongoing customer harm, to the benefit of the investing public.
As set forth in detail in SR–NYSEAMER–2020–69, the temporary relief to permit hearings to be conducted via video conference maintains fair process and will continue to provide fair process consistent with Sections 6(b)(7) and 6(d) of the Act
The Exchange does not believe that the proposed temporary rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is not intended to address competitive issues but is rather intended solely to provide continued temporary relief given the impacts of the COVID–19 pandemic and the related health and safety risks of conducting in-person activities. The Exchange believes that the proposed rule change will prevent unnecessary disruptions that would otherwise result if the temporary amendments were to expire on December 31, 2020.
No written comments were solicited or received with respect to the proposed rule change.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)
A proposed rule change filed under Rule 19b–4(f)(6) normally does not become operative for 30 days after the date of filing. However, pursuant to Rule 19b–4(f)(6)(iii), the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the 30-day operative delay so that the proposed rule change may become operative immediately upon filing. As noted above, the Exchange states that the COVID-related health and safety risks of conducting in-person activities, which necessitated these temporary amendments, persist and that cases are escalating nationwide. Based on FINRA's assessment of the current COVID–19 conditions and FINRA's determination that there is a continued need for this temporary relief for several months beyond December 31, 2020, the Exchange states that it agrees with FINRA that the COVID–19-related public health risks necessitating this temporary relief have not yet abated and are unlikely to abate by December 31, 2020.
The Exchange also indicates that this filing is eligible to become operative immediately because the proposal would continue to provide greater harmonization between the Exchange rules and FINRA rules that serve a similar purpose, resulting in less burdensome and more efficient regulatory compliance. This proposal would serve to extend the expiration date of the temporary amendments to the Exchange rules set forth in SR–NYSEAMER–2020–69, which is consistent with FINRA's extension to its comparable rules, where FINRA requested and the Commission granted a waiver of the 30-day operative delay.
The Commission observes that this proposal, like SR–NYSEAMER–2020–69 and FINRA's comparable filing,
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to: Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On September 24, 2020, the Financial Industry Regulatory Authority, Inc. (“FINRA”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act” or “Exchange Act”)
As further described below, FINRA proposes to (i) rescind FINRA's rules governing the OTC Bulletin Board Service (“OTCBB”) and cease its operation; and (ii) adopt new Rule 6439 (Requirements for Member Inter-Dealer Quotation Systems) to expand the obligations of member interdealer quotation systems (“IDQSs”)
The OTCBB is a FINRA-operated IDQS available for use by broker-dealers to publish quotations in eligible OTC Equity Securities.
FINRA states that it does not believe that continued operation of the OTCBB serves any benefit to investors or the marketplace and that ceasing operation of the OTCBB would eliminate potential
As a result, FINRA proposes to rescind the FINRA Rule 6500 Series, which governs the operation of the OTCBB. Among other things, the FINRA Rule 6500 Series contains provisions regarding the securities eligible to be quoted on the OTCBB (FINRA Rule 6530), market maker obligations on the OTCBB (FINRA Rule 6540), and transaction reporting (FINRA Rule 6550). FINRA also proposes to rescind FINRA Rule 7720, which sets forth the fees applicable to a broker-dealer that displays quotations or trading interest in the OTCBB, and to amend FINRA Rule 9217 (Violations Appropriate for Disposition Under Plan Pursuant to SEA Rule 19d–1(c)(2)) to remove reference to FINRA Rule 6550 (Transaction Reporting). While these proposed changes to the FINRA rulebook would cause the operation of the OTCBB to terminate when effective, in Amendment No. 1, FINRA states that it would not cease operation of the OTCBB until proposed Rule 6439 (except for proposed Rule 6439(d)(1)(B)), discussed below, is effective.
FINRA states that all quotation activity in OTC Equity Securities now occurs on member-operated IDQSs, rather than the OTCBB.
Proposed Rule 6439 would apply to member IDQSs (whether or not such member is also an alternative trading system (“ATS”)) that permits quotation updates on a real-time basis in OTC Equity Securities. Under proposed Rule 6439(a), member IDQSs must establish, maintain and enforce written policies and procedures relating to the collection and dissemination of quotation information in OTC Equity Securities on or through their systems. Such written policies and procedures must be reasonably designed to ensure that quotations received and disseminated are informative, reliable, accurate, firm, and treated in a not unfairly discriminatory manner, including by establishing non-discretionary standards under which quotations are prioritized and displayed.
Under proposed Rule 6439(b), each member IDQS must establish non-discriminatory written standards for granting access to quoting and trading in OTC Equity Securities on its systems that do not unreasonably prohibit or limit any person with respect to access to services offered by such member IDQS.
Proposed Rules 6439(c) and (d) would apply only to member IDQSs that do not automatically execute all orders presented for execution against displayed quotations for which a member subscriber has an obligation under FINRA Rule 5220 (Offers at Stated Prices)
Under proposed Rule 6439(d), non-auto-executing member IDQSs must report to FINRA, in a form and manner prescribed by FINRA,
Proposed Rule 6439(d) would require non-auto-executing member IDQSs to provide to FINRA the following order-level information for each order presented against an MPID's quotation during the previous calendar month: (i) Buy/sell; (ii) security symbol; (iii) price; (iv) size; (v) All or None indicator (yes or no); (vi) order entry firm MPID; (vii) order receipt time; (viii) time in force; (ix) response time; (x) order response (
Proposed Rule 6439(e) would require each member IDQS to make available to customers on its website (or its affiliate distributor's website) a written description of each OTC Equity Security order- or quotation-related data product offered by such member IDQS and related pricing information, including fees, rebates, discounts and cross-product pricing incentives. Member IDQSs would be required to keep the relevant website page(s) accurate and up-to-date with respect to the required data product descriptions and pricing information and to make such information available at least two business days in advance of offering a data product.
Finally, under proposed Rule 6439(f), a member IDQS must provide FINRA with prompt notification when it reasonably becomes aware of any systems disruption that is not de minimis that degrades, limits, or otherwise impacts the member IDQS's functionality with respect to trading or the dissemination of market data.
FINRA states that if the proposed rule change is approved by the Commission, FINRA will announce in a
The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Act
Pursuant to Section 19(b)(2)(B) of the Act,
As discussed above, FINRA is proposing to rescind FINRA's rules governing the OTCBB and cease its operation and adopt new Rule to expand the obligations of Member IDQSs that disseminate quotation updates on a real-time basis in OTC Equity Securities. The Commission has received three comment letters regarding the proposed rule change,
The Commission notes that, under the Commission's Rules of Practice, the “burden to demonstrate that a proposed rule change is consistent with the Act and the rules and regulations thereunder. . .is on the self-regulatory organization [`SRO'] that proposed the rule change.”
The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the issues identified above, as well as any other concerns they may have with the proposal. In particular, the Commission invites the written views of interested persons concerning whether the proposed rule change, as modified by Amendment No. 1, is consistent with Sections 15A(b)(6) and 15A(b)(11) of the Act or any other provision of the Act, or the rules and regulations thereunder. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.
Interested persons are invited to submit written data, views, and arguments regarding whether the proposed rule change, as modified by Amendment No. 1, should be approved or disapproved by January 27, 2021. Any person who wishes to file a rebuttal to any other person's submission must file that rebuttal by February 10, 2021.
The Commission asks that commenters address the sufficiency of FINRA's statements in support of the proposal, which are set forth in the Notice and in Amendment No. 1,
Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes to modify the NYSE Arca Options Fee Schedule (“Fee Schedule”) to extend the waiver of certain Floor-based fixed fees. The Exchange proposes to implement the fee change effective January 1, 2021. The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The purpose of this filing is to modify the Fee Schedule to extend the waiver of certain Floor-based fixed fees for market participants that have been unable to resume their Floor operations to a certain capacity level, as discussed below. The Exchange proposes to implement the fee change effective January 1, 2021.
On March 18, 2020, the Exchange announced that it would temporarily close the Trading Floor, effective Monday, March 23, 2020, as a precautionary measure to prevent the potential spread of COVID–19. Following the temporary closure of the Trading Floor, the Exchange waived certain Floor-based fixed fees for April and May 2020.
Specifically, as with the prior fee waivers, the proposed fee waiver covers the following fixed fees for Qualifying Firms, which relate directly to Floor operations, are charged only to Floor participants and do not apply to participants that conduct business off-Floor:
• Floor Booths;
• Market Maker Podia;
• Options Floor Access;
• Wire Services; and
• ISP Connection.
The proposed fee change is designed to reduce monthly costs for all Qualifying Firms whose operations continue to be disrupted even though the Trading Floor has partially reopened. In reducing this monthly financial burden, the proposed change would allow Qualifying Firms that had Floor operations in March 2020 to reallocate funds to assist with the cost of shifting and maintaining their prior fully-staffed on-Floor operations to off-Floor and recoup losses as a result of the
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,
The Exchange operates in a highly competitive market. The Commission has repeatedly expressed its preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system “has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.”
There are currently 16 registered options exchanges competing for order flow. Based on publicly-available information, and excluding index-based options, no single exchange has more than 16% of the market share of executed volume of multiply-listed equity and ETF options trades.
This proposed fee change is reasonable, equitable, and not unfairly discriminatory because it would reduce monthly costs for all Qualifying Firms whose operations have been disrupted despite the fact that the Trading Floor has partially reopened because of the social distancing requirements and/or other health concerns related to resuming operation on the Floor. In reducing this monthly financial burden, the proposed change would allow Qualifying Firms that had Floor operations in March 2020 to reallocate funds to assist with the cost of shifting and maintaining their prior fully-staffed on-Floor operations to off-Floor and recoup losses as a result of the partial reopening of the Floor. The Exchange believes that all Qualifying Firms would benefit from this proposed fee change.
The Exchange believes the proposed rule change is an equitable allocation of its fees and credits as it merely continues the previous fee waiver for Qualifying Firms, which affects fees charged only to Floor participants and does not apply to participants that conduct business off-Floor. The Exchange believes it is an equitable allocation of fees and credits to extend the fee waiver for Qualifying Firms because such firms have either no more than half of their Floor staff (as measured by either the March 2020 or Exchange-approved) levels or have vacant podia—and this reduction in staffing levels on the Floor impacts the speed, volume and efficiency with which these firms can operate, which is to their financial detriment.
The Exchange believes that the proposal is not unfairly discriminatory because the proposed continuation of the fee waiver would affect all similarly-situated market participants on an equal and non-discriminatory basis.
Finally, the Exchange believes that it is subject to significant competitive forces, as described below in the Exchange's statement regarding the burden on competition.
In accordance with Section 6(b)(8) of the Act, the Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that the proposed changes would encourage the continued participation of Qualifying Firms, thereby promoting market depth, price discovery and transparency and would enhance order execution opportunities for all market participants. As a result, the Exchange believes that the proposed change furthers the Commission's goal in adopting Regulation NMS of fostering integrated competition among orders, which promotes “more efficient pricing of individual stocks for all types of orders, large and small.”
The Exchange believes that the proposed rule change reflects this
No written comments were solicited or received with respect to the proposed rule change.
The foregoing rule change is effective upon filing pursuant to Section 19(b)(3)(A)
At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B)
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to: Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On December 2, 2020, the Options Clearing Corporation (“OCC”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change SR–OCC–2020–015 (“Proposed Rule Change”) pursuant to Section 19(b) of the Securities Exchange Act of 1934 (“Exchange Act”)
The Proposed Rule Change by OCC would take existing informational stress test scenarios and add them to the list of stress test scenarios designed to test the sufficiency of OCC's prefunded financial resources. The proposed changes are to OCC's Comprehensive Stress Testing & Clearing Fund Methodology, and to its Liquidity Risk Management Description (“Methodology Description”).
In 2018, OCC established its current clearing fund methodology, using a stress testing framework to measure its credit exposure at a level sufficient to cover potential losses under extreme but plausible market conditions.
As described in the Notice of Filing, OCC proposes to elevate four of its current Informational Scenarios to Sufficiency Scenarios. These Informational Scenarios are historical scenarios designed to represent recent market events from March 2020. The proposed Sufficiency Scenarios would include price shocks representing the most extreme market decline and rally moves in March 2020, and would include variations of these scenarios designed to account for specific wrong-way risk exposures arising from cleared positions on issued exchange traded notes (“ETNs”).
These four scenarios, as Informational Scenarios, currently do not drive the size of the Clearing Fund or calls for additional resources. Once elevated to Sufficiency Scenarios, they would be used to measure OCC's Clearing Fund exposure to the portfolios of individual Clearing Member Groups and determine whether any such exposure is sufficiently large where it would necessitate OCC calling for additional resources in the form of margin or an intra-month resizing of the Clearing Fund. OCC asserts that by adding these four Sufficiency Scenarios, it would be able to test the sufficiency of its financial resources under a wider range of relevant stress scenarios and respond quickly when OCC believes additional financial resources are necessary.
Section 19(b)(2)(C) of the Exchange Act directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to such organization.
Section 17A(b)(3)(F) of the Exchange Act requires that the rules of a clearing agency be designed to, among other things, promote the prompt and accurate clearance and settlement of securities transactions, and assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible.
First, the proposal to elevate four Informational Scenarios to Sufficiency Scenarios would expand upon the scope of stress scenarios against which OCC monitors its financial resources. The Commission continues to believe that the historical scenarios replicating the 1987 market crash and financial crisis provide additional depth to the monitoring of OCC's financial resources.
Second, adding the proposed Sufficiency Scenarios would be consistent with assuring the safeguarding of securities and funds currently in OCC's custody and control by creating a wider range of stress scenarios that would improve the likelihood of the Clearing Fund having sufficient resources to cover potential credit losses under adverse market conditions. As noted above, Sufficiency Scenarios are used to determine whether any exposure of the Clearing Fund to the portfolios of individual
The Commission believes, therefore, that the proposal to elevate the four Informational Scenarios to Sufficiency Scenarios is consistent with the requirements of Section 17A(b)(3)(F) of the Exchange Act.
Rule 17Ad–22(e)(4)(vi) under the Exchange Act requires OCC to establish, implement, maintain, and enforce written policies and procedures reasonably designed to effectively identify, measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes by testing the sufficiency of its total financial resources available to meet the minimum financial resource requirements under paragraphs Rules 17Ad–22(e)(4)(i) through (iii).
After reviewing and assessing the proposal, the Commission believes that the proposed changes described above are consistent with Rule 17Ad–22(e)(4)(vi) under the Exchange Act. As it stated in 2018, the Commission believes that expanding the scope of stress scenarios against which OCC monitors its financial resources would increase the likelihood that OCC maintains sufficient financial resources at all times.
The Commission also believes that the proposed introduction of stress scenario variations accounting for specific wrong-way risk exposures arising from cleared positions on issued ETNs would be consistent with the requirements of Rules 17Ad–22(e)(4)(i), (iii), and (vi).
The Commission believes, therefore, that the proposal to elevate the four Informational Scenarios to Sufficiency Scenarios is consistent with the requirements of Rule 17Ad–22(e)(4) under the Exchange Act.
In its filing, OCC requests that the Commission grant accelerated approval of the Proposed Rule Change pursuant to Secton 19(b)(C)(iii) of the Exchange Act.
The Commission finds good cause, pursuant to Section 19(b)(2)(C)(iii) of the Exchange Act,
On the basis of the foregoing, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Exchange Act, and in particular, the requirements of Section 17A of the Exchange Act
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
The Exchange proposes to amend General 7: Consolidated Audit Trail Compliance, the Exchange's compliance rule (“Compliance Rule”) regarding the National Market System Plan Governing the Consolidated Audit Trail (the “CAT NMS Plan” or “Plan”)
The text of the proposed rule change is available on the Exchange's website at
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
The purpose of this proposed rule change is to amend the General 7: Consolidated Audit Trail Compliance to be consistent with the Allocation Exemption. The Commission granted the relief conditioned upon the Participants' adoption of Compliance Rules that implement the alternative approach to reporting allocations to the Central Repository described in the Allocation Exemption (referred to as the “Allocation Alternative”).
Pursuant to Section 6.4(d)(ii)(A) of the CAT NMS Plan, each Participant must, through its Compliance Rule, require its Industry Members to record and report to the Central Repository, if the order is executed, in whole or in part: (1) An Allocation Report;
On August 27, 2020, the Participants submitted to the Commission a request for an exemption from certain allocation reporting requirements set forth in Sections 6.4(d)(ii)(A)(1) and (2) of the CAT NMS Plan (“Exemption Request”).
In addition, under the Allocation Alternative, an “Allocation” would be defined as: (1) The placement of shares/contracts into the same account for which an order was originally placed; or (2) the placement of shares/contracts into an account based on allocation instructions (
To implement the Allocation Alternative, the Participants requested exemptive relief from Section 6.4(d)(ii)(A)(1) of the CAT NMS Plan, to the extent that the provision requires each Participant to, through its Compliance Rule, require its Industry Members that are executing brokers, who do not perform Allocations, to record and report to the Central Repository, if the order is executed, in whole or in part, an Allocation Report. Under the Allocation Alternative, when an Industry Member other than an executing broker (
The Participants stated that granting exemptive relief from submitting Allocation Reports for executing brokers who do not perform an Allocation, and requiring the Industry Member other than the executing broker that is performing the Allocation to submit such Allocation Reports, is consistent with the basic approach taken by the Commission in adopting Rule 613 under the Exchange Act. Specifically, the Participants stated that they believe that the Commission sought to require each broker-dealer and exchange that touches an order to record the required data with respect to actions it takes on the order.
To implement the Allocation Alternative, the Participants also requested exemptive relief from Section 6.4(d)(ii)(A)(2) of the CAT NMS Plan, to the extent that the provision requires each Participant to, through its Compliance Rule, require its Industry Members to record and report to the Central Repository, if an order is executed, in whole or in part, the SRO-Assigned Market Participant Identifier of the prime broker, if applicable. Currently, under the CAT NMS Plan, an Industry Member is required to report the SRO-Assigned Market Participant Identifier of the clearing broker or prime broker in connection with the execution of an order, and such information would be part of the order's lifecycle, rather than in an Allocation Report that is not linked to the order's lifecycle.
The Participants stated that associating a prime broker with a specific execution, as is currently required by the CAT NMS Plan, does not reflect how the allocation process works in practice as allocations to a prime broker are done post-trade and are performed by the clearing broker of the executing broker. The Participants also stated that with the implementation of the Allocation Alternative, it would be duplicative for the executing broker to separately identify the prime broker for allocation purposes.
The Participants stated that if a particular customer only has one prime broker, the identity of the prime broker can be obtained from the customer and account information through the DVP accounts for that customer that contain the identity of the prime broker. The Participants further stated that Allocation Reports related to those executions would reflect that shares/contracts were allocated to the single prime broker. The Participants believe that there is no loss of information through the implementation of the Allocation Alternative compared to what is required in the CAT NMS Plan and that this approach does not decrease the regulatory utility of the CAT for single prime broker circumstances.
In cases where a customer maintains relationships with multiple prime brokers, the Participants asserted that the executing broker will not have information at the time of the trade as to which particular prime broker may be allocated all or part of the execution. Under the Allocation Alternative, the executing broker (if self-clearing) or its clearing firm would report individual Allocation Reports identifying the specific prime broker to which shares/contracts were allocated and then each prime broker would itself report an Allocation Report identifying the specific customer accounts where the shares/contracts were ultimately allocated. To determine the prime broker for a customer, a regulatory user would query the customer and account
In the Exemption Request, the Participants included certain additional conditions for the requested relief. Currently, the definition of Allocation Report in the CAT NMS Plan only refers to shares. To implement the Allocation Alternative, the Participants proposed to require that all required elements of Allocation Reports apply to both shares and contracts, as applicable, for all Eligible Securities. Specifically, Participants would require the reporting of the following in each Allocation Report: (1) The FDID for the account receiving the allocation, including subaccounts; (2) the security that has been allocated; (3) the identifier of the firm reporting the allocation; (3) the price per share/contracts of shares/contracts allocated; (4) the side of shares/contracts allocated; (4) the number of shares/contracts allocated; and (5) the time of the allocation.
Furthermore, to implement the Allocation Alternative, the Participants proposed to require the following information on all Allocation Reports: (1) Allocation ID, which is the internal allocation identifier assigned to the allocation event by the Industry Member; (2) trade date; (3) settlement date; (4) IB/correspondent CRD Number (if applicable); (5) FDID of new order(s) (if available in the booking system);
On October 29, 2020, the Commission granted the exemptive relief requested in the Exemption Request. The Commission granted the relief conditioned upon the adoption of Compliance Rules that implement the reporting requirements of the Allocation Alternative. Accordingly, the Exchange proposes the following changes to its Compliance Rule to implement the reporting requirements of the Allocation Alternative.
The Exchange proposes to add a definition of “Allocation” as new paragraph (c) to General 7, Section 3.
The Exchange proposes to amend the definition of “Allocation Report” set forth in General 7, Section 1(c) to reflect the requirements of the Allocation Exemption. General 7, Section 1(c) defines the term “Allocation Report” to mean:
The requirements for Allocation Reports apply only to shares, as the definition of “Allocation Report” in General 7, Section 1(c) refers to shares, not contracts. In the Allocation Exemption, the Commission stated that applying the requirements for Allocation Reports to contracts in addition to shares is appropriate because CAT reporting requirements apply to both options and equities. Accordingly, the SEC stated that the Participants would be required to modify their Compliance Rules such that all required elements of Allocation Reports apply to both shares and contracts, as applicable, for all Eligible Securities. Therefore, the Exchange proposes to amend General 7, Section 1(c) (to be renumbered as General 7, Section 1(d)) to apply to contracts, as well as shares. Specifically, the Exchange proposes to add references to contracts to the definition of “Allocation Report” to the following phrases: “the Firm Designated ID for any account(s), including subaccount(s), to which executed shares/contracts are allocated,” “the price per share/contract of shares/contracts allocated,” “the side of shares/contracts allocated,” and “the number of shares/contracts allocated to each account.”
The Commission also conditioned the Allocation Exemption on the Participants amending their Compliance Rules to require the ten additional elements in Allocation Reports described above. Accordingly, the Exchange proposes to require these additional elements in Allocation Reports. Specifically, the Exchange proposes to amend the definition of “Allocation Report” in General 7, Section 1(c) (to be renumbered as General 7, Section 1(d)) to include the following elements, in addition to those elements currently required under the CAT NMS Plan:
The Commission granted the Participants an exemption from the requirement that the Participants, through their Compliance Rule, require executing brokers that do not perform Allocations to submit Allocation Reports. The Commission stated that it understands that executing brokers that are not self-clearing do not perform allocations themselves, and such allocations are handled by prime and/or clearing brokers, and these executing brokers therefore do not possess the requisite information to provide Allocation Reports. Accordingly, the Exchange proposes to eliminate General 7, Section 3(a)(2)(A)(i),
The Allocation Exemption requires the Participants to amend their Compliance Rules to require Industry Members to provide Allocation Reports to the Central Repository any time they perform Allocations to a client account, whether or not the Industry Member was the executing broker for the trades. Accordingly, the Commission conditioned the Allocation Exemption on the Participants adopting Compliance Rules that require prime and/or clearing brokers to submit Allocation Reports when such brokers perform allocations, in addition to requiring executing brokers that perform allocations to submit Allocation Reports. The Commission determined that such exemptive relief would improve efficiency and reduce the costs and burdens of reporting allocations for Industry Members because the reporting obligation would belong to the Industry Member with the requisite information, and executing brokers that do not have the information required on an Allocation Report would not have to develop the infrastructure and processes required to obtain, store and report the information. The Commission stated that this exemptive relief should not reduce the regulatory utility of the CAT because an Allocation Report would still be submitted for each executed trade allocated to a client account, which in certain circumstances could still result in multiple Allocation Reports,
In accordance with the Allocation Exemption, the Exchange proposes to add proposed General 7, Section 3(a)(2)(F) to the Compliance Rule. Proposed General 7, Section 3(a)(2)(F) would require Industry Members to record and report to the Central Repository “an Allocation Report any time the Industry Member performs an Allocation to a Client Account, whether or not the Industry Member was the executing broker for the trade.”
In the Allocation Exemption, the Commission also exempted the Participants from the requirement that they amend their Compliance Rules to require Industry Members to report Allocations for accounts other than client accounts. The Commission believes that allocations to client accounts, and not allocations to proprietary accounts or events such as step-outs and correspondent flips, provide regulators the necessary information to detect abuses in the allocation process because it would provide regulators with detailed information regarding the fulfillment of orders submitted by clients, while reducing reporting burdens on broker-dealers. For example, Allocation Reports would be required for allocations to registered investment advisor and money manager accounts. The Commission further believes that the proposed approach should facilitate regulators' ability to distinguish Allocation Reports relating to allocations to client accounts from other Allocation Reports because Allocations to accounts other than client accounts would have to be identified as such. This approach could reduce the time CAT Reporters expend to comply with CAT reporting requirements and lower costs by allowing broker-dealers to use existing business practices.
To clarify that an Industry Member must report an Allocation Report solely for Allocations to a client account, proposed General 7, Section 3(a)(2)(F) specifically references “Client Accounts,” as discussed above. In addition, the Exchange proposes to add a definition of “Client Account” as proposed General 7, Section 1(l). Proposed General 7, Section 1(l) would define a “Client Account” to mean “for the purposes of an Allocation and Allocation Report, any account or subaccount that is not owned or controlled by the Industry Member.”
The Exchange also proposes to amend General 7, Section 3(a)(2)(A)(ii) to eliminate the requirement for executing brokers to record and report the SRO-Assigned Market Participant Identifier of the prime broker. General 7, Section 3(a)(2)(A)(ii) states that each Industry Member is required to record and report to the Central Repository, if the order is executed, in whole or in part, the “SRO-Assigned Market Participant Identifier of the clearing broker or prime broker, if applicable.” The Exchange proposes to delete the phrase “or prime broker” from this provision. Accordingly, each Industry Member that is an executing broker would no longer be required to report the SRO-Assigned Market Participant Identifier of the prime broker.
As the Commission noted in the Allocation Exemption, exempting the Participants from the requirement that they, through their Compliance Rules, require executing brokers to provide the SRO-Assigned Market Participant Identifier of the prime broker is appropriate because, as stated by the Participants, allocations are done on a post-trade basis and the executing broker will not have the requisite information at the time of the trade. Because an executing broker, in certain circumstances, does not have this information at the time of the trade, this
As the Commission noted in the Allocation Exemption, although executing brokers would no longer be required to provide the prime broker information, regulators will still be able to determine the prime broker(s) associated with orders through querying the customer and account information database. If an executing broker has only one prime broker, the identity of the prime broker can be obtained from the customer and account information associated with the executing broker. For customers with multiple prime brokers, the identity of the prime brokers can be obtained from the customer and account information which will list the prime broker, if there is one, that is associated with each account.
Nasdaq believes that the proposal is consistent with Section 6(b) of the Act in general and Section 6(b)(5) of the Act,
The Exchange believes that this proposal is consistent with the Act because it is consistent with, and implements, the Allocation Exemption, and is designed to assist the Exchange and its Industry Members in meeting regulatory obligations pursuant to the Plan. In approving the Plan, the SEC noted that the Plan “is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.”
The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange notes that the proposed rule changes are consistent with the Allocation Exemption, and are designed to assist the Exchange in meeting its regulatory obligations pursuant to the Plan. The Exchange also notes that the proposed rule changes will apply equally to all Industry Members. In addition, all national securities exchanges and FINRA are proposing this amendment to their Compliance Rules. Therefore, this is not a competitive rule filing and does not impose a burden on competition.
No written comments were either solicited or received.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
The Social Security Administration (SSA) publishes a list of information collection packages requiring clearance by the Office of Management and Budget (OMB) in compliance with Public Law 104–13, the Paperwork Reduction Act of 1995, effective October 1, 1995. This notice includes new information collections, and revisions of OMB-approved information collections.
SSA is soliciting comments on the accuracy of the agency's burden estimate; the need for the information; its practical utility; ways to enhance its quality, utility, and clarity; and ways to minimize burden on respondents, including the use of automated collection techniques or other forms of information technology. Mail, email, or fax your comments and recommendations on the information collection(s) to the OMB Desk Officer and SSA Reports Clearance Officer at the following addresses or fax numbers.
Comments:
Or you may submit your comments online through
The information collections below are pending at SSA. SSA will submit them to OMB within 60 days from the date of this notice. To be sure we consider your comments, we must receive them no later than March 8, 2021. Individuals can obtain copies of the collection instruments by writing to the above email address.
The Social Security Administration (SSA) and the U.S. Department of Labor (DOL) are undertaking the Retaining Employment and Talent After Injury/Illness Network (RETAIN) demonstration. The RETAIN demonstration will test the impact of early intervention strategies to improve stay-at-work/return-to-work (SAW/RTW) outcomes of individuals who experience work disability while employed. We define “work disability” as an injury, illness, or medical condition that has the potential to inhibit or prevent continued employment or labor force participation. SAW/RTW programs succeed by returning injured or ill workers to productive work as soon as medically possible during their recovery process, and by providing interim part-time or light duty work and accommodations, as necessary. The RETAIN demonstration is loosely modeled after promising programs operating in Washington State, including the Centers of Occupational Health and Education (COHE), the Early Return to Work (ERTW), and the Stay at Work programs. While these programs operate within the state's workers' compensation system, and are available only to people experiencing work-related injuries or illnesses, the RETAIN demonstration provides opportunities to improve SAW/RTW outcomes for both occupational and non-occupational injuries and illnesses of people who are employed, or at a minimum in the labor force, when their injury or illness occurs.
The primary goals of the RETAIN demonstration are:
1. To increase employment retention and labor force participation of individuals who acquire, or are at risk of developing, work disabilities; and
2. To reduce long-term work disability among RETAIN service users, including the need for Social Security Disability Insurance and Supplemental Security Income.
The ultimate purpose of the demonstration is to validate and expand implementation of evidence-based strategies to accomplish these goals. DOL is funding the intervention approaches and programmatic technical assistance for the demonstration. SSA is funding evaluation support, including technical assistance and the full evaluation for the demonstration.
The demonstration consists of two phases. The first involves the implementation and assessment of cooperative awards to eight states to conduct planning and start-up activities, including the launch of a small pilot demonstration. During phase 1, SSA will provide evaluation-related technical assistance and planning, and conduct evaluability assessments to assess which states' projects would allow for a rigorous evaluation if continued beyond the pilot phase. DOL will select a subset of the states to continue to phase 2, full implementation.
Phase 2 will include a subset of states for full implementation and evaluation. During phase 2, DOL will fund the operations and program technical assistance activities for the recommended states, and SSA will fund the full set of evaluation activities.
SSA is requesting clearance for the collection of data needed to implement and evaluate RETAIN. The four components of this evaluation, completed during site visits, interviews with RETAIN service users, surveys of RETAIN enrollees, and surveys of RETAIN service providers, include:
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The proposed data collections to support these analyses include qualitative and quantitative data. At this time, SSA requests clearance for all of these data collection activities. The qualitative data collection consists of: (1) Semi-structured interviews with program staff and service users; and (2) staff activity logs. The program staff will complete interviews during two rounds of site visits. They will focus on staff's perceptions of the successes and challenges of implementing each state's program. The staff activity logs will house information on staff's time to inform the benefit-cost analysis. The service user interviews will inform SSA's understanding of users' experiences with program services. The quantitative data include SSA's program records and survey data. The survey data collection consists of: (1) Two rounds of follow-up surveys, focusing on individual-level outcomes, with enrollees, all of whom who have experienced a disability onset; and (2) two rounds of surveys with RETAIN providers.
The respondents are staff members selected for staff interviews and staff activity logs, and RETAIN service users, enrollees, and providers.
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The respondents are individuals who are unable to use our internet or automated telephone systems because they failed the initial verification checks; or because they state their reading language preference is other than English.
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For SSI purposes, we consider a loan bona fide if it meets these requirements:
• Must be between a borrower and lender with the understanding that the borrower has an obligation to repay the money;
• Must be in effect at the time the cash goes to the borrower, that is, the agreement cannot come after the cash is paid; and
• Must be enforceable under State law, as often there are additional requirements from the State.
SSA collects this information at the time of initial application for SSI, or at any point when an individual alleges being party to an informal loan while receiving SSI. SSA collects information on the informal loan through both interviews and mailed forms. The agency's field personnel conduct the interviews and mail the form(s) for completion, as needed. The respondents are SSI recipients and applicants, and individuals who lend money to them.
Notice of request for public comment and submission to OMB of proposed collection of information.
The Department of State has submitted the information collection described below to the Office of Management and Budget (OMB) for approval. In accordance with the Paperwork Reduction Act of 1995 we are requesting comments on this collection from all interested individuals and organizations. The purpose of this Notice is to allow 30 days for public comment.
Submit comments up to February 5, 2021.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
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We are soliciting public comments to permit the Department to:
• Evaluate whether the proposed information collection is necessary for the proper functions of the Department.
• Evaluate the accuracy of our estimate of the time and cost burden for this proposed collection, including the validity of the methodology and assumptions used.
• Enhance the quality, utility, and clarity of the information to be collected.
• Minimize the reporting burden on those who are to respond, including the use of automated collection techniques or other forms of information technology.
Please note that comments submitted in response to this Notice are public record. Before including any detailed personal information, you should be aware that your comments as submitted, including your personal information, will be available for public review.
The Secretary of State may exercise authority, under 22 U.S.C. 211a, Executive Order 11295 (August 5, 1966), and 22 CFR 51.63, to invalidate all U.S. passports for travel to a country or area if he determines that any of three conditions exist: The country is at war with the United States; armed hostilities are in progress in the country or area; or there is imminent danger to the public health or physical safety of U.S. travelers in the country or area. The regulations of the Department of State provide that an individual's passport may be considered for validation for
The categories of persons specified in 22 CFR 51.64(b) as being eligible for consideration for passport validation are as follows:
(a) An applicant who is a professional reporter and journalist whose trip is for the purpose of collecting and making available to the public information about the restricted country or area;
(b) An applicant who is a representative of the American Red Cross or the International Committee of the Red Cross on an officially sponsored Red Cross mission;
(c) An applicant whose trip to the restricted country or area is justified by compelling humanitarian considerations; or
(d) An applicant whose trip to the restricted country or area is otherwise in the national interest.
The information collection solicits data necessary for the Passport Services Directorate to determine whether an applicant is eligible to receive a special validation in his or her U.S. passport book permitting the applicant to make single or multiple round-trips to a restricted country or area, subject to additional requirements. The information requested consists of the applicant's name; a copy of the front and back of the applicant's valid government-issued photo identification card with the applicant's date of birth and signature; current contact information, including telephone number, email and mailing address; a statement explaining the reason that the applicant thinks their trip is in the national interest, including proposed travel dates and the applicant's role and responsibilities on the trip; and supporting documentary evidence, such as a letter from the organization being represented explaining in detail the purpose and intended work to be performed on the trip(s). For those seeking a multiple-entry special validation, applicants must also identify they are seeking the multiple-entry type of special validation and submit the following: Documentation showing the applicant or their organization has a well-established history of traveling to the DPRK to work on well-monitored projects with compelling humanitarian considerations; the applicant's draft itinerary, including proposed dates of travel and the intended work to be performed on each trip; and documentation that shows the applicant's humanitarian work requires that they make multiple trips to the DPRK in the next 365-day period. Those who are approved for a multiple-entry special validation must also submit a final itinerary detailing dates and purpose of travel at least five (5) days prior to each trip to the DPRK while using their multi-entry special validation U.S. passport. Failure to provide the requested information may result in denial of a special validation to use a U.S. passport to travel to, in, or through a restricted country or area.
Effective September 1, 2017, upon determining that there is imminent danger to the public health or physical safety of U.S. travelers in the Democratic People's Republic of Korea (DPRK), the Secretary of State imposed a passport restriction with respect to travel to the DPRK. Such restriction was further renewed in 2018, 2019, and most recently in 2020 for one year, effective September 1, 2020. The estimated number of recipients represents the Department of State's estimate of the annual number of special validations requests individuals will submit who wish to use their U.S. passport to travel to the DPRK, based on the current number of requests following the implementation of the Secretary of State's passport restriction. At this time, there are no other countries or areas that are the subject of passport restrictions pursuant to 22 CFR 51.63.
Instructions for individuals seeking to apply for a special validation to use a U.S. passport to travel to, in, or through a restricted country or area is posted on a web page maintained by the Department (
Information collected in this manner will be used to facilitate the granting of special validations to U.S. nationals who are eligible. The primary purpose of soliciting the information is to establish whether an applicant is within one of the categories specified in the regulations of the Department of State codified at 22 CFR 51.64(b) and therefore eligible to be issued a U.S. passport containing a special validation enabling him or her to make one or multiple entry round-trips to a restricted country or area, and to facilitate the application for a passport of such applicants.
The Secretary of State has imposed sanctions on 6 entities and 8 individuals.
The Secretary of State's determination and selection of certain sanctions to be imposed upon the 6 entities and 8 individuals identified in the
Taylor Ruggles, Director, Office of Economic Sanctions Policy and Implementation, Bureau of Economic and Business Affairs, Department of State, Washington, DC 20520, tel.: (202) 647 7677, email:
Pursuant to Section 3(a) of E.O. 13846, the Secretary of State, in consultation with the Secretary of the Treasury, the Secretary of Commerce, the Secretary of Homeland Security, and the United States Trade Representative, and with the President of the Export-Import Bank, the Chairman of the Board of Governors of the Federal Reserve System, and other agencies and officials as appropriate, is authorized to impose on a person any of the sanctions described in section 4 or 5 of E.O. 13846 upon determining that the person met any criteria set forth in sections 3(a)(i)—3(a)(vi) of E.O. 13846.
The Secretary of State has determined, pursuant to Section 3(a)(ii) of E.O. 13846, that Arya Sasol Polymer Company, Binrin Limited, Bakhtar Commercial Company, Kavian Petrochemical Company, and Strait Shipbrokers PTE. LTD, have knowingly, on or after November 5, 2018, engaged in a significant transaction for the purchase, acquisition, sale, transport, or marketing of petroleum products from Iran.
Pursuant to Section 5(a) of E.O. 13846, the Secretary of State has
• Prohibit any transactions in foreign exchange that are subject to the jurisdiction of the United States and in which the entities have any interest;
• Prohibit any transfers of credit or payments between financial institutions or by, through, or to any financial institution, to the extent that such transfers or payments are subject to the jurisdiction of the United States and involve any interest of the entities;
• Block all property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person of the entities, and provide that such property and interests in property may not be transferred, paid, exported, withdrawn, or otherwise dealt in;
• Prohibit any United States person from investing in or purchasing significant amounts of equity or debt instruments of the entities;
• Restrict or prohibit imports of goods, technology, or services, directly or indirectly, into the United States from the entities; and
• Impose on the principal executive officer or officers, or persons performing similar functions and with similar authorities, of the entities the sanctions described in sections 5(a)(i)–5(a)(iv) and 5(a)(vi) of E.O. 13846, as selected by the Secretary of State.
Pursuant to Sections 4(e) and 5(a) of E.O. 13846, the Secretary of State has selected the following sanctions to be imposed upon Amir Hossein Bahreini, Lin Na Wei, Murtuza Mustafamunir Basrai, Hosein Firouzi Arani, and Ramezan Oladi, each of whom has been determined to be (i) a corporate officer or principal of the aforementioned entities and (ii) a principal executive officer of the aforementioned entities, or perform similar functions with similar authorities as a principal executive officer:
• Prohibit any transactions in foreign exchange that are subject to the jurisdiction of the United States and in which Amir Hossein Bahreini, Lin Na Wei, Murtuza Mustafamunir Basrai, Hosein Firouzi Arani, and Ramezan Oladi have any interest;
• Prohibit any transfers of credit or payments between financial institutions or by, through, or to any financial institution, to the extent that such transfers or payments are subject to the jurisdiction of the United States and involve any interest of Amir Hossein Bahreini, Lin Na Wei, Murtuza Mustafamunir Basrai, Hosein Firouzi Arani, and Ramezan Oladi;
• Block all property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person of Amir Hossein Bahreini, Lin Na Wei, Murtuza Mustafamunir BasraiHosein Firouzi Arani, and Ramezan Oladi; and provide that such property and interests in property may not be transferred, paid, exported, withdrawn, or otherwise dealt in; and
• Restrict or prohibit imports of goods, technology, or services, directly or indirectly, into the United States from Amir Hossein Bahreini, Lin Na Wei, Murtuza Mustafamunir Basrai, Hosein Firouzi Arani, and Ramezan Oladi.
Additionally, pursuant to Section 4(e) of E.O. 13846, the Secretary of State shall deny a visa to, and the Secretary of Homeland Security shall exclude from the United States, any alien that the Secretary of State determines is a corporate officer or principal of, or a shareholder with a controlling interest in, a sanctioned person subject to this action.
Strasburg Rail Road Company (SRC), a Class III rail carrier, has filed a verified notice of exemption pursuant to 49 CFR 1180.2(d)(2) to continue in control of SRC Railway LLC (Railway LLC), upon Railway LLC becoming a Class III rail carrier.
This transaction is related to a concurrently filed verified notice of exemption in
The verified notice states that because the Line is solely owned by SRC, lease of the Line to Railway LLC does not constitute a connection within the corporate family. SRC further states that the transaction does not involve a Class I rail carrier. The proposed transaction is therefore exempt from the prior approval requirements of 49 U.S.C. 11323.
The earliest this transaction may be consummated is January 20, 2021, the effective date of the exemption (30 days after the verified notice was filed).
Under 49 U.S.C. 10502(g), the Board may not use its exemption authority to relieve a rail carrier of its statutory obligation to protect the interests of its employees. Section 11326(c), however, does not provide for labor protection for transactions under sections 11324 and 11325 that involve only Class III rail carriers. Accordingly, the Board may not impose labor protective conditions here because only Class III carriers are involved.
If the verified notice contains false or misleading information, the exemption is void ab initio. Petitions to revoke the exemption under 49 U.S.C. 10502(d) may be filed at any time. The filing of a petition to revoke will not automatically stay the effectiveness of the exemption. Petitions for stay must be filed no later than January 12, 2021.
All pleadings, referring to Docket No. FD 36454 should be filed with the Surface Transportation Board via e-filing on the Board's website. In addition, a copy of each pleading must be served on SRC's representative, Bradon J. Smith, Fletcher & Sippel LLC, 29 North Wacker Drive, Suite 800, Chicago, IL 60606–3208.
According to SRC, this action is categorically excluded from environmental review under 49 CFR 1105.6(c) and from historic preservation reporting requirements under 49 CFR 1105.8(b).
Board decisions and notices are available at
By the Board, Scott M. Zimmerman, Acting Director, Office of Proceedings.
SRC Railway LLC (Railway LLC), a noncarrier, has filed a verified notice of exemption pursuant to 49 CFR 1150.31 to lease from Strasburg Rail Road Company (SRC) and operate approximately 4.25 miles of rail line known as the Strasburg Line in Lancaster County, Pa. (the Line). The Line extends from approximately quarter-milepost 20 at Leaman Place (immediately north of the underpass at U.S. Highway 30 and west of the interchange connection with Norfolk Southern Railway Company and the National Railroad Passenger Corporation (NRPC milepost 56.8)), southwesterly to quarter-milepost 3 at East Strasburg.
This transaction is related to a concurrently filed verified notice of exemption in
Railway LLC states that it will shortly execute agreements with SRC pursuant to which it will lease the Line from SRC. According to Railway LLC, the proposed agreements do not contain any provision that would limit future interchange on the Line with a third-party connecting carrier.
Further, Railway LLC certifies that its projected annual revenue will not exceed $5 million and will not result in Railway LLC becoming a Class I or II rail carrier.
The earliest this transaction may be consummated is January 20, 2021, the effective date of the exemption (30 days after the verified notice was filed).
If the verified notice contains false or misleading information, the exemption is void ab initio. Petitions to revoke the exemption under 49 U.S.C. 10502(d) may be filed at any time. The filing of a petition to revoke will not automatically stay the effectiveness of the exemption. Petitions for stay must be filed no later than January 12, 2021.
All pleadings, referring to Docket No. FD 36453, should be filed with the Surface Transportation Board via e-filing on the Board's website. In addition, a copy of each pleading must be served on Railway LLC's representative, Bradon J. Smith, Fletcher & Sippel LLC, 29 North Wacker Drive, Suite 800, Chicago, IL 60606–3208.
According to Railway LLC, this action is categorically excluded from environmental review under 49 CFR 1105.6(c) and from historic preservation reporting requirements under 49 CFR 1105.8(b).
Board decisions and notices are available at
By the Board, Scott M. Zimmerman, Acting Director, Office of Proceedings.
Office of the United States Trade Representative (USTR).
Notice.
The U.S. Trade Representative has determined to revise the action being taken in this Section 301 investigation to mirror the approach taken by the European Union (EU) in exercising its World Trade Organization (WTO) authorization in the Boeing dispute. In implementing this approach, the U.S. Trade Representative has determined to revise the action by adding certain products of certain EU member States to the list of products subject to additional duties.
The revisions in Annex I are applicable with respect to products that are entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern standard time on January 12, 2021.
For questions about the investigation and revisions announced in this notice, contact Associate General Counsel Megan Grimball, at (202) 395–5725, or Director for Europe Michael Rogers, at (202) 395–3320. For questions on customs procedures or the classification of products identified in the annexes, contact
On April 12, 2019, the U.S. Trade Representative announced the initiation of an investigation to enforce U.S. rights in the WTO dispute against the EU and certain EU member States addressed to subsidies on large civil aircraft.
The April 12 notice solicited comments on a proposed determination that,
On July 5, 2019, USTR published a notice inviting public comments on a second list of products also being considered for an additional
On October 2, 2019, the WTO Arbitrator issued a report concluding that the appropriate level of countermeasures in response to the WTO-inconsistent launch aid provided by the EU or certain member States to their large civil aircraft domestic industry is approximately $7.5 billion annually.
On October 9, 2019, the U.S. Trade Representative published a determination that the EU and certain member States have denied U.S. rights under the WTO Agreement and have failed to implement DSB recommendations concerning certain subsidies to the EU large civil aircraft industry. The U.S. Trade Representative determined to take action in the form of additional duties on products of certain current or former member States of the EU, at levels of 10 or 25 percent
On December 12, 2019, the U.S. Trade Representative announced a review of
On June 26, 2020, the U.S. Trade Representative published a notice announcing another review of the action and establishing a docket to receive public comments.
On August 12, 2020, the U.S. Trade Representative announced certain revisions to the action.
On November 9, 2020, the EU announced that it would impose additional duties on goods of the United States, effective November 10, 2020. Specifically, the EU determined to impose additional duties of 15 percent on imports of certain large civil aircraft of the United States, and additional duties of 25 percent on other U.S. goods. The EU stated that its action has an annual trade value of $4 billion. The EU's action followed a decision by the WTO arbitrator in
The EU has represented that its retaliatory action mirrors the action taken by the United States in this investigation, but that is not accurate. Specifically, the EU's action does not mirror the U.S. action because the methodology used by the EU to exercise its $4 billion authorization relies on a benchmark reference period affected by the economic downturn caused by the COVID pandemic. Under this methodology, the EU was able to cover a greater volume of imports than if, like the United States, it had used data from a period when trade was not affected by the pandemic.
In addition, up to and until the exit of the United Kingdom from EU customs territory is finalized, goods of the United States are subject to additional EU duties when entering the United Kingdom. However, the EU's trade action valuation does not account for U.S. exports to the United Kingdom. Therefore, the value of U.S. exports subject to tariffs is greater than the trade value the EU ascribes to the various covered tariff lines.
The United States has expressed its concerns to the EU and has given the EU an opportunity to address these issues. The EU has declined to do so.
In light of these developments, the U.S. Trade Representative determined to make a further revision of the action in this investigation as part of the ongoing efforts toward a satisfactory resolution of the dispute. The revision takes account of public comments received in the investigation, advice of advisory committees, and advice of the interagency Section 301 Committee.
In particular, the U.S. Trade Representative has determined to mirror the EU approach to exercising its DSB authorization by adjusting the reference period used for the U.S. trade action to mirror the August 2019 to July 2020 reference period used by the EU. In adopting this approach, the United States has made appropriate adjustments to ensure that the trade data from the revised reference period does not reflect reductions in trade resulting from the October 2019 trade action in the investigation. Using the estimated trade values from this reference period, the value of the U.S. trade action as last revised on August 12, 2020, is well below the $7.5 billion level authorized by the DSB.
In order to exercise the DSB authorization to the United States, the U.S. Trade Representative has determined to add products to the list of products currently subject to additional duties, while otherwise maintaining the trade action as last revised on August 12, 2020. In considering actions most likely to result in the EU's implementation of DSB recommendations or a mutually satisfactory resolution of the dispute, the U.S. Trade Representative has determined that the additional products should be goods of France and Germany, as these countries have provided the greatest level of WTO-inconsistent large civil aircraft subsidies.
As specified in the annexes to this notice, additional goods of France and Germany are subject to additional duties. These goods were drawn from the proposed lists in the April 12, 2019 notice.
In accordance with section 306(b)(2)(F) of the Trade Act (19 U.S.C. 2416(b)(2)(F)), the action includes reciprocal goods of the affected industry. The annual trade value of the tariff subheadings subject to additional duties under the revised action remains at approximately $7.5 billion, which is consistent with the WTO Arbitrator's finding on the appropriate level of countermeasures in the United States' dispute against the EU involving large civil aircraft.
Annex I to this notice identifies the products affected by the revised action, the rate of duty to be assessed, and the current or former EU member States affected. Annex II, section 1, contains the unofficial descriptive list of the revisions made by this Notice. Annex II, section 2, contains an unofficial, consolidated description of the action, reflecting the changes in annex I.
In order to implement this determination, effective January 12, 2021, subchapter III of chapter 99 of the HTSUS is modified by annex I to this notice. The additional duties provided for in the HTSUS subheadings established by annex I apply in addition to all other applicable duties, fees, exactions and charges.
Any product listed in annex I to this notice, except any product that is eligible for admission under `domestic status' as defined in 19 CFR 146.43, which is subject to the additional duty imposed by this determination, and is admitted into a U.S. foreign trade zone on or after 12:01 a.m. eastern standard time on January 12, 2021, only may be admitted as `privileged foreign status' as defined in 19 CFR 146.41. Such products will be subject upon entry for consumption to any
The U.S. Trade Representative will continue to consider the action taken in this investigation.
Office of the United States Trade Representative.
Notice.
In accordance with the Harmonized Tariff Schedule of the United States (HTSUS), the Office of the United States Trade Representative (USTR) is providing notice of its determination of the trade surplus in certain sugar and syrup goods and sugar-containing products of Chile, Morocco, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Peru, Colombia and Panama. The level of a country's trade surplus in these goods relates to the quantity of sugar and syrup goods and sugar-containing products for which the United States grants preferential tariff treatment under (i) the United States-Chile Free Trade Agreement (Chile FTA); (ii) the United States-Morocco Free Trade Agreement (Morocco FTA); (iii) the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA–DR); (iv) the United States-Peru Trade Promotion Agreement (Peru TPA); (v) the United States-Colombia Trade Promotion Agreement (Colombia TPA); and (vi) the United States-Panama Trade Promotion Agreement (Panama TPA).
This notice is applicable on January 1, 2021.
Erin H. Nicholson, Office of Agricultural Affairs, (202) 395–9419 or
Pursuant to section 201 of the United States-Chile Free Trade Agreement Implementation Act (Pub. L. 108–77; 19 U.S.C. 3805 note), Presidential Proclamation No. 7746 of December 30, 2003 (68 FR 75789) implemented the Chile FTA on behalf of the United States and modified the HTSUS to reflect the tariff treatment provided for in the Chile FTA.
Note 12(a) to subchapter XI of HTSUS chapter 99 requires USTR annually to publish a determination of the amount of Chile's trade surplus, by volume, with all sources for goods in HTSUS subheadings 1701.11, 1701.12, 1701.91, 1701.99, 1702.20, 1702.30, 1702.40, 1702.60, 1702.90, 1806.10, 2101.12, 2101.20, and 2106.90, except that Chile's imports of goods classified under HTSUS subheadings 1702.40 and 1702.60 that qualify for preferential tariff treatment under the Chile FTA are not included in the calculation of Chile's trade surplus. Proclamation 8771 of December 29, 2011 (77 FR 413) reclassified HTSUS subheading 1701.11 as 1701.13 and 1701.14.
Note 12(b) to subchapter XI of HTSUS chapter 99 provides duty-free treatment for certain sugar and syrup goods and sugar-containing products of Chile entered under subheading 9911.17.05 in any calendar year (CY) (beginning in CY2015) is the quantity of goods equal to the amount of Chile's trade surplus in subdivision (a) of the note. During CY2019, the most recent year for which data is available, Chile's imports of the sugar and syrup goods and sugar-containing products described above exceeded its exports of those goods by 633,441 metric tons according to data published by its customs authority, the Servicio Nacional de Aduana. Based on this data, USTR has determined that Chile's trade surplus is negative. Therefore, in accordance with U.S. Note 12(b) to subchapter XI of HTSUS chapter 99, goods of Chile are not eligible to enter the United States duty-free under subheading 9911.17.05 in CY2021.
Pursuant to section 201 of the United States-Morocco Free Trade Agreement Implementation Act (Pub. L. 108–302; 19 U.S.C. 3805 note), Presidential Proclamation No. 7971 of December 22, 2005 (70 FR 76651) implemented the Morocco FTA on behalf of the United States and modified the HTSUS to reflect the tariff treatment provided for in the Morocco FTA.
Note 12(a) to subchapter XII of HTSUS chapter 99 requires USTR annually to publish a determination of the amount of Morocco's trade surplus, by volume, with all sources for goods in HTSUS subheadings 1701.11, 1701.12, 1701.91, 1701.99, 1702.40, and 1702.60, except that Morocco's imports of U.S. goods classified under HTSUS subheadings 1702.40 and 1702.60 that qualify for preferential tariff treatment under the Morocco FTA are not included in the calculation of Morocco's trade surplus. Proclamation 8771 of December 29, 2011 (77 FR 413) reclassified HTSUS subheading 1701.11 as 1701.13 and 1701.14.
Note 12(b) to subchapter XII of HTSUS chapter 99 provides duty-free treatment for certain sugar and syrup goods and sugar-containing products of Morocco entered under subheading 9912.17.05 in an amount equal to the lesser of Morocco's trade surplus or the specific quantity set out in that note for that calendar year.
Note 12(c) to subchapter XII of HTSUS chapter 99 provides preferential tariff treatment for certain sugar and syrup goods and sugar-containing products of Morocco entered under subheading 9912.17.10 through 9912.17.85 in an amount equal to the amount by which Morocco's trade surplus exceeds the specific quantity set out in that note for that calendar year.
During CY2019, the most recent year for which data is available, Morocco's imports of the sugar and syrup goods and sugar-containing products described above exceeded its exports of those goods by 694,075 metric tons according to data published by its customs authority, the Office des Changes. Based on this data, USTR has determined that Morocco's trade surplus is negative. Therefore, in accordance with U.S. Note 12(b) and U.S. Note 12(c) to subchapter XII of HTSUS chapter 99, goods of Morocco are not eligible to enter the United States duty-free under subheading 9912.17.05 or at preferential tariff rates under subheading 9912.17.10 through 9912.17.85 in CY2021.
Pursuant to section 201 of the Dominican Republic-Central America-United States Free Trade Agreement Implementation Act (Pub. L. 109–53; 19 U.S.C. 4031), Presidential Proclamation No. 7987 of February 28, 2006 (71 FR 10827), Presidential Proclamation No. 7991 of March 24, 2006 (71 FR 16009), Presidential Proclamation No. 7996 of March 31, 2006 (71 FR 16971), Presidential Proclamation No. 8034 of June 30, 2006 (71 FR 38509), Presidential Proclamation No. 8111 of February 28, 2007 (72 FR 10025), Presidential Proclamation No. 8331 of December 23, 2008 (73 FR 79585), and Presidential Proclamation No. 8536 of June 12, 2010 (75 FR 34311), implemented the CAFTA–DR on behalf of the United States and modified the HTSUS to reflect the tariff treatment provided for in the CAFTA–DR.
Note 25(b)(i) to subchapter XXII of HTSUS chapter 98 requires USTR annually to publish a determination of the amount of each CAFTA–DR country's trade surplus, by volume, with all sources for goods in HTSUS
U.S. Note 25(b)(ii) to subchapter XXII of HTSUS chapter 98 provides duty-free treatment for certain sugar and syrup goods and sugar-containing products of each CAFTA–DR country entered under subheading 9822.05.20 in an amount equal to the lesser of that country's trade surplus or the specific quantity set out in that note for that country and that calendar year.
During CY2019, the most recent year for which data is available, Costa Rica's exports of the sugar and syrup goods and sugar-containing products described above exceeded its imports of those goods by 92,924 metric tons according to data published by the Costa Rican Customs Department, Ministry of Finance. Based on this data, USTR has determined that Costa Rica's trade surplus is 92,924 metric tons. The specific quantity set out in U.S. Note 25(b)(ii) to subchapter XXII of HTSUS chapter 98 for Costa Rica for CY2021 is 14,300 metric tons. Therefore, in accordance with that note, the aggregate quantity of goods of Costa Rica that may be entered duty-free under subheading 9822.05.20 in CY2021 is 14,300 metric tons (
During CY2019, the most recent year for which data is available, the Dominican Republic's imports of the sugar and syrup goods and sugar-containing products described above exceeded its exports of those goods by 16,676 metric tons according to data published by the National Directorate of Customs (DGA). Based on this data, USTR has determined that the Dominican Republic's trade surplus is negative. Therefore, in accordance with U.S. Note 25(b)(ii) to subchapter XXII of HTSUS chapter 98, goods of the Dominican Republic are not eligible to enter the United States duty-free under subheading 9822.05.20 in CY2021.
During CY2019, the most recent year for which data is available, El Salvador's exports of the sugar and syrup goods and sugar-containing products described above exceeded its imports of those goods by 420,282 metric tons according to data published by the Central Bank of El Salvador. Based on this data, USTR has determined that El Salvador's trade surplus is 420,282 metric tons. The specific quantity set out in U.S. Note 25(b)(ii) to subchapter XXII of HTSUS chapter 98 for El Salvador for CY2021 is 36,720 metric tons. Therefore, in accordance with that note, the aggregate quantity of goods of El Salvador that may be entered duty-free under subheading 9822.05.20 in CY2021 is 36,720 metric tons (
During CY2019, the most recent year for which data is available, Guatemala's exports of the sugar and syrup goods and sugar-containing products described above exceeded its imports of those goods by 1,768,149 metric tons according to data published by the Guatemalan Sugar Association (ASAZGUA) and Bank of Guatemala. Based on this data, USTR has determined that Guatemala's trade surplus is 1,768,149 metric tons. The specific quantity set out in U.S. Note 25(b)(ii) to subchapter XXII of HTSUS chapter 98 for Guatemala for CY2021 is 50,760 metric tons. Therefore, in accordance with that note, the aggregate quantity of goods of Guatemala that may be entered duty-free under subheading 9822.05.20 in CY2021 is 50,760 metric tons (
During CY2019, the most recent year for which data is available, Honduras' exports of the sugar and syrup goods and sugar-containing products described above exceeded its imports of those goods by 127,399 metric tons according to data published by the Central Bank of Honduras. Based on this data, USTR has determined that Honduras' trade surplus is 127,399 metric tons. The specific quantity set out in U.S. Note 25(b)(ii) to subchapter XXII of HTSUS chapter 98 for Honduras for CY2021 is 10,400 metric tons. Therefore, in accordance with that note, the aggregate quantity of goods of Honduras that may be entered duty-free under subheading 9822.05.20 in CY2021 is 10,400 metric tons (
During CY2019, the most recent year for which data is available, Nicaragua's exports of the sugar and syrup goods and sugar-containing products described above exceeded its imports of those goods by 242,463 metric tons according to data published by the National Committee of Sugar Producers (CNPA). Based on this data, USTR has determined that Nicaragua's trade surplus is 242,463 metric tons. The specific quantity set out in U.S. Note 25(b)(ii) to subchapter XXII of HTSUS chapter 98 for Nicaragua for CY 2021 is 28,600 metric tons. Therefore, in accordance with that note, the aggregate quantity of goods of Nicaragua that may be entered duty-free under subheading 9822.05.20 in CY2021 is 28,600 metric tons (
Pursuant to section 201 of the United States-Peru Trade Promotion Agreement Implementation Act (Pub. L. 110–138; 19 U.S.C. 3805 note), Presidential Proclamation No. 8341 of January 16, 2009 (74 FR 4105) implemented the Peru TPA on behalf of the United States and modified the HTSUS to reflect the tariff treatment provided for in the Peru TPA.
Note 28(c) to subchapter XXII of HTSUS chapter 98 requires USTR annually to publish a determination of the amount of Peru's trade surplus, by volume, with all sources for goods in HTSUS subheadings 1701.12, 1701.13, 1701.14, 1701.91, 1701.99, 1702.40, and 1702.60, except that Peru's imports of U.S. goods classified under HTSUS subheadings 1702.40 and 1702.60 that are originating goods under the Peru TPA and Peru's exports to the United States of goods classified under HTSUS subheadings 1701.12, 1701.13, 1701.14, 1701.91, and 1701.99 are not included in the calculation of Peru's trade surplus.
Note 28(d) to subchapter XXII of HTSUS chapter 98 provides duty-free treatment for certain sugar goods of Peru entered under subheading 9822.06.10 in an amount equal to the lesser of Peru's trade surplus or the specific quantity set out in that note for that calendar year.
During CY2019, the most recent year for which data is available, Peru's
Pursuant to section 201 of the United States-Colombia Trade Promotion Agreement Implementation Act (Pub. L. 112–42; 19 U.S.C. 3805 note), Presidential Proclamation No. 8818 of May 14, 2012 (77 FR 29519) implemented the Colombia TPA on behalf of the United States and modified the HTSUS to reflect the tariff treatment provided for in the Colombia TPA.
Note 32(b) to subchapter XXII of HTSUS chapter 98 requires USTR annually to publish a determination of the amount of Colombia's trade surplus, by volume, with all sources for goods in HTSUS subheadings 1701.12, 1701.13, 1701.14, 1701.91, 1701.99, 1702.40 and 1702.60, except that Colombia's imports of U.S. goods classified under subheadings 1702.40 and 1702.60 that are originating goods under the Colombia TPA and Colombia's exports to the United States of goods classified under subheadings 1701.12, 1701.13, 1701.14, 1701.91 and 1701.99 are not included in the calculation of Colombia's trade surplus.
Note 32(c)(i) to subchapter XXII of HTSUS chapter 98 provides duty-free treatment for certain sugar goods of Colombia entered under subheading 9822.08.01 in an amount equal to the lesser of Colombia's trade surplus or the specific quantity set out in that note for that calendar year.
During CY2019, the most recent year for which data is available, Colombia's exports of the sugar and syrup goods and sugar-containing products described above exceeded its imports of those goods by 338,814 metric tons according to data published by the Colombian National Tax and Customs Directorate (DIAN). Based on this data, USTR has determined that Colombia's trade surplus is 338,814 metric tons. The specific quantity set out in U.S. Note 32(c)(i) to subchapter XXII of HTSUS chapter 98 for Colombia for CY 2021 is 56,750 metric tons. Therefore, in accordance with that note, the aggregate quantity of goods of Colombia that may be entered duty-free under subheading 9822.08.01 in CY2021 is 56,750 metric tons (
Pursuant to section 201 of the United States-Panama Trade Promotion Agreement Implementation Act (Pub. L. 112–43; 19 U.S.C. 3805 note), Presidential Proclamation No. 8894 of October 29, 2012 (77 FR 66505) implemented the Panama TPA on behalf of the United States and modified the HTSUS to reflect the tariff treatment provided for in the Panama TPA.
Note 35(a) to subchapter XXII of HTSUS chapter 98 requires USTR annually to publish a determination of the amount of Panama's trade surplus, by volume, with all sources for goods in HTSUS subheadings 1701.12, 1701.13, 1701.14, 1701.91, 1701.99, 1702.40 and 1702.60, except that Panama's imports of U.S. goods classified under subheadings 1702.40 and 1702.60 that are originating goods under the Panama TPA and Panama's exports to the United States of goods classified under subheadings 1701.12, 1701.13, 1701.14, 1701.91 and 1701.99 are not included in the calculation of Panama's trade surplus.
Note 35(c) to subchapter XXII of HTSUS chapter 98 provides duty-free treatment for certain sugar goods of Panama entered under subheading 9822.09.17 in an amount equal to the lesser of Panama's trade surplus or the specific quantity set out in that note for that calendar year.
During CY2019, the most recent year for which data is available, Panama's imports of the sugar and syrup goods and sugar-containing products described above exceeded its exports of those goods by 753 metric tons according to data published by the National Institute of Statistics and Census, Office of the General Comptroller of Panama; and the Ministry of Commerce and Industry of Panama. Based on this data, USTR has determined that Panama's trade surplus is negative. Therefore, in accordance with that note, goods of Panama are not eligible to enter the United States duty-free under subheading 9822.09.17 in CY2021.
Federal Motor Carrier Safety Administration (FMCSA), DOT.
Notice of final disposition.
FMCSA announces its decision to renew exemptions for 63 individuals from the vision requirement in the Federal Motor Carrier Safety Regulations (FMCSRs) for interstate commercial motor vehicle (CMV) drivers. The exemptions enable these individuals to continue to operate CMVs in interstate commerce without meeting the vision requirement in one eye.
Each group of renewed exemptions were applicable on the dates stated in the discussions below and will expire on the dates provided below.
Ms. Christine A. Hydock, Chief, Medical Programs Division, (202) 366–4001,
To view comments, as well as any documents mentioned in this notice as being available in the docket, go to
In accordance with 5 U.S.C. 553(c), DOT solicits comments from the public to better inform its rulemaking process. DOT posts these comments, without edit, including any personal information the commenter provides, to
On November 18, 2020, FMCSA published a notice announcing its decision to renew exemptions for 63 individuals from the vision requirement in 49 CFR 391.41(b)(10) to operate a CMV in interstate commerce and requested comments from the public (85 FR 73593). The public comment period ended on December 18, 2020, and no comments were received.
FMCSA has evaluated the eligibility of these applicants and determined that renewing these exemptions would achieve a level of safety equivalent to, or greater than, the level that would be achieved by complying with the current regulation § 391.41(b)(10).
The physical qualification standard for drivers regarding vision found in § 391.41(b)(10) states that a person is physically qualified to drive a CMV if that person has distant visual acuity of at least 20/40 (Snellen) in each eye without corrective lenses or visual acuity separately corrected to 20/40 (Snellen) or better with corrective lenses, distant binocular acuity of a least 20/40 (Snellen) in both eyes with or without corrective lenses, field of vision of at least 70° in the horizontal meridian in each eye, and the ability to recognize the colors of traffic signals and devices showing red, green, and amber.
FMCSA received no comments in this proceeding.
Based on its evaluation of the 63 renewal exemption applications and comments received, FMCSA confirms its decision to exempt the following drivers from the vision requirement in § 391.41(b)(10).
In accordance with 49 U.S.C. 31136(e) and 31315(b), the following groups of drivers received renewed exemptions in the month of December and are discussed below. As of December 3, 2020, and in accordance with 49 U.S.C. 31136(e) and 31315, the following 54 individuals have satisfied the renewal conditions for obtaining an exemption from the vision requirement in the FMCSRs for interstate CMV drivers (63 FR 196; 63 FR 30285; 65 FR 20245; 65 FR 57230; 65 FR 66293; 67 FR 57266; 67 FR 67234; 69 FR 17263; 69 FR 31447; 69 FR 33997; 69 FR 52741; 69 FR 53493; 69 FR 61292; 69 FR 62741; 69 FR 62742; 71 FR 27033; 71 FR 53489; 71 FR 55820; 71 FR 62147; 71 FR 62148; 73 FR 28186; 73 FR 35194; 73 FR 35201; 73 FR 38499; 73 FR 48273; 73 FR 48275; 73 FR 51336; 73 FR 61925; 73 FR 65009; 73 FR 74565; 75 FR 25919; 75 FR 27623; 75 FR 27624; 75 FR 39729; 75 FR 44050; 75 FR 44051; 75 FR 47883; 75 FR 52061; 75 FR 57105; 75 FR 59327; 75 FR 63257; 75 FR 66423; 76 FR 73769; 77 FR 3547; 77 FR 29447; 77 FR 36338; 77 FR 46153; 77 FR 46793; 77 FR 52381; 77 FR 56261; 77 FR 56262; 77 FR 59245; 77 FR 60010; 77 FR 64583; 77 FR 64841; 77 FR 65933; 77 FR 68199; 78 FR 47818; 78 FR 63302; 78 FR 63307; 78 FR 77780; 79 FR 14331; 79 FR 1457179 FR 18392; 79 FR 27043; 79 FR 27681; 79 FR 28588; 79 FR 29498; 79 FR 35212; 79 FR 35220; 79 FR 38649; 79 FR 38659; 79 FR 46153; 79 FR 47175; 79 FR 51642; 79 FR 51643; 79 FR 53514; 79 FR 56097; 79 FR 56117; 79 FR 58856; 79 FR 59348; 79 FR 64001; 79 FR 68199; 79 FR 72754; 80 FR 59225; 80 FR 59230; 80 FR 63839; 81 FR 1284; 81 FR 20433; 81 FR 28138; 81 FR 39320; 81 FR 40634; 81 FR 42054; 81 FR 45214; 81 FR 60115; 81 FR 66720; 81 FR 66722; 81 FR 66726; 81 FR 70253; 81 FR 71173; 81 FR 72642; 81 FR 80161; 81 FR 81230; 81 FR 90050; 81 FR 91239; 81 FR 96180; 81 FR 96191; 81 FR 96196; 83 FR 6922; 83 FR 24146; 83 FR 24585; 83 FR 28320; 83 FR 28325; 83 FR 28332; 83 FR 28335; 83 FR 33292; 83 FR 34661; 83 FR 34667; 83 FR 34677; 83 FR 40638; 83 FR 40648; 83 FR 45749; 83 FR 45750; 83 FR 53724; 83 FR 53732; 83 FR 54644; 83 FR 56137; 83 FR 56902; 84 FR 2326):
The drivers were included in docket numbers FMCSA–1998–3637; FMCSA–2000–7006; FMCSA–2000–8203; FMCSA–2004–17195; FMCSA–2004–17984; FMCSA–2004–18885; FMCSA–2008–0106; FMCSA–2008–0174; FMCSA–2010–0082; FMCSA–2010–0187; FMCSA–2011–0299; FMCSA–2012–0214; FMCSA–2012–0215; FMCSA–2012–0216; FMCSA–2013–0165; FMCSA–2013–0168; FMCSA–2014–0003; FMCSA–2014–0004; FMCSA–2014–0005; FMCSA–2014–0006; FMCSA–2014–0007; FMCSA–2014–0010; FMCSA–2014–0296; FMCSA–2015–0056; FMCSA–2016–0028; FMCSA–2016–0029; FMCSA–2016–0030; FMCSA–2016–0206; FMCSA–2016–0208; FMCSA–2018–0011; FMCSA–2018–0012; FMCSA–2018–0013; FMCSA–2018–0014; FMCSA–2018–0015; FMCSA–2018–0017. Their exemptions were applicable as of December 3, 2020, and will expire on December 3, 2022.
As of December 10, 2020, and in accordance with 49 U.S.C. 31136(e) and 31315, the following four individuals have satisfied the renewal conditions for obtaining an exemption from the vision requirement in the FMCSRs for interstate CMV drivers (83 FR 56140; 84 FR 2309):
The drivers were included in docket number FMCSA–2018–0207. Their exemptions were applicable as of December 10, 2020, and will expire on December 10, 2022.
As of December 20, 2020, and in accordance with 49 U.S.C. 31136(e) and 31315, the following two individuals have satisfied the renewal conditions for obtaining an exemption from the vision requirement in the FMCSRs for interstate CMV drivers (77 FR 64839; 77 FR 75494; 79 FR 73393; 81 FR 96180; 84 FR 2326):
The drivers were included in docket number FMCSA–2012–0280. Their exemptions were applicable as of December 20, 2020, and will expire on December 20, 2022.
As of December 25, 2020, and in accordance with 49 U.S.C. 31136(e) and 31315, the following two individuals have satisfied the renewal conditions for obtaining an exemption from the vision requirement in the FMCSRs for interstate CMV drivers (79 FR 69985; 80 FR 8927; 81 FR 96180; 84 FR 2326):
The drivers were included in docket number FMCSA–2014–0298. Their exemptions were applicable as of December 25, 2020, and will expire on December 25, 2022.
As of December 30, 2020, and in accordance with 49 U.S.C. 31136(e) and 31315, the following individual has satisfied the renewal conditions for obtaining an exemption from the vision requirement in the FMCSRs for interstate CMV drivers (81 FR 86063; 82 FR 12683; 84 FR 2326):
The driver was included in docket number FMCSA–2016–0212. The exemption was applicable as of December 30, 2020, and will expire on December 30, 2022.
In accordance with 49 U.S.C. 31315(b), each exemption will be valid for 2 years from the effective date unless revoked earlier by FMCSA. The exemption will be revoked if the following occurs: (1) The person fails to comply with the terms and conditions of the exemption; (2) the exemption has resulted in a lower level of safety than was maintained prior to being granted; or (3) continuation of the exemption would not be consistent with the goals and objectives of 49 U.S.C. 31136(e) and 31315(b).
Federal Motor Carrier Safety Administration (FMCSA), DOT.
Notice of applications for exemption; request for comments.
FMCSA announces receipt of applications from seven individuals for an exemption from the vision requirement in the Federal Motor Carrier Safety Regulations (FMCSRs) to operate a commercial motor vehicle (CMV) in interstate commerce. If granted, the exemptions will enable these individuals to operate CMVs in interstate commerce without meeting the vision requirement in one eye.
Comments must be received on or before February 5, 2021.
You may submit comments identified by the Federal Docket Management System (FDMS) Docket No. FMCSA–2020–0015 using any of the following methods:
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To avoid duplication, please use only one of these four methods. See the “Public Participation” portion of the
Ms. Christine A. Hydock, Chief, Medical Programs Division, (202) 366–4001,
If you submit a comment, please include the docket number for this notice (Docket No. FMCSA–2020–0015), indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation. You may submit your comments and material online or by fax, mail, or hand delivery, but please use only one of these means. FMCSA recommends that you include your name and a mailing address, an email address, or a phone number in the body of your document so that FMCSA can contact you if there are questions regarding your submission.
To submit your comment online, go to
If you submit your comments by mail or hand delivery, submit them in an unbound format, no larger than 8
FMCSA will consider all comments and material received during the comment period.
To view comments, as well as any documents mentioned in this notice as being available in the docket, go to
In accordance with 5 U.S.C. 553(c), DOT solicits comments from the public to better inform its rulemaking process. DOT posts these comments, without edit, including any personal information the commenter provides, to
Under 49 U.S.C. 31136(e) and 31315(b), FMCSA may grant an exemption from the FMCSRs for no longer than a 5-year period if it finds such exemption would likely achieve a level of safety that is equivalent to, or greater than, the level that would be achieved absent such exemption. The statute also allows the Agency to renew exemptions at the end of the 5-year period. FMCSA grants medical exemptions from the FMCSRs for a 2-year period to align with the maximum duration of a driver's medical certification.
The seven individuals listed in this notice have requested an exemption from the vision requirement in 49 CFR 391.41(b)(10). Accordingly, the Agency will evaluate the qualifications of each applicant to determine whether granting an exemption will achieve the required level of safety mandated by statute.
The physical qualification standard for drivers regarding vision found in § 391.41(b)(10) states that a person is physically qualified to drive a CMV if that person has distant visual acuity of at least 20/40 (Snellen) in each eye without corrective lenses or visual acuity separately corrected to 20/40 (Snellen) or better with corrective lenses, distant binocular acuity of at least 20/40 (Snellen) in both eyes with or without corrective lenses, field of vision of at least 70° in the horizontal Meridian in each eye, and the ability to recognize the colors of traffic signals and devices showing standard red, green, and amber.
On July 16, 1992, the Agency first published the criteria for the Vision Waiver Program, which listed the conditions and reporting standards that CMV drivers approved for participation would need to meet (57 FR 31458). The current Vision Exemption Program was established in 1998, following the enactment of amendments to the statutes governing exemptions made by § 4007 of the Transportation Equity Act for the 21st Century, Public Law 105–178, 112 Stat. 107, 401 (June 9, 1998). Vision exemptions are considered under the procedures established in 49 CFR part 381 subpart C, on a case-by-case basis upon application by CMV drivers who do not meet the vision standards of § 391.41(b)(10).
To qualify for an exemption from the vision requirement, FMCSA requires a person to present verifiable evidence that he/she has driven a commercial vehicle safely in intrastate commerce with the vision deficiency for the past 3 years. Recent driving performance is especially important in evaluating future safety, according to several research studies designed to correlate past and future driving performance. Results of these studies support the principle that the best predictor of future performance by a driver is his/her past record of crashes and traffic violations. Copies of the studies may be found at
FMCSA believes it can properly apply the principle to monocular drivers, because data from the Federal Highway Administration's (FHWA) former waiver study program clearly demonstrated the driving performance of experienced monocular drivers in the program is better than that of all CMV drivers collectively.
The first major research correlating past and future performance was done in England by Greenwood and Yule in 1920. Subsequent studies, building on that model, concluded that crash rates for the same individual exposed to certain risks for two different time periods vary only slightly (See Bates and Neyman, University of California Publications in Statistics, April 1952). Other studies demonstrated theories of predicting crash proneness from crash history coupled with other factors. These factors—such as age, sex, geographic location, mileage driven and conviction history—are used every day by insurance companies and motor vehicle bureaus to predict the probability of an individual experiencing future crashes (See Weber, Donald C., “Accident Rate Potential: An Application of Multiple Regression Analysis of a Poisson Process,” Journal of American Statistical Association, June 1971). A 1964 California Driver Record Study prepared by the California Department of Motor Vehicles concluded that the best overall crash predictor for both concurrent and nonconcurrent events is the number of single convictions. This study used 3 consecutive years of data, comparing the experiences of drivers in the first 2 years with their experiences in the final year.
Mr. Brown, 59, has corneal scarring in his right eye due to a traumatic incident in 1971. The visual acuity in his right eye is no light perception, and in his left eye, 20/20. Following an examination in 2020, his optometrist stated, “He has no light perception in the right eye due to an injury he had in 1971, but his condition is stable. In my medical opinion Mr. Brown meets all the requirements to operate a commercial vehicle at this time.” Mr. Brown reported that he has driven buses for 25 years, accumulating 125,000 miles. He holds a Class B CDL from Mississippi. His driving record for the last 3 years shows no crashes and no convictions for moving violations in a CMV.
Mr. Hendricks, 60, has had amblyopia in his left eye since childhood. The visual acuity in his right eye is 20/20, and in his left eye, 20/100. Following an
Mr. Hoben, 24, has ectopia lentis in his left eye due to Marfan's Syndrome since childhood. The visual acuity in his right eye is 20/40, and in his left eye, 20/60. Following an examination in 2020, his optometrist stated, “In my medical opinion, Justin T [sic] Hoben has sufficient vision to operate a commercial vehicle.” Mr. Hoben reported that he has driven straight trucks for 5 years, accumulating 10,000 miles, and tractor-trailer combinations for 5 years, accumulating 10,000 miles. He holds a Class A CDL from Illinois. His driving record for the last 3 years shows no crashes and no convictions for moving violations in a CMV.
Mr. Ingebretsen, 74, has had a retinal detachment in his right eye since 2016. The visual acuity in his right eye is 20/200, and in his left eye, 20/20. Following an examination in 2020, his optometrist stated, “In my opinion, Burl has sufficient vision to perform driving tasks required for a commercial license.” Mr. Ingebretsen reported that he has driven straight trucks for 54 years, accumulating 1.78 million miles, and tractor-trailer combinations for 34 years, accumulating 3.4 million miles. He holds a Class A CDL from Minnesota. His driving record for the last 3 years shows no crashes and no convictions for moving violations in a CMV.
Mr. Rudder, 37, has had amblyopia in his right eye since birth. The visual acuity in his right eye is 20/80, and in his left eye, 20/20. Following an examination in 2020, his ophthalmologist stated, “I certify in my medical opinion that Weldon Rudder has sufficient vision to perform the driving tasks required to operate a commercial vehicle.” Mr. Rudder reported that he has driven straight trucks for 3 years, accumulating 60,000 miles and tractor-trailer combinations for 3 years, accumulating 60,000 miles. He holds a Class A CDL from Oklahoma. His driving record for the last 3 years shows no crashes and no convictions for moving violations in a CMV.
Mr. Sargent, 54, had a retinal detachment in his right eye due to a traumatic incident in 2017. The visual acuity in his right eye is 20/50, and in his left eye, 20/20. Following an examination in 2020, his ophthalmologist stated, “Given the near perfect vision in his left eye, which was measured at 20/25 on his last exam with no retinal or optic nerve pathology, I believe there is sufficient evidence that he can perform the driving tasks required to operate a commercial vehicle.” Mr. Sargent reported that he has driven straight trucks for 35 years, accumulating 56,000 miles, tractor-trailer combinations for 30 years, accumulating 165,000 miles, and buses for 27 years, accumulating 199,800 miles. He holds a Class A CDL from Montana. His driving record for the last 3 years shows no crashes and no convictions for moving violations in a CMV.
Mr. Skrobarczyk, 61, has had optic nerve hypoplasia in his left eye since birth. The visual acuity in his right eye is 20/20, and in his left eye, 20/400. Following an examination in 2020, his ophthalmologist stated, “In my opinion Mr. Skobarczyk has sufficient vision to operate a commercial vehicle.” Mr. Skrobarczyk reported that he has driven tractor-trailer combinations for 3 years, accumulating 105,000 miles. He holds a Class A CDL from Texas. His driving record for the last 3 years shows no crashes and no convictions for moving violations in a CMV.
In accordance with 49 U.S.C. 31136(e) and 31315(b), FMCSA requests public comment from all interested persons on the exemption petitions described in this notice. We will consider all comments and material received before the close of business on the closing date indicated under the
Federal Motor Carrier Safety Administration (FMCSA), DOT.
Notice of renewal of exemptions; request for comments.
FMCSA announces its decision to renew exemptions for 66 individuals from the vision requirement in the Federal Motor Carrier Safety Regulations (FMCSRs) for interstate commercial motor vehicle (CMV) drivers. The exemptions enable these individuals to continue to operate CMVs in interstate commerce without meeting the vision requirements in one eye.
Each group of renewed exemptions are applicable on the dates stated in the discussions below and will expire on the dates stated in the discussions below. Comments must be received on or before February 5, 2021.
You may submit comments identified by the Federal Docket Management System (FDMS) Docket No. FMCSA–2000–7006, Docket No. FMCSA–2000–7165, Docket No. FMCSA–2001–11426, Docket No. FMCSA–2002–12294, Docket No. FMCSA–2004–18885, Docket No. FMCSA–2004–19477, Docket No. FMCSA–2005–21711, Docket No. FMCSA–2006–24783, Docket No. FMCSA–2006–26066, Docket No. FMCSA–2007–0071, Docket No. FMCSA–2008–0021, Docket No. FMCSA–2008–0106, Docket No. FMCSA–2008–0174, Docket No. FMCSA–2008–0266, Docket No. FMCSA–2008–0292, Docket No. FMCSA–2008–0340, Docket No.
•
•
•
•
To avoid duplication, please use only one of these four methods. See the “Public Participation” portion of the
Ms. Christine A. Hydock, Chief, Medical Programs Division, (202) 366–4001,
If you submit a comment, please include the docket number for this notice (Docket No. FMCSA–2000–7006; FMCSA–2000–7165; FMCSA–2001–11426; FMCSA–2002–12294; FMCSA–2004–18885; FMCSA–2004–19477; FMCSA–2005–21711; FMCSA–2006–24783; FMCSA–2006–26066; FMCSA–2007–0071; FMCSA–2008–0021; FMCSA–2008–0106; FMCSA–2008–0174; FMCSA–2008–0266; FMCSA–2008–0292; FMCSA–2008–0340; FMCSA–2010–0161; FMCSA–2010–0187; FMCSA–2010–0201; FMCSA–2010–0287; FMCSA–2010–0354; FMCSA–2010–0385; FMCSA–2012–0039; FMCSA–2012–0161; FMCSA–2012–0215; FMCSA–2012–0216; FMCSA–2012–0279; FMCSA–2013–0168; FMCSA–2013–0170; FMCSA–2014–0002; FMCSA–2014–0006; FMCSA–2014–0007; FMCSA–2014–0010; FMCSA–2014–0011; FMCSA–2014–0296; FMCSA–2014–0299; FMCSA–2014–0300; FMCSA–2016–0028; FMCSA–2016–0030; FMCSA–2016–0207; FMCSA–2016–0208; FMCSA–2016–0209; FMCSA–2016–0210; FMCSA–2018–0010; FMCSA–2018–0207), indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation. You may submit your comments and material online or by fax, mail, or hand delivery, but please use only one of these means. FMCSA recommends that you include your name and a mailing address, an email address, or a phone number in the body of your document so that FMCSA can contact you if there are questions regarding your submission.
To submit your comment online, go to
If you submit your comments by mail or hand delivery, submit them in an unbound format, no larger than 8
FMCSA will consider all comments and material received during the comment period.
To view comments, as well as any documents mentioned in this notice as being available in the docket, go to
In accordance with 5 U.S.C. 553(c), DOT solicits comments from the public to better inform its rulemaking process. DOT posts these comments, without edit, including any personal information the commenter provides, to
Under 49 U.S.C. 31136(e) and 31315(b), FMCSA may grant an exemption from the FMCSRs for no longer than a 5-year period if it finds such exemption would likely achieve a level of safety that is equivalent to, or greater than, the level that would be achieved absent such exemption. The statute also allows the Agency to renew exemptions at the end of the 5-year period. FMCSA grants medical exemptions from the FMCSRs for a 2-year period to align with the maximum duration of a driver's medical certification.
The physical qualification standard for drivers regarding vision found in 49 CFR 391.41(b)(10) states that a person is physically qualified to drive a CMV if that person has distant visual acuity of at least 20/40 (Snellen) in each eye without corrective lenses or visual acuity separately corrected to 20/40 (Snellen) or better with corrective lenses, distant binocular acuity of a least 20/40 (Snellen) in both eyes with or without corrective lenses, field of vision of at least 70° in the horizontal meridian in each eye, and the ability to recognize the colors of traffic signals and devices showing red, green, and amber.
The 66 individuals listed in this notice have requested renewal of their exemptions from the vision standard in § 391.41(b)(10), in accordance with FMCSA procedures. Accordingly, FMCSA has evaluated these applications for renewal on their merits and decided to extend each exemption for a renewable 2-year period.
Interested parties or organizations possessing information that would otherwise show that any, or all, of these drivers are not currently achieving the statutory level of safety should immediately notify FMCSA. The Agency will evaluate any adverse evidence submitted and, if safety is being compromised or if continuation of the exemption would not be consistent with the goals and objectives of 49 U.S.C. 31136(e) and 31315(b), FMCSA will take immediate steps to revoke the exemption of a driver.
In accordance with 49 U.S.C. 31136(e) and 31315(b), each of the 66 applicants has satisfied the renewal conditions for obtaining an exemption from the vision standard (see 65 FR 20245; 65 FR 33406; 65 FR 57230; 65 FR 57234; 67 FR 10471; 67 FR 19798; 67 FR 46016; 67 FR 57266; 67 FR 57627; 69 FR 19611; 69 FR 51346; 69 FR 52741; 69 FR 53493; 69 FR 62742; 69 FR 64806; 70 FR 2705; 70 FR 48797; 70 FR 61493; 71 FR 26602; 71 FR 32183; 71 FR 41310; 71 FR 50970; 71 FR 53489; 71 FR 62147; 71 FR 62148; 71 FR 63379; 72 FR 1050; 72 FR 1051; 72 FR 1056; 72 FR 64273; 73 FR 6242; 73 FR 6244; 73 FR 15567; 73 FR 16950; 73 FR 16952; 73 FR 27015; 73 FR 27018; 73 FR 35197; 73 FR 35198; 73 FR 36955; 73 FR 38498; 73 FR 38499; 73 FR 48273; 73 FR 48275; 73 FR 51336; 73 FR 51689; 73 FR 61922; 73 FR 61925; 73 FR 61925; 73 FR 63047; 73 FR 74565; 73 FR 75803; 73 FR 75807; 73 FR 76439; 73 FR 78421; 73 FR 78423; 74 FR 6209; 74 FR 62632; 75 FR 9477; 75 FR 19674; 75 FR 22179; 75 FR 36778; 75 FR 36779; 75 FR 39725; 75 FR 44051; 75 FR 47883; 75 FR 50799; 75 FR 52062; 75 FR 54958; 75 FR 59327; 75 FR 59327; 75 FR 61833; 75 FR 63257; 75 FR 64396; 75 FR 69737; 75 FR 70078; 75 FR 72863; 75 FR 77591; 75 FR 77942; 75 FR 77949; 75 FR 79079; 75 FR 79083; 75 FR 79084; 76 FR 1499; 76 FR 2190; 76 FR 4413; 76 FR 5425; 76 FR 70215; 77 FR 13689; 77 FR 20879; 77 FR 23797; 77 FR 31427; 77 FR 36338; 77 FR 38384; 77 FR 41879; 77 FR 46153; 77 FR 48590; 77 FR 52381; 77 FR 52389; 77 FR 52391; 77 FR 56261; 77 FR 60008; 77 FR 60010; 77 FR 64582; 77 FR 64583; 77 FR 64583; 77 FR 64841; 77 FR 65933; 77 FR 68200; 77 FR 68202; 77 FR 71671; 77 FR 74273; 77 FR 74730; 77 FR 74733; 77 FR 74734; 77 FR 75496; 77 FR 76166; 78 FR 797; 78 FR 63302; 78 FR 64280; 78 FR 67454; 78 FR 77780; 79 FR 4803; 79 FR 10606; 79 FR 10609; 79 FR 14331; 79 FR 22003; 79 FR 23797; 79 FR 35212; 79 FR 35218; 79 FR 35220; 79 FR 37843; 79 FR 38659; 79 FR 38661; 79 FR 41735; 79 FR 45868; 79 FR 46153; 79 FR 47175; 79 FR 51643; 79 FR 53514; 79 FR 56097; 79 FR 56099; 79 FR 56104; 79 FR 56117; 79 FR 58856; 79 FR 59348; 79 FR 59357; 79 FR 64001; 79 FR 65759; 79 FR 65760; 79 FR 70928; 79 FR 72754; 79 FR 72756; 79 FR 73397; 79 FR 73686; 79 FR 73687; 79 FR 73689; 79 FR 74169; 80 FR 2473; 80 FR 3305; 80 FR 3723; 80 FR 9304; 80 FR 18693; 80 FR 63869; 80 FR 80443; 81 FR 20435; 81 FR 28138; 81 FR 39320; 81 FR 45214; 81 FR 66720; 81 FR 66726; 81 FR 70248; 81 FR 70251; 81 FR 70253; 81 FR 71173; 81 FR 72664; 81 FR 80161; 81 FR 81230; 81 FR 90046; 81 FR 90050; 81 FR 91239; 81 FR 94013; 81 FR 96165; 81 FR 96178; 81 FR 96180; 81 FR 96191; 81 FR 96196; 82 FR 13048; 83 FR 3861; 83 FR 6925; 83 FR 18633; 83 FR 28325; 83 FR 28342; 83 FR 34661; 83 FR 53724; 83 FR 56140; 83 FR 56902; 84 FR 2309; 84 FR 2311; 84 FR 2314). They have submitted evidence showing that the vision in the better eye continues to meet the requirement specified at § 391.41(b)(10) and that the vision impairment is stable. In addition, a review of each record of safety while driving with the respective vision deficiencies over the past 2 years indicates each applicant continues to meet the vision exemption requirements. These factors provide an adequate basis for predicting each driver's ability to continue to drive safely in interstate commerce. Therefore, FMCSA concludes that extending the exemption for each renewal applicant for a period of 2 years is likely to achieve a level of safety equal to that existing without the exemption.
In accordance with 49 U.S.C. 31136(e) and 31315(b), the following groups of drivers received renewed exemptions in the month of February and are discussed below. As of February 5, 2021, and in accordance with 49 U.S.C. 31136(e) and 31315, the following 63 individuals have satisfied the renewal conditions for obtaining an exemption from the vision requirement in the FMCSRs for interstate CMV drivers (65 FR 20245; 65 FR 33406; 65 FR 57230; 65 FR 57234; 67 FR 10471; 67 FR 19798; 67 FR 46016; 67 FR 57266; 67 FR 57627; 69 FR 19611; 69 FR 51346; 69 FR 52741; 69 FR 53493; 69 FR 62742; 69 FR 64806; 70 FR 2705; 70 FR 48797; 70 FR 61493; 71 FR 26602; 71 FR 32183; 71 FR 41310; 71 FR 50970; 71 FR 53489; 71 FR 62147; 71 FR 62148; 71 FR 63379; 72 FR 1050; 72 FR 1051; 72 FR 1056; 72 FR 64273; 73 FR 6242; 73 FR 6244; 73 FR 15567; 73 FR 16950; 73 FR 16952; 73 FR 27015; 73 FR 27018; 73 FR 35197; 73 FR 35198; 73 FR 36955; 73 FR 38498; 73 FR 38499; 73 FR 48273; 73 FR 48275; 73 FR 51336; 73 FR 51689; 73 FR 61922; 73 FR 61925; 73 FR 61925; 73 FR 63047; 73 FR 74565; 73 FR 75803; 73 FR 75807; 73 FR 76439; 73 FR 78421; 73 FR 78423; 74 FR 6209; 74 FR 62632; 75 FR 9477; 75 FR 19674; 75 FR 22179; 75 FR 36778; 75 FR 36779; 75 FR 39725; 75 FR 44051; 75 FR 47883; 75 FR 50799; 75 FR 52062; 75 FR 54958; 75 FR 59327; 75 FR 59327; 75 FR 61833; 75 FR 63257; 75 FR 64396; 75 FR 69737; 75 FR 70078; 75 FR 72863; 75 FR 77591; 75 FR 77942; 75 FR 77949; 75 FR 79079;
The drivers were included in docket numbers FMCSA–2000–7006; FMCSA–2000–7165; FMCSA–2001–11426; FMCSA–2002–12294; FMCSA–2004–18885; FMCSA–2004–18885; FMCSA–2004–19477; FMCSA–2005–21711; FMCSA–2006–24783; FMCSA–2006–26066; FMCSA–2007–0071; FMCSA–2008–0021; FMCSA–2008–0106; FMCSA–2008–0174; FMCSA–2008–0266; FMCSA–2008–0292; FMCSA–2008–0340; FMCSA–2010–0161; FMCSA–2010–0187; FMCSA–2010–0201; FMCSA–2010–0287; FMCSA–2010–0354; FMCSA–2010–0385; FMCSA–2012–0039; FMCSA–2012–0161; FMCSA–2012–0215; FMCSA–2012–0216; FMCSA–2012–0279; FMCSA–2013–0168; FMCSA–2013–0170; FMCSA–2014–0002; FMCSA–2014–0006; FMCSA–2014–0007; FMCSA–2014–0010; FMCSA–2014–0011; FMCSA–2014–0296; FMCSA–2014–0299; FMCSA–2016–0028; FMCSA–2016–0030; FMCSA–2016–0207; FMCSA–2016–0208; FMCSA–2016–0209; FMCSA–2016–0210; FMCSA–2018–0010; FMCSA–2018–0207. Their exemptions are applicable as of February 5, 2021, and will expire on February 5, 2023.
As of February 18, 2021, and in accordance with 49 U.S.C. 31136(e) and 31315, the following two individuals have satisfied the renewal conditions for obtaining an exemption from the vision requirement in the FMCSRs for interstate CMV drivers (80 FR 2473; 80 FR 18693; 82 FR 13048; 84 FR 2314):
The drivers were included in docket number FMCSA–2014–0030. Their exemptions are applicable as of February 18, 2021, and will expire on February 18, 2023.
As of February 25, 2021, and in accordance with 49 U.S.C. 31136(e) and 31315, the following individual has satisfied the renewal conditions for obtaining an exemption from the vision requirement in the FMCSRs for interstate CMV drivers (69 FR 64806; 70 FR 2705; 72 FR 1056; 73 FR 76439; 75 FR 79084; 77 FR 75496; 80 FR 3723; 82 FR 13048; 84 FR 2314):
The driver was included in docket number FMCSA–2004–19477. The exemption is applicable as of February 25, 2021, and will expire on February 25, 2023.
The exemptions are extended subject to the following conditions: (1) Each driver must undergo an annual physical examination (a) by an ophthalmologist or optometrist who attests that the vision in the better eye continues to meet the requirements in 49 CFR 391.41(b)(10), and (b) by a certified medical examiner (ME), as defined by § 390.5, who attests that the driver is otherwise physically qualified under § 391.41; (2) each driver must provide a copy of the ophthalmologist's or optometrist's report to the ME at the time of the annual medical examination; and (3) each driver must provide a copy of the annual medical certification to the employer for retention in the driver's qualification file or keep a copy of his/her driver's qualification if he/she is self-employed. The driver must also have a copy of the exemption when driving, for presentation to a duly authorized Federal, State, or local enforcement official. The exemption will be rescinded if: (1) The person fails to comply with the terms and conditions of the exemption; (2) the exemption has resulted in a lower level of safety than was maintained before it was granted; or (3) continuation of the exemption would not be consistent with the goals and objectives of 49 U.S.C. 31136(e) and 31315(b).
During the period the exemption is in effect, no State shall enforce any law or
Based upon its evaluation of the 66 exemption applications, FMCSA renews the exemptions of the aforementioned drivers from the vision requirement in § 391.41(b)(10), subject to the requirements cited above. In accordance with 49 U.S.C. 31136(e) and 31315(b), each exemption will be valid for 2 years unless revoked earlier by FMCSA.
Federal Motor Carrier Safety Administration (FMCSA), DOT.
Notice of renewal of exemptions; request for comments.
FMCSA announces its decision to renew exemptions for 10 individuals from the requirement in the Federal Motor Carrier Safety Regulations (FMCSRs) that interstate commercial motor vehicle (CMV) drivers have “no established medical history or clinical diagnosis of epilepsy or any other condition which is likely to cause loss of consciousness or any loss of ability to control a CMV.” The exemptions enable these individuals who have had one or more seizures and are taking anti-seizure medication to continue to operate CMVs in interstate commerce.
Each group of renewed exemptions were applicable on the dates stated in the discussions below and will expire on the dates stated in the discussions below. Comments must be received on or before February 5, 2021.
You may submit comments identified by the Federal Docket Management System (FDMS) Docket No. FMCSA–2006–25854, Docket No. FMCSA–2010–0203, Docket No. FMCSA–2015–0323, Docket No. FMCSA–2016–0007, Docket No. FMCSA–2016–0008, Docket No. FMCSA–2018–0051, Docket No. FMCSA–2018–0052, or Docket No. FMCSA–2018–0056 using any of the following methods:
•
•
•
•
To avoid duplication, please use only one of these four methods. See the “Public Participation” portion of the
Ms. Christine A. Hydock, Chief, Medical Programs Division, (202) 366–4001,
If you submit a comment, please include the docket number for this notice (Docket No. FMCSA–2006–25854, FMCSA–2010–0203, FMCSA–2015–0323, FMCSA–2016–0007, FMCSA–2016–0008, FMCSA–2018–0051, FMCSA–2018–0052, or FMCSA–2018–0056), indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation. You may submit your comments and material online or by fax, mail, or hand delivery, but please use only one of these means. FMCSA recommends that you include your name and a mailing address, an email address, or a phone number in the body of your document so that FMCSA can contact you if there are questions regarding your submission.
To submit your comment online, go to
If you submit your comments by mail or hand delivery, submit them in an unbound format, no larger than 8
FMCSA will consider all comments and material received during the comment period.
To view comments, as well as any documents mentioned in this notice as being available in the docket, go to
In accordance with 5 U.S.C. 553(c), DOT solicits comments from the public to better inform its rulemaking process. DOT posts these comments, without edit, including any personal information the commenter provides, to
Under 49 U.S.C. 31136(e) and 31315(b), FMCSA may grant an exemption from the FMCSRs for no longer than a 5-year period if it finds such exemption would likely achieve a
The physical qualification standard for drivers regarding epilepsy found in 49 CFR 391.41(b)(8) states that a person is physically qualified to drive a CMV if that person has no established medical history or clinical diagnosis of epilepsy or any other condition which is likely to cause the loss of consciousness or any loss of ability to control a CMV.
In addition to the regulations, FMCSA has published advisory criteria
The 10 individuals listed in this notice have requested renewal of their exemptions from the epilepsy and seizure disorders prohibition in § 391.41(b)(8), in accordance with FMCSA procedures. Accordingly, FMCSA has evaluated these applications for renewal on their merits and decided to extend each exemption for a renewable 2-year period.
Interested parties or organizations possessing information that would otherwise show that any, or all, of these drivers are not currently achieving the statutory level of safety should immediately notify FMCSA. The Agency will evaluate any adverse evidence submitted and, if safety is being compromised or if continuation of the exemption would not be consistent with the goals and objectives of 49 U.S.C. 31136(e) and 31315(b), FMCSA will take immediate steps to revoke the exemption of a driver.
In accordance with 49 U.S.C. 31136(e) and 31315(b), each of the 10 applicants has satisfied the renewal conditions for obtaining an exemption from the epilepsy and seizure disorders prohibition. The 10 drivers in this notice remain in good standing with the Agency, have maintained their medical monitoring and have not exhibited any medical issues that would compromise their ability to safely operate a CMV during the previous 2-year exemption period. In addition, for Commercial Driver's License (CDL) holders, the Commercial Driver's License Information System and the Motor Carrier Management Information System are searched for crash and violation data. For non-CDL holders, the Agency reviews the driving records from the State Driver's Licensing Agency. These factors provide an adequate basis for predicting each driver's ability to continue to safely operate a CMV in interstate commerce. Therefore, FMCSA concludes that extending the exemption for each renewal applicant for a period of 2 years is likely to achieve a level of safety equal to that existing without the exemption.
In accordance with 49 U.S.C. 31136(e) and 31315(b), the following groups of drivers received renewed exemptions in the month of January and are discussed below.
As of January 1, 2021, and in accordance with 49 U.S.C. 31136(e) and 31315(b), the following eight individuals have satisfied the renewal conditions for obtaining an exemption from the epilepsy and seizure disorders prohibition in the FMCSRs for interstate CMV drivers:
The drivers were included in docket number FMCSA–2015–0323, FMCSA–2016–0007, FMCSA–2016–0008, FMCSA–2018–0051, FMCSA–2018–0052, and FMCSA–2018–0056. Their exemptions are applicable as of January 1, 2021, and will expire on January 1, 2023.
As of January 1, 2021, and in accordance with 49 U.S.C. 31136(e) and 31315(b), the following two individuals have satisfied the renewal conditions for obtaining an exemption from the epilepsy and seizure disorders prohibition in the FMCSRs for interstate CMV drivers:
The drivers were included in docket number FMCSA–2006–25854 and FMCSA–2010–0203. Their exemptions are applicable as of January 15, 2021, and will expire on January 15, 2023.
The exemptions are extended subject to the following conditions: (1) Each driver must remain seizure-free and maintain a stable treatment during the 2-year exemption period; (2) each driver must submit annual reports from their treating physicians attesting to the stability of treatment and that the driver has remained seizure-free; (3) each driver must undergo an annual medical examination by a certified ME, as defined by § 390.5; and (4) each driver must provide a copy of the annual medical certification to the employer for retention in the driver's qualification file, or keep a copy of his/her driver's qualification file if he/she is self-employed. The driver must also have a copy of the exemption when driving, for presentation to a duly authorized Federal, State, or local enforcement official. The exemption will be rescinded if: (1) The person fails to comply with the terms and conditions of the exemption; (2) the exemption has resulted in a lower level of safety than was maintained before it was granted; or (3) continuation of the exemption would not be consistent with the goals and objectives of 49 U.S.C. 31136(e) and 31315(b).
During the period the exemption is in effect, no State shall enforce any law or regulation that conflicts with this exemption with respect to a person operating under the exemption.
Based on its evaluation of the 10 exemption applications, FMCSA renews the exemptions of the aforementioned drivers from the epilepsy and seizure disorders prohibition in § 391.41(b)(8). In accordance with 49 U.S.C. 31136(e) and 31315(b), each exemption will be valid for 2 years unless revoked earlier by FMCSA.
Federal Transit Administration (FTA), DOT.
Notice.
By this notice, the Federal Transit Administration (FTA) is establishing an Emergency Relief Docket for calendar year 2021, so that grant
Bonnie L. Graves, Attorney-Advisor, Office of Chief Counsel, Federal Transit Administration, 90 Seventh Street, Ste. 15–300, San Francisco, CA 94103; phone: (202) 366–0944, fax: (415) 734–9489, or email,
Pursuant to 49 CFR 601.42, FTA is establishing the Emergency Relief Docket for calendar year 2021. In the case of a national or regional emergency or disaster, or in anticipation of such an event, when FTA requirements impede a recipient or sub-recipient's ability to respond to the emergency or disaster, a recipient or sub-recipient may submit a request for relief from specific FTA requirements.
If FTA determines that a national or regional emergency or disaster has occurred, or in anticipation of such an event, FTA will place a message on its web page (
All petitions for relief from FTA administrative or statutory requirements must be posted in the docket in order to receive consideration by FTA. The docket is publicly available and can be accessed 24 hours a day, seven days a week, via the internet at
Interested parties may consult 49 CFR part 601, subpart D for information on FTA's emergency procedures for public transportation systems. FTA strongly encourages recipients and sub-recipients to contact their FTA regional office and notify FTA of the intent to submit a petition to the docket.
A recipient or sub-recipient seeking relief has three avenues for submitting a petition. First, a recipient or sub-recipient may submit a petition for waiver of FTA requirements to
Federal public transportation law at 49 U.S.C. 5324(d) provides that a grant awarded under Section 5324, or under 49 U.S.C. 5307 or 49 U.S.C. 5311, that is made to address an emergency shall be subject to the terms and conditions the Secretary determines are necessary. This language allows FTA to waive certain statutory, as well as administrative, requirements. An FTA recipient or sub-recipient receiving financial assistance under 49 U.S.C. 5324, 5307, or 5311 that is affected by a national or regional emergency or disaster may request a waiver of provisions of Chapter 53 of Title 49 of the United States Code in connection with such financial assistance, when a recipient or sub-recipient demonstrates that the requirement(s) will limit a recipient's or sub-recipient's ability to respond to a national or regional emergency or disaster.
Pursuant to 49 CFR 601.42, a recipient or sub-recipient must include certain information when requesting a waiver of statutory or administrative requirements. A petition for relief shall:
(a) Include the agency name (Federal Transit Administration) and docket number FTA–2021–0001;
(b) Identify the recipient or sub-recipient and its geographic location;
(c) Identify the section of Chapter 53 of Title 49 of the United States Code, or the portion of an FTA policy statement, circular, guidance document or rule, from which the recipient or sub-recipient seeks relief;
(d) Specifically address how a requirement in Chapter 53 of Title 49 of the United States Code, or an FTA requirement in a policy statement, circular, agency guidance or rule, will limit a recipient's or sub-recipient's ability to respond to a national or regional emergency or disaster; and
(e) Specify if the petition for relief is one-time or ongoing, and if ongoing identify the time period for which the relief is requested. The time period may not exceed three months; however, additional time may be requested through a second petition for relief.
Pursuant to 49 CFR 601.46, a petition for relief from administrative requirements will be conditionally granted for a period of three (3) business days from the date it is submitted to the Emergency Relief Docket. FTA will review the petition after the expiration of the three business days and review any comments submitted regarding the petition. FTA may contact the recipient or sub-recipient that submitted the request for relief, or any party that submits comments to the docket, to obtain more information prior to making a decision. FTA shall then post a decision to the Emergency Relief Docket. FTA's decision will be based on whether the petition meets the criteria for use of these emergency procedures, the substance of the request, and any comments submitted regarding the petition. If FTA does not respond to the request for relief to the docket within three business days, the recipient or sub-recipient may assume its petition is granted for a period not to exceed three months until and unless FTA states otherwise.
A petition for relief from statutory requirements will not be conditionally granted and requires a written decision from the FTA Administrator. Further, recipients seeking a waiver from Buy America requirements must follow the procedures in 49 CFR part 661. Buy America waivers will not be granted through the Emergency Relief Docket.
An FTA decision, either granting or denying a petition, shall be posted in the Emergency Relief Docket and shall reference the document number of the petition to which it relates. FTA reserves the right to reconsider any decision made pursuant to these emergency procedures based upon its own initiative, based upon information or comments received subsequent to the three-business day comment period, or at the request of a recipient or sub-recipient upon denial of a request for relief. FTA shall notify the recipient or sub-recipient if FTA plans to reconsider a decision.
Pursuant to FTA's Charter Rule at 49 CFR 604.2(f), recipients and sub-recipients may assist with evacuations or other movement of people that might otherwise be considered charter transportation when that transportation is in response to an emergency declared by the President, governor or mayor, or in an emergency requiring immediate action prior to a formal declaration, even if a formal declaration of an emergency is not eventually made by the President, governor or mayor. Therefore, a request for relief is not necessary in order to provide this service. However, if the emergency lasts more than 45 calendar days and the recipient will continue to provide service that would otherwise be
The contents of this document do not have the force and effect of law and are not meant to bind the public in any way. This document is intended only to provide clarity to the public regarding existing requirements under the law or agency policies. Recipients and sub-recipients should refer to FTA's regulations, including 49 CFR part 601, for requirements for submitting a request for emergency relief.
Issued in Washington, DC.
Internal Revenue Service (IRS), Treasury.
Notice; supplement.
The IRS published a document in the
Requests for additional information should be directed to Martha R. Brinson, at (202) 317–5753, or at Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW, Washington, DC 20224, or through the internet at
The IRS published a document at 85 FR 55579 in the
Departmental Offices, Department of the Treasury.
Notice.
The Department of the Treasury will submit the following information collection requests to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995, on or after the date of publication of this notice. The public is invited to submit comments on these requests.
Comments should be received on or before February 5, 2021 to be assured of consideration.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
Copies of the submissions may be obtained from Molly Stasko by emailing
44 U.S.C. 3501
The Department of Veterans Affairs (VA) gives notice under Federal Advisory Committee Act, 5 U.S.C. App.2, that a meeting of the Joint Biomedical Laboratory Research and Development and Clinical Science Research and Development Services Scientific Merit Review Board (JBL/CS SMRB) will be held Wednesday, January 21, 2021, via WebEx. The meeting will begin at 3:00 p.m. and end at 5:00 p.m. Eastern daylight time. The meeting will have an open session from 3:00 p.m. until 3:30 p.m. and a closed session from 3:30 p.m. until 5:00 p.m.
The JBL/CS provides expert review of the scientific quality, budget, safety and mission-relevance of investigator-initiated research applications submitted for VA merit review consideration and to offer advice for research program officials on program priorities and policies.
The purpose of the open session is to meet with the JBL/CS Service Directors to discuss the overall policies and process for scientific review, as well as disseminate information among the Board members regarding the VA research priorities.
The purpose of the closed session is to provide recommendations on the scientific quality, budget, safety and mission relevance of investigator-initiated research applications submitted for VA merit review evaluation. Applications submitted for review include various medical specialties within the general areas of biomedical, behavioral and clinical science research. The JBL/CS SMRB meeting will be closed to the public for the review, discussion, and evaluation of initial and renewal research applications, which involve reference to staff and consultant critiques of research applications. Discussions will deal with scientific merit of each application and qualifications of personnel conducting the studies, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy. Additionally, premature disclosure of research information could significantly obstruct implementation of proposed agency action regarding the research applications. As provided by subsection 10(d) of Public Law 92–463, as amended by Public Law 94–409, closing the subcommittee meetings is in accordance with Title 5 U.S.C. 552b(c)(6) and (9)(B).
Members of the public who wish to attend the open JBL/CS SMRB meeting should join via WebEx at: Meeting number (access code): 199 200 0800, meeting password: 2cZMnrsy?36.
Department of Veterans Affairs.
Notice.
The Department of Veterans Affairs (VA) is updating the monetary allowance payable for qualifying interments that occur during calendar year (CY) 2021, which applies toward the private purchase of an outer burial receptacle (or “graveliner”) for use in a VA national cemetery. The allowance is equal to the average cost of Government-furnished graveliners less any VA administrative costs. The purpose of this notice is to notify interested parties of the average cost of Government-furnished graveliners; administrative costs that relate to processing and paying the allowance; and the amount of the allowance payable for qualifying interments that occur during CY 2021.
Mr. William Carter, Chief of Budget Execution Division, National Cemetery Administration, Department of Veterans Affairs, 810 Vermont Avenue NW, Washington, DC 20420. The telephone number is 202–461–9764 (this is not a toll-free number).
This notice is effective January 1, 2021.
VA is authorized by 38 U.S.C. 2306(e)(3) and (4) to provide a monetary allowance for the private purchase of an outer burial receptacle for use in a VA national cemetery where its use is authorized. The allowance for qualified interments that occur during CY 2021 is the average cost of Government-furnished graveliners in fiscal year (FY) 2020, less the administrative cost incurred by VA in processing and paying the allowance in lieu of the Government-furnished graveliner.
The average cost of Government-furnished graveliners is determined by taking VA's total cost during a fiscal year for single-depth graveliners that were procured for placement at the time of interment and dividing it by the total number of such graveliners procured by VA during that fiscal year. The calculation excludes both graveliners pre-placed in gravesites as part of the cemetery gravesite development projects and all double-depth graveliners. Using this method of computation, the average cost was determined to be $381.00 for FY 2020.
The administrative cost is based on the costs incurred by VA during CY 2020 that relate to processing and paying an allowance in lieu of the Government-furnished graveliner. This cost has been determined to be $9.00.
Therefore, the allowance payable for qualifying interments occurring during CY 2021, is $372.00.
The Secretary of Veterans Affairs, or designee, approved this document and authorized the undersigned to sign and submit the document to the Office of the Federal Register for publication electronically as an official document of the Department of Veterans Affairs. Brooks D. Tucker, Assistant Secretary for Congressional and Legislative Affairs, Performing the Delegable Duties of the Chief of Staff, Department of Veterans Affairs, approved this document on December 31, 2020, for publication.
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(a) if any provision of this proclamation, or the application of any provision to any person or circumstance, is held to be invalid, the remainder of this proclamation and the application of its provisions to any other persons or circumstances shall not be affected thereby; and
(b) if any provision of this proclamation, or the application of any provision to any person or circumstance, is held to be invalid because of the lack of certain procedural requirements, the relevant executive branch officials shall implement those procedural requirements to conform with existing law and with any applicable court orders.
(b) This proclamation shall be implemented consistent with applicable law and subject to the availability of appropriations.
(c) This proclamation is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.
(a) The General Schedule (5 U.S.C. 5332(a)) at Schedule 1;
(b) The Foreign Service Schedule (22 U.S.C. 3963) at Schedule 2; and
(c) The schedules for the Veterans Health Administration of the Department of Veterans Affairs (38 U.S.C. 7306, 7404; section 301(a) of Public Law 102–40) at Schedule 3.
(a) The Executive Schedule (5 U.S.C. 5312–5318) at Schedule 5;
(b) The Vice President (3 U.S.C. 104) and the Congress (2 U.S.C. 4501) at Schedule 6; and
(c) Justices and judges (28 U.S.C. 5, 44(d), 135, 252, and 461(a)) at Schedule 7.
(a) Pursuant to section 5304 of title 5, United States Code, and my authority to implement an alternative level of comparability payments under section 5304a of title 5, United States Code, locality-based comparability payments shall be paid in accordance with Schedule 9 attached hereto and made a part hereof.
(b) The Director of the Office of Personnel Management shall take such actions as may be necessary to implement these payments and to publish appropriate notice of such payments in the
(2) The permittee shall hold harmless and indemnify the United States from any claimed or adjudged liability arising out of construction, connection, operation, or maintenance of the Border facilities, including environmental contamination from the release, threatened release, or discharge of hazardous substances or hazardous waste.
(3) To ensure the safe operation of the Border facilities, the permittee shall maintain them and every part of them in a condition of good repair and in compliance with applicable law.
Office of the Comptroller of the Currency, Treasury (OCC); the Board of Governors of the Federal Reserve System (Board); and the Federal Deposit Insurance Corporation (FDIC).
Final rule.
The OCC, Board, and FDIC (collectively, the agencies) are adopting a final rule that applies to advanced approaches banking organizations with the aim of reducing both interconnectedness within the financial system and systemic risks. The final rule requires deduction from a banking organization's regulatory capital for certain investments in unsecured debt instruments issued by foreign or U.S. global systemically important banking organizations (GSIBs) for the purposes of meeting minimum total loss-absorbing capacity (TLAC) requirements and, where applicable, long-term debt requirements, or for investments in unsecured debt instruments issued by GSIBs that are
The final rule is effective on April 1, 2021.
The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), and Federal Deposit Insurance Corporation (FDIC) (together, the agencies) are issuing a final rule to revise the regulatory capital rule in a manner substantially consistent with a proposed rule issued in April 2019 (proposal).
The agencies' regulatory capital rule (capital rule) imposes minimum capital requirements on banking organizations measured through risk-based and leverage capital ratios.
The capital rule includes two broad categories of deductions from regulatory capital related to investments in the capital instruments of financial institutions by advanced approaches banking organizations.
For deductions related to investments in the capital of unconsolidated financial institutions, a banking organization must deduct from the component of regulatory capital for which the instrument qualifies or would qualify if it were issued by the banking organization that is holding the exposure.
In December 2016, the Board issued a final rule to require the largest domestic and foreign banking organizations operating in the United States to maintain a minimum amount of total loss-absorbing capacity (TLAC), consisting of tier 1 capital (excluding minority interest) and certain long-term debt instruments (TLAC rule).
The objective of the TLAC rule is to enhance financial stability by reducing the impact of the failure of covered banking organizations by requiring such organizations to have sufficient loss-absorbing capacity on both a going-concern and a gone-concern basis. The TLAC rule includes requirements that a covered banking organization maintain outstanding minimum levels of TLAC and long-term debt.
Long-term debt instruments under the TLAC rule are capable of absorbing losses in resolution (
Given the ability of long-term debt to absorb the losses of a covered banking organization in a resolution, receivership, insolvency, or similar proceeding, the Board proposed regulatory capital deductions for investments by Board-regulated banking organizations in long-term debt issued under the TLAC rule when it initially proposed the TLAC rule in 2015.
In April 2019, the agencies issued a proposal to address, for purposes of the capital rule, the systemic risks posed by an advanced approaches banking organization's investments in covered debt instruments and to create an incentive for advanced approaches banking organizations to limit their exposure to GSIBs. The deductions required under the proposal would have affected the capital ratios of advanced approaches banking organizations. Without the proposed changes, investments in covered debt instruments issued by covered BHCs, foreign GSIBs, and covered IHCs are generally not subject to deduction and would generally be subject to a risk weight of 100 percent.
An investment in a covered debt instrument, as defined in the proposal, by an advanced approaches banking organization would have been treated as an investment in a tier 2 capital instrument for purposes of the existing deduction framework. As a result, an investment in a covered debt instrument would have been subject to deduction from the advanced approaches banking organization's own tier 2 capital.
The existing corresponding deduction approach in the capital rule would have been amended to apply any required deduction by advanced approaches banking organizations of an investment in a covered debt instrument that exceeded certain thresholds, consistent with the deduction framework for investments in the capital of unconsolidated financial institutions. In addition, the existing deduction approaches under the capital rule would have been amended to apply to an advanced approaches banking organization's reciprocal cross holdings of covered debt instruments; that is, an advanced approaches banking organization would have deducted from its own tier 2 capital any reciprocal cross holdings of covered debt instruments with another banking organization. The existing deduction approaches under the capital rule would have also been amended to apply to a covered BHC's investments in its own covered debt instruments. Similarly, the existing deduction approaches under the capital rule would have also been amended to apply to a covered IHC subject to the advanced approaches (advanced approaches covered IHC) and its investments in its own covered debt instruments.
The proposal also included certain exclusions from deduction. Importantly, the proposal would have allowed advanced approaches banking organizations to exclude from deduction investments in covered debt instruments, subject to certain qualifying and measurement criteria, that are five percent or less of the sum of advanced approaches banking organization's common equity tier 1 capital elements minus all deductions from and adjustments to common equity tier 1 capital elements required under section __.22(a) through __.22(c)(3), net of associated DTLs (five percent exclusion). As discussed in the preamble to the proposal, the agencies designed the exclusion from deduction to support deep and liquid markets for covered debt instruments issued by GSIBs. In the case of a U.S. GSIB, it would have applied the proposed exclusion only to “excluded covered debt instruments,” which were defined in the proposal as covered debt instruments held for 30 business days or less and held for the purpose of short-term resale or with the intent of benefiting from actual or expected short-term price movements, or to lock in arbitrage profits. This provision was intended to limit the five percent exclusion for U.S. GSIBs to covered debt instruments held in connection with market making activities. Advanced approaches banking organizations that are not U.S. GSIBs would not have been subject to this limit on the use of the five percent exclusion. Under the proposal's five percent exclusion, all advanced approaches banking organizations could exclude covered debt instruments measured on a gross long basis from the deduction framework up to a cap of five percent of the banking organization's common equity tier 1 capital.
The proposal would have revised section __.22(c), (f), and (h) of the capital rule to incorporate the proposed deduction approach for investments in covered debt instruments, and added several new definitions to section __.2 to effectuate these deductions. Further, the definition of “investment in the capital of an unconsolidated financial institution” would have been amended to correct a typographical error.
Collectively, the agencies received ten public comment letters from trade associations, public interest groups, private individuals, and other interested parties. As further detailed below, commenters generally supported the overarching goal of the proposal to reduce interconnectedness by creating an incentive for advanced approaches banking organizations to limit their exposure to GSIBs. However, commenters also expressed certain general concerns with the proposal and noted specific concerns with certain technical aspects of it.
The agencies are jointly finalizing a regulatory capital treatment for investments in covered debt instruments that applies to advanced approaches banking organizations. The final rule is substantially consistent with the proposal, with certain modifications in response to comments as well as some technical clarifications.
The final rule applies to advanced approaches banking organizations and generally requires deductions from capital for direct, indirect, and synthetic exposures to covered debt instruments and any other unsecured debt instruments
• Investments in a covered BHC's or advanced approaches covered IHC's own covered debt instruments, as applicable;
• Reciprocal cross holdings with another financial institution of covered debt instruments;
• Investments in covered debt instruments of a financial institution while also holding 10 percent or more of the financial institution's common stock; and
• Investments in covered debt instruments that, together with investments in the capital of unconsolidated financial institutions, exceed 10 percent of the investing advanced approaches banking organization's common equity tier 1 capital.
• Under the final rule, an advanced approaches banking organization may exclude from deduction investments in certain covered debt instruments up to five percent of its common equity tier 1 capital, as measured on a gross long basis.
For U.S. GSIBs, only “excluded covered debt instruments” are eligible for the five percent exclusion in the final rule. Generally, “excluded covered debt instruments” in the final rule are investments in covered debt instruments that are held in accordance with market making activities, as identified using criteria from the regulations implementing section 13 of the Bank Holding Company Act (commonly known as the Volcker Rule) as discussed in more detail in section V.E. below. A U.S. GSIB's direct or indirect exposure to a covered debt instrument is an excluded covered debt instrument if the exposure is held for 30 or fewer business days and held in connection with market making-related activities. A U.S. GSIB's holding of a synthetic exposure to a covered debt instrument is not limited to 30 business days in order to qualify as an excluded covered debt instrument.
For advanced approaches banking organizations that are not U.S. GSIBs, any direct, indirect, or synthetic exposure to a covered debt instrument issued by an unconsolidated financial institution that is a non-significant investment is eligible for the five percent exclusion in the final rule.
The final rule revises section __.22(c), (f), and (h) of the capital rule to incorporate the deduction approach for investments in covered debt instruments. As with the proposal, several new definitions are added to section __.2 in the final rule to effectuate these deductions. More information on these specific revisions to the capital rule are provided below.
The proposal would have applied the deduction framework for covered debt instruments to advanced approaches banking organizations. Since the proposal was issued, the agencies issued the interagency tailoring final rule that included revisions to the scope of advanced approaches banking organizations.
After considering the comments, the agencies are continuing to limit the scope of this rule to advanced approaches banking organizations, as revised by the interagency tailoring final rule. As explained in the proposal, the systemic risks associated with banking organizations' investments in covered debt instruments is greatest for the banking organizations covered by the proposal. However, the agencies acknowledge the possibility of potential systemic risks associated with other banking organizations' investments in covered debt instruments and will continue to evaluate whether additional steps are warranted to address such risks.
Under the agencies' capital rule, a banking organization must deduct from regulatory capital any investments in its own capital instruments and in the capital of other financial institutions that it holds reciprocally. Other investments in the capital of unconsolidated financial institutions are subject to deduction to the extent they exceed certain thresholds.
Under the proposal, an investment in a covered debt instrument by an advanced approaches banking organization would have been treated as an investment in a tier 2 capital instrument for purposes of the deduction framework, and therefore, would have been subject to deduction from the advanced approaches banking organization's own tier 2 capital. The existing corresponding deduction approach in the capital rule would have been amended to apply to any deduction by advanced approaches banking organizations of an investment in a covered debt instrument that exceeded certain thresholds, as if the covered debt instrument were a tier 2 capital instrument. In addition, the existing deduction approaches under the capital rule would have been amended to apply to a covered BHC's or advanced approaches covered IHC's investments in its own covered debt instruments, and to advanced approaches banking organizations' reciprocal cross holdings of covered debt instruments with other financial institutions. Such investments and cross holdings would be deducted from an advanced approaches banking organization's own tier 2 capital, as applicable.
Some commenters expressed concerns that deducting a covered debt instrument from an advanced approaches banking organization's own tier 2 capital is insufficiently restrictive. As an alternative, these commenters recommended that advanced approaches banking organizations deduct investments in covered debt instruments from their own common equity tier 1 capital. Some commenters suggested that the prohibition of all holdings of covered debt instruments by advanced approaches banking organizations would be more appropriate. Other commenters expressed concerns that deducting a covered debt instrument from an advanced approaches banking organization's own tier 2 capital is overly restrictive. These commenters asserted that a covered BHC or advanced approaches covered IHC should be able to effectuate deductions
Requiring deduction of a covered debt instrument from tier 2 capital should be a sufficiently prudent and simple approach that discourages advanced approaches banking organizations' investments in such instruments and thereby supports the objectives of reducing both interconnectedness within the financial system and systemic risks. Effectuating deductions from a covered BHC's or advanced approaches covered IHC's own TLAC-eligible debt, rather than own tier 2 capital, could disproportionately favor the largest and most internationally active banking organizations. A less complex banking organization, such as a non-GSIB advanced approaches banking organization, would make all deductions related to an investment in a covered debt instrument from its own tier 2 capital, since non-GSIBs are not required to issue TLAC-eligible debt. Further, allowing covered BHCs and advanced approaches covered IHCs to deduct from their own TLAC-eligible debt creates additional balance sheet capacity for these banking organizations to invest in covered debt instruments issued by other GSIBs relative to non-GSIB advanced approaches banking organizations, thereby undermining a goal of the final rule to reduce interconnectedness among large and internationally active banking organizations. The disproportionate effects of allowing deduction from own TLAC-eligible debt would be further exacerbated if the agencies were to expand the scope of the final rule in the future as described above.
As such, the agencies are finalizing, as proposed, the requirement that an advanced approaches banking organization treat an investment in a covered debt instrument as an investment in a tier 2 capital instrument, and therefore, deduct such investment from its own tier 2 capital.
The proposal would have added or amended certain definitions in section __.2 of the capital rule to implement the proposed deduction approach.
Under the proposal, a “covered debt instrument” would have been defined to include an unsecured debt instrument that is:
(1) Issued by a covered BHC and that is an “eligible debt security” for purposes of the TLAC rule,
(2) Issued by a covered IHC and that is an “eligible Covered IHC debt security” for purposes of the TLAC rule,
Under the proposal, a covered debt instrument would not have included a debt instrument that qualifies as tier 2 capital under the capital rule.
Some commenters requested that
Treating unsecured debt instruments that are
A “covered debt instrument” also would have included any unsecured debt instrument issued by a foreign GSIB or any of its subsidiaries, other than its covered IHC, for the purpose of absorbing losses or recapitalizing the issuer or any of its subsidiaries in connection with a resolution, receivership, insolvency, or similar proceeding of the issuer or any of its subsidiaries (foreign TLAC-eligible debt). Further, covered debt instruments would have also included any debt instrument that is
Commenters suggested that the scope of the definition of “covered debt instrument” should be revised to include only foreign TLAC-eligible debt as determined under applicable home-country standards.
Some commenters reiterated that it is not practical for banking organizations to determine whether a given instrument is
For the same reasons discussed above with respect to instruments issued by covered BHCs and covered IHCs, the final rule defines debt instruments that are
However, the agencies recognize the commenters' concerns and revise in two ways the definition of covered debt instruments issued by foreign GSIBs and their subsidiaries, other than covered IHCs. First, the final rule provides that an instrument is a covered debt instrument if it is “eligible for use to comply with an applicable law or regulation” requiring the issuance of a minimum amount of instruments to absorb losses or to recapitalize the issuer or any of its subsidiaries in connection with a resolution, receivership, insolvency, or similar proceeding. The proposal's definition would not have explicitly considered whether the instrument is eligible for use to comply with such a law or regulation.
Second, the final rule revises the definition of a covered debt instrument to exclude certain unsecured debt instruments from the scope of the definition. If the issuer may be subject to a special resolution regime, in its jurisdiction of incorporation or organization, that addresses the failure or potential failure of a financial company and foreign TLAC-eligible debt is eligible under that special resolution regime to be written down or converted into equity or any other capital instrument, then an instrument is
These revisions should reduce the burden associated with determining whether unsecured debt instruments are
These revisions also address concerns raised by commenters that the proposal could have interfered with ordinary interbank transactions. For example, if the special resolution regime applicable to a foreign GSIB provides that deposits are excluded from bail-in, those deposits are not covered debt instruments subject to the final rule's deduction framework.
Similar to the measurement of investments in the capital of unconsolidated financial institutions, an “investment in a covered debt instrument” would have been defined in the proposal as a net long position in a covered debt instrument, including direct, indirect, and synthetic exposures to such covered debt instruments. Investments in covered debt instruments would have excluded underwriting positions held for five business days or less. In addition, the proposal would have amended the definitions of “indirect exposure” and “synthetic exposure” in the capital rule to add exposures to covered debt instruments.
Under the agencies' capital rule, a banking organization must deduct from regulatory capital an investment in its own capital instruments and investments in the capital of other financial institutions that it holds reciprocally under sections __.22(c)(1) and (3), respectively. The proposal would have amended section 217.22(c)(1) to require a covered BHC or a covered IHC to deduct from tier 2 capital its investments in its own covered debt instruments. The proposal also would have amended section __.22(c)(3) to require advanced approaches banking organizations to deduct from tier 2 capital any investment in a covered debt instrument that is held reciprocally with another financial institution.
As described earlier, some commenters expressed concerns that deducting a covered debt instrument from an advanced approaches banking organization's own tier 2 capital is overly restrictive, including in cases of deductions for investments in its own covered debt instruments, as applicable,
Requiring a deduction of a covered debt instrument from tier 2 capital for deductions related to investments in an advanced approaches banking organization's own covered debt instruments and reciprocal cross holdings should be a sufficiently prudent and simple approach that discourages advanced approaches banking organizations' investments in such instruments, as applicable, and thereby supports the objectives of reducing both interconnectedness within the financial system and systemic risks. As mentioned earlier, effectuating deductions from a covered BHC's or a covered IHC's own TLAC-eligible debt, rather than its own tier 2 capital, could disproportionately favor the largest and most internationally active banking organizations. As such, the agencies are finalizing, as proposed, that an advanced approaches banking organization will generally deduct investments in own covered debt instruments, as applicable, and reciprocal cross holdings with other financial institutions in covered debt instruments from its own tier 2 capital.
Commenters asked that the final rule include a separate deduction threshold for market making activities in an advanced approaches banking organization's own covered debt instruments capped at five percent of a covered BHC's or advanced approaches covered IHC's own common equity tier 1 capital. Commenters stated that such a threshold is necessary to better facilitate deep and liquid markets for TLAC-eligible debt instruments. Further, commenters claimed that GSIBs are often the biggest market makers in their own covered debt instruments and, under the U.S. GAAP accounting standard, their own holdings of covered debt instruments are not always eliminated in full in consolidation. In cases where a GSIB's investments in its own covered debt instruments are not fully extinguished, the exposure amount can be greater than zero and therefore subject to deduction from tier 2 capital under the proposal.
Commenters stated that a separate five percent threshold for market making in an advanced approaches banking organization's own covered debt instruments in the final rule would prevent a capital deduction for such investments. However, finalizing the rule with a separate threshold for investments in an advanced approaches banking organization's own covered debt instruments could create additional balance sheet capacity for covered BHCs and advanced approaches covered IHCs to increase their investments in covered debt instruments issued by other GSIBs. Such an approach would not align with the proposal's goal of reducing interconnectedness and systemic risks among large and internationally active banking organizations. Therefore, the final rule does not implement this suggested change.
Under sections __.22(c)(5) and (6) of the capital rule, an advanced approaches banking organization must deduct from regulatory capital certain investments in the capital of unconsolidated financial institutions. The calculation of the deduction depends on whether the banking organization has a “significant” or a “non-significant” investment, with “significant” defined as ownership of more than 10 percent of the common stock of the unconsolidated financial institution and “non-significant” defined as ownership of 10 percent or less of the common stock of the unconsolidated financial institution.
The proposal would have amended the capital rule to require an advanced approaches banking organization with an investment in a covered debt instrument issued by an unconsolidated financial institution to deduct the investment from tier 2 capital if the advanced approaches banking organization has a significant investment in the capital of the unconsolidated financial institution. The agencies received no comments on deductions for significant investments in the capital of an unconsolidated financial institution and are finalizing this aspect of the rule as proposed.
The proposal would have amended the capital rule to require an advanced approaches banking organization with an investment in a covered debt instrument in a financial institution in which the advanced approaches banking organization does not also have a significant investment in the form of common stock to include such investment in the covered debt instrument in the aggregate amount of non-significant investments in the capital of unconsolidated financial institutions. As under the existing capital rule, the proposal would have required an advanced approaches banking organization to deduct from regulatory capital the amount by which the aggregate amount of non-significant investments in the capital of unconsolidated financial institutions and such covered debt instruments exceeds the 10 percent threshold for non-significant investments. Any investment in a covered debt instrument subject to deduction would have been deducted according to the corresponding deduction approach described below in section V.F. Any investment in a covered debt instrument not subject to deduction would have been included in risk-weighted assets, generally with a 100 percent risk weight.
Some commenters suggested that the agencies recalibrate the 10 percent threshold for non-significant investments in consideration of the expanded scope of instruments that would be included within that threshold under the proposal. For
The proposal would have included limited exclusions from the 10 percent threshold for non-significant investments' deduction approach. The exclusions would have depended on whether an advanced approaches banking organization is a U.S. GSIB or a subsidiary of a U.S. GSIB (U.S. GSIB banking organization). To help support a deep and liquid market for covered debt instruments, the proposal would have permitted U.S. GSIB banking organizations to exclude limited amounts of market making exposures (“excluded covered debt instruments”) from the 10 percent threshold for non-significant investments deduction. For example, a U.S. GSIB could have excluded covered debt instruments from the aggregate amount of non-significant investments in the capital of unconsolidated financial institutions. The aggregate amount of the exclusion, measured on a gross long basis, was limited to five percent of the GSIB's own common equity tier 1 capital (market making exclusion). If the aggregate amount of excluded covered debt instruments were more than five percent of the common equity tier 1 capital, then the excess over five percent would have been subject to deduction from tier 2 capital on a gross long basis. In addition, if an excluded covered debt instrument were held for more than 30 business days or ceased to be held in connection with market making activities, then the excluded covered debt instrument would have been subject to deduction from tier 2 capital on a gross long basis. Finally, in order to dissuade regulatory arbitrage, the proposal would not have allowed U.S. GSIB banking organizations to subsequently move “excluded covered debt instruments” from the market making exclusion to the 10 percent threshold for non-significant investments.
Commenters stressed the importance of derivatives to market making activities in securities, particularly covered debt instruments issued by GSIBs. In market making transactions, U.S. GSIBs will often act as financial intermediaries between clients, transferring risks related to covered debt instruments. This risk transfer is often conducted through offsetting derivative transactions or directly buying and selling covered debt instruments. Commenters stated that this market making activity supports deep and liquid markets for covered debt instruments by allowing investors to reduce (or gain) exposure to covered debt instruments without actually selling (or buying) the securities. Derivatives are essential to such activities because they allow market makers to establish and hedge these exposures.
As such, these commenters asserted that the agencies should eliminate the proposed 30-business-day requirement because it would make the proposed market making exclusion unavailable for many market making activities that support the depth and liquidity of the markets for TLAC-eligible debt, in particular synthetic exposures from derivatives used in market making activities. These commenters noted that bona fide market making activities, including derivative- and hedging-related activities, often involve holding exposures for longer than 30 business days. Commenters further indicated that the 30-business-day requirement would also create incentives for U.S. GSIB banking organizations to arbitrage the final rule by exiting and reestablishing hedge positions to avoid a mandatory deduction from tier 2 capital if the position is held for more than 30 business days. Commenters indicated that re-establishing hedge positions would result in costs to banking organizations and clients without reducing the risks associated with the transactions. Additionally, these commenters indicated that the vast majority of market making activity in covered debt instruments is in the form of derivative exposures. Therefore, retaining the 30-business-day requirement would arguably make the five percent exclusion inoperable for most market making activities in covered debt instruments. As an alternative to the proposed market making standard and the proposed 30-business-day requirement, commenters suggested the agencies use the regulatory framework implementing the Volcker Rule to identify which positions in covered debt instruments are held for market making purposes and eliminate the 30-business-day requirement. These commenters stated that this approach would promote effectiveness, simplicity, and efficiency in the regulation.
After considering commenters' suggestions to eliminate the proposed 30-business-day requirement for market making in covered debt instruments, the agencies have revised the proposal by removing the 30-business-day requirement for market making in the form of “synthetic exposures” as defined in the agencies' capital rule.
Therefore, the final rule retains the 30-business-day requirement for “direct” and “indirect” investments in excluded covered debt instruments, but not for “synthetic” investments in excluded covered debt instruments. This change from the proposal should balance the goals of limiting interconnectedness among the largest and most internationally active banking organizations and promoting the liquidity of TLAC-eligible debt instruments. Additionally, the agencies clarify that there is no requirement under the final rule to assign investments in covered debt instruments held in connection with market making as “excluded covered debt instruments.” To the extent a U.S. GSIB banking organization has available capacity, all investments in covered debt instruments could be held on a net long basis as non-significant investments in the capital of an unconsolidated financial institution subject to the 10 percent threshold for non-significant investments.
After consideration of comments, the agencies also have revised the rule to use the Volcker Rule exemption for market making activities to identify covered debt instruments held for market making for purposes of qualifying for the final rule's market making exclusion. Relative to the proposal, this change should decrease compliance burden by allowing banking organizations to use a single methodology for identifying market making activities, rather than two similar, but non-identical regulatory standards.
This approach would capture essentially the same set of exposures as the proposal's standard. However, the final rule's definition of “excluded covered debt instrument” differs from the proposal by referring to the relevant provisions of each agency's rule implementing the market making exemption in the Volcker Rule.
The proposal also included a simpler deduction approach for advanced approaches banking organizations that are not U.S. GSIB banking organizations given that these banking organizations pose less systemic risks than U.S. GSIBs. Unlike a U.S. GSIB, these banking organizations can include any non-significant investments in covered debt instruments of unconsolidated financial institutions in the five percent exclusion (
As noted above, an advanced approaches banking organization could exclude certain investments in covered debt instruments, as applicable, from the 10 percent threshold for non-significant investments calculation and potential deduction under section __.22(c)(4) if the aggregate amount of covered debt instruments, measured by gross long position, were five percent or less of its common equity tier 1 capital. To achieve consistency with the
The agencies intend to monitor advanced approaches banking organizations' holdings of covered debt instruments in the form of synthetic exposures to ensure that the capital held for these positions is commensurate with risk and that such holdings do not raise safety and soundness concerns. Further, to better understand advanced approaches banking organizations' risk from exposures to the capital of unconsolidated financial institutions, the agencies may issue an information collection proposal to collect quarterly data on advanced approaches banking organizations' non-significant investments in the capital of unconsolidated financial institutions and excluded covered debt instruments, as applicable.
Some commenters disagreed with the proposal's design of the exclusions for covered debt instruments, which measures positions on a gross long basis. These commenters suggested that the measurement of the exclusions for covered debt instruments be based on the “net long position,” in accordance with the agencies' capital rule, which allows gross long positions to be offset against qualifying short positions.
The final rule maintains measurement of the exclusions for covered debt instruments based on the gross long position. Moving to a “net long position” measurement could undermine the agencies' goal of reducing interconnectedness among large and internationally active banking organizations as it would allow such banking organizations to accumulate exposure to covered debt instruments significantly beyond the threshold envisioned in the proposal. Further, advanced approaches banking
Under the corresponding deduction approach, a banking organization must apply any required deduction to the component of capital for which the underlying instrument would qualify if it were issued by the banking organization.
As stated earlier, requiring a deduction of a covered debt instrument from tier 2 capital should serve as a sufficiently prudent and simple approach that dis-incentivizes advanced approaches banking organizations' investments in such instruments and thereby supports the objectives of reducing both interconnectedness within the financial system and systemic risks. Accordingly, the agencies are finalizing the proposal's amendments to the corresponding deduction approach in section __.22(c)(2) of the capital rule
The proposal would have followed the same general approach as currently provided under the agencies' capital rule regarding the calculation of the amount of any deduction and the treatment of guarantees and indirect investments for purposes of the deductions. Under the capital rule, the amount of a banking organization's investment in its own capital instrument or in the capital of an unconsolidated financial institution subject to deduction is the banking organization's net long position in the capital instrument as calculated under section __.22(h) of the capital rule. Under section __.22(h), a banking organization may net certain qualifying short positions in a capital instrument against a gross long position in the same instrument to determine the net long position.
The proposal would have modified section __.22(h) of the capital rule such that an advanced approaches banking organization would determine its net long position in an exposure to its own covered debt instrument, as applicable, or in a covered debt instrument issued by an unconsolidated financial institution in the same manner as currently provided for investments in an institution's own capital instruments or investments in the capital of an unconsolidated financial institution, respectively. Consistent with the capital rule, the calculation of a net long position under the proposal would have taken into account direct investments in covered debt instruments as well as indirect exposures to covered debt instruments held through investment funds.
A banking organization has three options under the capital rule to measure its gross long position in a capital instrument held indirectly through an investment fund.
The agencies' capital rule sets qualifying criteria for recognizing short positions that can be netted against gross long positions; specifically, a short position must be in the “same instrument” as the gross long position and must meet minimum maturity requirements, among other requirements.
The agencies have consistently maintained that recognition of short positions under the net long position calculation are required to be in the “same instrument” as a matter of prudent risk management and hedging practices. To recognize short positions in other than the “same instrument” would potentially undermine the effectiveness of risk mitigating hedges. Accordingly, the final rule adopts the calculation of the net long position as proposed.
Under the proposal, for purposes of any deduction required for an advanced approaches banking organization's investment in the capital of an unconsolidated financial institution, the amount of a covered debt instrument would have included any contractual obligations the advanced approaches banking organization has to purchase such covered debt instruments. The
The agencies proposed amending the definition of “investment in the capital of an unconsolidated financial institution” in section __.2 of the capital rule to correct a drafting error in that definition. The agencies did not receive any comment with regard to the proposed technical amendment. However, in the period between the issuance of the proposal and this final rule, this technical amendment was implemented by the agencies' final rule to simplify the capital rule.
A few commenters suggested that the proposal should go further in limiting the exposure of advanced approaches banking organizations to GSIBs, given their size and the risk their failure could pose to the financial system. These commenters argued that the final rule should ensure that the cost of TLAC debt better reflect heightened risks of GSIBs and that the agencies should require U.S. GSIBs to hold more common equity tier 1 capital. Other commenters suggested that the agencies consider existing elements of the regulatory framework—such as the single counterparty credit limit and the GSIB surcharge—when finalizing the deduction framework.
Under the capital rule, each agency has the authority to require a banking organization to hold additional capital based on the banking organization's risk profile.
The proposal did not contemplate providing a transition period for implementation of the final rule by advanced approaches banking organizations. Some commenters requested that the agencies provide banking organizations with a transition period to ease compliance burden. Specifically, commenters requested that the agencies provide 18 months before banking organizations must effectuate the deduction treatment. These commenters asserted that a transition period would give banking organizations more time to build out systems to track which instruments are covered debt instruments and therefore subject to the deduction framework. A commenter requested that the agencies not require deduction of any unsecured debt instrument issued by a GSIB until the information necessary to determine whether the instrument is a covered debt instrument is available.
The agencies maintain the supervisory expectation that large and internationally active banking organizations should be deeply knowledgeable of the securities exposures on their own balance sheets, if only for the purposes of prudent risk management. The final rule will become effective on April 1, 2021. The agencies believe this effective date provides sufficient time for advanced approaches banking organizations to evaluate investments in covered debt instruments and apply the final rule's deduction treatment.
In addition to the above, the agencies are making certain technical amendments to section __.10 of the capital rule to more clearly differentiate between requirements applicable to advanced approaches banking organizations and those applicable to Category III banking organizations. In section __.10 of the capital rule, as amended by the recent interagency tailoring rule,
In 2018, the Board issued a notice of proposed rulemaking that, among other items, included minor proposed amendments to the Board's TLAC rule.
The Board received minimal comments on these proposed revisions to the TLAC rule within the comments received on its proposal overall and the comments received were supportive of the specific proposed revisions. As a result, the Board is issuing these revisions in the final rule without change from the proposal.
In the April 2019 rulemaking, the Board proposed to modify the instructions to the Consolidated Financial Statements for Holding Companies (FR Y–9C), Schedule HC–R, Part I and Part II, to effectuate the deductions from regulatory capital for Board-regulated advanced approaches banking organizations related to investments in covered debt instruments and excluded covered debt instruments as described in the proposal.
Specifically, the Board would have modified the instructions of the FR Y–9C for Schedule HC–R, Part I, item 33, “Tier 2 capital deductions.” On the FR Y–9C, a covered BHC would have been required to deduct from tier 2 capital
In addition, for purposes of the deduction requirements related to non-significant investments in the capital of unconsolidated financial institutions, Board-regulated advanced approaches banking organizations that are not covered BHCs would have been required to deduct from tier 2 capital those investments in covered debt instruments that exceed five percent of common equity tier 1 capital, and that also, when combined with the banking organization's other non-significant investments in unconsolidated financial institutions, exceed 10 percent of the common equity tier 1 capital of the banking organization. The Board also would have modified the instructions for calculating other deduction-related and risk-weighted asset line items to incorporate investments in covered debt instruments and excluded covered debt instruments, as applicable, by Board-regulated advanced approaches banking organizations.
In October 2019, the Federal Financial Institutions Examination Council (FFIEC) separately proposed to modify the Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices (FFIEC 031), Consolidated Reports of Condition and Income for a Bank with Domestic Offices Only (FFEIC 041) (collectively with the FFIEC 031, the Call Report),
In March 2020, the Board separately proposed conforming changes to the FR Y–14 to effectuate the proposed deduction framework for investments in covered debt instruments.
With respect to the FR Y–9C proposed changes, one commenter requested clarification on the sequencing of reporting changes related to effectuating deductions for covered debt instruments and the effective date of the final rule. Specifically, this commenter requested that the effective date of the final rule should precede any requirement to begin effectuating deductions related to investments in covered debt instruments on regulatory reports. The agencies confirm that the effective date of the final rule will precede any reporting requirements related to implementing the deduction framework for covered debt instruments. The Board received no comments on the FR Y–14 proposed changes.
As described above, reporting changes to effectuate the deduction framework for investments in covered debt instruments described in the proposal were proposed separately for the (1) FR Y–9C, (2) FFIEC 101 and Call Report, and (3) FR Y–14. The Board is finalizing as proposed, changes to the FR Y–9C and FR Y–14, to effectuate the deduction framework for investments in covered debt instruments in this
In the April 2019 rulemaking, the Board also proposed to modify Schedule HC–R, Part I of the FR Y–9C by adding new data items that would publicly disclose: (1) The long-term debt and TLAC for covered BHCs and covered IHCs; (2) these banking organizations' long-term debt and TLAC ratios to ensure compliance with the TLAC rule; (3) TLAC buffers; and (4) amendments to the instructions for the calculation of eligible retained income (item 47), institution-specific capital buffer (items 46.a and 46.b), and distributions and discretionary bonus payments (item 48) for covered BHCs and covered IHCs.
In March 2020, the Board separately proposed conforming changes to the FR Y–14 to disclose new items related to long-term debt and TLAC, as described above.
In response to the proposal, commenters requested that the Board clarify how U.S. GSIBs are to calculate the TLAC rule's leverage ratios on the FR Y–9C report. More specifically, commenters suggested the Board clarify that U.S. GSIBs should not be required to report long-term debt and TLAC leverage ratios based on total assets because U.S. GSIBs' applicable long-term debt and TLAC leverage requirement is based on the denominator for the supplementary leverage ratio. Commenters noted that only covered IHCs are required to report the long-term debt and TLAC leverage ratios based on total assets. The Board confirms that reporting of the long-term debt and TLAC leverage requirement for U.S. GSIBs will only be based upon the supplementary leverage ratio denominator, consistent with the TLAC rule's leverage requirement. The Board received no comments on the FR Y–14 proposed changes.
The Board is finalizing the proposed changes to the FR Y–9C and FR Y–14 to require covered BHCs and covered IHCs to report their long-term debt and TLAC resources, with modifications in response to comment as described above, in this
Some commenters suggested the Board develop a more robust disclosure regime related to TLAC so that the level of risk is appropriately priced into these instruments. They stated that disclosures will incentivize GSIBs to meet their TLAC requirements with equity rather than debt instruments. Commenters offered suggestions for improving disclosures by noting that the agencies should collaborate with the Securities and Exchange Commission to require plain-language warnings regarding risk of bail-in to investors (1) when purchasing a TLAC instrument in their brokerage account and (2) in offering materials published by pension and mutual funds that invest in TLAC instruments. The Board does not have the authority to change disclosures required by the Securities and Exchange Commission related to securities issuances or sales to retail investors. The interagency statement on retail sales of nondeposit investments
Certain provisions of the final rule contain “collection of information” within the meaning of the Paperwork Reduction Act of 1995 (PRA).
The final rule revises section __.22(c), (f), and (h) of the capital rule to incorporate the proposed deduction approach for investments in covered debt instruments. Several new definitions are added to section __.2 to effectuate these deductions.
Each agency has an information collection related to its regulatory capital rules. The OMB control number for the OCC is 1557–0318, Board is 7100–0313, and FDIC is 3064–0153. The final rule will not, however, result in changes to burden under these information collections and therefore no submissions will be made under section 3507(d) of the PRA (44 U.S.C. 3507(d)) and section 1320.11 of the OMB's implementing regulations (5 CFR 1320) for each of the agencies' regulatory capital rules.
In addition, the final rule requires changes to the Call Reports (OMB No. 1557–0081 (OCC), 7100–0036 (Board), and 3064–0052 (FDIC)), and the FFIEC 101 (OMB No. 1557–0239 (OCC), 7100–0319 (Board), and 3064–0159 (FDIC)), which will be addressed in one or more separate
The final rule requires changes to the Consolidated Financial Statements for Holding Companies (FR Y–9C; OMB No. 7100–0128) and the Capital Assessments and Stress Testing Reports (FR Y–14A/Q/M; OMB No. 7100–0341). The Board reviewed the final rule under the authority delegated to the Board by OMB.
FR Y–9C (non AA HCs CBLR) with less than $5 billion in total assets—29.17, FR Y–9C (non AA HCs CBLR) with $5 billion or more in total assets—35.14, FR Y–9C (non AA HCs non-CBLR) with less than $5 billion in total assets—41.01, FR Y–9C (non AA HCs non-CBLR) with $5 billion or more in total assets—46.98, FR Y–9C (AA HCs)—49.30, FR Y–9LP—5.27, FR Y–9SP—5.40, FR Y–9ES—0.50, FR Y–9CS—0.50.
FR Y–9C (non-advanced approaches HCs with less than $5 billion in total assets), FR Y–9C (non-advanced approaches HCs with $5 billion or more in total assets), FR Y–9C (advanced approaches HCs), and FR Y–9LP: 1.00 hour; FR Y–9SP, FR Y–9ES, and FR Y–9CS: 0.50 hours.
FR Y–9C (non AA HCs CBLR) with less than $5 billion in total assets—8,284, FR Y–9C (non AA HCs CBLR) with $5 billion or more in total assets—4,920, FR Y–9C (non AA HCs non-CBLR) with less than $5 billion in total assets—13,779, FR Y–9C (non AA HCs non-CBLR) with $5 billion or more in total assets—28,940, FR Y–9C (AA HCs)—3,747, FR Y–9LP—9,149, FR Y–9SP—42,768, FR Y–9ES—42, FR Y–9CS—472.
FR Y–9C—1,452, FR Y–9LP—1,736, FR Y–9SP—3,960, FR Y–9ES—42, FR Y–9CS—472.
With respect to the FR Y–9C report, Schedule HI's Memoranda item 7(g) “FDIC deposit insurance assessments,” Schedule HC–P's item 7(a) “Representation and warranty reserves for 1–4 family residential mortgage loans sold to U.S. government agencies and government sponsored agencies,” and Schedule HC–P's item 7(b) “Representation and warranty reserves for 1–4 family residential mortgage loans sold to other parties” are considered confidential commercial and
In addition, for both the FR Y–9C report and the FR Y–9SP report, Schedule HC's Memoranda item 2.b., the name and email address of the external auditing firm's engagement partner, is considered confidential commercial information and protected by exemption 4 of the FOIA, if the identity of the engagement partner is treated as private information by HCs. The Board has assured respondents that this information will be treated as confidential since the collection of this data item was proposed in 2004.
Additionally, items on the FR Y–9C, Schedule HC–C for loans modified under Section 4013, data items Memorandum items 16.a, “Number of Section 4013 loans outstanding”; and Memorandum items 16.b, “Outstanding balance of Section 4013 loans” are considered confidential. While the Board generally makes institution-level FR Y–9C report data publicly available, the Board is collecting Section 4013 loan information as part of condition reports for the impacted HCs and the Board considers disclosure of these items at the HC level would not be in the public interest. Such information is permitted to be collected on a confidential basis, consistent with 5 U.S.C. 552(b)(8). In addition, holding companies may be reluctant to offer modifications under Section 4013 if information on these modifications made by each holding company is publicly available, as analysts, investors, and other users of public FR Y–9C report information may penalize an institution for using the relief provided by the CARES Act. The Board may disclose Section 4013 loan data on an aggregated basis, consistent with confidentiality or as otherwise required by law.
Aside from the data items described above, the remaining data items collected on the FR Y–9C report and the FR Y–9SP report are generally not accorded confidential treatment. The data items collected on FR Y–9LP, FR Y–9ES, and FR Y–9CS reports, are also generally not accorded confidential treatment. As provided in the Board's Rules Regarding Availability of Information, however, a respondent may request confidential treatment for any data items the respondent believes should be withheld pursuant to a FOIA exemption. The Board will review any such request to determine if confidential treatment is appropriate, and will inform the respondent if the request for confidential treatment has been granted or denied.
To the extent the instructions to the FR Y–9C, FR Y–9LP, FR Y–9SP, and FR Y–9ES reports each respectively direct the financial institution to retain the workpapers and related materials used in preparation of each report, such material would only be obtained by the Board as part of the examination or supervision of the financial institution. Accordingly, such information is considered confidential pursuant to exemption 8 of the FOIA. In addition, the workpapers and related materials may also be protected by exemption 4 of the FOIA, to the extent such financial information is treated as confidential by the respondent.
To implement the reporting requirements of the final rule, the Board revises the FR Y–9C, Schedule HC–R, Part I, Regulatory Capital Components and Ratios, to amend instructions for line items 11, 17, 24, and 43 to effectuate the deductions from regulatory capital for advanced approaches holding companies related to investments in covered debt instruments and excluded covered debt instruments as described above. Further, the Board proposes to revise the FR Y–9C, Schedule HC–R, Part II, Risk-Weighted Assets, to amend instructions for line items 2(a), 2(b), 7, and 8 to incorporate investments in covered debt instruments and excluded debt instruments, as applicable, by advanced approaches holding companies in their calculation of risk-weighted assets.
In addition, the Board revises the FR Y–9C, Schedule HC–R, Part I, Regulatory Capital Components and Ratios, to create new line items and instructions to allow the BHCs of U.S. GSIBs and the IHCs of foreign GSIBs to publicly report their long-term debt (LTD) and total loss-absorbing capacity (TLAC) in accordance, respectively, with 12 CFR part 252, subpart G and 12 CFR part 252, subpart P. Specifically, new line items are created to report, as applicable, BHCs of U.S GSIBs' and IHCs of foreign GSIBs' (1) outstanding eligible LTD (item 50); (2) TLAC (item 51); (3) LTD standardized risk-weighted asset ratio (item 52, column A); (4) TLAC standardized risk-weighted asset ratio (item 52, column B); (5) LTD advanced approaches risk-weighted asset ratio (item 53, column A); (6) TLAC advanced approaches risk-weighted asset ratio (item 53, column B); (7)
• The FR Y–14A collects quantitative projections of balance sheet, income, losses, and capital across a range of macroeconomic scenarios and qualitative information on methodologies used to develop internal projections of capital across scenarios.
• The quarterly FR Y–14Q collects granular data on various asset classes, including loans, securities, trading assets, and PPNR for the reporting period.
• The monthly FR Y–14M is comprised of three retail portfolio- and loan-level schedules, and one detailed address-matching schedule to supplement two of the portfolio and loan-level schedules.
The data collected through the FR Y–14A/Q/M reports provide the Board with the information needed to help ensure that large firms have strong, firm-wide risk measurement and management processes supporting their internal assessments of capital adequacy and that their capital resources are sufficient given their business focus, activities, and resulting risk exposures. The reports are used to support the Board's annual Comprehensive Capital Analysis and Review (CCAR) and Dodd Frank Act Stress Test (DFAST) exercises, which complement other Board supervisory efforts aimed at enhancing the continued viability of large firms, including continuous monitoring of firms' planning and management of liquidity and funding resources, as well as regular assessments of credit, market and operational risks, and associated risk management practices. Information gathered in this data collection is also used in the supervision and regulation of respondent financial institutions. Respondent firms are currently required to complete and submit up to 17 filings each year: One annual FR Y–14A filing, four quarterly FR Y–14Q filings, and 12 monthly FR Y–14M filings. Compliance with the information collection is mandatory.
In order to align Schedule A.1.d with the FR Y–9C, the Board has added the following items to Schedule A.1.d:
• “Outstanding eligible long-term debt”;
• “Total loss-absorbing capacity”;
• “LTD and TLAC total risk-weighted assets ratios”;
• “
• “LTD and TLAC supplementary leverage ratios”;
• “Institution-specific TLAC buffer necessary to avoid limitations on distributions discretionary bonus payments”;
• “TLAC risk-weighted buffer”; and
• “TLAC leverage buffer.”
The Board has revised the instructions for item 1 (“Aggregate amount of non-significant investments in the capital of unconsolidated financial institutions”) to require banking organizations subject to Category I and II standards to include covered debt instruments.
As of December 31, 2019, the OCC supervises 745 small entities.
As part of the OCC's analysis, we consider whether the final rule will have a significant economic impact on a substantial number of small entities, pursuant to the RFA Because the final rule only applies to advanced approaches banking organizations it will not impact any OCC-supervised small entities. Therefore, the final rule will not have a significant economic impact on a substantial number of small entities.
Therefore, the OCC certifies that the final rule will not have a significant economic impact on a substantial number of OCC-supervised small entities.
The Board has considered the potential impact of the final rule on small entities in accordance with the RFA. Based on its analysis and for the reasons stated below, the Board believes that this final rule will not have a significant economic impact on a substantial number of small entities.
As discussed in detail above, the final rule amends the capital rule to require advanced approaches banking organizations to deduct exposures to covered debt instruments issued by covered BHCs, covered IHCs, and foreign GSIBs and their subsidiaries. These deductions are subject to regulatory thresholds, as described above. Deductions related to investments in and exposures to covered debt instruments are effectuated by deduction from tier 2 capital according to the corresponding deduction approach, subject to applicable deduction thresholds. However, the assets of institutions subject to this final rule substantially exceed the $600 million asset threshold under which a banking organization is considered a “small entity” under SBA regulations.
The FDIC supervises 3,270 institutions,
This final rule will affect all institutions subject to the Category I and Category II capital standards, and their subsidiaries. The FDIC supervises one institution that is a subsidiary of an institution that is subject to the Category I capital standards, and no FDIC-supervised institutions are subsidiaries of institutions that are subject to the Category II capital standards.
Section 722 of the Gramm-Leach-Bliley Act
The OCC analyzed the proposed rule under the factors set forth in the Unfunded Mandates Reform Act of 1995 (UMRA).
Pursuant to section 302(a) of the Riegle Community Development and Regulatory Improvement Act (RCDRIA),
The Federal banking agencies considered the administrative burdens and benefits of the final rule and its elective framework in determining its effective date and administrative compliance requirements. As such, the final rule will be effective on April 1, 2021.
For purposes of Congressional Review Act, the OMB makes a determination as to whether a final rule constitutes a “major” rule.
The Congressional Review Act defines a “major rule” as any rule that the Administrator of the Office of Information and Regulatory Affairs of the OMB finds has resulted in or is likely to result in (A) an annual effect on the economy of $100,000,000 or more; (B) a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies or geographic regions, or (C) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and export markets.
Administrative practice and procedure, Capital, National banks, Risk.
Administrative practice and procedure, Banks, Banking, Capital, Federal Reserve System, Holding companies.
Administrative practice and procedure, Banks, banking, Credit, Federal Reserve System, Holding companies, Investments, Qualified financial contracts, Reporting and recordkeeping requirements, Securities.
Administrative practice and procedure, Banks, banking, Capital adequacy, Reporting and recordkeeping requirements, Savings associations, State non-member banks.
For the reasons set out in the joint preamble, the OCC amends 12 CFR part 3 as follows.
12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818, 1828(n), 1828 note, 1831n note, 1835, 3907, 3909, 5412(b)(2)(B), and Pub. L. 116–136, 134 Stat. 281.
The additions and revisions read as follows:
(1) Issued by a global systemically important BHC, as defined in 12 CFR 217.2, and that is an eligible debt security, as defined in 12 CFR 252.61, or that is
(2) Issued by a Covered IHC, as defined in 12 CFR 252.161, and that is an eligible Covered IHC debt security, as defined in 12 CFR 252.161, or that is
(3) Issued by a global systemically important banking organization, as defined in 12 CFR 252.2 other than a global systemically important BHC, as defined in 12 CFR 217.2; or issued by a subsidiary of a global systemically important banking organization that is not a global systemically important BHC, other than a Covered IHC, as defined in 12 CFR 252.161; and where
(i) The instrument is eligible for use to comply with an applicable law or regulation requiring the issuance of a minimum amount of instruments to absorb losses or recapitalize the issuer or any of its subsidiaries in connection with a resolution, receivership, insolvency, or similar proceeding of the issuer or any of its subsidiaries; or
(ii) The instrument is
(4) Provided that, for purposes of this definition,
(1) Is held in connection with market making-related activities permitted under 12 CFR 44.4, provided that a direct exposure or an indirect exposure to a covered debt instrument is held for 30 business days or less; and
(2) Has been designated as an excluded covered debt instrument by the national bank or Federal savings association that is a subsidiary of a global systemically important BHC, as defined in 12 CFR 252.2, pursuant to 12 CFR 3.22(c)(5)(iv)(A).
The revision and addition read as follows:
(c)
(i) The mean of the on-balance sheet assets calculated as of each day of the reporting quarter; and
(ii) The mean of the off-balance sheet exposures calculated as of the last day of each of the most recent three months, minus the applicable deductions under § 3.22(a), (c), and (d).
(2) For purposes of this part,
(i) The balance sheet carrying value of all of the national bank or Federal savings association's on-balance sheet assets,
(ii)(A) For a national bank or Federal savings association that uses the current exposure methodology under § 3.34(b) for its standardized risk-weighted assets, the potential future credit exposure (PFE) for each derivative contract or each single-product netting set of derivative contracts (including a cleared transaction except as provided in paragraph (c)(2)(ix) of this section and, at the discretion of the national bank or Federal savings association, excluding a forward agreement treated as a derivative contract that is part of a repurchase or reverse repurchase or a securities borrowing or lending transaction that qualifies for sales treatment under GAAP), to which the national bank or Federal savings association is a counterparty as determined under § 3.34, but without regard to § 3.34(c), provided that:
(
(
(B)(
(
(iii)(A)(
(
(
(B)(
(
(
(C) For derivative contracts that are not cleared through a QCCP, the cash collateral received by the recipient counterparty is not segregated (by law, regulation, or an agreement with the counterparty);
(D) Variation margin is calculated and transferred on a daily basis based on the mark-to-fair value of the derivative contract;
(E) The variation margin transferred under the derivative contract or the governing rules of the CCP or QCCP for a cleared transaction is the full amount that is necessary to fully extinguish the net current credit exposure to the counterparty of the derivative contracts, subject to the threshold and minimum transfer amounts applicable to the counterparty under the terms of the derivative contract or the governing rules for a cleared transaction;
(F) The variation margin is in the form of cash in the same currency as the currency of settlement set forth in the derivative contract, provided that for the purposes of this paragraph (c)(2)(iii)(F), currency of settlement means any currency for settlement specified in the governing qualifying master netting agreement and the credit support annex to the qualifying master netting agreement, or in the governing rules for a cleared transaction; and
(G) The derivative contract and the variation margin are governed by a qualifying master netting agreement between the legal entities that are the counterparties to the derivative contract or by the governing rules for a cleared transaction, and the qualifying master netting agreement or the governing rules for a cleared transaction must explicitly stipulate that the counterparties agree to settle any payment obligations on a net basis, taking into account any variation margin received or provided under the contract if a credit event involving either counterparty occurs;
(iv) The effective notional principal amount (that is, the apparent or stated notional principal amount multiplied by any multiplier in the derivative contract) of a credit derivative, or other similar instrument, through which the national bank or Federal savings association provides credit protection, provided that:
(A) The national bank or Federal savings association may reduce the effective notional principal amount of the credit derivative by the amount of any reduction in the mark-to-fair value of the credit derivative if the reduction is recognized in common equity tier 1 capital;
(B) The national bank or Federal savings association may reduce the effective notional principal amount of the credit derivative by the effective notional principal amount of a purchased credit derivative or other similar instrument, provided that the remaining maturity of the purchased credit derivative is equal to or greater than the remaining maturity of the credit derivative through which the national bank or Federal savings
(
(
(
(
(v) Where a national bank or Federal savings association acting as a principal has more than one repo-style transaction with the same counterparty and has offset the gross value of receivables due from a counterparty under reverse repurchase transactions by the gross value of payables under repurchase transactions due to the same counterparty, the gross value of receivables associated with the repo-style transactions
(A) The offsetting transactions have the same explicit final settlement date under their governing agreements;
(B) The right to offset the amount owed to the counterparty with the amount owed by the counterparty is legally enforceable in the normal course of business and in the event of receivership, insolvency, liquidation, or similar proceeding; and
(C) Under the governing agreements, the counterparties intend to settle net, settle simultaneously, or settle according to a process that is the functional equivalent of net settlement, (that is, the cash flows of the transactions are equivalent, in effect, to a single net amount on the settlement date), where both transactions are settled through the same settlement system, the settlement arrangements are supported by cash or intraday credit facilities intended to ensure that settlement of both transactions will occur by the end of the business day, and the settlement of the underlying securities does not interfere with the net cash settlement;
(vi) The counterparty credit risk of a repo-style transaction, including where the national bank or Federal savings association acts as an agent for a repo-style transaction and indemnifies the customer with respect to the performance of the customer's counterparty in an amount limited to the difference between the fair value of the security or cash its customer has lent and the fair value of the collateral the borrower has provided, calculated as follows:
(A) If the transaction is not subject to a qualifying master netting agreement, the counterparty credit risk (E*) for transactions with a counterparty must be calculated on a transaction by transaction basis, such that each transaction
(B) If the transaction is subject to a qualifying master netting agreement, the counterparty credit risk (E*) must be calculated as the greater of zero and the total fair value of the instruments, gold, or cash that the national bank or Federal savings association has lent, sold subject to repurchase or provided as collateral to a counterparty for all transactions included in the qualifying master netting agreement (ΣE
(vii) If a national bank or Federal savings association acting as an agent for a repo-style transaction provides a guarantee to a customer of the security or cash its customer has lent or borrowed with respect to the performance of the customer's counterparty and the guarantee is not limited to the difference between the fair value of the security or cash its customer has lent and the fair value of the collateral the borrower has provided, the amount of the guarantee that is greater than the difference between the fair value of the security or cash its customer has lent and the value of the collateral the borrower has provided;
(viii) The credit equivalent amount of all off-balance sheet exposures of the national bank or Federal savings association, excluding repo-style transactions, repurchase or reverse repurchase or securities borrowing or lending transactions that qualify for sales treatment under GAAP, and derivative transactions, determined using the applicable credit conversion factor under § 3.33(b), provided, however, that the minimum credit conversion factor that may be assigned to an off-balance sheet exposure under this paragraph is 10 percent; and
(ix) For a national bank or Federal savings association that is a clearing member:
(A) A clearing member national bank or Federal savings association that guarantees the performance of a clearing member client with respect to a cleared transaction must treat its exposure to the clearing member client as a derivative contract for purposes of determining its total leverage exposure;
(B) A clearing member national bank or Federal savings association that guarantees the performance of a CCP with respect to a transaction cleared on behalf of a clearing member client must treat its exposure to the CCP as a derivative contract for purposes of determining its total leverage exposure;
(C) A clearing member national bank or Federal savings association that does not guarantee the performance of a CCP with respect to a transaction cleared on behalf of a clearing member client may exclude its exposure to the CCP for purposes of determining its total leverage exposure;
(D) A national bank or Federal savings association that is a clearing member may exclude from its total leverage exposure the effective notional principal amount of credit protection sold through a credit derivative contract, or other similar instrument, that it clears on behalf of a clearing member client through a CCP as calculated in accordance with paragraph (c)(2)(iv) of this section; and
(E) Notwithstanding paragraphs (c)(2)(ix)(A) through (C) of this section, a national bank or Federal savings association may exclude from its total leverage exposure a clearing member's exposure to a clearing member client for a derivative contract, if the clearing member client and the clearing member are affiliates and consolidated for financial reporting purposes on the national bank's or Federal savings association's balance sheet.
(x) A custodial bank shall exclude from its total leverage exposure the lesser of:
(A) The amount of funds that the custody bank has on deposit at a qualifying central bank; and
(B) The amount of funds that the custody bank's clients have on deposit at the custody bank that are linked to fiduciary or custodial and safekeeping accounts. For purposes of this paragraph (c)(2)(x), a deposit account is linked to a fiduciary or custodial and safekeeping account if the deposit account is provided to a client that maintains a
(d)
(1)
(i) The ratio of the national bank's or Federal savings association's common equity tier 1 capital to standardized total risk-weighted assets; and
(ii) The ratio of the national bank's or Federal savings association's common equity tier 1 capital to advanced approaches total risk-weighted assets.
(2)
(i) The ratio of the national bank's or Federal savings association's tier 1 capital to standardized total risk-weighted assets; and
(ii) The ratio of the national bank's or Federal savings association's tier 1 capital to advanced approaches total risk-weighted assets.
(3)
(i) The ratio of the national bank's or Federal savings association's total capital to standardized total risk-weighted assets; and
(ii) The ratio of the national bank's or Federal savings association's advanced-approaches-adjusted total capital to advanced approaches total risk-weighted assets. A national bank's or Federal savings association's advanced-approaches-adjusted total capital is the national bank's or Federal savings association's total capital after being adjusted as follows:
(A) An advanced approaches national bank or Federal savings association must deduct from its total capital any allowance for loan and lease losses or adjusted allowance for credit losses, as applicable, included in its tier 2 capital in accordance with § 3.20(d)(3); and
(B) An advanced approaches national bank or Federal savings association must add to its total capital any eligible credit reserves that exceed the national bank's or Federal savings association's total expected credit losses to the extent that the excess reserve amount does not exceed 0.6 percent of the national bank's or Federal savings association's credit risk-weighted assets.
(4)
(c)
(i) A national bank or Federal savings association must deduct an investment in the national bank's or Federal savings association's own common stock instruments from its common equity tier 1 capital elements to the extent such instruments are not excluded from regulatory capital under § 3.20(b)(1);
(ii) A national bank or Federal savings association must deduct an investment in the national bank's or Federal savings association's own additional tier 1 capital instruments from its additional tier 1 capital elements; and
(iii) A national bank or Federal savings association must deduct an investment in the national bank's or Federal savings association's own tier 2 capital instruments from its tier 2 capital elements.
(2)
(i) If an investment is in the form of an instrument issued by a financial institution that is not a regulated financial institution, the national bank or Federal savings association must treat the instrument as:
(A) A common equity tier 1 capital instrument if it is common stock or represents the most subordinated claim in a liquidation of the financial institution; and
(B) An additional tier 1 capital instrument if it is subordinated to all creditors of the financial institution and is senior in liquidation only to common shareholders.
(ii) If an investment is in the form of an instrument issued by a regulated financial institution and the instrument does not meet the criteria for common equity tier 1, additional tier 1 or tier 2 capital instruments under § 3.20, the national bank or Federal savings association must treat the instrument as:
(A) A common equity tier 1 capital instrument if it is common stock included in GAAP equity or represents the most subordinated claim in liquidation of the financial institution;
(B) An additional tier 1 capital instrument if it is included in GAAP equity, subordinated to all creditors of the financial institution, and senior in a receivership, insolvency, liquidation, or similar proceeding only to common shareholders;
(C) A tier 2 capital instrument if it is not included in GAAP equity but considered regulatory capital by the primary supervisor of the financial institution; and
(D) For an advanced approaches national bank or Federal savings association, a tier 2 capital instrument if it is a covered debt instrument.
(iii) If an investment is in the form of a non-qualifying capital instrument (as defined in § 3.300(c)), the national bank or Federal savings association must treat the instrument as:
(A) An additional tier 1 capital instrument if such instrument was included in the issuer's tier 1 capital prior to May 19, 2010; or
(B) A tier 2 capital instrument if such instrument was included in the issuer's tier 2 capital (but not includable in tier 1 capital) prior to May 19, 2010.
(3)
(ii) An advanced approaches national bank or Federal savings association must deduct an investment in any covered debt instrument that the institution holds reciprocally with another financial institution, where such reciprocal cross holdings result from a formal or informal arrangement to swap, exchange, or otherwise intend to hold each other's capital or covered debt instruments, by applying the corresponding deduction approach in paragraph (c)(2) of this section.
(4)
(5)
(ii) For an advanced approaches national bank or Federal savings association, the amount to be deducted under this paragraph (c)(5) from a specific capital component is equal to:
(A) The advanced approaches national bank's or Federal savings association's aggregate non-significant investments in the capital of an unconsolidated financial institution and, if applicable, any investments in a covered debt instrument subject to deduction under this paragraph (c)(5), exceeding the 10 percent threshold for non-significant investments, multiplied by
(B) The ratio of the advanced approaches national bank's or Federal savings association's aggregate non-significant investments in the capital of an unconsolidated financial institution (in the form of such capital component) to the national bank's or Federal savings association's total non-significant investments in unconsolidated financial institutions, with an investment in a covered debt instrument being treated as tier 2 capital for this purpose.
(iii) For purposes of applying the deduction under paragraph (c)(5)(i) of this section, an advanced approaches national bank or Federal savings association that is not a subsidiary of a global systemically important banking organization, as defined in 12 CFR 252.2, may exclude from the deduction the amount of the national bank's or Federal savings association's gross long position, in accordance with § 3.22(h)(2), in investments in covered debt instruments issued by financial institutions in which the national bank or Federal savings association does not have a significant investment in the capital of the unconsolidated financial institutions up to an amount equal to 5 percent of the sum of the national bank's or Federal savings association's common equity tier 1 capital elements minus all deductions from and adjustments to common equity tier 1 capital elements required under paragraphs (a) through (c)(3) of this section, net of associated DTLs in accordance with paragraph (e) of this section.
(iv) Prior to applying the deduction under paragraph (c)(5)(i) of this section:
(A) A national bank or Federal savings association that is a subsidiary of a global systemically important BHC, as defined in 12 CFR 252.2, may designate
(B) A national bank or Federal savings association that is a subsidiary of a global systemically important BHC, as defined in 12 CFR 252.2, must deduct according to the corresponding deduction approach in paragraph (c)(2) of this section, its gross long position, calculated in accordance with paragraph (h)(2) of this section, in a covered debt instrument that was originally designated as an excluded covered debt instrument, in accordance with paragraph (c)(5)(iv)(A) of this section, but no longer qualifies as an excluded covered debt instrument.
(C) A national bank or Federal savings association that is a subsidiary of a global systemically important BHC, as defined in 12 CFR 252.2, must deduct according to the corresponding deduction approach in paragraph (c)(2) of this section the amount of its gross long position, calculated in accordance with paragraph (h)(2) of this section, in a direct or indirect investment in a covered debt instrument that was originally designated as an excluded covered debt instrument, in accordance with paragraph (c)(5)(iv)(A) of this section, and has been held for more than thirty business days.
(D) A national bank or Federal savings association that is a subsidiary of a global systemically important BHC, as defined in 12 CFR 252.2, must deduct according to the corresponding deduction approach in paragraph (c)(2) of this section its gross long position, calculated in accordance with paragraph (h)(2) of this section, of its aggregate investment in excluded covered debt instruments that exceeds 5 percent of the sum of the national bank's or Federal savings association's common equity tier 1 capital elements minus all deductions from and adjustments to common equity tier 1 capital elements required under paragraphs (a) through (c)(3) of this section, net of associated DTLs in accordance with paragraph (e) of this section.
(6)
(f)
(h)
(2)
(i) For an equity exposure that is held directly by the national bank or Federal savings association, the adjusted carrying value of the exposure as that term is defined in § 3.51(b);
(ii) For an exposure that is held directly and that is not an equity exposure or a securitization exposure, the exposure amount as that term is defined in § 3.2;
(iii) For each indirect exposure, the national bank's or Federal savings association's carrying value of its investment in an investment fund or, alternatively:
(A) A national bank or Federal savings association may, with the prior approval of the OCC, use a conservative estimate of the amount of its indirect investment in the national bank's or Federal savings association's own capital instruments, its indirect investment in the capital of an unconsolidated financial institution, or its indirect investment in a covered debt instrument held through a position in an index, as applicable; or
(B) A national bank or Federal savings association may calculate the gross long position for an indirect exposure to the national bank's or Federal savings association's own capital the capital in an unconsolidated financial institution, or a covered debt instrument by multiplying the national bank's or Federal savings association's carrying value of its investment in the investment fund by either:
(
(
(iv) For a synthetic exposure, the amount of the national bank's or Federal savings association's loss on the exposure if the reference capital instrument or covered debt instrument were to have a value of zero.
(3)
(i) The maturity of the short position must match the maturity of the long position, or the short position must have a residual maturity of at least one year (maturity requirement); or
(ii) For a position that is a trading asset or trading liability (whether on- or off-balance sheet) as reported on the national bank's or Federal savings association's Call Report, if the national bank or Federal savings association has a contractual right or obligation to sell the long position at a specific point in time and the counterparty to the contract has an obligation to purchase the long position if the national bank or Federal savings association exercises its right to sell, this point in time may be treated as the maturity of the long position such that the maturity of the long position and short position are deemed to match for purposes of the maturity requirement, even if the maturity of the short position is less than one year; and
(iii) For an investment in a national bank's or Federal savings association's own capital instrument under paragraph (c)(1) of this section, an investment in the capital of an unconsolidated financial institution under paragraphs (c)(4) through (6) and (d) of this section (as applicable), and an investment in a covered debt instrument under paragraphs (c)(1), (5), and (6) of this section:
(A) The national bank or Federal savings association may only net a short position against a long position in an investment in the national bank's or Federal savings association's own capital instrument under paragraph (c)(1) of this section if the short position involves no counterparty credit risk;
(B) A gross long position in an investment in the national bank's or Federal savings association's own capital instrument, an investment in the capital of an unconsolidated financial institution, or an investment in a covered debt instrument due to a position in an index may be netted against a short position in the same index;
(C) Long and short positions in the same index without maturity dates are considered to have matching maturities; and
(D) A short position in an index that is hedging a long cash or synthetic position in an investment in the national bank's or Federal savings association's own capital instrument, an investment in the capital instrument of an unconsolidated financial institution, or an investment in a covered debt instrument can be decomposed to provide recognition of the hedge. More specifically, the portion of the index that is composed of the same underlying instrument that is being hedged may be used to offset the long position if both the long position being hedged and the short position in the index are reported as a trading asset or trading liability (whether on- or off-balance sheet) on the national bank's or Federal savings association's Call Report, and the hedge is deemed effective by the national bank's or Federal savings association's internal control processes, which have not been found to be inadequate by the OCC.
For the reasons set forth in the joint preamble, the Board amends part 217 of chapter II of title 12 of the Code of Federal Regulations as follows:
12 U.S.C. 248(a), 321–338a, 481–486, 1462a, 1467a, 1818, 1828, 1831n, 1831o, 1831p–l, 1831w, 1835, 1844(b), 1851, 3904, 3906–3909, 4808, 5365, 5368, 5371, and 5371 note; Pub. L. 116–136, 134 Stat. 281.
The additions and revisions read as follows:
(1) Issued by a global systemically important BHC and that is an eligible debt security, as defined in 12 CFR 252.61, or that is
(2) Issued by a Covered IHC, as defined in 12 CFR 252.161, and that is an eligible Covered IHC debt security, as defined in 12 CFR 252.161, or that is
(3) Issued by a global systemically important banking organization, as defined in 12 CFR 252.2 other than a global systemically important BHC; or issued by a subsidiary of a global systemically important banking organization that is not a global systemically important BHC, other than a Covered IHC, as defined in 12 CFR 252.161; and where,
(i) The instrument is eligible for use to comply with an applicable law or regulation requiring the issuance of a minimum amount of instruments to absorb losses or recapitalize the issuer or any of its subsidiaries in connection with a resolution, receivership, insolvency, or similar proceeding of the issuer or any of its subsidiaries; or
(ii) The instrument is
(4) Provided that, for purposes of this definition,
(1) Is held in connection with market making-related activities permitted under 12 CFR 248.4, provided that a direct exposure or an indirect exposure to a covered debt instrument is held for 30 business days or less; and
(2) Has been designated as an excluded covered debt instrument by the global systemically important BHC or the subsidiary of a global systemically important BHC pursuant to 12 CFR 217.22(c)(5)(iv)(A).
The revision and addition read as follows:
(c)
(i) The mean of the on-balance sheet assets calculated as of each day of the reporting quarter; and
(ii) The mean of the off-balance sheet exposures calculated as of the last day of each of the most recent three months, minus the applicable deductions under § 217.22(a), (c), and (d).
(2) For purposes of this part,
(i) The balance sheet carrying value of all of the Board-regulated institution's on-balance sheet assets,
(ii)(A) For a Board-regulated institution that uses the current exposure methodology under § 217.34(b) for its standardized risk-weighted assets, the potential future credit exposure (PFE) for each derivative contract or each single-product netting set of derivative contracts (including a cleared transaction except as provided in paragraph (c)(2)(ix) of this section and, at the discretion of the Board-regulated institution, excluding a forward agreement treated as a derivative contract that is part of a repurchase or reverse repurchase or a securities borrowing or lending transaction that qualifies for sales treatment under GAAP), to which the Board-regulated institution is a counterparty as determined under § 217.34, but without regard to § 217.34(c), provided that:
(
(
(B)(
(
(iii)(A)(
(
(
(B)(
(
(
(C) For derivative contracts that are not cleared through a QCCP, the cash collateral received by the recipient counterparty is not segregated (by law, regulation, or an agreement with the counterparty);
(D) Variation margin is calculated and transferred on a daily basis based on the mark-to-fair value of the derivative contract;
(E) The variation margin transferred under the derivative contract or the governing rules of the CCP or QCCP for a cleared transaction is the full amount that is necessary to fully extinguish the net current credit exposure to the counterparty of the derivative contracts, subject to the threshold and minimum transfer amounts applicable to the counterparty under the terms of the derivative contract or the governing rules for a cleared transaction;
(F) The variation margin is in the form of cash in the same currency as the currency of settlement set forth in the derivative contract, provided that for the purposes of this paragraph (c)(2)(iii)(F), currency of settlement means any currency for settlement specified in the governing qualifying master netting agreement and the credit support annex to the qualifying master netting agreement, or in the governing rules for a cleared transaction; and
(G) The derivative contract and the variation margin are governed by a qualifying master netting agreement between the legal entities that are the counterparties to the derivative contract or by the governing rules for a cleared transaction, and the qualifying master netting agreement or the governing rules for a cleared transaction must explicitly stipulate that the counterparties agree to settle any payment obligations on a net basis, taking into account any variation margin received or provided under the contract if a credit event involving either counterparty occurs;
(iv) The effective notional principal amount (that is, the apparent or stated notional principal amount multiplied by any multiplier in the derivative contract) of a credit derivative, or other similar instrument, through which the Board-regulated institution provides credit protection, provided that:
(A) The Board-regulated institution may reduce the effective notional principal amount of the credit derivative by the amount of any reduction in the mark-to-fair value of the credit derivative if the reduction is recognized in common equity tier 1 capital;
(B) The Board-regulated institution may reduce the effective notional principal amount of the credit derivative by the effective notional principal amount of a purchased credit derivative or other similar instrument, provided that the remaining maturity of the purchased credit derivative is equal to or greater than the remaining maturity of the credit derivative through which the Board-regulated institution provides credit protection and that:
(
(
(
(
(v) Where a Board-regulated institution acting as a principal has more than one repo-style transaction with the same counterparty and has offset the gross value of receivables due from a counterparty under reverse repurchase transactions by the gross value of payables under repurchase transactions due to the same counterparty, the gross value of receivables associated with the repo-style transactions
(A) The offsetting transactions have the same explicit final settlement date under their governing agreements;
(B) The right to offset the amount owed to the counterparty with the amount owed by the counterparty is legally enforceable in the normal course of business and in the event of receivership, insolvency, liquidation, or similar proceeding; and
(C) Under the governing agreements, the counterparties intend to settle net, settle simultaneously, or settle according to a process that is the functional equivalent of net settlement, (that is, the cash flows of the transactions are equivalent, in effect, to a single net amount on the settlement date), where both transactions are settled through the same settlement system, the settlement arrangements are supported by cash or intraday credit facilities intended to ensure that settlement of both transactions will occur by the end of the business day, and the settlement of the underlying securities does not interfere with the net cash settlement;
(vi) The counterparty credit risk of a repo-style transaction, including where the Board-regulated institution acts as an agent for a repo-style transaction and indemnifies the customer with respect to the performance of the customer's counterparty in an amount limited to the difference between the fair value of the security or cash its customer has lent and the fair value of the collateral the borrower has provided, calculated as follows:
(A) If the transaction is not subject to a qualifying master netting agreement, the counterparty credit risk (E*) for transactions with a counterparty must be calculated on a transaction by transaction basis, such that each transaction
(B) If the transaction is subject to a qualifying master netting agreement, the counterparty credit risk (E*) must be calculated as the greater of zero and the total fair value of the instruments, gold, or cash that the Board-regulated institution has lent, sold subject to repurchase or provided as collateral to a counterparty for all transactions included in the qualifying master netting agreement (ΣE
(vii) If a Board-regulated institution acting as an agent for a repo-style transaction provides a guarantee to a customer of the security or cash its customer has lent or borrowed with respect to the performance of the customer's counterparty and the guarantee is not limited to the difference between the fair value of the security or cash its customer has lent and the fair value of the collateral the borrower has provided, the amount of the guarantee that is greater than the difference between the fair value of the security or cash its customer has lent and the value of the collateral the borrower has provided;
(viii) The credit equivalent amount of all off-balance sheet exposures of the Board-regulated institution, excluding repo-style transactions, repurchase or reverse repurchase or securities borrowing or lending transactions that qualify for sales treatment under GAAP, and derivative transactions, determined using the applicable credit conversion factor under § 217.33(b), provided, however, that the minimum credit conversion factor that may be assigned to an off-balance sheet exposure under this paragraph is 10 percent; and
(ix) For a Board-regulated institution that is a clearing member:
(A) A clearing member Board-regulated institution that guarantees the performance of a clearing member client with respect to a cleared transaction must treat its exposure to the clearing member client as a derivative contract for purposes of determining its total leverage exposure;
(B) A clearing member Board-regulated institution that guarantees the performance of a CCP with respect to a transaction cleared on behalf of a clearing member client must treat its exposure to the CCP as a derivative contract for purposes of determining its total leverage exposure;
(C) A clearing member Board-regulated institution that does not guarantee the performance of a CCP with respect to a transaction cleared on behalf of a clearing member client may exclude its exposure to the CCP for purposes of determining its total leverage exposure;
(D) A Board-regulated institution that is a clearing member may exclude from its total leverage exposure the effective notional principal amount of credit protection sold through a credit derivative contract, or other similar instrument, that it clears on behalf of a clearing member client through a CCP as calculated in accordance with paragraph (c)(2)(iv) of this section; and
(E) Notwithstanding paragraphs (c)(2)(ix)(A) through (C) of this section, a Board-regulated institution may exclude from its total leverage exposure a clearing member's exposure to a clearing member client for a derivative contract, if the clearing member client and the clearing member are affiliates and consolidated for financial reporting purposes on the Board-regulated institution's balance sheet.
(x) A custodial banking organization shall exclude from its total leverage exposure the lesser of:
(A) The amount of funds that the custodial banking organization has on deposit at a qualifying central bank; and
(B) The amount of funds in deposit accounts at the custodial banking organization that are linked to fiduciary or custodial and safekeeping accounts at the custodial banking organization. For purposes of this paragraph (c)(2)(x), a deposit account is linked to a fiduciary or custodial and safekeeping account if the deposit account is provided to a client that maintains a fiduciary or custodial and safekeeping account with the custodial banking organization, and the deposit account is used to facilitate the administration of the fiduciary or custodial and safekeeping account.
(d)
(1)
(i) The ratio of the Board-regulated institution's common equity tier 1 capital to standardized total risk-weighted assets; and
(ii) The ratio of the Board-regulated institution's common equity tier 1 capital to advanced approaches total risk-weighted assets.
(2)
(i) The ratio of the Board-regulated institution's tier 1 capital to standardized total risk-weighted assets; and
(ii) The ratio of the Board-regulated institution's tier 1 capital to advanced approaches total risk-weighted assets.
(3)
(i) The ratio of the Board-regulated institution's total capital to standardized total risk-weighted assets; and
(ii) The ratio of the Board-regulated institution's advanced-approaches-adjusted total capital to advanced approaches total risk-weighted assets. A Board-regulated institution's advanced-approaches-adjusted total capital is the Board-regulated institution's total capital after being adjusted as follows:
(A) An advanced approaches Board-regulated institution must deduct from its total capital any allowance for loan and lease losses or adjusted allowance for credit losses, as applicable, included in its tier 2 capital in accordance with § 217.20(d)(3); and
(B) An advanced approaches Board-regulated institution must add to its total capital any eligible credit reserves that exceed the Board-regulated institution's total expected credit losses to the extent that the excess reserve amount does not exceed 0.6 percent of the Board-regulated institution's credit risk-weighted assets.
(c)
(i) A Board-regulated institution must deduct an investment in the Board-regulated institution's own common stock instruments from its common equity tier 1 capital elements to the extent such instruments are not excluded from regulatory capital under § 217.20(b)(1);
(ii) A Board-regulated institution must deduct an investment in the Board-regulated institution's own additional tier 1 capital instruments from its additional tier 1 capital elements;
(iii) A Board-regulated institution must deduct an investment in the Board-regulated institution's own tier 2 capital instruments from its tier 2 capital elements; and
(iv) An advanced approaches Board-regulated institution must deduct an investment in the institution's own covered debt instruments from its tier 2 capital elements, as applicable. If the advanced approaches Board-regulated institution does not have a sufficient amount of tier 2 capital to effect this deduction, the institution must deduct the shortfall amount from the next higher (that is, more subordinated) component of regulatory capital.
(2)
(i) If an investment is in the form of an instrument issued by a financial institution that is not a regulated financial institution, the Board-regulated institution must treat the instrument as:
(A) A common equity tier 1 capital instrument if it is common stock or represents the most subordinated claim in a liquidation of the financial institution; and
(B) An additional tier 1 capital instrument if it is subordinated to all creditors of the financial institution and is senior in liquidation only to common shareholders.
(ii) If an investment is in the form of an instrument issued by a regulated financial institution and the instrument does not meet the criteria for common equity tier 1, additional tier 1 or tier 2 capital instruments under § 217.20, the Board-regulated institution must treat the instrument as:
(A) A common equity tier 1 capital instrument if it is common stock included in GAAP equity or represents the most subordinated claim in liquidation of the financial institution;
(B) An additional tier 1 capital instrument if it is included in GAAP equity, subordinated to all creditors of the financial institution, and senior in a receivership, insolvency, liquidation, or similar proceeding only to common shareholders;
(C) A tier 2 capital instrument if it is not included in GAAP equity but considered regulatory capital by the primary supervisor of the financial institution; and
(D) For an advanced approaches Board-regulated institution, a tier 2 capital instrument if it is a covered debt instrument.
(iii) If an investment is in the form of a non-qualifying capital instrument (as defined in § 217.300(c)), the Board-regulated institution must treat the instrument as:
(A) An additional tier 1 capital instrument if such instrument was included in the issuer's tier 1 capital prior to May 19, 2010; or
(B) A tier 2 capital instrument if such instrument was included in the issuer's tier 2 capital (but not includable in tier 1 capital) prior to May 19, 2010.
(3)
(ii) An advanced approaches Board-regulated institution must deduct an investment in any covered debt instrument that the institution holds reciprocally with another financial institution, where such reciprocal cross holdings result from a formal or informal arrangement to swap, exchange, or otherwise intend to hold each other's capital or covered debt instruments, by applying the corresponding deduction approach in paragraph (c)(2) of this section.
(4)
(5)
(ii) For an advanced approaches Board-regulated institution, the amount to be deducted under this paragraph (c)(5) from a specific capital component is equal to:
(A) The advanced approaches Board-regulated institution's aggregate non-significant investments in the capital of an unconsolidated financial institution and, if applicable, any investments in a covered debt instrument subject to deduction under this paragraph (c)(5), exceeding the 10 percent threshold for non-significant investments, multiplied by
(B) The ratio of the advanced approaches Board-regulated institution's aggregate non-significant investments in the capital of an unconsolidated financial institution (in the form of such capital component) to the advanced approaches Board-regulated institution's total non-significant investments in unconsolidated financial institutions, with an investment in a covered debt instrument being treated as tier 2 capital for this purpose.
(iii) For purposes of applying the deduction under paragraph (c)(5)(i) of this section, an advanced approaches Board-regulated institution that is not a global systemically important BHC or a subsidiary of a global systemically important banking organization, as defined in 12 CFR 252.2, may exclude from the deduction the amount of the Board-regulated institution's gross long position, in accordance with § 217.22(h)(2), in investments in covered debt instruments issued by financial institutions in which the Board-regulated institution does not have a significant investment in the capital of the unconsolidated financial institutions up to an amount equal to 5 percent of the sum of the Board-regulated institution's common equity tier 1 capital elements minus all deductions from and adjustments to common equity tier 1 capital elements required under paragraphs (a) through (c)(3) of this section, net of associated DTLs in accordance with paragraph (e) of this section.
(iv) Prior to applying the deduction under paragraph (c)(5)(i) of this section:
(A) A global systemically important BHC or a Board-regulated institution that is a subsidiary of a global systemically important BHC may designate any investment in a covered debt instrument as an excluded covered debt instrument, as defined in § 217.2.
(B) A global systemically important BHC or a Board-regulated institution that is a subsidiary of a global systemically important BHC must deduct, according to the corresponding deduction approach in paragraph (c)(2) of this section, its gross long position, calculated in accordance with paragraph (h)(2) of this section, in a covered debt instrument that was originally designated as an excluded covered debt instrument, in accordance with paragraph (c)(5)(iv)(A) of this section, but no longer qualifies as an excluded covered debt instrument.
(C) A global systemically important BHC or a Board-regulated institution that is a subsidiary of a global systemically important BHC must deduct according to the corresponding deduction approach in paragraph (c)(2) of this section the amount of its gross long position, calculated in accordance with paragraph (h)(2) of this section, in a direct or indirect investment in a covered debt instrument that was originally designated as an excluded covered debt instrument, in accordance with paragraph (c)(5)(iv)(A) of this section, and has been held for more than thirty business days.
(D) A global systemically important BHC or a Board-regulated institution that is a subsidiary of a global systemically important BHC must deduct according to the corresponding deduction approach in paragraph (c)(2) of this section its gross long position, calculated in accordance with paragraph (h)(2) of this section, of its aggregate
(6)
(f)
(h)
(2)
(i) For an equity exposure that is held directly by the Board-regulated institution, the adjusted carrying value of the exposure as that term is defined in § 217.51(b);
(ii) For an exposure that is held directly and that is not an equity exposure or a securitization exposure, the exposure amount as that term is defined in § 217.2;
(iii) For each indirect exposure, the Board-regulated institution's carrying value of its investment in an investment fund or, alternatively:
(A) A Board-regulated institution may, with the prior approval of the Board, use a conservative estimate of the amount of its indirect investment in the Board-regulated institution's own capital instruments, its indirect investment in the capital of an unconsolidated financial institution, or its indirect investment in a covered debt instrument held through a position in an index, as applicable; or
(B) A Board-regulated institution may calculate the gross long position for an indirect exposure to the Board-regulated institution's own capital instruments, the capital of an unconsolidated financial institution, or a covered debt instrument by multiplying the Board-regulated institution's carrying value of its investment in the investment fund by either:
(
(
(iv) For a synthetic exposure, the amount of the Board-regulated institution's loss on the exposure if the reference capital or covered debt instrument were to have a value of zero.
(3)
(i) The maturity of the short position must match the maturity of the long position, or the short position must have a residual maturity of at least one year (maturity requirement); or
(ii) For a position that is a trading asset or trading liability (whether on- or off-balance sheet) as reported on the Board-regulated institution's Call Report, for a state member bank, or FR Y–9C, for a bank holding company, savings and loan holding company, or intermediate holding company, as applicable, if the Board-regulated institution has a contractual right or obligation to sell the long position at a specific point in time and the counterparty to the contract has an obligation to purchase the long position if the Board-regulated institution exercises its right to sell, this point in time may be treated as the maturity of the long position such that the maturity of the long position and short position are deemed to match for purposes of the maturity requirement, even if the maturity of the short position is less than one year; and
(iii) For an investment in a Board-regulated institution's own capital instrument under paragraph (c)(1) of this section, an investment in the capital of an unconsolidated financial institution under paragraphs (c)(4) through (6) and (d) of this section (as applicable), and an investment in a covered debt instrument under
(A) The Board-regulated institution may only net a short position against a long position in an investment in the Board-regulated institution's own capital instrument or own covered debt instrument under paragraph (c)(1) of this section if the short position involves no counterparty credit risk;
(B) A gross long position in an investment in the Board-regulated institution's own capital instrument, an investment in the capital of an unconsolidated financial institution, or an investment in a covered debt instrument due to a position in an index may be netted against a short position in the same index;
(C) Long and short positions in the same index without maturity dates are considered to have matching maturities; and
(D) A short position in an index that is hedging a long cash or synthetic position in an investment in the Board-regulated institution's own capital instrument, an investment in the capital instrument of an unconsolidated financial institution, or an investment in a covered debt instrument can be decomposed to provide recognition of the hedge. More specifically, the portion of the index that is composed of the same underlying instrument that is being hedged may be used to offset the long position if both the long position being hedged and the short position in the index are reported as a trading asset or trading liability (whether on- or off-balance sheet) on the Board-regulated institution's Call Report, for a state member bank, or FR Y–9C, for a bank holding company, savings and loan holding company, or intermediate holding company, as applicable, and the hedge is deemed effective by the Board-regulated institution's internal control processes, which have not been found to be inadequate by the Board.
12 U.S.C. 321–338a, 481–486, 1467a, 1818, 1828, 1831n, 1831o, 1831p–l, 1831w, 1835, 1844(b), 1844(c), 3101
The addition reads as follows:
(c) * * *
(3) * * *
(i) * * *
(C) The ratio (expressed as a percentage) of the global systemically important BHC's outstanding eligible external long-term debt amount plus 50 percent of the amount of unpaid principal of outstanding eligible debt securities issued by the global systemically important BHC due to be paid in, as calculated in § 252.62(b)(2), greater than or equal to 365 days (one year) but less than 730 days (two years) to total risk-weighted assets.
(5) * * *
(iii) * * *
(A) * * *
(
(b) * * *
(2) 1095 days (three years) after the later of the date on which:
(i) The U.S. non-branch assets of the global systemically important foreign banking organization that controls the Covered IHC equaled or exceeded $50 billion; and
(ii) The foreign banking organization that controls the Covered IHC became a global systemically important foreign banking organization.
(b) * * *
(1) A Covered IHC's outstanding eligible Covered IHC long-term debt amount is the sum of:
(i) One hundred (100) percent of the amount due to be paid of unpaid principal of the outstanding eligible Covered IHC debt securities issued by the Covered IHC in greater than or equal to 730 days (two years); and
(ii) Fifty (50) percent of the amount due to be paid of unpaid principal of the outstanding eligible Covered IHC debt securities issued by the Covered IHC in greater than or equal to 365 days (one year) and less than 730 days (two years); and
(iii) Zero (0) percent of the amount due to be paid of unpaid principal of the outstanding eligible Covered IHC debt securities issued by the Covered IHC in less than 365 days (one year).
(d) * * *
(3) * * *
(i) * * *
(C) The ratio (expressed as a percentage) of the Covered IHC's outstanding eligible Covered IHC long-term debt amount plus 50 percent of the amount of unpaid principal of outstanding eligible Covered IHC debt securities issued by the Covered IHC due to be paid in, as calculated in § 252.162(b)(2), greater than or equal to 365 days (one year) but less than 730 days (two years) to total risk-weighted assets.
For the reasons set out in the joint preamble, the FDIC amends 12 CFR part 324 as follows.
12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n), 1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102–233, 105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102–242, 105 Stat. 2236, 2355, as amended by Pub. L. 103–325, 108 Stat. 2160, 2233 (12 U.S.C. 1828 note); Pub. L. 102–242, 105 Stat. 2236, 2386, as amended by Pub. L. 102–550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 note); Pub. L. 111–203, 124 Stat. 1376, 1887 (15 U.S.C. 78o–7 note), Pub. L. 115–174; section 4014, Pub. L. 116–136, 134 Stat. 281 (15 U.S.C. 9052).
The additions and revisions read as follows:
(1) Issued by a global systemically important BHC, as defined in 12 CFR 217.2, and that is an eligible debt security, as defined in 12 CFR 252.61, or that is
(2) Issued by a Covered IHC, as defined in 12 CFR 252.161, and that is an eligible Covered IHC debt security, as defined in 12 CFR 252.161, or that is
(3) Issued by a global systemically important banking organization, as defined in 12 CFR 252.2 other than a global systemically important BHC, as defined in 12 CFR 217.2; or issued by a subsidiary of a global systemically important banking organization that is not a global systemically important BHC, other than a Covered IHC, as defined in 12 CFR 252.161; and where,
(i) The instrument is eligible for use to comply with an applicable law or regulation requiring the issuance of a minimum amount of instruments to absorb losses or recapitalize the issuer or any of its subsidiaries in connection with a resolution, receivership, insolvency, or similar proceeding of the issuer or any of its subsidiaries; or
(ii) The instrument is
(4) Provided that, for purposes of this definition,
(1) Is held in connection with market making-related activities permitted under 12 CFR 351.4, provided that a direct exposure or an indirect exposure to a covered debt instrument is held for 30 business days or less; and
(2) Has been designated as an excluded covered debt instrument by the FDIC-supervised institution that is a subsidiary of a global systemically important BHC, as defined in 12 CFR 252.2, pursuant to 12 CFR 324.22(c)(5)(iv)(A).
The revision and addition read as follows:
(c)
(i) The mean of the on-balance sheet assets calculated as of each day of the reporting quarter; and
(ii) The mean of the off-balance sheet exposures calculated as of the last day of each of the most recent three months, minus the applicable deductions under § 324.22(a), (c), and (d).
(2) For purposes of this part,
(i) The balance sheet carrying value of all of the FDIC-supervised institution's on-balance sheet assets,
(ii)(A) For an FDIC-supervised institution that uses the current exposure methodology under § 324.34(b) for its standardized risk-weighted assets, the potential future credit exposure (PFE) for each derivative contract or each single-product netting set of derivative contracts (including a cleared transaction except as provided in paragraph (c)(2)(ix) of this section and, at the discretion of the FDIC-supervised institution, excluding a forward agreement treated as a derivative contract that is part of a repurchase or reverse repurchase or a securities borrowing or lending transaction that qualifies for sales treatment under GAAP), to which the FDIC-supervised institution is a counterparty as determined under § 324.34, but without regard to § 324.34(c), provided that:
(
(
(B)(
(
(iii)(A)(
(
(
(B)(
(
(
(C) For derivative contracts that are not cleared through a QCCP, the cash collateral received by the recipient counterparty is not segregated (by law, regulation, or an agreement with the counterparty);
(D) Variation margin is calculated and transferred on a daily basis based on the mark-to-fair value of the derivative contract;
(E) The variation margin transferred under the derivative contract or the governing rules of the CCP or QCCP for a cleared transaction is the full amount that is necessary to fully extinguish the net current credit exposure to the counterparty of the derivative contracts, subject to the threshold and minimum transfer amounts applicable to the counterparty under the terms of the derivative contract or the governing rules for a cleared transaction;
(F) The variation margin is in the form of cash in the same currency as the currency of settlement set forth in the derivative contract, provided that for the purposes of this paragraph (c)(2)(iii)(F), currency of settlement means any currency for settlement specified in the governing qualifying master netting agreement and the credit support annex to the qualifying master netting agreement, or in the governing rules for a cleared transaction; and
(G) The derivative contract and the variation margin are governed by a qualifying master netting agreement between the legal entities that are the counterparties to the derivative contract or by the governing rules for a cleared transaction, and the qualifying master netting agreement or the governing rules for a cleared transaction must explicitly stipulate that the counterparties agree to settle any payment obligations on a net basis, taking into account any variation margin received or provided under the contract if a credit event involving either counterparty occurs;
(iv) The effective notional principal amount (that is, the apparent or stated notional principal amount multiplied by any multiplier in the derivative contract) of a credit derivative, or other similar instrument, through which the FDIC-supervised institution provides credit protection, provided that:
(A) The FDIC-supervised institution may reduce the effective notional principal amount of the credit derivative by the amount of any reduction in the mark-to-fair value of the credit derivative if the reduction is recognized in common equity tier 1 capital;
(B) The FDIC-supervised institution may reduce the effective notional principal amount of the credit derivative by the effective notional principal amount of a purchased credit derivative or other similar instrument, provided that the remaining maturity of the purchased credit derivative is equal to or greater than the remaining maturity of the credit derivative through which the FDIC-supervised institution provides credit protection and that:
(
(
(
(
(v) Where an FDIC-supervised institution acting as a principal has more than one repo-style transaction with the same counterparty and has offset the gross value of receivables due from a counterparty under reverse repurchase transactions by the gross value of payables under repurchase transactions due to the same counterparty, the gross value of receivables associated with the repo-style transactions
(A) The offsetting transactions have the same explicit final settlement date under their governing agreements;
(B) The right to offset the amount owed to the counterparty with the amount owed by the counterparty is legally enforceable in the normal course of business and in the event of receivership, insolvency, liquidation, or similar proceeding; and
(C) Under the governing agreements, the counterparties intend to settle net, settle simultaneously, or settle according to a process that is the functional equivalent of net settlement, (that is, the cash flows of the transactions are equivalent, in effect, to a single net amount on the settlement date), where both transactions are settled through the same settlement system, the settlement arrangements are supported by cash or intraday credit facilities intended to ensure that settlement of both transactions will occur by the end of the business day, and the settlement of the underlying securities does not interfere with the net cash settlement;
(vi) The counterparty credit risk of a repo-style transaction, including where the FDIC-supervised institution acts as an agent for a repo-style transaction and indemnifies the customer with respect to the performance of the customer's counterparty in an amount limited to the difference between the fair value of the security or cash its customer has lent and the fair value of the collateral the borrower has provided, calculated as follows:
(A) If the transaction is not subject to a qualifying master netting agreement, the counterparty credit risk (E*) for transactions with a counterparty must be calculated on a transaction by transaction basis, such that each transaction
(B) If the transaction is subject to a qualifying master netting agreement, the counterparty credit risk (E*) must be calculated as the greater of zero and the total
(vii) If an FDIC-supervised institution acting as an agent for a repo-style transaction provides a guarantee to a customer of the security or cash its customer has lent or borrowed with respect to the performance of the customer's counterparty and the guarantee is not limited to the difference between the fair value of the security or cash its customer has lent and the fair value of the collateral the borrower has provided, the amount of the guarantee that is greater than the difference between the fair value of the security or cash its customer has lent and the value of the collateral the borrower has provided;
(viii) The credit equivalent amount of all off-balance sheet exposures of the FDIC-supervised institution, excluding repo-style transactions, repurchase or reverse repurchase or securities borrowing or lending transactions that qualify for sales treatment under GAAP, and derivative transactions, determined using the applicable credit conversion factor under § 324.33(b), provided, however, that the minimum credit conversion factor that may be assigned to an off-balance sheet exposure under this paragraph is 10 percent; and
(ix) For an FDIC-supervised institution that is a clearing member:
(A) A clearing member FDIC-supervised institution that guarantees the performance of a clearing member client with respect to a cleared transaction must treat its exposure to the clearing member client as a derivative contract for purposes of determining its total leverage exposure;
(B) A clearing member FDIC-supervised institution that guarantees the performance of a CCP with respect to a transaction cleared on behalf of a clearing member client must treat its exposure to the CCP as a derivative contract for purposes of determining its total leverage exposure;
(C) A clearing member FDIC-supervised institution that does not guarantee the performance of a CCP with respect to a transaction cleared on behalf of a clearing member client may exclude its exposure to the CCP for purposes of determining its total leverage exposure;
(D) An FDIC-supervised institution that is a clearing member may exclude from its total leverage exposure the effective notional principal amount of credit protection sold through a credit derivative contract, or other similar instrument, that it clears on behalf of a clearing member client through a CCP as calculated in accordance with paragraph (c)(2)(iv) of this section; and
(E) Notwithstanding paragraphs (c)(2)(ix)(A) through (C) of this section, an FDIC-supervised institution may exclude from its total leverage exposure a clearing member's exposure to a clearing member client for a derivative contract, if the clearing member client and the clearing member are affiliates and consolidated for financial reporting purposes on the FDIC-supervised institution's balance sheet.
(x) A custody bank shall exclude from its total leverage exposure the lesser of:
(A) The amount of funds that the custody bank has on deposit at a qualifying central bank; and
(B) The amount of funds in deposit accounts at the custody bank that are linked to fiduciary or custodial and safekeeping accounts at the custody bank. For purposes of this paragraph (c)(2)(x), a deposit account is linked to a fiduciary or custodial and safekeeping account if the deposit account is provided to a client that maintains a fiduciary or custodial and safekeeping account with the custody bank, and the deposit account is used to facilitate the administration of the fiduciary or custodial and safekeeping account.
(d)
(1)
(i) The ratio of the FDIC-supervised institution's common equity tier 1 capital to standardized total risk-weighted assets; and
(ii) The ratio of the FDIC-supervised institution's common equity tier 1 capital to advanced approaches total risk-weighted assets.
(2)
(i) The ratio of the FDIC-supervised institution's tier 1 capital to standardized total risk-weighted assets; and
(ii) The ratio of the FDIC-supervised institution's tier 1 capital to advanced approaches total risk-weighted assets.
(3)
(i) The ratio of the FDIC-supervised institution's total capital to standardized total risk-weighted assets; and
(ii) The ratio of the FDIC-supervised institution's advanced-approaches-adjusted total capital to advanced approaches total risk-weighted assets. An FDIC-supervised institution's advanced-approaches-adjusted total capital is the FDIC-supervised institution's total capital after being adjusted as follows:
(A) An advanced approaches FDIC-supervised institution must deduct from its total capital any allowance for loan and lease losses or adjusted allowance for credit losses, as applicable, included in its tier 2 capital in accordance with § 324.20(d)(3); and
(B) An advanced approaches FDIC-supervised institution must add to its total capital any eligible credit reserves that exceed the FDIC-supervised institution's total expected credit losses to the extent that the excess reserve amount does not exceed 0.6 percent of the FDIC-supervised institution's credit risk-weighted assets.
(4)
(ii) As of January 1, 2014, a state savings association's tangible capital ratio is the ratio of the state savings association's core capital (tier 1 capital) to total assets. For purposes of this paragraph, the term total assets shall have the meaning provided in 12 CFR 324.401(g).
(c)
(i) An FDIC-supervised institution must deduct an investment in the FDIC-supervised institution's own common stock instruments from its common equity tier 1 capital elements to the extent such instruments are not excluded from regulatory capital under § 324.20(b)(1);
(ii) An FDIC-supervised institution must deduct an investment in the FDIC-supervised institution's own additional tier 1 capital instruments from its additional tier 1 capital elements; and
(iii) An FDIC-supervised institution must deduct an investment in the FDIC-supervised institution's own tier 2 capital instruments from its tier 2 capital elements.
(2)
(i) If an investment is in the form of an instrument issued by a financial institution that is not a regulated financial institution, the FDIC-supervised institution must treat the instrument as:
(A) A common equity tier 1 capital instrument if it is common stock or represents the most subordinated claim in a liquidation of the financial institution; and
(B) An additional tier 1 capital instrument if it is subordinated to all creditors of the financial institution and is senior in liquidation only to common shareholders.
(ii) If an investment is in the form of an instrument issued by a regulated financial institution and the instrument does not meet the criteria for common equity tier 1, additional tier 1 or tier 2 capital instruments under § 324.20, the FDIC-supervised institution must treat the instrument as:
(A) A common equity tier 1 capital instrument if it is common stock included in GAAP equity or represents the most subordinated claim in liquidation of the financial institution;
(B) An additional tier 1 capital instrument if it is included in GAAP equity, subordinated to all creditors of the financial institution, and senior in a receivership, insolvency, liquidation, or similar proceeding only to common shareholders;
(C) A tier 2 capital instrument if it is not included in GAAP equity but considered regulatory capital by the primary supervisor of the financial institution; and
(D) For an advanced approaches FDIC-supervised institution, a tier 2 capital instrument if it is a covered debt instrument.
(iii) If an investment is in the form of a non-qualifying capital instrument (as defined in § 324.300(c)), the FDIC-supervised institution must treat the instrument as:
(A) An additional tier 1 capital instrument if such instrument was included in the issuer's tier 1 capital prior to May 19, 2010; or
(B) A tier 2 capital instrument if such instrument was included in the issuer's tier 2 capital (but not includable in tier 1 capital) prior to May 19, 2010.
(3)
(ii) An advanced approaches FDIC-supervised institution must deduct an investment in any covered debt instrument that the institution holds reciprocally with another financial institution, where such reciprocal cross holdings result from a formal or informal arrangement to swap, exchange, or otherwise intend to hold each other's capital or covered debt instruments, by applying the corresponding deduction approach in paragraph (c)(2) of this section.
(4)
(5)
(ii) For an advanced approaches FDIC-supervised institution, the amount to be deducted under this paragraph (c)(5) from a specific capital component is equal to:
(A) The advanced approaches FDIC-supervised institution's aggregate non-significant investments in the capital of an unconsolidated financial institution and, if applicable, any investments in a covered debt instrument subject to deduction under this paragraph (c)(5), exceeding the 10 percent threshold for non-significant investments, multiplied by
(B) The ratio of the advanced approaches FDIC-supervised institution's aggregate non-significant investments in the capital of an unconsolidated financial institution (in the form of such capital component) to the advanced approaches FDIC-supervised institution's total non-significant investments in unconsolidated financial institutions, with an investment in a covered debt instrument being treated as tier 2 capital for this purpose.
(iii) For purposes of applying the deduction under paragraph (c)(5)(i) of this section, an advanced approaches FDIC-supervised institution that is not a subsidiary of a global systemically important banking organization, as defined in 12 CFR 252.2, may exclude from the deduction the amount of the FDIC-supervised institution's gross long position, in accordance with § 324.22(h)(2), in investments in covered debt instruments issued by financial institutions in which the FDIC-supervised institution does not have a significant investment in the capital of the unconsolidated financial institutions up to an amount equal to 5 percent of the sum of the FDIC-supervised institution's common equity tier 1 capital elements minus all deductions from and adjustments to common equity tier 1 capital elements required under paragraphs (a) through (c)(3) of this section, net of associated DTLs in accordance with paragraph (e) of this section.
(iv) Prior to applying the deduction under paragraph (c)(5)(i) of this section:
(A) An FDIC-supervised institution that is a subsidiary of a global systemically important BHC, as defined in 12 CFR 252.2, may designate any investment in a covered debt instrument as an excluded covered debt instrument, as defined in § 324.2.
(B) An FDIC-supervised institution that is a subsidiary of a global systemically important BHC, as defined in 12 CFR 252.2, must deduct, according to the corresponding deduction approach in paragraph (c)(2) of this section, its gross long position, calculated in accordance with paragraph (h)(2) of this section, in a covered debt instrument that was originally designated as an excluded covered debt instrument, in accordance with paragraph (c)(5)(iv)(A) of this section, but no longer qualifies as an excluded covered debt instrument.
(C) An FDIC-supervised institution that is a subsidiary of a global systemically important BHC, as defined in 12 CFR 252.2, must deduct according to the corresponding deduction approach in paragraph (c)(2) of this section the amount of its gross long position, calculated in accordance with paragraph (h)(2) of this section, in a direct or indirect investment in a covered debt instrument that was originally designated as an excluded covered debt instrument, in accordance with paragraph (c)(5)(iv)(A) of this section, and has been held for more than thirty business days.
(D) An FDIC-supervised institution that is a subsidiary of a global systemically important BHC, as defined in 12 CFR 252.2, must deduct according to the corresponding deduction approach in paragraph (c)(2) of this section its gross long position, calculated in accordance with paragraph (h)(2) of this section, of its aggregate position in excluded covered debt instruments that exceeds 5 percent of the sum of the FDIC-supervised institution's common equity tier 1 capital elements minus all deductions from and adjustments to common equity tier 1 capital elements required under paragraphs (a) through (c)(3) of this section, net of associated DTLs in accordance with paragraph (e) of this section.
(6)
(f)
(h)
(2)
(i) For an equity exposure that is held directly by the FDIC-supervised institution, the adjusted carrying value of the exposure as that term is defined in § 324.51(b);
(ii) For an exposure that is held directly and that is not an equity exposure or a securitization exposure, the exposure amount as that term is defined in § 324.2;
(iii) For each indirect exposure, the FDIC-supervised institution's carrying value of its investment in an investment fund or, alternatively:
(A) An FDIC-supervised institution may, with the prior approval of the FDIC, use a conservative estimate of the amount of its indirect investment in the FDIC-supervised institution's own capital instruments, its indirect investment in the capital of an unconsolidated financial institution, or its indirect investment in a covered debt instrument held through a position in an index, as applicable; or
(B) An FDIC-supervised institution may calculate the gross long position for an indirect exposure to the FDIC-supervised institution's own capital instruments, the capital of an unconsolidated financial institution, or a covered debt instrument by multiplying the FDIC-supervised institution's carrying value of its investment in the investment fund by either:
(
(
(iv) For a synthetic exposure, the amount of the FDIC-supervised institution's loss on the exposure if the reference capital or covered debt instrument were to have a value of zero.
(3)
(i) The maturity of the short position must match the maturity of the long position, or the short position must have a residual maturity of at least one year (maturity requirement); or
(ii) For a position that is a trading asset or trading liability (whether on- or off-balance sheet) as reported on the FDIC-supervised institution's Call Report, if the FDIC-supervised institution has a contractual right or obligation to sell the long position at a specific point in time and the counterparty to the contract has an obligation to purchase the long position if the FDIC-supervised institution exercises its right to sell, this point in time may be treated as the maturity of the long position such that the maturity of the long position and short position are deemed to match for purposes of the maturity requirement, even if the maturity of the short position is less than one year; and
(iii) For an investment in an FDIC-supervised institution's own capital instrument under paragraph (c)(1) of this section, an investment in the capital of an unconsolidated financial institution under paragraphs (c)(4) through (6) and (d) of this section (as applicable), and an investment in a covered debt instrument under paragraphs (c)(1), (5), and (6) of this section:
(A) The FDIC-supervised institution may only net a short position against a long position in an investment in the FDIC-supervised institution's own capital instrument under paragraph (c)(1) of this section if the short position involves no counterparty credit risk;
(B) A gross long position in an investment in the FDIC-supervised institution's own capital instrument, an investment in the capital of an unconsolidated financial institution, or an investment in a covered debt instrument due to a position in an index may be netted against a short position in the same index;
(C) Long and short positions in the same index without maturity dates are considered to have matching maturities; and
(D) A short position in an index that is hedging a long cash or synthetic position in an investment in the FDIC-supervised institution's own capital instrument, an investment in the capital instrument of an unconsolidated financial institution, or an investment in a covered debt instrument can be decomposed to provide recognition of the hedge. More specifically, the portion of the index that is composed of the same underlying instrument that is being hedged may be used to offset the long position if both the long position being hedged and the short position in the index are reported as a trading asset or trading liability (whether on- or off-balance sheet) on the FDIC-supervised institution's Call Report, and the hedge is deemed effective by the FDIC-supervised institution's internal control processes, which have not been found to be inadequate by the FDIC.
By order of the Board of Governors of the Federal Reserve System.
By order of the Board of Directors.
Securities and Exchange Commission.
Final rule.
The Securities and Exchange Commission (“Commission”) is adopting a new rule under the Investment Company Act of 1940 (“Investment Company Act” or the “Act”) that will address valuation practices and the role of the board of directors with respect to the fair value of the investments of a registered investment company or business development company (“fund”). The rule will provide requirements for determining fair value in good faith for purposes of the Act. This determination will involve assessing and managing material risks associated with fair value determinations; selecting, applying, and testing fair value methodologies; and overseeing and evaluating any pricing services used. The rule will permit a fund's board of directors to designate certain parties to perform the fair value determinations, who will then carry out these functions for some or all of the fund's investments. This designation will be subject to board oversight and certain reporting and other requirements designed to facilitate the board's ability effectively to oversee this party's fair value determinations. The rule will include a specific provision related to the determination of the fair value of investments held by unit investment trusts, which do not have boards of directors. The rule will also define when market quotations are readily available under the Act. The Commission is also adopting a separate rule providing the recordkeeping requirements that will be associated with fair value determinations and is rescinding previously issued guidance on the role of the board of directors in determining fair value and the accounting and auditing of fund investments.
Zeena Abdul-Rahman, Senior Counsel; Joel Cavanaugh, Senior Counsel; Bradley Gude, Senior Counsel; Thoreau A. Bartmann, Senior Special Counsel; or Brian McLaughlin Johnson, Assistant Director, at (202) 551–6792, Investment Company Regulation Office, Division of Investment Management; Kieran G. Brown, Senior Counsel, or David J. Marcinkus, Branch Chief, at (202) 551–6825 or
The Commission is adopting 17 CFR 270.2a–5 (new rule 2a–5) and 17 CFR 270.31a–4 (new rule 31a–4) under the Investment Company Act.
1. Current Regulatory Framework
2. Current Practices
3. Affected Parties
The Investment Company Act requires funds to value their portfolio investments using the market value of their portfolio securities when market quotations are “readily available,” and, when a market quotation for a portfolio security is not readily available or if the investment is not a security, by using the investment's fair value, as determined in good faith by the fund's board.
We proposed rule 2a–5 in April 2020 and received more than 60 comment letters on the proposal.
We are adopting rule 2a–5 and companion 17 CFR 270.31a–4 (“rule 31a–4” and, together with rule 2a–5, the “rules”) with certain modifications from the proposal to address the comments we received, including targeted revisions to address issues noted with respect to certain of the more prescriptive elements of the proposed rule. We are also rescinding the Commission's previously issued guidance on the role of the board of directors in determining fair value and the accounting and auditing of fund investments as proposed and, in a change from the proposal, are superseding certain of the guidance on thinly traded securities and the use of pricing services the Commission issued in 2014.
The final rule provides requirements for determining fair value in good faith with respect to a fund for purposes of section 2(a)(41) of the Act and rule 2a–4 thereunder.
Under the final rule, fair value as determined in good faith will require assessing and managing material risks associated with fair value determinations; selecting, applying, and testing fair value methodologies; and overseeing and evaluating any pricing services used. These required functions generally reflect our understanding of current practices used by funds to fair value their investments, and we discuss each in detail below.
The final rule also permits a fund's board
Also, as proposed, the final rule applies to all registered investment companies and BDCs, regardless of their classification or sub-classification (
While many commenters thought that the proposal's general approach of balancing between prescriptive requirements and principles-based guidelines was reasonable, others requested modifications.
In light of the developments since the Commission last comprehensively addressed fair value determinations for funds, we believe that it is important to establish a minimum and consistent framework for fair value practices across funds. This framework also allows the Commission to articulate appropriate oversight measures, as outlined in section II.B below,
In support of a safe-harbor approach, some commenters raised concerns that violations of the proposed rule that may not directly impact the value given to an asset, for example a failure to keep records for the prescribed period, could
Rule 2a–5 sets forth certain required functions that must be performed to determine the fair value of the fund's investments in good faith.
We are adopting, as proposed, the requirement to assess periodically any material risks associated with the determination of the fair value of the fund's investments, including material conflicts of interest, and to manage those identified valuation risks.
Several commenters expressed general support for the valuation risk requirement,
After considering these comments, we continue to believe that requiring the assessment and management of material valuation risks in the final rule will help promote an effective overall process for fair valuing fund investments in good faith.
The Proposing Release also included a non-exhaustive list of examples of sources or types of valuation risk.
We received a number of comments on the list of sources and types of valuation risk. One commenter expressed general support for the inclusion of this list, including its level of generality in describing sources and types of risk.
One commenter recommended we clarify that the assessment and management of valuation risks other than those identified in the Proposing Release can satisfy this requirement.
After considering these comments, we continue to believe that a fund's specific
As such, the following is a non-exhaustive list of sources or types of valuation risk:
• The types of investments held or intended to be held by the fund
• Potential market or sector shocks or dislocations and other types of disruptions that may affect a valuation designee's or a third-party's ability to operate;
• The extent to which each fair value methodology uses unobservable inputs, particularly if such inputs are provided by the valuation designee;
• The proportion of the fund's investments that are fair valued as determined in good faith, and their contribution to the fund's returns;
• Reliance on service providers that have more limited expertise in relevant asset classes; the use of fair value methodologies that rely on inputs from third-party service providers; and the extent to which third-party service providers rely on their own service providers (so-called “fourth-party” risks); and
• The risk that the methods for determining and calculating fair value are inappropriate or that such methods are not being applied consistently or correctly.
As proposed, the final rule will provide that fair value as determined in good faith requires the board or valuation designee, as applicable, to establish and apply fair value methodologies. To satisfy this requirement, a board or valuation designee, as applicable, must:
(1) Select and apply appropriate fair value methodologies;
(2) Periodically review the appropriateness and accuracy of the methodologies selected and make any necessary changes or adjustments thereto; and
(3) Monitor for circumstances that may necessitate the use of fair value.
As discussed below, we are adopting these functions substantially as proposed, with certain modifications to respond to commenters' concerns and suggestions.
The final rule will require the board or valuation designee, as applicable, to select and apply in a consistent manner an appropriate methodology or methodologies
We received numerous comments on the proposed requirement that the board or adviser, as applicable, select and apply in a consistent manner an appropriate methodology or methodologies for determining (which includes calculating) the fair value of fund investments. These commenters generally requested clarification relating to the proposed requirement that a board or adviser, as applicable, select and apply fair value methodologies “in a consistent manner.” Several commenters stated that this proposed requirement suggested that a board or adviser, as applicable, generally may select only one methodology per asset class, and requested we clarify that this requirement does not preclude a board or adviser, as applicable, from selecting different methodologies for different securities within the same asset class or sub-class.
Similarly, commenters requested we clarify that the requirement to select and apply fair value methodologies in a consistent manner does not restrict a board's or adviser's ability to change the selected methodology for an investment or asset class under appropriate circumstances.
Commenters questioned our statement in the Proposing Release that to be appropriate under rule 2a–5, a methodology used for purposes of determining fair value must be consistent with ASC Topic 820,
We believe that an appropriate methodology must be consistent with those used to prepare the fund's financial statements and thus be consistent with the principles of the valuation approaches laid out in ASC Topic 820. Therefore, if a valuation methodology was used that is not consistent with the principles of the valuation approaches laid out in ASC Topic 820, we would presume that use of such a methodology would be misleading or inaccurate. While the valuation approaches laid out in ASC Topic 820 may not directly address every situation that a fund may face because the accounting standards are principles-based, we believe that taking a valuation approach that is inconsistent with the principles outlined in ASC Topic 820 may result in a fund having a misleading or inaccurate fair value process because such an approach may not be consistent with U.S. GAAP and the fund's financial reporting process. Supplemental methodologies for situations not explicitly outlined in ASC Topic 820 may be appropriately applied by boards or valuation designees provided that the methodologies are not inconsistent with the principles outlined in ASC Topic 820. We recognize that there is no single methodology for determining the fair value of an investment because fair value depends on the facts and circumstance of each investment, including the relevant market and market participants.
Commenters suggested we clarify that certain guidance provided in the 2014 Money Market Funds Adopting Release relating to the valuation of thinly traded securities is being superseded by final rule 2a–5 and the related guidance provided herein.
The proposed rule also would have required the board or adviser, as applicable, to consider the applicability of the selected fair value methodologies to types of fund investments that a fund does not currently hold but in which it intends to invest in the future.
We are persuaded that specifically requiring a predetermination of the methodologies that must be applied to hypothetical future investments could cause undue burdens to the extent it caused a fund to establish methodologies for assets in which a fund ultimately does not invest. Moreover, a fund will be required to value all of its investments, regardless of whether the fund had pre-determined a methodology. We believe that the general requirement under the final rule to select and apply in a consistent manner an appropriate methodology or methodologies for determining (and calculating) the fair value of fund investments,
To establish and apply fair value methodologies appropriately, the final rule will require a board or valuation designee to review periodically the selected fair value methodologies for appropriateness and accuracy, and to make changes or adjustments to the methodologies where necessary.
We received one comment on this requirement. The commenter generally supported it, but suggested we clarify that “adjustments” to the selected fair value methodologies under this requirement may include a change to new appropriate methodologies.
As proposed, the final rule will also require the board or valuation designee, as applicable, to monitor for circumstances that may necessitate the use of fair value as determined in good faith.
One commenter generally requested we clarify that this requirement is not meant to require the board or valuation designee, where applicable, to identify in advance
The proposed rule also would have required the establishment of criteria for determining when market quotations are no longer reliable and therefore not readily available.
Although this requirement derived from the Commission's positions under the compliance rule,
As proposed, the final rule will require the testing of the appropriateness and accuracy of the methodologies used to calculate fair value.
While several commenters supported the proposed requirement,
After considering these comments, we continue to believe that the specific tests to be performed and the frequency with which such tests should be performed are matters that depend on the circumstances of each fund and thus should be determined by the board or the valuation designee, as applicable. We also continue to believe that requiring the identification of (1) the testing methods to be used, and (2) the minimum frequency of the testing, is appropriate and still provides boards and valuation designees with flexibility to perform methodology testing based on the particular circumstances of a particular fund.
Calibration and back-testing are examples of particularly useful testing methods to identify trends in certain circumstances, and potentially to assist in identifying issues with methodologies applied by fund service providers, including poor performance or potential conflicts of interest.
As proposed, the final rule will provide that determining fair value in good faith requires the oversight and evaluation of pricing services, where used.
We believe, and many commenters agreed, that pricing services play an important role in the fair value process by providing information on evaluated prices, matrix prices, price opinions, or similar pricing estimates or information that can assist in determining the fair value of fund investments.
In a change from the proposal, we are modifying the final rule to require funds to establish a
After considering comments, we agree that there can be a range of circumstances under which a price challenge may be warranted, some of which cannot be distilled into specific criteria in advance.
Several commenters urged the Commission to provide additional guidance concerning who would qualify as a pricing service under the final rule.
Some commenters suggested we also include a specific requirement for a fund's board or adviser, as applicable, to periodically review the selection of pricing services and to evaluate other pricing services.
In addition, several commenters stated that the oversight of pricing services requirements under rule 2a–5 may not be consistent with previous guidance regarding the use of pricing services in the 2014 Money Market Fund Release, particularly regarding the role of the board of directors.
We believe that the requirements of the final rule and the guidance provided in this section effectively address the concerns with oversight of pricing services discussed as part of the fair value guidance in the 2014 Money Market Fund Release. We state below our views on how oversight and selection of pricing services may be effectively conducted, which is largely consistent with our previous guidance from the 2014 Money Market Fund Release guidance but reflects the process established in rule 2a–5 allowing the board to designate the valuation designee to perform fair value determinations.
We believe that under the final rule, before deciding to use a pricing service, the fund's board or valuation designee, as applicable, generally should take into consideration factors such as: (i) The qualifications, experience, and history of the pricing service; (ii) the valuation methods or techniques, inputs, and assumptions
The final rule does not include the provision in the proposal that would have separately required the fund to adopt written policies and procedures reasonably designed to achieve compliance with the requirements of rule 2a–5.
Rule 38a–1 requires a fund's board, including a majority of its independent directors, to approve the fund's policies and procedures, and those of each adviser and other specified service providers, based upon a finding by the board that the policies and procedures are reasonably designed to prevent violation of the Federal securities laws.
While the adopting release for the compliance rule included a discussion
Where the board determines the fair value of investments, the fund will adopt and implement the fair value policies and procedures under the compliance rule.
Largely as proposed, under the final rule, a board may choose to determine fair value in good faith for any or all fund investments by carrying out all of the functions required in paragraph (a) of the final rule, including, among other things, selecting and applying valuation methodologies.
Section 2(a)(41) requires that the board determine fair value for securities that do not have readily available market quotations. The final rule provides that the board may “designate” the performance of these fair value determinations to a valuation designee. This is a change from the proposal that would have provided that the board may “assign” such task to an adviser. Some commenters questioned the use of the phrase “assign” in the proposed rule, stating that it was unique in the rules adopted under the Act. These commenters stated that the scope of an assignment was unclear.
In a change from the proposal, which would have permitted boards to assign only to an adviser of the fund, the final rule will permit boards to designate the
These commenters suggested that an expanded list of permissible entities would more accurately reflect current organizational structures and practices, would make it easier for smaller funds to comply with rule 2a–5, and would facilitate boards that would prefer non-advisers that may have fewer conflicts of interest.
We generally decline to expand permissible designees beyond the adviser in the final rule because we believe that it is critical for the entity actually performing the fair value determinations to owe a fiduciary duty to the fund and be subject to direct board oversight whenever possible.
We recognize, as commenters stated, that internally managed funds have no adviser. Instead they rely on certain officers of the fund to perform the broad range of tasks that advisers to externally managed funds otherwise perform.
In the Proposing Release, we stated that the proposed rule would permit boards to assign either to the fund's primary adviser or one or more sub-advisers.
The final rule will not permit boards to designate the performance of fair value determinations to fund sub-advisers.
The proposed rule would have permitted only the UIT's trustees to perform fair value determinations.
In other contexts under the Investment Company Act, the Commission has provided for a UIT's depositor to conduct activities that the board of directors would otherwise conduct, given that a UIT has neither a board of directors nor an adviser.
In recognition of commenters' statements that there would be significant costs for pre-existing UITs to change who engages in the fair value determination as they might need to amend their trust indenture (and potentially obtain a unit holder vote approving the change) we are grandfathering existing UITs under limited circumstances. Thus, the final rule will now require trustees or depositors to perform fair value determinations if the UIT's date of initial deposit (which would include a rollover) of portfolio securities occurred after the effective date of rule 2a–5. If the initial deposit of securities into the UIT took place
As proposed, the final rule defines “board” both as the full board or a designated committee thereof composed of a majority of directors who are not interested persons of the fund.
One commenter wanted clarification that the fund's adviser could perform fair value determinations on the board's behalf regardless of whether it is acting pursuant to an advisory contract, administrative contract, or similar agreement.
Some commenters also asked that we clarify that the adviser or the fund board could engage third parties to assist with certain functions of the fair value determination process, such as performing back-testing, fund accounting, or shareholder reporting, other than making the actual determinations themselves.
We believe that whether the board or the valuation designee makes fair value determinations under the final rule, it may of course obtain assistance from others in fulfilling its duties. It may, for example, seek assistance from pricing services, fund administrators, sub-advisers, accountants, or counsel.
The final rule, consistent with the proposal, specifically requires a board to oversee the valuation designee if the board has designated the performance of fair value determinations to the valuation designee.
Some of these commenters argued that board oversight of the valuation process should be the same as the oversight of other functions, such as liquidity risk.
A number of commenters questioned the guidance stating that boards must be active in their oversight role by probing reports written by advisers and being inquisitive,
Although several commenters asked us to confirm that boards may provide oversight of the performance of fair value determinations consistent solely with the business judgment rule under state law, we decline to do so.
Finally, several commenters recommended that we adopt additional oversight requirements, such as third-party reviews, attestations, or certifications by the adviser,
We reiterate the guidance on board oversight of the fair value determination process from the Proposing Release.
The board should view oversight as an iterative process and seek to identify potential issues and opportunities to improve the fund's fair value processes.
We expect that boards engaged in this process would use the appropriate level of scrutiny based on the fund's valuation risk, including the extent to which the fair value of the fund's investments depend on subjective inputs. For example, a board's scrutiny would likely be different if a fund invests in publicly traded foreign companies than if the fund invests in private early stage companies. As the level of subjectivity increases and the inputs and assumptions used to determine fair value move away from more objective measures, we expect that
We also believe that, consistent with their obligations under the Act and as fiduciaries, boards should seek to identify potential conflicts of interest, monitor such conflicts, and take reasonable steps to manage such conflicts.
Boards should probe the appropriateness of the valuation designee's fair value processes. In particular, boards should periodically review the financial resources, technology, staff, and expertise of the valuation designee, and the reasonableness of the valuation designee's reliance on other fund service providers, relating to valuation.
Boards should also consider the type, content, and frequency of the reports they receive. The final rule will require reporting to the board (both periodically and promptly) regarding many aspects of the valuation designee's fair value determination process as a means of facilitating the board's oversight as discussed below. While a board can reasonably rely on the information provided to it in summaries and other materials provided by the valuation designee and other service providers in conducting appropriate oversight, it is incumbent on the board to request and review such information as may be necessary to be informed of the valuation designee's process for determining the fair value of fund investments.
As modified in response to comments received, the final rule will require a valuation designee that the board has designated to perform fair value determinations to report to the board regarding its performance of that responsibility, including certain periodic reports and prompt notification and reporting on matters that materially affect the fair value of investments whose fair value is determined by the valuation designee.
The final rule will require the valuation designee to make both annual and quarterly written reports to the board.
•
•
After considering comments, we have made certain changes to the proposed periodic reporting requirements designed to enhance flexibility of reporting to better match boards' needs and to minimize the chance that boards receive reporting that is too detailed or repetitive to facilitate appropriate oversight. The proposed rule would have required quarterly reporting on a variety of valuation matters.
The proposed rule would have included a number of specific items to be included in the quarterly assessment to boards. Specifically, the proposed rule would have required the quarterly report to include: (1) A summary or description of the assessment and management of material valuation risks (including material conflicts of interest), (2) material changes to, or material deviations from, established fair value methodologies, (3) testing results, (4) adequacy of resources allocated to fair value determinations, (5) material changes to the adviser's process for selecting and overseeing pricing services (including changes in service providers and price overrides), as well as (6) any other materials requested by the board. A number of commenters objected to many of these specific items being reported on a quarterly basis, asserting that the cost to produce them on a quarterly basis would exceed the costs the Commission assumed
We agree that boards should have latitude to implement a flexible reporting mechanism that is tailored to their fund, recognizes judgment in exercising oversight, and minimizes rote reporting. That said, we believe that appropriate oversight, facilitated by a certain minimum level of reporting, is necessary in order for the designation process to be consistent with the Act.
Specifically, we have made adjustments to the overall proposed periodic reporting requirements. The final rule will require that the valuation designee report its assessment of the adequacy and effectiveness of the valuation designee's process for determining the fair value of designated investments, testing results, and adequacy of allocated resources at least annually rather than quarterly as proposed. In lieu of quarterly assessments of the entire fair value process, the final rule will instead require quarterly reports to address issues about which the board requests information, as well as information about material changes or events that occurred during the period.
We have also made adjustments, in response to comments, from the proposal regarding the specific items that will be required to be part of periodic reports. In lieu of a discussion of the assessment and management of material valuation risks as part of the valuation designee's assessment, the final rule will instead require that the quarterly report identify material changes, including the identification of any material changes in the assessment or management of these risks that occurred during the quarter. We agree with commenters that this reporting could become rote if it does not change and have focused it upon material changes as a result.
Some commenters suggested that the proposed rule, as worded, would have required the adviser to report every test result, service provider change, or price override to the board, which we did not intend.
Some commenters requested more clarification as to what constitutes “material” in the context of the final rule's reporting requirements,
The final rule will require the valuation designee's reports to include such information as may be reasonably necessary for the board to evaluate the matters covered in the reports.
Some commenters were concerned that this requirement will result in advisers providing extraneous or out-of-context information, such as back-testing results, to the board.
In the Proposing Release, we provided a list of specific items that a board could review and consider, if relevant. These included a number of data-driven reporting items like reports regarding portfolio holdings whose price has changed outside of pre-determined ranges over time, reports regarding stale prices, and analyzing trends in the number of the fund's portfolio holdings that received a fair value.
A number of commenters objected to this list, suggesting that boards and advisers would see these items as mandatory, leading to advisers providing unwanted data to boards in an abundance of caution.
With modifications made to address comments received on this aspect of the proposal, the final rule will require the valuation designee to provide a written notification of the occurrence of matters that materially affect the fair value of the designated portfolio of investments (defined as “material matters”) within a time period determined by the board, but in no event later than five business days after the valuation designee becomes aware of the material matter.
The proposal included a reporting requirement that would have required prompt reporting on matters that could have materially affected the fair value of the designated portfolio of investments.
Some suggested alternatives, such as the adviser making a prompt notification within the prescribed period and then subsequently providing a report to the board following an assessment of the issue as soon as reasonably practicable.
The purpose of this requirement is to ensure that boards receive timely information that demands their immediate attention. We believe that it is critical for appropriate oversight under the final rule that the board be
Commenters also had concerns about the proposed three-business-day time period for making these reports, arguing that it was insufficient time to provide a meaningful report to the board.
Under this revised requirement, a valuation designee must promptly notify the board of material matters related to valuation controls or errors that either the valuation designee has identified itself or that the valuation designee has been notified of by an independent third party, including the fund's auditor. We believe that the valuation designee should promptly determine the materiality of matters it identifies consistent with its fiduciary duties and then notify the board within the five business day period after determining that the matter is material. In cases where the materiality of a matter is immediately apparent, the designee would report the material matter to the board within the five business day period.
In combination, these changes should clarify and focus the prompt reporting
Some commenters recommended that we permit a designated board member, such as an independent board member, to receive the prompt report.
We are adopting the specification of functions requirement largely as proposed. Under the final rule, if the board designates the performance of fair value determinations to a valuation designee, rule 2a–5 will require the valuation designee to specify the titles of the persons responsible for determining the fair value of the designated investments, including by specifying the particular functions for which the persons identified are responsible.
Commenters generally supported these provisions.
Additionally, commenters generally supported the proposed requirement that the adviser reasonably segregate fair value determinations from the portfolio management of the fund.
We continue to believe that our proposed approach strikes the appropriate balance. The final rule will not prohibit portfolio managers from participating in the process of fair value determinations because of the unique insights that portfolio management may have regarding the value of fund holdings. Keeping the functions reasonably segregated in the context of fair value determinations should help mitigate the possibility that a portfolio manager's competing incentives diminish the effectiveness of fair value determinations. However, in a change from the proposal, the final rule would remove the phrase “process of” from this subsection of rule 2a–5. This change is meant to clarify that the segregation requirement would not prevent portfolio managers from providing inputs that are used in the process for determining fair value, as raised by one commenter.
As discussed in the Proposing Release, this requirement is designed to address concerns regarding a portfolio manager's conflicts of interest while recognizing the important perspective and insight regarding the value of fund holdings that portfolio management personnel can provide.
We are adopting new rule 31a–4 that applies to both registered investment companies and business development companies
Comments on the recordkeeping aspects of the proposal were mixed, with some commenters broadly agreeing with them,
One commenter suggested that the proposed recordkeeping requirements were more appropriate as a rule under section 31 of the Act, stating that this would both help centralize investment company recordkeeping provisions and would also ensure that a failure to keep the required records would not lead to a board being found to have not fair valued in good faith.
A number of commenters also recommended that we tie the recordkeeping requirements to the three-tier fair value hierarchy within U.S. GAAP
We believe that the requirement to maintain appropriate documentation to support fair value determinations should include documentation that would be sufficient for a third party, such as the Commission's staff, not involved in the preparation of the fair value determinations to verify, but not fully recreate, the fair value determination, as further described below.
In a change from the proposal, we are not requiring detailed records relating to the specific methodologies a pricing service applied and the assumptions and inputs a pricing service considered when providing each piece of pricing information as we are persuaded that such a requirement would be impractical. Rather, we believe appropriate documentation to support a fair value determination that takes into account inputs from pricing services consists of the records related to the fund or valuation designee's initial due diligence investigation prior to selecting a pricing service and records from its ongoing monitoring and oversight of the pricing services.
We also believe that different types of records will be appropriate depending on the security or fair value
Under rule 31a–4, and consistent with proposed rule 2a–5, an adviser designated to perform fair value determinations will be required to maintain the relevant records.
We are not expanding the records to be maintained under the rule as suggested by some commenters.
Under the final rule, funds and advisers will be generally required to maintain these records for a total of six, rather than the proposed five, years.
We are adopting the definition of readily available market quotations as proposed. The board's role in the valuation of a portfolio holding for purposes of fair value depends on whether or not market quotations are readily available for such a holding.
The final rule will provide that a market quotation is readily available for purposes of section 2(a)(41) of the Investment Company Act with respect to a security only when that “quotation is a quoted price (unadjusted) in active markets for identical investments that the fund can access at the measurement date, provided that a quotation will not be readily available if it is not reliable.”
Some commenters that addressed our proposed definition of readily available market quotations generally supported it.
As we stated in the proposal, under the final rule, evaluated prices are not readily available market quotations as they are not based upon unadjusted quoted prices from active markets for identical investments.
Two commenters asked whether certain pooled investment vehicle securities, such as those of funds that publish their NAV daily and issue and redeem shares at that NAV (such as mutual funds), or that are valued using their NAV as a practical expedient (such as many private fund shares),
Conversely, securities that are valued using NAV as a practical expedient, like certain private funds, do not require disclosure of the level of input associated with them under the U.S. GAAP fair value hierarchy.
One commenter stated that securities exchanges such as NASDAQ or the NYSE often adjust prices to establish a closing price or address technical issues. This commenter asked that we clarify that by “unadjusted” we did not mean to disqualify securities adjusted by exchanges in this way.
Consistent with the requirements for preparing fund financial statements,
A number of commenters raised concerns that the proposed definition of readily available market quotations may affect current practices on cross trades under 17 CFR 270.17a–7 (“rule 17a–7”).
The definition of readily available market quotations that we are adopting will apply in all contexts under the Investment Company Act and the rules thereunder, including rule 17a–7.
We recognize that whenever we define a term, to the extent market participants are currently engaged in practices that are not consistent with that definition, they will need to conform their practices. As a result, certain securities that had been previously viewed as having readily available market quotations and being available to cross trade under rule 17a–7 may not meet our new definition and thus would not be available for such trades.
As proposed, we are rescinding ASR 113 and ASR 118 in their entirety. We believe that rescission is appropriate because the guidance included in ASR 113 and ASR 118 is superseded or made redundant by the adoption of rule 2a–5 and by the requirements under the current accounting and auditing standards.
Commenters generally supported the rescission of ASR 113 and ASR 118.
One commenter argued that we should retain the ASRs, as it believed that the ASRs addressed certain fund specific issues, such as those related to the valuation of “odd lots” it believed were not addressed in U.S. GAAP.
With respect to the comments concerning odd lot valuation practices, the rescission of the ASRs will not change the Commission's ability to bring similar enforcement cases in the future. The cases were brought under several legal bases, including section 34(b) of the Act and 17 CFR 270.22c–1, because the funds made misstatements related to their performance and sold shares at a price other than their current net asset values. Although the guidance in the ASRs has been cited in prior cases, these cases were brought under independent legal bases as stated above, and valuing odd lots at a price that a fund cannot access on the measurement date will continue to be inconsistent with these requirements and ASC Topic 820 after the rescission of the ASRs.
Among other things, ASC Topic 820 provides a principles-based framework for valuing all investments. The accounting standards are not designed to describe specific fair value measurement fact patterns; we disagree with certain commenters that certain fund specific valuation issues are not addressed in U.S. GAAP and continue to believe that the principles in ASC Topic 820 provide a framework appropriate to utilize for all fair value measurements.
Furthermore, as discussed in the proposing release, the guidance in ASR 118 states that auditors of funds should verify all quotations for securities with readily available market quotations, implicating the auditor's requirement to test the valuation assertion for all securities when auditing a fund's financial statements.
In addition to our rescission of ASR 113 and ASR 118, certain Commission guidance, staff letters and other staff guidance addressing a board's determination of fair value and other matters covered by the rules will be withdrawn or rescinded in connection with this adoption. Upon the compliance date of these rules, some staff letters and other Commission and staff guidance, or portions thereof, will be moot, superseded, or otherwise inconsistent with the rules and, therefore, will be withdrawn or rescinded.
Commenters generally agreed that certain existing Commission and staff guidance should be withdrawn as part of the adoption of rule 2a–5.
Upon the compliance date of the rules, certain Commission guidance as well as all the staff letters and other staff guidance listed below will be withdrawn. Some commenters also asked that we confirm that, to the extent staff guidance not identified in the proposal conflicts with the requirements of the rules, such guidance is superseded.
The Commission is adopting an eighteen month transition period beginning from the effective date of the rules to provide sufficient time for funds and valuation designees to prepare to come into compliance with rules 2a–5 and 31a–4.
Pursuant to the Congressional Review Act,
Rule 2a–5 provides requirements for determining fair value in good faith for purposes of section 2(a)(41) of the Act and rule 2a–4 thereunder. The Commission is adopting rule 2a–5 for the reasons provided above in section II. The final rule provides that determination of fair value in good faith requires assessing and managing material risks associated with fair value determinations; selecting, applying, and testing fair value methodologies; and evaluating any pricing services used.
Rule 2a–5 permits a fund's board of directors to designate certain parties to perform such fair value determinations in good faith, who will then carry out these functions for some or all of the fund's investments. This designation will be subject to board oversight and certain reporting and other requirements designed to facilitate the board's ability to oversee effectively this party's fair value determinations.
We are sensitive to the economic effects that may result from the rules, including the benefits, costs, and the effects on efficiency, competition, and capital formation.
We discuss potential effects of the rules as well as possible alternatives to the rules in more detail below. Where possible, we have attempted to quantify the costs, benefits, and effects on efficiency, competition, and capital formation expected to result from the rules. In some cases, however, we are unable to quantify the economic effects because we lack the information necessary to provide a reliable estimate. Where we are unable to quantify the economic effects of the rules, we provide a qualitative assessment of the potential effects.
To understand the effects of the rules, we compare the requirements of the rules to the current regulatory framework and current industry practices. As discussed in greater detail in section II above, the regulatory framework regarding fair value determinations and the role of the board of directors in the determination of fair value is set forth in the Investment Company Act and the rules thereunder. The Commission has also expressed its views on the role of the board regarding fair value under the Investment Company Act in several releases, including ASR 113 and ASR 118, the 2014 Money Market Fund Release, and the Compliance Rules Adopting Release.
Section 2(a)(41) of the Investment Company Act defines the value of assets for which market quotations are not readily available as fair value as determined by the board of directors in good faith. Under the Investment Company Act, whenever market quotations are readily available for a security, these market quotations must be used to value that security.
As discussed in the Proposing Release, the Commission stated in ASR 113 and ASR 118 that the board need not itself perform each of the specific tasks required to calculate fair value in order to perform its role under section 2(a)(41).
The 2014 Money Market Fund Release stated that funds “may consider evaluated prices from third-party pricing services, which may take into account these inputs as well as prices quoted from dealers that make markets in these instruments and financial models.”
Finally, for a fund to engage in a cross trade under rule 17a–7, the security first must have a “readily available market quotation” and then the transaction must meet the other conditions of rule 17a–7. Currently, funds and their affiliates rely on rule 17a–7 and consider related staff no-action letters when engaging in cross trades of certain fixed-income securities. Funds' reliance on rule 17a–7 and funds' practices in consideration of related staff no-action letters form part of our baseline for the economic analysis of the final rules.
Our understanding of current fair value practices is based on fund disclosures, staff discussions with industry representatives, staff's experience, review of relevant industry publications and academic papers, and commenters' letters.
Most fund boards or UIT trustees do not play a day-to-day role in the pricing of fund investments.
It is our understanding that boards, advisers, and UIT evaluators currently play an important role in identifying and managing valuation risks,
Many of these risks are operational in nature, such as model risk, which includes the risk of loss caused by using inaccurate models (methodologies) to make decisions such as determinations of fair value.
Funds' valuation practices generally focus on mitigating potential conflicts of interest of the adviser as well as conflicts of interest of other parties that assist the board with fair value determinations (
Valuation risks can change with changes in market conditions, changes in fund investments, changes in inputs and assumptions, and changes in methodologies or models. Hence, funds may periodically review any previously identified valuation risks.
Many commenters noted that assessing and managing valuation risks is a part of current practice,
Funds with investments that are fair valued currently have in place written policies and procedures that describe the methodologies used when calculating fair values.
The methodologies provided in policies and procedures or trust indentures can require multiple data sources and entail various assumptions.
We understand that fund boards, advisers, and UIT depositors and evaluators have generally established fair value methodologies for their investments that lack readily available market quotations, which are generally applied consistently in accordance with policies and procedures or trust indentures as described above.
We understand that funds or pricing services generally test the appropriateness and accuracy of internally selected methodologies used to value investments.
As discussed above, a fund's adviser often plays an important and valuable role in carrying out the day-to-day work of determining fair values, while the board reviews periodic reports from the adviser regarding the fair value of fund investments and fair value practices (
The commenters who weighed in on this aspect confirmed our understanding of these practices.
We understand that, under existing practice, fund boards, advisers, and UIT depositors frequently use third-party pricing service providers to assist in determining fair values.
Many commenters confirmed our understanding of current practices of board reporting.
Valuation reports may vary depending on the volume and complexity of fair value determinations.
It is our understanding that funds and advisers currently retain records related to fair value determinations. These records generally include identifying information for each portfolio investment, data used for pricing, and any other information related to price determinations and fund valuation policies and procedures. Commenters generally confirmed our understanding of common practices in recordkeeping.
It is our understanding that some funds currently rely on rule 17a–7 and consider staff no-action letters when engaging in cross trades in investments, including fixed-income securities.
Rules 2a–5 and 31a–4 potentially affect all registered investment companies and BDCs (because their fund investments must be fair valued under the Act), those funds' boards of directors, advisers, and investors. The rules also affect funds that engage in cross trades. Table 1 below presents descriptive statistics for the funds that could be affected by the rules. As of September 11, 2020, there were 14,010 registered investment companies: (i) 12,680 open-end funds; (ii) 664 closed-end funds; (iii) 661 UITs; and (iv) 14 variable annuity separate accounts
To understand the extent of current boards' involvement in the valuation of funds' investments and the extent to which the rules could affect funds' operations (including for funds that engage in cross trades), we examine funds' investments under the U.S. GAAP fair value hierarchy.
Table 2 provides descriptive statistics on funds' investments measured based on level 1, 2, and 3 inputs using Form N–PORT data as of September 2020.
As of September 2020, there were 1,518 advisers that reported providing portfolio management for investment companies or BDCs with regulatory assets under management of $61.6 trillion, of which $33.6 trillion was attributable to investment company and BDC clients.
Unbiased valuation of fund investments is important because it affects the prices at which fund shares are purchased or redeemed by shareholders. Similarly, to the extent that valuation reflects what would be obtained in a current arm's length transaction, such valuation could also provide fund managers and investors a more accurate picture of the funds' volatility.
As explained above, we understand that boards typically rely on fund advisers to perform the day-to-day calculation of fair value determinations for fund investments that do not have readily available market quotations.
Fund advisers' interests may conflict with the interest of shareholders,
The degree of such conflicts of interest may vary across funds,
Under the final rule, boards may designate the performance of fair value determinations for investments of the fund to a valuation designee.
The decision to oversee valuation designees' fair value determinations may also depend on valuation designees' willingness to assume the designated responsibilities. Such willingness may depend on the valuation designee's valuation expertise and experience, whether the valuation designee has available resources to satisfy new obligations, and the extent to which the valuation designee could be compensated for those increased responsibilities, including by passing through to the fund and its investors any higher costs. Finally, a board's decision to designate responsibilities under the final rule may depend on the expected costs of compliance, which ultimately depend on how different the fund's current practices and policies and procedures are from the requirements of the final rule.
We lack comprehensive information on funds' current fair value practices and do not have visibility into boards' decision-making processes when seeking assistance with fair value determinations from valuation designees.
Overall, the requirements of the final rule provide a framework for appropriate oversight of determinations of fair value in good faith. As such, the final rule helps the board oversee the fund and helps to promote, for example, the mitigation of conflicts of interest of those involved in the fair value process and in the management of investments and the management of the fund for the benefit of the fund's shareholders. Another benefit arising from appropriate oversight of the fair value process is that fair value determinations will be more likely to reflect a price that could be obtained in arm's length transactions with less bias. This will contribute to better measurement of the risk and return profile of individual investments and their contribution to the risk and return profile of the fund, which will help promote the management of the fund in accordance with its investment objectives; ensure the accuracy of asset-based and performance-based fee calculations; and affect the accuracy of disclosures of fund fees, performance, NAV, and portfolio holdings.
Similarly, as less biased fair value determinations help to ensure that a fund's value more accurately reflects the value that a current arm's length transaction would produce when purchasing or selling fund shares, as well as in cross trades, the final rule aims to provide investors their pro rata share of the fund's assets. Thus, proper valuation promotes the purchase and sale of fund shares at fair prices, and helps to avoid dilution of shareholder interests. Furthermore, investors may have stronger assurance that they can rely on valuations to express the risk and return profile of a fund, making investors' decisions better informed. Thus, investors may be better able to evaluate a fund and consider whether a fund fits into their investment goals in terms of returns and risk (
Finally, as described in the proposal, the increased specificity of the rules could reduce compliance costs for some funds that may expend less effort and time to design policies and procedures, reporting, and recordkeeping than trying to determine appropriate compliance under the statute alone. For funds whose current practices are more burdensome than the requirements of the rules, this increased specificity also could reduce compliance costs to the extent that funds might be less likely to put in place overly burdensome and unnecessary policies and procedures, reporting, and recordkeeping to comply with the statute. Relatedly, the rules and rescission of existing no-action letters and guidance may increase certainty because funds will follow a single rule rather than following various no-action letters and guidance when determining fair values, which could ultimately reduce compliance costs. Conversely, to the extent that the specificity of the requirements of the rules prompts some funds or advisers to devote greater resources to ensure compliance with their fair value obligations, the requirements of the rules may impose greater costs on such funds and advisers. Changes in costs of compliance for funds or advisers
In the next section, we discuss the benefits and costs; in a subsequent section, we discuss effects on efficiency, competition, and capital formation.
Rule 2a–5 sets forth certain required functions that must be performed to determine the fair value of the fund's investments in good faith. As discussed above,
The final rule will require the periodic assessment of any material risks associated with the determination of the fair value of the fund's investments, including material conflicts of interest, and management of those identified valuation risks. The final rule does not specify which risks are to be assessed or the frequency of reassessments.
To the extent that funds or valuation designees do not currently assess and manage valuation risks, the final rule will impose both one-time costs to develop or augment practices that conform to the requirements of the final rule as well as ongoing costs associated with implementing those practices. Likewise, to the extent that funds experience additional costs associated with developing or augmenting practices to conform with the requirements of the final rule to assess and manage valuation risks, these costs may be less burdensome for larger funds that could spread any such costs across a larger amount of assets under management. The final rule will, however, provide investors the benefit of assurances that mechanisms are in place to identify, assess, and manage valuation risks. To the extent that funds or valuation designees already assess and manage valuation risks in a manner consistent with rule 2a–5, the final rule will not impose any additional ongoing costs or present any additional ongoing benefits; such funds or valuation designees may have a one-time cost associated with reviewing the requirements of the final rule and ensuring that their practices conform to the requirements.
The final rule will require funds or valuation designees to select and apply in a consistent manner appropriate fair value methodologies for determining (which includes calculating) the fair value of fund investments.
To the extent that funds currently deviate from the requirements of the final rule to select and apply in a consistent manner fair value methodologies, the final rule will impose additional costs on funds or valuation designees. For example, a fund currently may make fair value determinations for certain securities, but not clearly select and apply the fair value methodology used to do so; under the final rule, the fund would have to clearly select and apply that methodology in a consistent manner. We recognize that there will be costs for funds that do not currently select and apply fair value methodologies in a consistent manner for all fund investments without readily available market quotations as defined in the final rule. These costs include one-time costs to evaluate the requirements of the final rule and make changes to practices as well as ongoing additional costs due to implementing these changes on an ongoing basis (
The final rule will require the periodic review of the appropriateness and accuracy of the valuation methodologies selected. The final rule will also require that funds make changes or adjustments to existing methodologies where necessary. As discussed above, many funds already incorporate such reviews into their current practices.
The final rule will require that funds or valuation designees monitor for circumstances that may necessitate use of fair value.
The final rule will require that the board or valuation designee, as applicable, test the appropriateness and accuracy of the fair value methodologies that have been selected, including by identifying testing methods to be used and determining the minimum frequency with which such testing methods are used.
One commenter noted specifically that “requirements around back testing, calibration, transparency and evaluation of inputs may require valuation designees to develop additional data science capabilities to analyze valuation data and perform necessary testing.”
The final rule provides that determining fair value in good faith requires the oversight and evaluation of pricing services, where used. The final rule will require that, where funds or valuation designees engage a pricing service, the fund or valuation designee establish a process for approvals, monitoring, and evaluation of each pricing service.
To the extent that funds already have a process for the approval, monitoring, and evaluation of pricing services in the precise manner prescribed by the final rule, the final rule will not impose any additional ongoing costs or present any additional ongoing benefits; such funds may have a one-time cost associated with reviewing the requirements of the final rule and ensuring that their processes conform to the requirements. Likewise, to the extent that funds bear additional costs associated with developing or augmenting practices to conform to the requirements of the final rule to oversee and evaluate pricing services, these costs may be less burdensome for larger funds that could spread any such costs across a larger amount of assets under management.
The requirement to establish a process for price challenges will impose some burdens on some funds or valuation designees. To the extent that funds already have processes for price challenges, the final rule will not impose any additional ongoing costs or present any additional ongoing benefits; such funds will have a one-time cost associated with reviewing the requirements of the final rule and ensuring that their practices conform to the requirements. However, for funds that did not previously establish such processes, the final rule will impose both one-time costs to create practices that conform to the requirements of the final rule as well as ongoing costs, such as implementation of these processes. The final rule will also provide the benefit of oversight of price challenges that should mitigate conflicts of interest between shareholders and valuation designees to the extent that such conflicts exist. For example, the final rule should mitigate conflicts of interest where valuation designees may
In connection with the final rule, and as discussed above, to comply with the compliance rule, each fund must adopt and implement written policies and procedures that are reasonably designed to prevent violations of the final rule. To comply with the compliance rule, these fair value policies and procedures must be tailored to the final rule's requirements.
As discussed above,
A number of commenters suggested that the costs of rule 2a–5 as proposed would be significant for UITs, particularly for pre-existing ones,
As discussed above, funds commonly engage advisers to assist them in performing fair value determinations, and the Commission has stated that the board need not itself perform each of the specific tasks required to calculate fair value in order to perform its role under section 2(a)(41).
Explicitly allowing boards to designate a valuation designee to perform fair value determinations allows boards to allocate the fair value responsibilities to that party, and thus could free board resources tied to valuation and redirect them to oversight or other matters in which board action may be more valuable.
For a fund whose board designates the fund's adviser to perform fair value determinations, one-time costs associated with reviewing the final rule to ensure that practices conform to requirements of the final rule may be borne by the adviser, the fund, or both, depending on the fund's governing documentation or advisory agreements, and could be ultimately passed through to the fund's shareholders in the form of higher management fees or other expenses in the future.
Relatedly, to the extent that an adviser to the fund is designated to perform fair value determinations that it is not currently performing, depending on the fund's governing documentation or advisory agreements, such an adviser or the fund may incur ongoing costs to satisfy its new fair value obligations. Similarly, to the extent that an officer of the fund performs the fair value determinations, the fund itself could directly incur higher ongoing costs, if any higher costs occur, though it would also benefit from improved governance of the fair value process. Those costs and benefits will be attributable to adopting and implementing assessment and testing practices, methodologies, reporting, and recordkeeping to ensure compliance with the rules' requirements. The magnitude of those costs and benefits will depend on how funds' or their advisers' current practices compare to the requirements of the rules. To the extent that advisers currently engage in the fair value process as permitted by the final rule and in accordance with its requirements (and thus currently incorporate the costs of doing so in their compensation), additional ongoing costs (including the extent to which any costs are passed on
Similarly, to the extent that an officer of the fund currently performs fair value determinations in accordance with the requirements of the final rule and is already compensated for such duties and responsibilities, such an officer is unlikely to demand higher wages. A valuation designee designated by the board to perform fair value determinations relating to any or all fund investments will, as discussed above, also be subject to appropriate oversight, including through board reporting.
We discuss the costs and benefits of this oversight and reporting below. The elements of oversight and reporting constitute an important part of the framework that the final rule establishes and thus contribute to the benefits described in section III.C.3. To the extent that a requirement of the final rule is in line with a fund's current practice, additional costs and benefits are likely to be limited with respect to the fund.
As discussed above, the final rule, similar to the proposed rule, will require a board to oversee any valuation designee designated to perform fair value determinations.
To the extent that certain funds' fair value practices currently are less thorough than those required under the final rule the final rule could decrease the likelihood that fund investments are inappropriately fair valued.
In addition, under the final rule, if the fund is a UIT, the fund's trustee or depositor must carry out the fair value determinations.
We believe that funds' incremental ongoing costs associated with this aspect of the final rule will be limited to the extent that boards or funds currently engage in appropriate oversight of a valuation designee's assistance with fair value calculations and that boards currently review periodic and ad-hoc reports related to fair value determinations prepared by the fund's valuation designee in a manner and to an extent consistent with the requirements of the final rule.
The final rule will require the valuation designee to provide periodic reports and prompt notification of matters that materially affect the fair value of the designated portfolio of investments.
The final rule, like the proposed rule, will require that certain reporting be provided to the board on a quarterly basis and certain reporting on an annual
Funds will have a one-time cost associated with reviewing the requirements of the final rule and ensuring that their practices conform to the requirements. To the extent that boards do not receive periodic reporting that conforms to the requirements of the final rule, the final rule will impose additional ongoing costs to valuation designees, such as providing additional reports or more frequent reports as required by the final rule or reports of different information. Similarly, the boards of these entities will incur ongoing costs related to reviewing such reports. The final rule's requirement to assess the adequacy and effectiveness on an annual basis will, for example, to the extent that a valuation designee does not do so on an annual basis, increase a valuation designee's costs as well as the board's costs of reviewing such reports. Further, the final rule's requirement that quarterly reports include material changes in assessment or management of valuation risks will, to the extent that a valuation designee does not report material changes in assessment or management of valuation risks or does not do so on a quarterly basis, increase a valuation designee's costs as well as the board's costs of reviewing such reports. The final rule's requirement for a summary of testing results and assessment of adequacy of resources on an annual basis will, to the extent that a valuation designee does not report testing results or an assessment of adequacy of resources or does not do so on an annual basis, increase their costs as well as the board's costs of reviewing such reports. In addition, to the extent that these reporting requirements increase the volume of information that boards must review, board members may seek higher fees or may devote less time to other issues, which may impact the general effectiveness of the board. Furthermore, to the extent that the board consults outside counsel or other experts, such as accountants, with respect to such reporting, there may be additional external expenses incurred. These costs could be passed on to investors. However, to the extent that the requirement of the final rule for periodic reporting aligns with a fund's current practice, this requirement of the final rule may impose additional costs or contribute additional benefits of improved board oversight of the fair value process.
Certain funds might put in place reporting procedures to comply with the final rule that are more costly than those funds' current practices, while other funds might set up reporting as a result of the final rule that will result in lower ongoing costs than the costs of current practice. We acknowledge that funds whose reporting is less costly than that required under the final rule will bear additional ongoing costs under the final rule.
The final rule will require the valuation designee to provide a written notification of the occurrence of material matters, including significant deficiencies or material weaknesses in the design or effectiveness of the valuation designee's fair value determination process or material errors in the calculation of net asset value. This notification must take place within a time period determined by the board, but in no event later than five business days after the valuation designee becomes aware of the material matter. The valuation designee must also provide such timely follow-on reports as the board may reasonably determine are appropriate. As discussed above, it is common practice to require that certain matters be reported promptly to the board, though the content and frequency of current ad hoc reporting to boards may vary depending on the type of fund and fund investments.
To the extent that funds do not already provide boards with prompt reporting on matters as required in the final rule, the final rule will impose additional ongoing costs such as preparing reports more quickly or more often than waiting for routine reporting. Specifically, the final rule requires written notification of the occurrence of material matters in no event later than five business days after the valuation designee becomes aware. This will impose costs on valuation designees, including costs of diverting or expending additional resources, to meet the required timeline. In addition, the final rule's definition of material matters may include matters for which some boards do not currently receive reports, which could impose additional burdens on valuation designees producing additional reports and on boards' time and attention and related external costs. The requirement to provide such timely follow-on reports as the board may reasonably determine are appropriate may impose similar costs to the extent boards do not receive such reporting already. Also, funds and valuation designees may have a one-time cost associated with reviewing the requirements of the final rule and conforming their practices to the requirements.
Overall, as discussed previously, the changes to the reporting requirements of the final rule reduce the burden and cost of required prompt board reporting under the final rule compared to the requirements of the proposed rule. Valuation designees will have relatively reduced reporting burdens and the relatively reduced reporting to the board will permit the board to more effectively and more efficiently focus on its oversight role.
The final rule, like the proposed rule, will require that the valuation designee (a) specify the titles of the persons responsible for determining the fair value of designated investments, including by specifying the particular functions for which they are responsible, and (b) reasonably segregate portfolio management from fair value determinations.
To the extent that funds do not already specify functions as required in the final rule, the final rule will impose additional ongoing costs, such as reviewing and specifying functions in accordance with the final rule. Specifically, the requirement to specify the titles of the persons responsible for determining the fair value of the designated investments, including by particular function and as related to price challenges, may impose costs, including those related to identifying clearly those responsible for price challenges to the extent funds do not do so already. In addition, the final rule's requirement for the valuation designee to segregate fair value determinations from the portfolio management of the fund reasonably will impose costs to the extent that such reasonable segregation results in a decrease in quality or quantity of information provided by portfolio managers or an increase in staffing to ensure compliance with the final rule. Costs will vary, based in part on whether a fund establishes new processes to institute this requirement, which could include independent
Whenever the fund's adviser is designated to perform fair value determinations, the requirement to segregate fair value determinations from portfolio management reasonably may be more costly for smaller advisers, and smaller internally managed funds, with limited resources and personnel, than for larger ones. The reason is that smaller advisers, and smaller internally managed funds, may lack the staff and resources to segregate portfolio management personnel from those making fair value determinations reasonably as efficiently as larger advisers, and internally managed funds, or may only be able to meet this requirement by hiring additional personnel. As such, the reasonable segregation requirement of the final rule allows a fund to make decisions about tradeoffs it faces (
Finally, to the extent that the board designates the valuation designees to perform the fair value determinations relating to any or all of fund investments, the final rule will provide the valuation designee—which has conflicting interests—a greater permissible role in fair value determinations relative to current practices.
One commenter stated that the proposed rule lacked clarity as to which individuals are required to be identified and stated that “little appears to be gained by the mechanical exercise” of naming individuals and their titles, which may be generic, and identifying with specificity their roles in the valuation function.
Rule 31a–4 will require that a fund or designated adviser maintain appropriate documentation to support fair value determinations.
Some commenters stated that the recordkeeping requirements associated with rule 2a–5 as proposed would represent a significant change from current practice and would entail additional costs.
Some commenters suggested that the time and resources required in order to comply with the recordkeeping requirements would be higher than stated in the proposal, but without providing estimates.
Maintaining certain documentation to support fair value determinations is an important element of the oversight framework that rule 2a–5 establishes and thus contributes to the benefits described in section III.C.3.
The final rule defines a market quotation as readily available only when that “quotation is a quoted price (unadjusted) in active markets for identical investments that the fund can access at the measurement date, provided that a quotation will not be readily available if it is not reliable.” This definition will apply in all contexts under the Investment Company Act and the rules thereunder, including rule 17a–7.
To the extent that funds currently consider some or all investments valued with level 2 inputs as investments with readily available market quotations, funds will incur costs related to fair valuing these investments. Specifically, if a fund currently treats certain investments valued with level 2 inputs as having readily available market quotations,
The final rule's definition of readily available market quotations may also impose costs on funds that currently cross trade securities not captured by the definition. The application of this definition may result in funds that had previously viewed certain securities as having readily available market quotations, and thus eligible for cross trades under rule 17a–7, to re-evaluate practices for trading those securities or change their practices for trading those securities. This re-evaluation will impose costs on those funds and may result in those funds having a more restricted set of securities being available for cross trades than they had previously viewed as being available for cross trades.
Depending on the reasons for trading, cross trading may impact fund investors both positively and negatively. First, cross trading allows both trading funds to avoid commissions or other transaction costs that would otherwise be borne in a market transaction. Second, cross trading can allow a fund facing liquidity constraints to avoid depressed or fire-sale prices when it is selling an asset for which market prices would otherwise be depressed. However, since these transactions are not market transactions and can be affected by conflicts of interest, rule 17a–7 requires securities to have readily available market quotations to serve as an independent basis, and the “prices” at which cross trades execute are set internally based on the requirements of rule 17a–7.The final rule, by defining readily available market quotations, further mitigates the risk that one fund will “subsidize” another fund through cross trading of assets with more subjective values.
Funds may also bear the cost of going to market for trades that otherwise would have been implemented via a cross trade if the securities in question lack readily available market quotations. Such costs include transaction costs (such as bid-ask spreads or commissions) and search costs for hard-to-find securities. Based on the estimates presented in Table 2, approximately 33% of fund assets are fair valued with level 2 or level 3 inputs. However, we lack detailed data on funds' engagement in cross trading in such securities to estimate what fraction of this subset will be affected by the definition of readily available market quotation.
As discussed above, commenters were concerned about requirements in the proposed rule to maintain records of specific methodologies, assumptions, and inputs for determining fair values, in particular for investments valued with level 2 inputs.
One commenter also stated that “challenges associated with the proposed rule's definition of `readily available market quotations' ” could discourage purchases of certain investments, particularly for smaller firms.
The final rule, like the proposed rule, rescinds certain Commission releases and guidance, including ASR 113, ASR 118, and prior guidance on the oversight of pricing services contained in the 2014 Money Market Fund Release.
The final rule provides a minimum, consistent framework for fair value and standard of baseline practices across funds to help ensure that boards fulfill their oversight roles appropriately, and these will encourage funds to adopt best practices to support more rigorous fair value determinations. The rescission of prior Commission releases and guidance obviates a fund's need to analyze and interpret those releases and guidance, thus reducing compliance costs.
Rules 2a–5 and 31a–4 will affect all funds with investments that do not have readily available market quotations, their boards of directors, the advisers of most funds, and the depositors or trustees of UITs, though not all of those funds will have to materially change their practices to comply with the final rule. The effects of these rules depend on the extent to which funds' current practices differ from their requirements. Our staff estimates that the one-time incremental costs necessary to ensure compliance with these rules range from $100,000 to $600,000 per fund, depending on the current fair value practices of the fund.
Many commenters agreed that the requirements of the proposed rule would impose such costs
As discussed above, we estimate that 9,804 funds will be affected by the rules, and thus incur one-time costs associated with the rules.
Section IV below presents estimates of “collection of information”-related burdens
Many commenters stated that costs would likely be higher than we estimated in the Proposing Release without quantifying those higher costs. In addition, some commenters presented a number of other costs—also without quantification—that were not included in our estimates in the Proposing Release. For example, one commenter stated that the proposed reporting requirements could even lead to increased self-imposed costs becoming industry standards.
Rules 2a–5 and 31a–4 may also have effects on efficiency, competition, and capital formation. Under the final rule, boards may designate a valuation designee to perform fair value determinations and may oversee the valuation designee's fair value determinations instead of determining fair value themselves, which could free board resources tied to valuation and redirect them to oversight or other matters. As a result, to the extent that boards currently determine fair value of investments themselves, the final rule could lead to more efficient use of boards' resources and therefore improve funds' governance of determinations of fair value in good faith for the benefit of investors.
As discussed above, for UITs, a UIT's trustee or depositor must conduct fair value determinations under the final rule.
As discussed above, the final rule mandates oversight of a valuation
As discussed above, the final rule includes a definition of readily available market quotations and this definition may affect the ability of funds to cross trade certain investments.
One commenter stated that the requirements of the proposed rule for all investments without readily available market quotations could discourage the purchase of certain securities, particularly for smaller and mid-sized firms and could “impair the ability of such firms to offer funds that invest in fixed income securities, resulting in fewer investment options for mutual fund investors.”
Overall, we do not believe that the rules will have any material effects on competition because the effects of the rules likely will be limited to the extent that the rules are similar to current practices. Even though costs could be more burdensome for smaller fund complexes, we believe that these costs will not significantly affect competition in the fund industry because few funds will incur costs at the higher end of the cost range estimate (
In addition, the requirement of the final rule reasonably to segregate fair value determinations from portfolio management likely will more significantly affect those smaller valuation designees or funds that lack the staff and resources necessary to effect such segregation as efficiently as larger advisers or larger funds. For example, such funds or valuation designees that lack the staff or resources to effect such segregation may hire additional personnel to ensure (or to assure a board) that they can reasonably segregate the fair value process from portfolio management. Similarly, the requirement to segregate determinations of fair value from portfolio management may present a barrier to entry to smaller advisers. This barrier may be realized through boards' unwillingness to hire advisers that cannot ensure such segregation to the boards' satisfaction. To the extent that boards may be unwilling to hire advisers who cannot reasonably segregate these functions, small advisers without the resources to provide such segregation will face a competitive disadvantage. Nevertheless, we do not believe that this requirement of the final rule will have a material effect on competition in the fund adviser industry because many smaller advisers to funds and internally managed funds currently have in place processes to address the potential conflicts of interest whenever portfolio management personnel provide input to valuation. To the extent that boards currently consider such risks and the need to segregate such functions in their selection of advisers—including small advisers—as we understand is current practice, the requirement is unlikely to affect competition in the fund adviser industry.
Another commenter suggested that one of the valuation risk factors discussed above—“reliance on service providers that have more limited expertise in relevant asset classes”—could “deter competition in the market for pricing services.”
As described above, the requirements of rule 2a–5 are similar to current practices
As described above,
Properly valuing a fund's investments is also a critical component of the accounting and financial reporting for investment companies. Appropriate and unbiased valuations should thus provide investors with greater confidence in the accuracy of the value of fund investments, the performance of funds, and the level of risk of fund investments. This should allow investors to evaluate more effectively how a given fund fits their investment objectives, risk appetite, and ability to bear risk.
Taken together, appropriate and unbiased valuation fosters price discovery. Price discovery, in turn, ensures that investments and resources are directed to their most efficient use, both by investors and funds themselves. Efficiency and improved accounting and financial reporting resulting from appropriate and unbiased valuation should promote capital formation by increasing the quality and reliability of information in capital markets.
We considered not permitting internally managed funds to designate officers to perform the fair value functions required by the final rule, but allowing such funds to seek individual exemptive applications to allow designation of their officers. This would give the Commission the opportunity to design protections that are more tailored to the kinds and magnitude of conflicts involved in internally managed funds and the kinds of assets in which those funds invest. We believe, however, that the costs to these funds involved in applying for individual exemptive relief could be passed on to investors in these funds. Furthermore, officers of internally managed funds do, in fact, have a fiduciary duty, and play a similar or the same role as other valuation designees. Thus, treating officers of internally managed funds differently or preferentially would be inconsistent with the goal of ensuring appropriate oversight and governance of the fair value process (regardless of the parties involved) that the final rule seeks. Further, we believe that the final rule's oversight and other requirements provide minimum and baseline standards that we believe should be part of any good faith fair value determination for internally managed funds. We do not believe that individually-granted exemptive relief would provide funds or their shareholders substantially more protections in the fair value process, as compared to those included in the final rule, to justify the costs of requiring exemptive applications. For these reasons, we are not adopting this alternative.
Some commenters suggested that the proposed rule be formulated as a safe harbor.
Some commenters suggested that instead of a binary approach where securities that are valued based on level 2 and level 3 inputs are subject to fair value determinations, we instead adopt a three-tier approach similar to U.S. GAAP's level 1, level 2, and level 3 input classifications and have rules 2a–5 and 31a–4 further distinguish the fair value determination process between securities in level 2 or between level 2 and level 3.
The final rule mandates the performance of certain prescribed functions to determine the fair value of fund investments in good faith. As suggested by many commenters, we considered an alternative with a more principles-based approach that would not specify the types of fair value functions that must be performed, but instead would only state that funds should have in place practices, policies and procedures, reporting, and recordkeeping that would allow fair values to be determined in good faith by the board of directors or the valuation designee. For example, funds would have greater discretion to apply more or less rigorous valuation requirements on fair value determinations of investments that rely on level 2 inputs, including treating certain such investments as having readily available market quotations, depending on what the fund deemed to be appropriate.
The benefits of such an approach would be that funds would have more flexibility in what their policies and procedures, reporting, and recordkeeping cover. To the extent this alternative would reduce certainty for funds, it could increase compliance costs to the detriment of fund investors. Further, a less prescriptive approach would not adequately ensure that the board provides sufficient oversight over the valuation designee's fair value determinations.
A more principles-based approach would not mandate a minimum, consistent framework for fair value and standard of baseline practices across funds, which we believe is inherent in any good faith fair value determination process. For these reasons, we are not adopting this alternative.
Under the final rule, the board may designate the adviser of the fund, or an officer or officers of an internally managed fund, to perform fair value determinations. For UITs, trustees or depositors of a UIT or other entities appointed by existing UITs will perform fair value determinations. The valuation designee carries out all of the functions required under the final rule. As an alternative, we considered allowing the board to designate sub-advisers or service providers other than the adviser or an officer or officers, and providing for parties other than trustees or depositors of a UIT, such as a pricing service, to perform fair value determinations. Such an approach would provide additional flexibility to the board. As noted by commenters, pricing service providers currently provide evaluated prices extensively to funds, many of which use these prices as fair values for the purposes of the Act.
Nevertheless, such an approach potentially could limit a board's ability to oversee effectively the service provider that performs the fair value
While some pricing services are also registered investment advisers, such pricing services would not necessarily owe the same fiduciary duties to a fund if they are not the investment adviser for the fund, and may have conflicts of interest that are more difficult to mitigate to the extent that the role of fair value determination and portfolio management are integrated. Further, in cases where a single pricing service cannot perform fair value determinations for all assets, the process and oversight could become extremely burdensome for funds and their boards. Finally, nothing in the final rule prevents other service providers, such as pricing services, from continuing to provide significant input and assistance, much as they do today, on fair value determinations. However, retaining direct responsibility with an adviser or more closely affiliated designee is more likely to increase accountability and oversight over these other service providers.
As discussed in more detail above, unlike the current regulatory framework, the final rule permits fund boards to designate the performance of fair value determinations to a valuation designee. In addition, relative to the current regulatory framework, rules 2a–5 and 31a–4 will mandate more specific fair value practices, reporting, and recordkeeping. As an alternative to these rule, we considered not permitting fund boards to designate a valuation designee to perform fair value determinations for the fund but instead only requiring funds to adopt the practices, reporting, and recordkeeping as described in the final rule. We also considered requiring boards periodically to ratify the fair value determinations calculated by the fund's valuation designee using a methodology determined by the board. Such an approach could prescribe minimum requirements with respect to valuation practices, reporting, and recordkeeping. Nevertheless, such an approach would not allow funds the flexibility to leverage the fair value expertise of the valuation designee and assign a role to the fund's board that is more in line with the board's experience and expertise. Consequently, we believe that such an approach would not result in more efficient use of boards' time and more efficient fund operations, and would not result in improvements in fund governance, nor would it ultimately benefit fund investors.
Certain provisions of rules 2a–5 and 31a–4 contain “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).
We discuss below the collection of information burdens associated with new rules 2a–5, 31a–4, and their impact on the burdens of rule 38a–1.
Rule 2a–5 will provide requirements for determining fair value in good faith for purposes of section 2(a)(41) and rule 2a–4 thereunder. This determination will involve assessing and managing material risks associated with fair value determinations; selecting, applying, and testing fair value methodologies; and evaluating any pricing services used. The final rule will permit a fund's board of directors to designate the performance of fair value determinations relating to any or all fund investments to a valuation designee, which will carry out all of these requirements, subject to board oversight and certain reporting and other requirements designed to facilitate the board's ability effectively to oversee the valuation designee's fair value determinations. As relevant here, the final rule will require, if the board designates performance of fair value determinations to a valuation designee, that the valuation designee report to the board in both periodic and as needed reports on a per-fund basis.
The respondents to rule 2a–5 will be registered investment companies and BDCs.
Table 3 below summarizes the PRA initial and ongoing burden estimates associated with the board reporting requirements under the final rule, as well as the proposed burden estimates. Some commenters argued that the burden estimates as proposed for this requirement were too low, arguing in particular that the cost to produce the items that would have been required on a quarterly basis as part of the proposed periodic reporting requirements would be in excess of what we had assumed due to burdens of both creating these reports and of reviewing them on the part of the board.
Rule 31a–4 contains the recordkeeping requirements associated with rule 2a–5. Specifically, registered investment companies and BDCs, or their advisers, will be required to maintain appropriate documentation to support fair value determinations made pursuant to rule 2a–5.
Table 4 below summarizes the PRA initial and ongoing burden estimates associated with the rule, as well as the proposed burden estimates. Some commenters argued that the burden estimates as proposed for this requirement were too low.
As discussed above, after our adoption of rules 2a–5 and 31a–4, rule 38a–1 will require the adoption and implementation of written policies and procedures reasonably designed to prevent violations of the requirements of the rules.
The table below summarizes the PRA initial and ongoing burden estimates associated with the new fair value policies and procedures.
The Commission has prepared the following Final Regulatory Flexibility Analysis (“FRFA”) in accordance with section 604 of the Regulatory Flexibility Act (“RFA”).
The Commission is adopting new rule 2a–5 in order to address practices and the role of the board of directors with respect to the fair value of the investments of the fund. The Commission is also adopting rule 31a–4 to address the recordkeeping requirements associated with rule 2a–5. Under section 2(a)(41), the board must determine in good faith the fair value of fund assets for which no market quotations are readily available. Rule 2a–5 is designed to specify how a board or valuation designee, as applicable, must make good faith determinations of fair value as well as when the board can designate the performance of these determinations to a valuation designee, while still ensuring that fund investments are valued in a way consistent with the Investment Company Act.
Rule 2a–5 will provide requirements for determining fair value in good faith for purposes of section 2(a)(41) of the Act and rule 2a–4 thereunder. This determination will be required to involve: Assessing and managing material risks associated with fair value determinations; selecting, applying, and testing fair value methodologies; evaluating any pricing services used; and maintaining certain records required by rule 31a–4.
All of these requirements are discussed in detail in section II of this release. The costs and burdens of these requirements on small funds are discussed below as well as above in our Economic Analysis and Paperwork Reduction Act Analysis, which discuss the applicable costs and burdens on all funds.
In the Proposing Release, we requested comment on every aspect of the IRFA, including the number of small entities that would be affected by the proposed rule, the existence or nature of the potential impact of the proposal on small entities discussed in the analysis, and how to quantify the impact of the proposed rule. We also requested comment on the proposed compliance burdens and the effect these burdens would have on smaller entities.
Although we did not receive comments specifically addressing the IRFA, some commenters noted the impact of certain aspects of proposed rule 2a–5 on smaller funds. For example, one commenter suggested that we allow funds to assign fair value determinations to entities other than the adviser, such as the fund's administrator, to make it easier for smaller funds to comply with the proposed rule.
As discussed above, we believe that it is important to establish a minimum and consistent framework for fair value practices across funds, including for small funds.
For purposes of Commission rulemaking in connection with the Regulatory Flexibility Act, an investment company is a small entity if, together with other investment companies in the same group of related investment companies, it has net assets of $50 million or less as of the end of its most recent fiscal year (a “small fund”).
The rules will require fair value determinations under the Act to be made according to a specific process for affected funds, including those that are small entities. This process will include a requirement to maintain certain records to support fair value determinations.
The recordkeeping requirements of rule 31a–4 are designed to help ensure compliance with rule 2a–5's requirements and aid in oversight. Rule 31a–4 will require the fund to keep appropriate documentation to support fair value determinations for at least six years from the time the determination was made, the first two years in an easily accessible place.
These requirements will impose burdens on all funds, including those that are small entities. The specifics of these burdens are discussed in the Economic Analysis and Paperwork Reduction Act sections above.
The requirement for board reporting by the valuation designee is designed to ensure that the board can exercise sufficient oversight over the fair value process. The final rule will require two general types of reports, periodic reports and prompt reports. Periodic reports rule will require the valuation designee to make both annual and quarterly written reports to the board. The quarterly reports must include any specific reports or materials boards request related to the fair value of designated investments or the valuation designee's process for fair valuing fund investments. In addition, the final rule requires a quarterly summary or description of material fair value matters that occurred in the prior quarter, including some specific summaries and descriptions. The final rule will also require an annual assessment of the adequacy and effectiveness of the valuation designee's process for determining the fair value of designated investments. The prompt reporting requirement will require the valuation designee to provide a written notification of the occurrence of matters associated with the valuation designee's process that materially affect the fair value of the designated portfolio of investments (defined as “material matters”) within a time period determined by the board, but in no event later than five business days after the valuation designee becomes aware of the material matter. Material matters in this instance include an assessment of a significant deficiency or material weakness in the design or effectiveness of the valuation designee's fair value determination process or of material errors in the calculation of net asset value. The valuation designee must also provide such timely follow-on reports as the board may reasonably determine appropriate.
These requirements will impose burdens on all funds, including those that are small entities. The specifics of these burdens are discussed in the Economic Analysis and Paperwork Reduction Act sections above.
The RFA directs the Commission to consider significant alternatives that would accomplish our stated objective, while minimizing any significant economic impact on small entities. We considered the following alternatives for small entities in relation to our proposal: (1) Exempting funds that are small entities from the proposed reporting, recordkeeping, and other compliance requirements, to account for resources available to small entities; (2) establishing different reporting, recordkeeping, and other compliance requirements or frequency, to account for resources available to small entities; (3) clarifying, consolidating, or simplifying the requirements under the proposal for small entities; and (4) using performance rather than design standards.
We do not believe that exempting small funds from the provisions in the rules would permit us to achieve our stated objectives, principally to protect investors from improper valuations. Further, the board reporting and additional recordkeeping provisions of the rules only affect fund boards that designate a valuation designee to perform fair value determinations, and, therefore, the rules will require funds to comply with these specific requirements only if the boards designated responsibilities to a valuation designee. However, we expect that most funds holding securities that must be fair valued will do so. Therefore, if a board to a small entity does not do this and instead performs its statutory function directly, then the small entity would not be subject to these provisions of the rules.
We estimate that 72% of all funds will be subject to the rules in making fair value determinations.
As discussed throughout this release, we believe that the rules will result in investor protection benefits, and these benefits should apply to investors in smaller funds as well as investors in larger funds. We therefore do not believe it would be appropriate to exempt small funds from the rules' requirements, or to establish different requirements applicable to funds of different sizes under these provisions to account for resources available to small entities. We believe that all of the elements of the rules should work together to produce the anticipated investor protection benefits, and therefore do not believe it is appropriate to except smaller funds because we believe this would limit the benefits to investors in such funds.
We also do not believe that it would be appropriate to subject small funds to different reporting, recordkeeping, and other compliance requirements or frequency. Similar to the concerns discussed above, if the rules included different requirements for small funds, it could raise investor protection concerns for investors in small funds in that small funds face the same conflicts of interest that can lead to mispricing and otherwise harm investors that larger funds do.
We do not believe that clarifying, consolidating, or simplifying the requirements under the rules for small funds, beyond that already adopted for all funds, would permit us to achieve our stated objectives. Again, this approach would raise investor protection concerns for investors in small funds. We believe, as outlined above in the discussion of the rules and the guidance contained in this release, that the requirements of the rules are, to some extent, current industry practice under existing rules, with some changes from current practice. As a result, we think that the rules could result in a reduction in the current burdens experienced by small entities to the extent that they are subject to the rules.
The costs associated with rules 2a–5 and 31a–4 will vary depending on a fund's particular circumstances, and thus the rules could result in different burdens on funds' resources. In particular, we expect that a fund that does not have reporting or recordkeeping practices similar to those that will required by the rules would need to modify those practices. Thus, to the extent a fund that is a small entity already has a fair value process that is consistent with the requirements of the rules, we believe it will incur relatively low costs to comply with it. However, we believe that it is appropriate to correlate the costs associated with the rules with the fund's actual fair value process, and not necessarily with the fund's size in light of our investor protection objectives.
Finally, with respect to the use of performance rather than design standards, the rules generally use design standards for all funds subject to the rules, regardless of size. We believe that providing funds with the flexibility permitted in the rules with respect to designing specific fair value process is appropriate because of the fact-specific nature of making fair value determinations.
The Commission amends the “Codification of Financial Reporting Policies” announced in Financial Reporting Release No. 1 (April 15, 1982) [47 FR 21028 (May 17, 1982]) as follows:
1. By removing and reserving Section 404.03.
2. By removing and reserving Section 404.04.
3. By amending Section 404.05.c.2. as follows:
a. By removing the last paragraph under the subject heading “Fair Value for Thinly Traded Securities.”
b. By removing the subject heading “Use of Pricing Services” and the paragraphs included below that subject heading.
The Codification is a separate publication of the Commission. It will not be published in the
The Commission is adopting rules 2a–5 and 31a–4 under the authority set forth in sections 2(a), 6(c), 31(a), 31(c), 38(a), 59, and 64(a) of the Investment Company Act of 1940 [15 U.S.C. 80a–2(a), 80a–6(c), 80a–30(a), 80a–31(c), 80a–37(a), 80a–58, and 80a–63(a)].
Accountants, Accounting, Banks, Banking, Employee benefit plans, Holding companies, Insurance companies, Investment companies, Oil and gas exploration, Reporting and
Investment companies, Reporting and recordkeeping requirements, Securities.
For the reasons set out in the preamble, we are amending title 17, chapter II of the Code of Federal Regulation as follows:
15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z–2, 77z–3, 77aa(25), 77aa(26), 77nn(25), 77nn(26), 78c, 78j–1, 78l, 78m, 78n, 78o(d), 78q, 78u–5, 78w, 78ll, 78mm, 80a–8, 80a–20, 80a–29, 80a–30, 80a–31, 80a–37(a), 80b–3, 80b–11, 7202 and 7262, and sec. 102(c), Pub. L. 112–106, 126 Stat. 310 (2012), unless otherwise noted.
(d)
15 U.S.C. 80a–1
(a)
(1)
(2)
(i) Selecting and applying in a consistent manner an appropriate methodology or methodologies for determining (and calculating) the fair value of fund investments, provided that a selected methodology may be changed if a different methodology is equally or more representative of the fair value of fund investments, including specifying the key inputs and assumptions specific to each asset class or portfolio holding;
(ii) Periodically reviewing the appropriateness and accuracy of the methodologies selected and making any necessary changes or adjustments thereto; and
(iii) Monitoring for circumstances that may necessitate the use of fair value;
(3)
(4)
(b)
(1)
(i)
(
(
(
(
(
(B) At least annually, an assessment of the adequacy and effectiveness of the valuation designee's process for determining the fair value of the designated portfolio of investments, including, at a minimum:
(
(
(ii)
(2)
(c)
(d)
(e)
(1)
(2)
(3)
(4)
(a)
(b)
(1) The reports and other information provided to the board as required under § 270.2a–5(b)(1) for at least six years after the end of the fiscal year in which the documents were provided to the board, the first two years in an easily accessible place; and
(2) A specified list of the investments or investment types whose fair value determination has been designated to the valuation designee to perform pursuant to § 270.2a–5(b) for a period beginning with the designation and ending at least six years after the end of the fiscal year in which the designation was terminated, in an easily accessible place until two years after such termination.
(c)
By the Commission.
Internal Revenue Service (IRS), Treasury.
Final regulations.
This document contains final regulations regarding the timing of income inclusion under an accrual method of accounting, including the treatment of advance payments for goods, services, and certain other items. The regulations reflect changes made by the Tax Cuts and Jobs Act and affect taxpayers that use an accrual method of accounting and have an applicable financial statement. These final regulations also affect taxpayers that use an accrual method of accounting and receive advance payments.
Concerning any provisions in § 1.451–3 within the jurisdiction of the Associate Chief Counsel (Income Tax & Accounting), Jo Lynn Ricks, (202) 317–4615, Sean Dwyer, (202) 317–4853, or Doug Kim, (202) 317–4794, and concerning any provisions in § 1.451–8 within the jurisdiction of the Associate Chief Counsel (Income Tax & Accounting), Jo Lynn Ricks, (202) 317–4615, or David Christensen, (202) 317–4861; concerning any provisions in § 1.451–3 or § 1.451–8 within the jurisdiction of the Associate Chief Counsel (Financial Institutions & Products), Deepan Patel, (202) 317–3423, or Charles Culmer, (202) 317–4528 (not toll-free numbers).
This document contains amendments to the Income Tax Regulations (26 CFR part 1) under section 451(b) and (c) of the Internal Revenue Code (Code).
On December 22, 2017, section 451(b) and (c) were amended by section 13221 of Public Law 115–97 (131 Stat. 2054), commonly referred to as the Tax Cuts and Jobs Act (TCJA). Section 451(b) was amended to provide that, for a taxpayer using an accrual method of accounting (accrual method taxpayer), the all events test for an item of gross income, or portion thereof, is met no later than when the item, or portion thereof, is included in revenue for financial accounting purposes on an applicable financial statement (AFS). Section 451(c) was amended to provide that an accrual method taxpayer may use the deferral method of accounting provided in section 451(c) for advance payments. Unless otherwise indicated, all references to section 451(b) and section 451(c) hereinafter are references to section 451(b) and section 451(c), as amended by the TCJA.
In general, section 451(a) provides that the amount of any item of gross income is included in gross income for the taxable year in which it is received by the taxpayer, unless, under the method of accounting used in computing taxable income, the amount is to be properly accounted for as of a different period. Under § 1.451–1(a), accrual method taxpayers generally include items of income in gross income in the taxable year when all the events occur that fix the right to receive the income and the amount of the income can be determined with reasonable accuracy (all events test). All the events that fix the right to receive income occur when (1) the required performance takes place, (2) payment is due, or (3) payment is made, whichever happens first. Revenue Ruling 2003–10, 2003–1 C.B. 288; Revenue Ruling 84–31, 1984–1 C.B. 127; Revenue Ruling 80–308, 1980–2 C.B. 162.
Section 451(b)(1)(A) provides that, for an accrual method taxpayer, the all events test for an item of gross income, or portion thereof, is met no later than when the item, or portion thereof, is included as revenue in an AFS (AFS Income Inclusion Rule).
Section 451(b)(1)(B) lists exceptions to the AFS Income Inclusion Rule. The AFS Income Inclusion Rule does not apply to taxpayers that do not have an AFS for a taxable year or to any item of gross income from a mortgage servicing contract.
Section 451(b)(1)(C) codifies the all events test, stating that the all events test is met for any item of gross income if all the events have occurred which fix the right to receive such income and the amount of such income can be determined with reasonable accuracy.
Section 451(b)(2) provides that the AFS Income Inclusion Rule does not apply for any item of gross income the recognition of which is determined using a special method of accounting, “other than any provision of part V of subchapter P (except as provided in clause (ii) of paragraph (1)(B)).”
Section 451(b)(3) defines an AFS, as referenced in section 451(b)(1)(A)(i), by providing a hierarchical list of financial statements.
Section 451(b)(4) provides that for purposes of section 451(b), in the case of a contract which contains multiple performance obligations, the allocation of the transaction price to each performance obligation is equal to the amount allocated to each performance obligation for purposes of including such item in revenue in the taxpayer's AFS.
Section 451(b)(5) provides that, if the financial results of a taxpayer are reported on the AFS for a group of entities, the group's financial statement shall be treated as the AFS of the taxpayer.
Section 451(c) provides special rules for the treatment of advance payments. Section 451(c)(1)(A) provides the general rule requiring an accrual method taxpayer to include an advance payment in gross income in the taxable year of receipt. However, section 451(c)(1)(B) permits a taxpayer to elect to include any portion of the advance payment in gross income in the taxable year following the year of receipt to the extent income is not included in revenue in the AFS in the year of receipt. Section 451(c)(1)(B) generally codifies Revenue Procedure 2004–34, 2004–22 I.R.B. 991, which provided for a similar deferral period.
Section 451(c)(2)(A) provides the Secretary of the Treasury or his delegate (Secretary) with the authority to provide the time, form and manner for making the election under section 451(c)(1)(B), and the categories of advance payments for which an election can be made. Under section 451(c)(2)(B), the election is effective for the taxable year that it is first made and for all subsequent taxable years, unless the taxpayer receives the consent of the Secretary to revoke the election. Section 451(c)(3) provides that the deferral election does not apply to advance payments received in the taxable year that the taxpayer ceases to exist.
Section 451(c)(4)(A) defines advance payment for purposes of section 451(c). Under section 451(c)(4)(A), the term advance payment means any payment that meets the following three requirements: (1) The full inclusion of the payment in gross income in the year of receipt is a permissible method of accounting; (2) any portion of the
On April 12, 2018, the Department of the Treasury (Treasury Department) and the IRS issued Notice 2018–35, 2018–18 I.R.B. 520, providing interim guidance on the treatment of advance payments and requesting suggestions for future guidance under section 451(b) and section 451(c). On September 27, 2018, the Treasury Department and the IRS issued Notice 2018–80, 2018–42 I.R.B. 609, announcing that the Treasury Department and the IRS intend to issue proposed regulations providing that accrued market discount is not includible in income under section 451(b).
On September 9, 2019, the Treasury Department and the IRS published proposed regulations under section 451(b) (REG–104870–18, 84 FR 47191) (proposed section 451(b) regulations) and proposed regulations under section 451(c) (REG–104554–18, 84 FR 47175) (proposed section 451(c) regulations), referred to collectively hereinafter as the “proposed regulations.” The notices of proposed rulemaking for section 451(b) and (c) reflect consideration of the comments received in response to Notice 2018–35.
A public hearing on the proposed regulations was held on December 10, 2019, at which two speakers provided testimony. The Treasury Department and the IRS received approximately ten written comments responding to the proposed regulations.
After the comment period for the proposed regulations closed, the Treasury Department and the IRS received a comment letter regarding the allocation of transaction price for contracts that include both income subject to section 451 and income subject to a special method of accounting provision, specifically, section 460. In response to these comments, in the Explanation of Provisions of a notice of proposed rulemaking (REG–132766–18) that was published on August 5, 2020 (85 FR 47508), the Treasury Department and the IRS suggested allocation rules and requested comments regarding the application of section 451(b)(2) and (4) to contracts with income that is accounted for in part under proposed § 1.451–3 and in part under a special method of accounting. No formal comments were received regarding these suggested rules.
Comments received before these regulations were substantially developed, including all comments received on or before the deadline for comments on November 8, 2019, were carefully considered in developing these regulations. Copies of the comments received are available for public inspection at
This Summary of Comments and Explanation of Revisions section summarizes the formal written comments and some of the informal commentary, both in writing and at public events, addressing the proposed regulations. Comments merely summarizing or interpreting the proposed regulations or recommending statutory revisions generally are not discussed in this preamble. Similarly, comments outside the scope of this rulemaking generally are not addressed in this Summary of Comments and Explanation of Revisions section.
As noted in the preamble to the proposed section 451(b) regulations, footnote 872 of the Conference Report to the TCJA states that section 451(b) was not intended to revise the rules associated with when an item is realized for Federal income tax purposes and does not require the recognition of income in situations where the Federal income tax realization event has not taken place. See H.R. Rep. No. 115–466, at 428 fn. 872 (2017) (Conf. Rep.). As also noted in the preamble to the proposed section 451(b) regulations, footnote 874 of the Conference Report provides, by way of example, that the timing rules of section 451(b) apply to unbilled receivables for partially performed services.
Commenters provided little commentary on footnote 874, except to state that it is contrary to footnote 872. Instead, the commenters presented two views. First, some commenters highlighted footnote 872 and cited case law to support the claim that a realization event is, and has always been, a prerequisite for income recognition. These commenters acknowledged, however, that the case law frames the issue not in terms of “realization” but rather in terms of whether a seller has a fixed right to income under the all events test.
Second, some commenters suggested definitions of realization. However, these recommended definitions differ, particularly as to whether realization applies to the provision of services. For example, some commenters described realization as applying to both contracts for the provision of services and contracts for the sale of goods, and stated that realization occurs when the taxpayer has a “fixed and unconditional right to payment” under the contract. One commenter reasoned that existing judicial precedents require realization without distinguishing between whether the income is for the performance of services or the sale of property. Another commenter asserted that realization means there has been a sale or disposition under section 1001(a), suggesting that realization applies only to the sale of property. In sum, these commenters suggested that the proposed section 451(b) regulations do not give effect to footnote 872 in the Conference Report and ask that the final regulations either explicitly define realization or clarify when realization occurs in certain circumstances, such as where a taxpayer produces goods for customers or where a taxpayer provides non-severable services to customers.
The Treasury Department and the IRS have considered these comments and decline to define the term realization in the final regulations. Congress did not explicitly define realization in the Conference Report. Some of the suggested definitions of realization, particularly the ones equating realization with the all events test, would nullify the AFS Income Inclusion Rule entirely, which is clearly contrary to Congress' intent. Accordingly, it is reasonable to conclude that Congress intended a different concept of realization that would give full effect to
Section 451 is a timing provision and the amendments to section 451(b)(1)(A) by TCJA were intended to modify the timing of income to require an accrual method taxpayer with an AFS to treat the right to income as fixed, under the all events test, no later than the time at which the item (or portion thereof) is taken into account in its AFS. The statute thus reflects Congress' intent to incorporate timing concepts from the financial reporting rules in the tax timing rules for including items in gross income. It does not seek to answer whether the AFS income inclusion has been realized. Accordingly, the focus of the final regulations is on the appropriate taxable year of AFS income inclusion.
The general AFS Income Inclusion Rule in the proposed section 451(b) regulations provides that, if a taxpayer includes an item of gross income, or portion thereof, in revenue in the taxpayer's AFS, the taxpayer must include the item in gross income under section 451(b). In addition to commenting that the general rule in the proposed section 451(b) regulations potentially overrides the realization requirement, contrary to footnote 872 of the Conference Report, commenters suggested that the rule is overbroad and could cause taxpayers to incur a tax liability without having the money to pay the liability.
The Treasury Department and the IRS note that the potential to incur a tax liability without having the money to pay the liability is inherent in the accrual method. However, the Treasury Department and the IRS acknowledge that the proposed AFS Income Inclusion Rule could exacerbate this situation and that the proposed rule could result in inclusions that would be inconsistent with footnote 872 of the Conference Report. Accordingly, the final regulations provide that, under the AFS Income Inclusion Rule, the all events test under § 1.451–1(a) for any item of gross income, or portion thereof, is met no later than when that item, or portion thereof, is “taken into account as AFS revenue.” In determining when an item of gross income is “taken into account as AFS revenue,” AFS revenue is reduced by amounts that the taxpayer does not have an enforceable right to recover if the customer were to terminate the contract on the last day of the taxable year. The determination of whether the taxpayer has an enforceable right to recover amounts of AFS revenue is governed by the terms of the contract and applicable Federal, state, or international law, and includes amounts recoverable in equity and liquidated damages.
The revised rule is designed to reconcile the intended preservation of the realization concept, consistent with footnote 872 of the Conference Report, with the intended scope of section 451(b), as illustrated in footnote 874 of the Conference Report. The revised rule is also consistent with concepts illustrated in Example 4 in the Joint Committee on Taxation, General Explanation of Public Law 115–97 (JCS–1–18) at 163 (Dec. 20, 2018) (Blue Book). In the example, the taxpayer enters into a contract with a customer for a customized piece of machinery. Under the contract, the taxpayer will not invoice the customer until the item is delivered to the customer, the customer accepts the machinery, and title to the machinery has transferred to the customer. The contract specifically provides that, if the customer withdraws from the agreement, the taxpayer has an enforceable right to payment as the work is performed, even if the contract is not completed. The taxpayer does not complete the machinery in year one but includes an amount in revenue in its AFS in year one. Example 4 concludes that, under the AFS Income Inclusion Rule, the taxpayer is required to recognize the amount in year one. The revised AFS Income Inclusion Rule in the final regulations incorporates the key elements reflected in Example 4.
To reduce any additional compliance burdens, the final regulations provide an alternative method to determine when an item of gross income is treated as “taken into account as AFS revenue” under the AFS Income Inclusion Rule. Under the “alternative AFS revenue method”, the taxpayer does not reduce AFS revenue by amounts that the taxpayer lacks an enforceable right to recover if the customer were to terminate the contract on the last day of the taxable year. The alternative AFS revenue method is a method of accounting that applies to all items of gross income in the trade or business that are subject to the AFS income inclusion rule. Taxpayers using the alternative AFS revenue method may also use the AFS cost offset method provided in the final regulations.
Under the final regulations two additional adjustments to AFS revenue are made in determining whether an item of gross income is treated as “taken into account as AFS revenue.” These adjustments apply both under the AFS Income Inclusion Rule and under the alternative AFS revenue method. First, if the transaction price, as defined in § 1.451–3(a)(14), was increased because a significant financing component is deemed to exist under the standards the taxpayer uses to prepare its AFS, then any AFS revenue attributable to such increase is disregarded. In such situations, total AFS revenue taken into account over the term of the contract exceeds the stated consideration in the contract and such excess is, for AFS purposes, offset by a corresponding interest expense. Because such excess is generally not imputed income for Federal income tax purposes and a deduction for the AFS interest expense is generally not imputed for Federal income tax purposes, it is necessary to adjust AFS revenue to prevent the improper acceleration, or overreporting, of gross income. If situations arise in which imputed income and imputed deductions are also required for Federal income tax purposes, an adjustment to AFS revenue is still appropriate as the amount and timing of the imputed income would be outside the scope of section 451 and the regulations thereunder. Second, to the extent that AFS revenue reflects a reduction for (1) amounts that are cost of goods sold or liabilities that are required to be accounted for under other provisions of the Code, such as section 461, including liabilities for allowances, rebates, chargebacks, rewards issued in credit card and other transactions and other reward programs, and refunds (for example, estimated returns based on historic practice), regardless of when any such amount is incurred (Liability Amounts); or (2) amounts anticipated to be in dispute or anticipated to be uncollectable, the taxpayer must increase AFS revenue by such amounts. The Treasury Department and the IRS have determined that adjustments for such amounts are necessary to prevent the taxpayer from effectively taking such amounts into account for Federal income tax purposes in a taxable year prior to the taxable year in which they are otherwise permitted to be taken into account under other provisions of the Code. Additionally, if AFS revenue is not adjusted for Liability Amounts in the taxable year that such amounts are otherwise permitted to be taken into account, then a taxpayer may obtain an improper double benefit by taking such amounts into account to reduce taxable income under another provision of the Code while also deferring an equal
On a separate issue relating to the scope of the AFS Income Inclusion Rule, taxpayers questioned, in light of the realization discussion in footnote 872, whether the AFS Income Inclusion Rule applies to the sale of goods. Since Example 4 of the Blue Book involves the sale of goods, it is reasonable to conclude that Congress intended for the AFS Income Inclusion Rule, as revised, to extend to contracts for the sale of goods. Accordingly, as with the proposed section 451(b) regulations, the final regulations provide that the AFS Income Inclusion Rule applies to contracts for the sale of goods.
Proposed § 1.451–3(b) does not provide for a cost offset when an amount is included under the AFS Income Inclusion Rule. The preamble to the proposed section 451(b) regulations discusses reasons for not providing a cost offset, including the potential for income distortions and Congressional intent that a cost offset not be provided. The preamble to the proposed section 451(b) regulations requests comments on this issue.
Multiple commenters proposed allowing an offset for the cost of goods sold (COGS) when income is included under the AFS Income Inclusion Rule. Commenters pointed out that the term “item of gross income” generally means total sales net of COGS. See, for example, § 1.61–3(a). Commenters also described situations where income might be distorted by inclusions in early years of a multi-year contract with the costs being allowed in later years without income to offset. Commenters expressed concern that, in these situations, or more generally, the AFS Income Inclusion Rule might operate as a tax on gross receipts.
One commenter suggested that the statute uses the AFS as a backstop to timing recognition of revenue because the AFS provides a good standard by which to determine when a taxpayer receives an economic benefit. The commenter acknowledged that there has been a policy interest in achieving greater book-tax conformity in a variety of areas. The commenter recommended that, if the final regulations use the AFS to measure the receipt of an economic benefit, then the final regulations also should reflect the AFS standards that require certain items of income be reported “net” of offsetting items.
Commenters also noted that, for AFS purposes, credit card issuers generally report interchange fees net of estimated reward costs and report credit card late fees net of estimated uncollectable amounts. Commenters explained that reward costs and uncollectable credit card late fees “are so closely aligned with the realization of income that AFS standards require those items to be presented separately in the revenue section of the income statement but concurrently as to timing.” One commenter expressed concern that not reducing interchange fees by estimated reward costs and credit card late fees by estimated uncollectable amounts in determining the amount of income recognized under the AFS Income Inclusion Rule would result in the inclusion of more income for Federal income tax purposes than was reported on the AFS.
Accordingly, commenters recommended that the final regulations provide that the all events test and the economic performance requirement under section 461 should be deemed to be met for items that are “closely aligned” with income amounts recognized under the AFS Income Inclusion Rule. Commenters explained that section 461 should be deemed to be met for items such as estimated reward costs and estimated uncollectable late fees to the extent these items are reported on the revenue section of the AFS as a reduction to amounts subject to the AFS Income Inclusion Rule. One commenter further explained that this treatment would be consistent with the clear reflection of income doctrine of section 446. Alternatively, one commenter recommended modifying the definition of transaction price under proposed § 1.451–3(c)(6) to reduce interchange fees by the amount of reward costs that satisfy section 461 and credit card late fees by amounts that are considered uncollectable for AFS purposes.
The Treasury Department and the IRS have considered these comments and have determined that a cost offset based on estimates of future costs would be inappropriate. As discussed in the preamble to the proposed section 451(b) regulations, allowing a cost offset based on estimated costs would be inconsistent with sections 461, 263A, and 471, and the regulations under those sections of the Code. In addition, a cost offset based on estimated costs would increase the possibility of income distortions as the costs of goods would effectively be recovered, through income deferral, prior to the taxable year in which the cost was actually incurred.
However, the Treasury Department and the IRS agree with comments suggesting that taxpayers should be afforded the flexibility of applying an offset for costs incurred against AFS income inclusions from the future sale of inventory, the “AFS cost offset method.” Accordingly, a taxpayer that uses the AFS cost offset method determines the amount of gross income includible for a year prior to the year in which ownership of inventory transfers to the customer by reducing the amount of revenue it would otherwise be required to include under the AFS Income Inclusion Rule for the taxable year (AFS inventory inclusion amount) by the cost of goods related to the item of inventory for the taxable year, the “cost of goods in progress offset.” The net result is the amount that is required to be included in gross income for that year under the AFS Income Inclusion Rule. The deferred revenue, that is, the revenue that was reduced by the cost of goods in progress offset for a taxable year prior to the taxable year that ownership of the item of inventory is transferred to the customer, is generally taken into account in the taxable year in which ownership of the item of inventory is transferred to the customer.
The final regulations provide that the cost of goods in progress offset for each item of inventory for the taxable year is calculated as (1) the cost of goods incurred through the last day of the taxable year, (2) reduced by the cumulative cost of goods in progress offset amounts attributable to the items of inventory that were taken into account in prior taxable years, if any. However, the cost of goods in progress offset cannot reduce the AFS inventory inclusion amount for the item of inventory below zero. Further, the cost of goods in progress offset attributable to one item of inventory cannot reduce the AFS inventory inclusion amount attributable to a separate item of inventory. Any cost of goods that were not used to offset AFS inventory inclusion amounts because they were subject to limitation are considered when the taxpayer determines the cost of goods in progress offset for that item of inventory in a subsequent taxable year.
The cost of goods in progress offset is determined by reference to the costs and expenditures related to each item of inventory produced or acquired for resale, which costs have been incurred
The costs of goods comprising the cost of goods in progress offset must be determined by applying the inventory accounting methods used by the taxpayer for Federal income tax purposes. A taxpayer must calculate its cost of goods in progress offset by reference to all costs that the taxpayer has permissibly capitalized and allocated to items of inventory under its inventory method, but may not consider costs that are not properly capitalized under such method.
In the taxable year in which ownership of the item of inventory is transferred to the customer, any revenue deferred by way of a prior year cost offset is included in gross income in the year of the transfer along with any additional revenue that is otherwise required to be included in gross income under the AFS Income Inclusion Rule for such year. Although no cost offset is permitted in such year, the taxpayer would recover costs capitalized and allocated to the item of inventory transferred as cost of goods sold in such year in accordance with sections 471 and 263A or any other applicable provision of the Code. However, if in a taxable year prior to the taxable year in which ownership of the item of inventory is transferred to the customer, either (A) the taxpayer dies or ceases to exist in a transaction other than a transaction to which section 381(a) applies, or (B) the taxpayer's obligation to the customer with respect to the item of inventory ends other than in a transaction to which 381(a) applies or certain section 351(a) transactions between members of the same consolidated group, then all payments received for the item of inventory that were not previously included in gross income as a result of the application of the cost offset rules are required to be included in gross income in such year.
The Treasury Department and the IRS adopted this approach in the final regulations because the AFS cost offset method provides options for taxpayers. All taxpayers that are required to account for income from the sale of inventory under the AFS income inclusion rule and that report AFS revenue in a taxable year prior to the taxable year in which ownership of the item of inventory is transferred to the customer will generally be required to accelerate income inclusions under such rule. However, taxpayers have the option of using the AFS cost offset method to reduce the amount of income they are required to accelerate under such rule. The AFS cost offset allows taxpayers to reasonably match income inclusions and incurred cost of goods, and more clearly reflects income.
The final regulations adopt a cost of goods sold offset based on incurred costs because the approach is consistent with § 1.61–3 and more objective than a cost of goods sold offset based on projected future costs. In addition, the AFS cost offset method provides a degree of parity for sellers of goods with service providers who deduct costs as incurred without capitalizing the costs to inventory. A cost offset based on projected future cost of goods sold was rejected because it is inconsistent with sections 461(h), 263A and 471, and the regulations under those sections of the Code. Further, Congress rejected the deferral method for advance payments in former § 1.451–5(c), which contained a cost of goods sold offset for estimated future costs. See Conf. Rep. at 429 fn. 880.
The AFS cost offset method is a method of accounting that applies to all items of income eligible for the AFS cost offset method in the trade or business. The method applies to items at the trade or business level so that taxpayers can choose to apply the method only to trades or businesses where the burden of determining costs incurred relative to the related reduction in AFS income inclusion amount warrants the adoption of the method. If a taxpayer uses the AFS cost offset method for a trade or business it must use the method for all eligible items in that trade or business. Further, if a taxpayer uses the AFS cost offset method, it must also use the advance payment cost offset method in § 1.451–8(e). The advance payment cost offset method is discussed later in this preamble. Special coordination rules exist for taxpayers that use the AFS cost offset method and the advance payment cost offset method and that have income from the sale of an item of inventory that is required to be accounted for under both §§ 1.451–3 and 1.451–8 because certain payments received for such item meet the definition of an advance payment under § 1.451–8(a)(1). See § 1.451–3(c)(1) for such coordination rules.
The AFS cost offset method reduces the amount of income from the sale of an item of inventory that is required to be accelerated under the AFS Income Inclusion Rule by an amount of incurred cost of goods related to the item. However, the offsets to interchange fees and credit card late fees recommended by the commenters are based on estimated reward costs and uncollectable late fees rather than incurred costs of goods. Accordingly, the final regulations do not allow a cost offset for interchange fees, credit card late fees, and similar items of revenue that are subject to the AFS Income Inclusion Rule and reported net of estimated future amounts for AFS purposes.
Proposed § 1.451–3(c)(4) provides that, for the AFS Income Inclusion Rule, revenue means all transaction price amounts includible in gross income under section 61 of the Code. Proposed § 1.451–3(c)(6) provides that the transaction price is the gross amount of consideration to which a taxpayer expects to be entitled for AFS purposes in exchange for transferring goods, services, or other property, but not including, among other things, “increases in consideration” to which a taxpayer's entitlement is contingent on the occurrence or nonoccurrence of a future event for the period in which the amount is contingent.
Commenters expressed confusion about the phrase “increases in consideration” because the definition of transaction price otherwise refers to “amounts” and does not distinguish between increases and decreases. Commenters asserted that there is no reason to treat “increases” in consideration different from other consideration because all consideration is not realized until the taxpayer has a fixed right to payment. Commenters concluded that any portion of the contract price subject to a contractual contingency, for example, a future performance, is excluded from the transaction price until the contingency is satisfied. In addition, one commenter noted that it is unclear when there is a contingent “increase” in consideration,
The Treasury Department and the IRS agree with these comments. The term “increases in consideration” was meant to signal income items that are subject to a condition precedent, such as bonus payments that require complete performance before the taxpayer is entitled to the bonus payment. The final regulations have been revised to remove the reference to “increases in consideration” entirely. The concept is now subsumed by the general rule that, to determine when an item of gross income is “taken into account as AFS revenue” under the AFS Income Inclusion Rule, AFS revenue is reduced by amounts that the taxpayer does not have an enforceable right to recover if the customer were to terminate the contract at the end of the taxable year. If an amount is contingent due to a condition precedent, such as with some bonus payments, and the taxpayer would not have an enforceable right to recover such amount if the customer were to terminate the contract at the end of the taxable year, the AFS Income Inclusion Rule does not require the taxpayer to include such amount in gross income in the current year.
Proposed § 1.451–3(c)(6)(ii) provides a rebuttable presumption that amounts included in revenue in an AFS are presumed to not be contingent on the occurrence or nonoccurrence of a future event unless, upon examination of all the facts and circumstances existing at the end of the taxable year, it can be established to the satisfaction of the Commissioner that the amount is contingent on the occurrence or nonoccurrence of a future event.
Commenters requested that the final regulations remove the rebuttable presumption regarding contingent consideration. Commenters reasoned that the rebuttable presumption imposes a higher standard of proof upon taxpayers than is ordinarily required to establish that consideration is contingent. Additionally, commenters noted that basing the presumption on the treatment of the consideration for financial reporting purposes is not sensible because the financial accounting rules do not make the conclusion dependent on whether the consideration is or is not contingent on the occurrence or non-occurrence of a future event. Rather, under the Financial Accounting Standards Board (FASB) and International Accounting Standards Board, Accounting Standards Codification (ASC) Topic 606 and International Financial Reporting Standards (IFRS) 15,
As noted earlier, the final regulations have been revised to remove the reference to “contingent consideration” entirely. The concept is now subsumed by the general rule that, to determine when an item of gross income is “taken into account as AFS revenue” under the AFS Income Inclusion Rule, AFS revenue is reduced by amounts that the taxpayer does not have an enforceable right to recover if the customer terminates the contract at the end of the taxable year. Given this change, the final regulations remove the rebuttable presumption that a taxpayer has an enforceable right to amounts included in AFS revenue.
Commenters requested that the final regulations clarify or remove the rule in proposed § 1.451–3(c)(6)(ii) that treats amounts for which the taxpayer has an “enforceable right to payment” for performance completed to date as not contingent on the occurrence or nonoccurrence of a future event. First, commenters reasoned that the rule is ambiguous, resulting in controversies with exam. Second, commenters asserted that, assuming the phrase “enforceable right to payment” is based on the financial statement rules in ASC 606, this standard effectively overrides the tax realization requirement requiring a fixed, unconditional right to payment. Further, commenters reasoned that the rule is inconsistent with the exception for increases in consideration to which a taxpayer's entitlement is contingent on the occurrence or nonoccurrence of a future event.
The Treasury Department and the IRS agree with these comments. As discussed earlier, the final regulations modify the general AFS Income Inclusion Rule by reducing the AFS revenue that is accelerated and included in gross income. Under the AFS Income Inclusion Rule, to determine when the item of gross income is “taken into account as AFS revenue,” AFS revenue is reduced by amounts that the taxpayer does not have an “enforceable right” to recover if the customer were to terminate the contract on the last day of the taxable year. The term “enforceable right” is specifically defined in § 1.451–3(a)(9) as any right that a taxpayer has under the terms of a contract or under applicable federal, state, or international law, including rights to amounts recoverable in equity or liquidated damages.
Proposed § 1.451–3(c)(6)(iii) provides that the “transaction price” does not include reductions for amounts subject to section 461, including amounts anticipated to be in dispute, returns, and rewards issued in credit card transactions. One commenter recommended that the final regulations clarify that rewards issued in credit card transactions are subject to section 461 and do not reduce original issue discount (OID) income in any circumstance, regardless of the structure of the credit card program. The commenter requested this clarification because taxpayers have taken different positions on the treatment of these rewards while the IRS has taken the position that rewards do not reduce OID income. The commenter stated that the better approach is to treat these rewards as liabilities under section 461. The commenter further explained that treating these rewards as amounts subject to section 461 in all circumstances would create uniformity among credit card issuers, reduce controversy between taxpayers and the IRS, and ease the compliance burden on taxpayers by eliminating the need for a facts and circumstances analysis of each credit card program. The Treasury Department and the IRS agree with the commenter and have modified the final regulations in § 1.451–3(b)(2)(i)(A)(
Commenters also questioned whether the AFS Income Inclusion Rule modifies the treatment of income amounts subject to an actual dispute or a clerical error (disputed income amounts). The AFS Income Inclusion Rule does not modify the treatment of disputed income amounts. The principles set forth in Revenue Ruling 2003–10, 2003–1 C.B. 288, continue to apply. For example, an accrual method taxpayer does not accrue gross income in the taxable year of sale if, during the year of sale, the customer disputes its liability to the taxpayer. In addition, if an accrual method taxpayer overbills a customer due to a clerical mistake, and the customer disputes the liability in the subsequent taxable year, the taxpayer must accrue gross income in the taxable year of sale for the correct amount.
In response to these comments, the final regulations clarify that, under the AFS Income Inclusion Rule, to the extent that AFS revenue was reduced for amounts anticipated to be in dispute or anticipated to be uncollectable, AFS revenue is increased by such amounts. Accordingly, although ASC 606 reduces the transaction price for anticipated disputes to determine the amount of revenue to include on an AFS, see ASC 606–10–32–6, AFS revenue is increased for amounts anticipated to be in dispute or anticipated to be uncollectable, because those amounts are included in gross income until they are actually disputed.
Proposed § 1.451–3(c)(5) provides a non-exhaustive list of examples of special methods of accounting to which the AFS Income Inclusion Rule generally does not apply. Commenters requested that the final regulations include the methods of accounting for notional principal contracts under § 1.446–3 and the timing rules for stripped bonds under section 1286 as examples of special methods of accounting. The Treasury Department and the IRS adopt these comments in the final regulations and have added additional special methods for clarification purposes. The list of special methods of accounting remains non-exhaustive.
Proposed § 1.451–3(d) describes the exceptions to the AFS Income Inclusion Rule. The proposed rule clarifies that the AFS Income Inclusion Rule does not apply unless all of the taxpayer's entire taxable year is covered by an AFS. In addition, the AFS Income Inclusion Rule does not cover items of income in connection with a mortgage servicing contract. A commenter requested that an exception be added for any amount that has not yet been realized for Federal income tax purposes. As discussed earlier, the Treasury Department and the IRS decline to adopt this suggestion because providing rules on realization is beyond the scope of these final regulations.
Proposed § 1.451–3(g) provides that if a taxpayer's contract with a customer has multiple performance obligations subject to section 451(b), transaction price is allocated to performance obligations as transaction price is allocated to performance obligations in the taxpayer's AFS.
The final regulations clarify that each performance obligation yields an item of gross income that must be accounted for separately under the AFS Income Inclusion Rule. When a contract contains multiple performance obligations, to determine the amount of gross income allocated to each performance obligation, the transaction price determined under the taxpayer's applicable accounting principles, is allocated to each corresponding item of gross income in accordance with how the transaction price is allocated to each performance obligation for AFS purposes. If the accounting standards used to prepare the AFS identify a single performance obligation that yields more than one corresponding item of gross income, the portion of the transaction price amount that is allocated to the single performance obligation for AFS purposes must be further allocated among the corresponding items of gross income using any reasonable method.
The final regulations simplify the definition of transaction price. The final regulations define the term transaction price to mean the total amount of consideration to which a taxpayer is, or expects to be, entitled from all performance obligations under a contract. The transaction price is determined under the standards the taxpayer uses to prepare its AFS. Accordingly, adjustments to the transaction price that were reflected in the transaction price definition in the proposed regulations have, to the extent relevant under these final regulations, been moved to operative rules to ensure clarity. See § 1.451–3(b)(2) and (d)(3).
In addition, the final regulations clarify how the transaction price should be allocated to the extent the transaction price includes a reduction for liabilities, amounts anticipated to be in dispute or anticipated to be uncollectable, or a significant financing component that is deemed to exist under the standards the taxpayer uses to prepare its AFS. The final regulations clarify that the taxpayer must determine the specific performance obligation to which such reduction relates and increase the transaction price allocable to the corresponding item of gross income by the amount of the reduction (specific identification approach). If it is impracticable from the taxpayer's records to use the specific identification approach, the final regulations allow taxpayers to use any reasonable method to allocate the amount to the items of gross income in the contract. The final regulations also provide that a pro-rata allocation of this amount across all items of gross income under the contract based on the relative transaction price amounts allocated to the items for AFS purposes is a reasonable method.
Similarly, the final regulations clarify how the transaction price should be allocated if the transaction price was increased because a significant financing component is deemed to exist under the standards the taxpayer uses to prepare its AFS. In this situation, the taxpayer must determine the specific performance obligation to which such amount relates and decrease the transaction price amount allocable to the corresponding item of gross income by such amount (the “specific identification approach”). If it is impracticable from the taxpayer's records to use the specific identification approach, the taxpayer may use any reasonable method to allocate such amount to the items of gross income in the contract. The final regulations provide that a pro-rata allocation of such amount across all items of gross income under the contract based on the relative transaction price amounts allocated to the items for AFS purposes is a reasonable method.
In the proposed regulations, the Treasury Department and the IRS requested comments on the allocation of the transaction price for contracts that include both income subject to section 451 and income subject to a special method of accounting provision, specifically, section 460. A commenter to the proposed regulations suggested that the allocation provisions under section 460 and the regulations thereunder, and not section 451(b)(4), should control the amount of gross income from a long-term contract that is accounted for under section 460. The commenter noted that using this approach is appropriate in light of section 451(b)(2), which reflects Congress's intent to not disturb the treatment of amounts for which the
The Treasury Department and the IRS believe that a rule is necessary to address the application of section 451(b)(2) and (4) to contracts with income that is accounted for in part under § 1.451–3 and in part under a special method of accounting and suggested rules for public comment in the preamble of a separate notice of proposed rulemaking published in the
The final regulations largely adopt the rules suggested in the preamble to the separate notice of proposed rulemaking published in the
To determine the transaction price allocated to items of gross income subject to a special method of accounting, the taxpayer must first adjust the AFS transaction price by the amounts described in the final paragraph of part II.B.1 of this Summary of Comments and Explanation of Revisions. Accordingly, if the AFS transaction price includes a reduction for cost of goods sold, liabilities, amounts expected to be in dispute or anticipated to be uncollectible, or a significant financing component that exists under the standards the taxpayer uses to prepare its AFS, the taxpayer must increase the transaction price amount by the amount of such reduction. If the AFS transaction price has been increased because a significant financing component exists under the standards the taxpayer uses to prepare its AFS, the taxpayer must decrease the transaction price amount by the amount of such increase.
After the taxpayer makes the adjustments to the transaction price described earlier, the taxpayer first allocates such amount to the item(s) of gross income subject to a special method of accounting, and then allocates the remainder (residual amount) to the item(s) of gross income that are subject to § 1.451–3. If the contract, contains more than one item of gross income that is subject to § 1.451–3, the taxpayer allocates the residual amount to these items in proportion to the amounts allocated to the corresponding performance obligations for AFS purposes or as otherwise provided in guidance published in the Internal Revenue Bulletin (see § 601.601(d)).
Under proposed § 1.451–3(i), if a fee is not treated by a taxpayer as discount or as an adjustment to the yield of a debt instrument over the life of the instrument (such as points) in its AFS, and the fee otherwise would be treated as creating or increasing OID for Federal income tax purposes (specified fee), then the rules in the proposed regulations under section 451(b) apply before the rules in sections 1271 through 1275 and the corresponding regulations. Proposed § 1.451–3(i)(2) provides three examples of specified fees: Credit card late fees, credit card cash advance fees, and interchange fees (specified credit card fees). Interchange fees are sometimes labeled merchant discount in certain private label credit card transactions.
Commenters requested that the final regulations provide that promotional discount, which also is sometimes labeled merchant discount, is not a specified fee. Promotional discount arises when a credit card issuer charges a fee to a merchant as compensation for accepting a below market interest rate on a credit card balance during a promotional period. Commenters explained that promotional discount is generally included in income over a promotional or similar period on a taxpayer's AFS and, despite possible alternative labeling, is, in substance, an adjustment to the yield of a debt instrument for AFS purposes. The Treasury Department and the IRS agree that any fee that adjusts the yield of a debt instrument for AFS purposes over the life of the instrument or another period should not be a specified fee. Therefore, the final regulations do not include the phrase “over the life of the instrument” in the definition of a specified fee but add the phrase “spread over a period of time” to clarify the definition. Thus, a fee that adjusts the yield of a debt instrument over a promotional or similar period for AFS purposes, such as promotional discount, is not a specified fee under the final regulations.
One commenter agreed that section 451(b) was not intended to affect the application of the general OID timing rules to OID other than for certain fees that are not treated as discount for AFS purposes, including the specified credit card fees. Accordingly, the commenter agreed with the rules in proposed § 1.451–3(i) and the inclusion of the general OID timing rules as a special method of accounting. Except as provided in the preceding paragraph, the definition of specified fees in the proposed regulations is adopted in the final regulations.
The proposed regulations provide that for a multi-year contract, a taxpayer must take into account the cumulative amounts included in income in prior taxable years on the contract in order to determine the amount to be included for the taxable years remaining in the contract. The proposed regulations contain two examples that illustrate this rule.
The final regulations clarify that if the item of gross income from a multi-year contract is from the sale of an item of inventory and the taxpayer uses the AFS cost offset method, the taxpayer must first determine the “AFS inventory
In the case of any other item of gross income from a multi-year contract, the taxpayer first compares the cumulative amount of the item of gross income that satisfies the all events test under § 1.451–1(a) through the last day of the taxable year with the cumulative amount of revenue from the item of gross income that is treated as taken into account as AFS revenue through the last day of the taxable year and identifies the larger of the two amounts (or, if the two amounts are equal, the equal amount). The taxpayer then reduces such amount by all prior year inclusion amounts attributable to the item of gross income, if any, to determine the amount required to be included in gross income in the current taxable year. Special coordination rules for applying § 1.451–8 are also provided to the extent certain payments received under a multi-year contract are advance payments. The analysis in the examples is updated to reflect the clarifications to the rule.
Under proposed § 1.1275–2(l), notwithstanding any other rule in sections 1271 through 1275 and §§ 1.1271–1 through 1.1275–7, if, and to the extent, a taxpayer's item of income for a debt instrument is subject to the timing rules in proposed § 1.451–3(i) (including credit card late fees, credit card cash advance fees, or interchange fees), then the taxpayer does not take the item into account to determine whether the debt instrument has any OID. As a result, the taxpayer does not treat the item as creating or increasing any OID on the debt instrument. Commenters agree with these rules and note that these rules confirm that the current treatment of items other than specified fees will not be affected by section 451(b). The commenters also note that removing specified fees, including specified credit card fees, from the calculation of OID will permit taxpayers to apply only the rules of section 451(b) to these fees, without also having to apply the OID rules, thereby reducing taxpayer compliance burdens. Accordingly, the Treasury Department and the IRS adopt the rules in proposed § 1.1275–2(l) in the final regulations.
Commenters request clarification on the treatment of income from contracts with customers for the sale of burial plots or interment rights, on a pre-need basis (pre-need contracts). The terms of the pre-need contracts typically require the customer to make an initial down payment and pay the balance of the sales price over several years. If the purchaser cancels or fails to perform under the contract before the entire purchase price is paid, commenters represent that, under every state law, the taxpayer's sole remedy is to keep all or a portion of the installment payments previously received from the customer as liquidated damages. Commenters highlighted that there may be an extended period of time between the date the pre-need contract is executed and the date the taxpayer collects the full sales price from the customer.
Commenters represented that ASC 606 requires the entire transaction price from a pre-need contract, net of costs, to be included in revenue in the year in which the parties execute the contract. However, for Federal income tax purposes, commenters requested that the final regulations clarify that taxpayers with pre-need contracts should not include the unpaid balance of the transaction price in income in the taxable year the contract is executed under the AFS Income Inclusion Rule. In commenters' view, the sale of a burial plot should not be treated as a completed sale for tax purposes until the entire sales price of the burial plot is paid by the customer and ownership rights in the burial plot are transferred. Further, the taxpayer does not have an enforceable right to payment for the entire transaction price of the plot if the customer cancels or fails to perform under the contract.
Commenters concluded that these taxpayers should be entitled to recover any allocable cost basis in the burial plot before including in gross income any of the installment payments received from the customer. Commenters viewed the sale of a burial plot as the sale of an interest in real property and assert that the basis recovery rules of sections 1016 and 1001 apply to prepayments for burial plots. Under this approach, prepayments for the purchase price of a burial plot before the sale of the plot first decrease the taxpayer's basis in the burial plot. See § 1.1016–2(a). When the prepayments exceed the taxpayer's basis in the burial plot, the taxpayer recognizes the excess amount as gain. See § 1.1001–1(c)(1). Accordingly, commenters requested that the final regulations clarify the application of sections 1001 and 1016 to the sale of pre-need burial plots.
Commenters also requested clarification on the income recognition treatment of pre-need contracts with customers for the sale of interment rights. Commenters noted that the ASC 606 treatment for pre-need contracts for the sale of interment rights resemble the treatment for pre-need contracts for the sale of burial rights. Commenters viewed the receipt of any installment payments prior to the transfer of those rights and prior to the payment of the
The IRS and the Treasury Department agree that the sale of burial plots and interment rights are governed by sections 1001 and 1016 but consider the determination of whether a sale has occurred to be a factual issue. If a sale has occurred under the facts and circumstances, any income resulting from the sale is realized under section 1001 and the right to the income is fixed, therefore the AFS Income Inclusion Rule does not result in the acceleration of AFS revenue. If the sale has not occurred, and the right to the future payments is extinguished if the customer cancels the contract, the AFS Income Inclusion Rule does not require acceleration because there is no enforceable right to the future payments if the contract is cancelled by the customer provided that the taxpayer is not using the alternative AFS revenue method in § 1.451–3(b)(2)(ii).
One commenter expressed interest in a Book PCM option as a special method of accounting that taxpayers with contracts accounted for using an over-time method of accounting for revenue under ASC 606 could elect to include the full amount of revenue reported on its AFS without regard to any offset or exception provided in these regulations, but with an offset for the allocable costs reported on its AFS, with some potential tax adjustments. Under ASC 606, the over-time method, where taxpayers recognize revenue over time (as opposed to at a point in time) is used for the following contracts where control over promised goods or services is transferred over time: (1) Where the customer controls the asset as it is created or enhanced by the entity's performance under the contract; (2) where the customer receives and consumes the benefits of the entity's performance as it performs under the contract; or (3) where the entity's performance creates or enhances an asset that has no alternative use to the entity, and the entity has the right to receive payment for work performed to date and expects to fulfill the contract as promised. An entity using an “over-time method” recognizes revenue using either: (1) An output method, which measures the value of the goods and services transferred to date to the customer (for example, units produced); or (2) an input method, which recognizes revenue based on the entity's efforts or inputs (for example, labor hours expended, costs incurred) as compared to the expected total costs to satisfy the performance obligation.
Other commenters expressed concern about allowing a Book PCM option. Some commenters suggested that limiting a Book PCM option to only taxpayers that must report revenue on a particular over-time basis, such as an input cost-incurred method, could create more complexity, not less. Other commenters suggested that, while a Book PCM option might achieve some book-tax conformity, they would still want the opportunity to take advantage of tax rules that provide more beneficial timing than available under Book PCM, such as additional first year depreciation. The Treasury Department and the IRS will continue studying the feasibility and efficacy of an optional Book PCM approach. At this time, however, the Treasury Department and the IRS decline to adopt the Book PCM option set forth by commenters because of the concerns raised regarding the complexity and the desire by some taxpayers to obtain more beneficial timing under tax rules when using a Book PCM method.
No formal comments were received regarding the definition of AFS in proposed § 1.451–3(c)(1). Accordingly, the definition of AFS remains largely unchanged in these final regulations. See § 1.451–3(a)(5). One commenter questioned the statutory language in section 451(b) regarding financial statements prepared using international financial reporting standards (IFRS). Specifically, section 451(b)(3)(B) provides that a financial statement made on the basis of IFRS is an AFS for section 451(b) if the financial statement is filed with a foreign government agency that is equivalent to the United States Securities and Exchange Commission (SEC) and has financial reporting standards not less stringent than the standards imposed by the SEC. Proposed § 1.451–3(c)(1)(iii)(A) and the final regulations § 1.451–3(a)(5)(ii)(A) mirror the statutory language. The commenter questioned whether the requirement in section 451(b)(3)(B) that the financial reporting standards of a foreign agency or government be not less stringent than the standards required by the SEC, refers solely to reporting standards related to revenue or if it also refers to reporting standards for other items that are not related to revenue. The statutory language does not distinguish the reporting standards between revenue and other items that are not related to revenue. Additionally, Revenue Procedure 2004–34, which was the model for the definition of AFS in section 451(b)(3), did not have similar language. Accordingly, based on the plain language of the statute, if the financial reporting standard for any item is less stringent than SEC reporting standards, even if that standard does not relate to revenue reporting, the statement will not be an AFS under proposed § 1.451–3(c)(1)(iii)(A) or § 1.451–3(a)(5)(ii)(A) of the final regulations. However, the financial reporting standards relativity requirement does not prevent the IFRS financial statements from qualifying as an AFS under proposed § 1.451–3(c)(1)(iii)(B) or (C) or § 1.451–3(a)(5)(ii)(B) or (C) of the final regulations.
No formal comments were received regarding the AFS issues addressed in proposed § 1.451–3(h)(1). Accordingly, the rules regarding an AFS that covers a group of entities (consolidated AFS rules) and mismatched reporting periods remain largely unchanged in these final regulations. However, the Treasury Department and the IRS are aware of questions regarding the application of certain aspects of the consolidated AFS rules. Under proposed § 1.451–3(h)(1)(i), if a taxpayer's results are reported on the AFS for a group of entities, the taxpayer's AFS is the group's AFS. Proposed § 1.451–3(h)(3) provides that if a group's AFS does not separately state items, the portion of the revenue allocable to the taxpayer is determined by relying on the source documents that were used to create the group's AFS.
Under the proposed regulations, it was unclear whether the portion of the AFS revenue allocable to the taxpayer includes amounts that are subsequently eliminated in the group's AFS (consolidated AFS). Accordingly, the final regulations clarify that, if the consolidated AFS does not separately state items, the portion of the AFS revenue allocable to the taxpayer is determined by relying on the taxpayer's separate source documents used to create the consolidated AFS and includes amounts that are subsequently eliminated in the consolidated AFS.
Under section 451(c)(4)(A), the term advance payment means any payment that meets the following three requirements: (1) The full inclusion of the payment in gross income in the year of receipt is a permissible method of accounting; (2) any portion of the advance payment is included in revenue in an AFS for a subsequent tax year; and (3) the advance payment is for goods, services, or such other items that the Secretary has identified. Proposed § 1.451–8(b)(1)(i) largely mirrors the definition of an advance payment in section 4.01 of Revenue Procedure 2004–34, which expands upon the goods, services, and other items for which a payment can qualify as an advance payment.
One commenter requested that the Secretary exercise the authority to broaden the definition of advance payment to include prepayments for the sale of an interest in real property, including pre-need burial plots. If the comment is adopted, prepayments for pre-need burial plots would be eligible for the one-year deferral of income.
Commenters agreed that taxpayers in the death care industry uniformly treat the entire amount of the sales price for pre-need burial plots as income on an AFS in the year the pre-need contract is executed. To qualify as an advance payment, a portion of the prepayment must be included in revenue by the taxpayer in an AFS for a subsequent taxable year. Section 451(c)(4)(A)(ii). Since prepayments for pre-need burial plots cannot meet this requirement, these prepayments cannot qualify as advance payments. For this reason, the Treasury Department and the IRS decline to adopt this comment in the final regulations.
No other requests were received to expand the definition of advance payment. Accordingly, the list of items that are included in the definition of advance payment under proposed § 1.451–8(b)(1)(i) is unchanged.
Under section 451(c)(4)(A) and proposed § 1.451–8(a)(1)(i), for a payment to qualify as an advance payment, a portion of the payment must be included in revenue in an AFS for a subsequent tax year. The final regulations clarify that to determine the amount of the payment that is taken into account as AFS revenue, the taxpayer must adjust AFS revenue for any amounts described in § 1.451–3(b)(2)(i)(A), (C), and (D). As a result, to the extent that AFS revenue in the taxable year of receipt reflects, for example, a reduction for liabilities that are required to be accounted for under provisions such as section 461 or amounts anticipated to be in dispute, AFS revenue in the taxable year of receipt must be increased by such amounts.
The final regulations make similar clarifying changes to the deferral method for taxpayers with an AFS in § 1.451–8(c). Under § 1.451–8(c), a taxpayer that uses the deferral method must include all or a portion of the advance payment in gross income in the taxable year of receipt to the extent “taken into account as AFS revenue” as of the end of the taxable year of receipt, and include the remaining portion of the advance payment in gross income in the following taxable year. To determine the extent that an advance payment is treated as “taken into account as AFS revenue” as of the end of the taxable year of receipt, the taxpayer must adjust AFS revenue by the amounts described in § 1.451–3(b)(2)(i)(A), (C), and (D). Accordingly, to the extent that AFS revenue reflects a reduction for liabilities that are accounted for under other provisions of the Code such as section 461 or amounts anticipated to be in dispute, AFS revenue is increased by such amounts. Further, if the transaction price, as defined in § 1.451–3(a)(14), was increased because a significant financing component is deemed to exist under the standards the taxpayer uses to prepare its AFS, then any AFS revenue attributable to such increase is disregarded.
Proposed § 1.451–8(b)(1)(ii) lists exceptions to the definition of an advance payment. Specifically, proposed § 1.451–8(b)(1)(ii)(H) provides that an advance payment does not include a payment received in a taxable year earlier than the taxable year immediately preceding the taxable year of the contractual delivery date for a specified good. Proposed § 1.451–8(b)(8) defines the “contractual delivery date” as the month and year of delivery listed in the written contract to the transaction. A “specified good” is defined in proposed § 1.451–8(b)(9) as a good for which: (1) The taxpayer does not have the goods of a substantially similar kind and in a sufficient quantity at the end of the taxable year the upfront payment is received; and (2) the taxpayer recognizes all of the revenue from the sale of the good in its AFS in the year of delivery. If the prepayment satisfies the specified good exception, the prepayment is analyzed under section 451(b) and § 1.451–1.
Some commenters generally requested that the Treasury Department and the IRS re-examine the contractual delivery date requirement. One commenter requested that the definition of contractual delivery date be broadened to include contracts where the delivery date can be reasonably determined based on all the facts and circumstances as provided in the contract. Another commenter requested that the exception be modified to cover any contract for the sale or production of goods where, based on all of the facts and circumstances, it is reasonably certain that the taxpayer's performance to which the advance payment relates will in fact take place. The same commenter also suggested that if the definition of the contractual delivery date was broadened, the requirement regarding the period of time between when an advance payment is received and the delivery date for a specified good could be modified to require that the expected delivery date occur more than 24 months after the advance payment is received.
The Treasury Department and the IRS decline to adopt the comments to broaden the definition of contractual delivery date in the final regulations because the suggested approaches would decrease administrability and increase uncertainty for taxpayers and the potential for litigation. Therefore, the definition of contractual delivery date in the final regulations continues to be limited to situations where the written contract provides the month and year of delivery for the goods.
In addition, because the Treasury Department and the IRS are not broadening the definition of contractual delivery date, it is not necessary to limit the specified good exception to situations where there is more than 24 months between the date the advance payment is received and the contractual delivery date. The recommended rule is more restrictive than the rule in the proposed regulation which requires the payment to be received in a taxable year earlier than the taxable year immediately preceding the taxable year of the contractual delivery date. Accordingly, the Treasury Department and the IRS decline to adopt this recommendation.
One commenter questioned why the specified good exception in the proposed section 451(c) regulations is restricted to situations where all the revenue from the sale of the good is recognized in the taxpayer's AFS in the year of delivery. The commenter requested that the exception be expanded to include situations where the taxpayer recognizes the revenue for Federal income tax purposes no later than the time when the revenue related to the production of the goods is recognized for financial accounting purposes. As a result, taxpayers using the over-time method to report revenue under ASC 606 could be eligible for the exception.
Payments that qualify for the specified good exception are subject to the general accrual method of accounting rules under section 451(a) and (b), including the all events test under section 451(b)(1)(C) and § 1.451–1(a) and the existing case law that addresses the all events test. The specified good exception was narrowly crafted to allow a taxpayer meeting the requirements to evaluate its treatment of qualifying payments under the all events test under section 451(b)(1)(C) and § 1.451–1(a) and the existing case law that addresses the all events test. Taxpayers that meet the specified good exception criteria, unlike those taxpayers that use the over-time method to report revenue from the sale of goods under ASC 606, are generally not required to test the payment for inclusion under the AFS income inclusion rule in section 451(b)(1)(A), as the payment is not taken into account as AFS revenue until the specified good is delivered to the customer, and is only required to analyze the payment for inclusion under the all events test in section 451(b)(1)(C). Additionally, taxpayers that use the over-time method under ASC 606 generally incur production costs as AFS revenue is recognized and can therefore benefit from the advance payment cost offset method under § 1.451–8(e). However, taxpayers that use the point-in-time method to report revenue from the sale of goods under ASC 606 and that meet the rest of the specified good exception criteria generally don't incur production costs until closer to the delivery date and may not be able to benefit from the advance payment cost offset method under § 1.451–8(e). For these reasons, the Treasury Department and the IRS decline to expand the specified good exception to situations where taxpayers are using the over-time method to report revenue under ASC 606.
For this reason, the Treasury Department and the IRS do not adopt this comment. Therefore, the definition of specified good in the final regulations retains the requirement that the taxpayer recognizes all of the revenue from the sale of the good in its AFS in the year of delivery.
A commenter requested that the definition of “specified good” in proposed § 1.451–8(b)(8) be expanded to include “integral services” furnished for the good. However, the commenter provided no definition of integral services, a term which could be broadly construed resulting in audit controversies. Moreover, the Conference Report expresses Congress' intent for section 451(c) to override former § 1.451–5, which defined an advance payment to include prepayments for services that were integral to the sale or disposition of goods. See H.R. Rep. No. 115–466, at 429 fn. 880 (2017) (Conf. Rep.). For these reasons, the Treasury Department and the IRS decline to accept this comment.
One commenter requested that, if certain proposed changes to the specified good exception are not adopted, the Treasury Department and the IRS should include an exclusion to the definition of “advance payment” for prepayments where the taxpayer reasonably estimates, based on the facts at the time the agreement is entered into, that it will have a NOL that remains unused for the 5-year period after the year the prepayments received are included in the taxpayer's taxable income. The requested rule would be difficult to administer because it requires a taxpayer to estimate that it will have an NOL that remains unused for a 5-year period after the advance payments are included in gross income. Accordingly, the Treasury Department and the IRS decline to adopt this comment in the final regulations.
Several commenters provided examples in which payments that qualify for the specified good exception in proposed § 1.451–8(a)(1)(ii)(H) are deferred and included in gross income when the payment is recognized as revenue in the taxpayer's AFS in the year the good is delivered. As mentioned in part III.B.2 of this Summary of Comments and Explanation of Revisions and for additional clarification, payments that qualify for the specified good exception are subject to the general accrual method of accounting rules under section 451(a) and (b), including the all events test under section 451(b)(1)(C) and § 1.451–1 and the existing case law that addresses the all events test.
One commenter asked that the specified good exception be made optional, particularly if meeting the specified good exception does not result in deferral of the prepayment to match the book timing of the payment. The commenter noted that some taxpayers may prefer the section 451(c) regime, especially if there is some uncertainty whether the contract meets the specified good exception. Further, some taxpayers that had the choice of a longer deferral under § 1.451–5 or a one-year deferral under Revenue Procedure 2004–34 still chose the 1-year deferral.
The Treasury Department and the IRS agree with this comment. Accordingly, the final regulations allow taxpayers to treat all prepayments that satisfy the specified good exception as advance payments subject to section 451(c), the “specified good section 451(c) method.” See § 1.451–8(f). The requested election provides flexibility for taxpayers. If the taxpayer does not use the specified good section 451(c) method, payments satisfying the specified good exception are not eligible for the deferral method provided in section 451(c) and § 1.451–8 but are subject to section 451(b) and § 1.451–1(a). If the taxpayer uses the specified good section 451(c) method, the prepayment is generally deferred for one year; however, if a taxpayer also uses the advance payment cost offset method under § 1.451–8(e) to account for such prepayments, a portion of the prepayment may be deferred until the year in which ownership of the good is transferred to the customer.
The specified good section 451(c) method is a method of accounting. The method applies to all payments that satisfy the specified good exception that are received by each trade or business that uses the method. The use of this method results in the adoption of, or a change in, a method of accounting under section 446. See § 1.451–8(g).
Under proposed § 1.451–8(c)(2)(i)(B), a taxpayer that uses the deferral method generally includes an advance payment in gross income when it satisfies its
Example 11 incorrectly concludes that the payment for the commission is not an advance payment. The payment for the commission income is an advance payment because it meets the definition of an advance payment under section 451(c)(4), including the requirement that a portion of the payment is included in the taxpayer's revenue in an AFS for a subsequent taxable year. However, the commission income is included in income in the year of receipt because the taxpayer's obligation with respect to the advance payment was satisfied in that year. Accordingly, in the final regulations, this example has been moved and revised into an example of the rules on the acceleration of advance payments. In addition, the analysis has been changed to clarify that (1) the commission income is an advance payment, and (2) the taxpayer's satisfaction of its obligation for the advance payment caused the commission to be included in income in the year of receipt.
Section 451(c)(4) provides that for purposes of the rules for advance payments, rules similar to the rules in section 451(b)(4), which allocate transaction price among multiple performance obligations, apply. Proposed § 1.451–8(c)(5) provides rules for taxpayers with an AFS for allocating the transaction price when there is more than one performance obligation in a contract. Specifically, those taxpayers allocate the transaction price based on the method in proposed § 1.451–3(g), namely, using the allocation in the taxpayer's AFS. No formal comments were received on this provision.
Under the proposed regulations it was not clear whether the taxpayer was required to allocate the payment to multiple performance obligations based on their relative transaction price or based on the payment allocation used for AFS purposes. Accordingly, the final regulations clarify that advance payments received under a contract with multiple performance obligations are allocated to the corresponding item of gross income in the same manner that the payments are allocated to the performance obligations in the taxpayer's AFS. This rule is consistent with the requirement in section 451(c)(4)(D) that “rules similar to the rules in [section 451](b)(4) shall apply,” because it follows the manner in which the taxpayer allocates the payment for AFS purposes.
The rule for taxpayers without an AFS remains unchanged. See § 1.451–8(d)(4).
The proposed regulations requested comments on the allocation of a payment when the contract includes income subject to section 451(c) and income subject to section 460, but no comments were received.
Consistent with the objective criteria standard under Section 5.02(4) of Rev. Proc. 2004–34, the final regulations provide that if (1) a contract with a customer includes item(s) of gross income subject to a special method of accounting and item(s) of gross income described in § 1.451–8(a)(1)(i)(C), and (2) the taxpayer receives an allocable payment, then the taxpayer must determine the portion of the payment allocable to the items of gross income described in § 1.451–8(a)(1)(i)(C) based on objective criteria. The taxpayer is deemed to satisfy the objective criteria standard when it allocates the payment to each item of gross income in proportion to the amounts determined in § 1.451–3(d)(5) or as otherwise provided in guidance published in the Internal Revenue Bulletin (see § 601.601(d)).
This rule is consistent with the requirement in section 451(c)(4)(D) that “rules similar to the rules in [section 451](b)(4) shall apply.” The final regulations also provide a similar allocation rule for taxpayers using the non-AFS deferral method.
The proposed regulations do not provide for a cost offset. The preamble to the proposed regulations explains the rationale for rejecting a cost offset and requests comments on this issue.
As they did with respect to the proposed section 451(b) regulations, commenters requested that the final regulations under section 451(c) provide a cost offset, such as a COGS offset for expected future costs against advance payments for the sale of goods. Commenters asserted that a COGS offset is supported by the definition of “receipt” in section 451(c)(4)(C), which refers to an “item of gross income.” Under section 61 and § 1.61–3(a), for the sale of goods, an item of gross income generally means total sales revenue minus the cost of goods sold. Commenters cited
Commenters also asserted that not allowing a cost offset could result in a mismatch of revenue and costs and fails to clearly reflect income. According to commenters, a taxpayer would be required to report the full amount of an advance payment in income, in excess of the expected profit associated with that portion of the total contract price being reported. When the costs are actually incurred in subsequent years, the taxpayer would report losses with no associated revenue, which, in extreme cases where the losses cannot be used, could result in a permanent loss of the tax benefit of the cost. For a limited-life business, the acceleration of revenue recognition may result in NOLs that are permanently lost, as expenses trail income throughout the life cycle of the business. The commenters pointed out that this mismatch of income and associated costs does not reflect the reality of the overall amount of gross income realized by the taxpayer on the contract as a whole.
Further, commenters reasoned that allowing a cost offset under section 451(c) will not violate the economic performance requirement of section 461(h). Since the acceleration of advance payments under section 451(c) is a departure from accrual method accounting, the costs related to the payments should also depart from accrual method concepts. Commenters pointed out that the allowance of a cost offset for expected future COGS against substantial advance payments under former § 1.451–5(c), based on
Commenters also reasoned that section 451(c) was not meant to codify all aspects of Revenue Procedure 2004–34, including the lack of a cost offset in Revenue Procedure 2004–34. Announcement 2004–48, 2004–1 C.B. 998, explains that a COGS offset was not permitted in Revenue Procedure 2004–34 because it was inconsistent with the simplification that the revenue procedure was meant to achieve, and taxpayers could still qualify for a COGS offset under former § 1.451–5(c). Commenters also found it significant that the term “receipt” in section 451(c) uses the specific term “an item of gross income,” while the definition of received in Revenue Procedure 2004–34 uses the general term “income.”
The Treasury Department and the IRS have considered these comments and have determined that a cost offset based on estimates of future costs would be inappropriate. As discussed in the preamble to the proposed section 451(c) regulations, allowing a cost offset based on estimated costs would be inconsistent with sections 461, 263A, and 471, and the regulations under those sections of the Code and difficult for the IRS to administer. Additionally, allowing a cost offset based on estimated costs is inconsistent with Congress' intent to override former § 1.451–5(c). Former § 1.451–5(c) permitted a cost offset for both incurred and estimated costs against certain advance payments that were required to be included in gross income in a taxable year prior to the year in which ownership of the item of inventory was transferred to the customer, and was recently withdrawn in final regulations published in the
Specifically, the final regulations provide that the cost of goods in progress offset for an item of inventory for each taxable year is calculated as the cost of goods incurred for such item through the last day of the taxable year, reduced by the cumulative cost of goods in progress offset amounts in prior taxable years, if any. However, the cost of goods in progress offset cannot reduce the advance payment inventory inclusion amount for the taxable year below zero. Further, the cost of goods in progress offset attributable to one item of inventory cannot reduce the advance payment inventory inclusion amount attributable to a separate item of inventory. Any incurred costs that were not used to offset the advance payment for the item of inventory because they were subject to limitation are considered when the taxpayer determines the cost of goods in progress offset in a subsequent taxable year. In addition, the cost of goods in progress offset does not apply to the advance payment inventory inclusion amount that is included in gross income as a result of the acceleration rules in § 1.451–8(c)(4), and any advance payments previously deferred by way of a cost of goods in progress offset in a prior year are accelerated under such rule.
The cost of goods in progress offset is determined by reference to the costs and expenditures related to items of inventory produced or acquired for resale, which costs have been incurred under section 461 and have been capitalized and included in inventory under sections 471 and 263A or any other applicable provision of the Code as of the end of the year. The taxpayer must be able to demonstrate that the costs are properly capitalizable under the Code to the items of inventory produced or acquired for resale under the contract to which the taxpayer is applying the cost of goods in progress offset. For a sale of a gift card or customer reward program points, this requirement cannot be met, and no cost of goods in progress offset is permitted. However, the cost of goods in progress offset does not reduce the costs that are capitalized to the items of inventory produced or acquired for resale by the taxpayer under the contract. That is, while the cost of goods in progress offset reduces the amount of the advance payment included in income, it does not affect how and when costs are capitalized to inventory under sections 471 and 263A or any other applicable provision of the Code or when those capitalized costs will be recovered.
The costs of goods comprising the cost of goods in progress offset must be determined by applying the taxpayer's inventory accounting methods. A taxpayer must calculate its cost of goods in progress offset by reference to all costs that the taxpayer has permissibly capitalized and allocated to items of inventory under its method of accounting for inventories for federal income tax purposes, but may not consider costs that are not properly capitalized under such method.
The Treasury Department and the IRS provided this cost offset method in the final regulations because it provides a reasonable matching of income from advance payments and incurred cost of goods, and more clearly reflects income. The advance payment cost offset method is a method of accounting that applies to all advance payments received by a trade or business for items of inventory that satisfy the criteria in § 1.451–8(e). If a taxpayer chooses to use the advance payment cost offset method for a trade or business, it must also use the AFS cost offset method in § 1.451–3(c) for that trade or business. See prior discussion regarding coordination between the AFS cost offset method and the advance payment cost offset method. Additional guidance on the cost offset method for advance payments may be provided in guidance published in the Internal Revenue Bulletin (see § 601.601(d)).
Commenters requested clarification of whether Revenue Procedure 2004–32, 2004–1 C.B. 988, and Revenue Procedure 79–38, 1997–2 C.B. 501, remain in effect after the enactment of section 451(c). Revenue Procedure 2004–32 allows an accrual method taxpayer to account for income from credit card annual fees ratably over the period covered by the fees, as described in section 4 of Revenue Procedure 2004–32. Revenue Procedure 79–38 generally allows accrual method manufacturers, wholesalers, and retailers of motor vehicles or other durable goods to include a portion of an
The preamble to proposed § 1.451–3 requested comments on the proposed obsolescence of Revenue Procedure 2004–33, 2004–1 C.B. 989 (relating to credit card late fees), Revenue Procedure 2005–47, 2005–2 C.B. 269 (relating to credit card cash advance fees), Revenue Procedure 2013–26, 2013–22 I.R.B. 1160 (relating to a safe harbor method of accounting for OID on a pool of credit card receivables), and Chief Counsel Notice CC–2010–018 (relating to interchange). Instead of obsoleting Revenue Procedure 2013–26, commenters recommended limiting the scope of Revenue Procedure 2013–26 to OID that is not subject to the timing rules in proposed § 1.451–3(i) and thus, not excluded from the OID rules under proposed § 1.1275–2(l). Commenters explained that retaining Revenue Procedure 2013–26 would allow taxpayers to continue to use the proportional method described in the revenue procedure as a safe harbor method of accounting for certain amounts that are not OID under section 1272, such as bond premium and market discount, as well as certain kinds of OID such as promotional discount. See discussion of promotional discount in part II.F. of the Summary of Comments and Explanation of Revisions. The Treasury Department and the IRS agree with the recommendations not to obsolete Revenue Procedure 2013–26. In addition, the Treasury Department and the IRS intend to modify Revenue Procedure 2013–26 to make clear that the safe harbor method does not apply to any specified fees, including the specified credit card fees. However, based on section 451(b) and the final regulations, Revenue Procedure 2004–33, Revenue Procedure 2005–47, and Chief Counsel Notice CC–2010–018 no longer provide current guidance on the treatment of the specified credit card fees. Accordingly, these items are obsolete as of January 1, 2021.
In addition, Revenue Procedure 2004–34, Revenue Procedure 2011–18, Revenue Procedure 2013–29 and Notice 2018–35 are obsolete for taxable years beginning on or after January 1, 2021. Taxpayers that relied on the now obsoleted guidance should determine whether a change in method of accounting occurs once they cease to use the obsoleted guidance.
In general, the rules in §§ 1.451–3 and 1.451–8 apply for taxable years beginning on or after January 1, 2021. However, the rules in § 1.451–3(j) for specified fees that are not specified credit card fees apply for taxable years beginning on or after January 6, 2022. Also, for a specified credit card fee as defined in § 1.451–3(j)(2), § 1.1275–2(l)(1) applies for taxable years beginning on or after January 1, 2021, and, for a specified fee that is not a specified credit card fee, § 1.1275–2(l)(1) applies for taxable years beginning on or after January 6, 2022.
However, pursuant to section 7805(b)(7), taxpayers and their related parties, within the meaning of sections 267(b) and 707(b), may apply the rules in these final regulations, in their entirety and in a consistent manner, to a taxable year beginning after December 31, 2017, and before January 1, 2021, provided that, once applied to such a taxable year, such rules are applied in their entirety and in a consistent manner to all subsequent taxable years. Notwithstanding the preceding sentence, pursuant to section 7805(b)(7), taxpayers and their related parties, within the meaning of sections 267(b) and 707(b), may apply the rules in these final regulations that apply to specified credit card fees in their entirety and in a consistent manner, to a taxable year beginning after December 31, 2018, and before January 1, 2021, provided that, once applied to such a taxable year, such rules are applied in their entirety and in a consistent manner to all subsequent taxable years. Taxpayers that choose to apply the rules in the final regulations to a taxable year beginning before January 1, 2021 must follow the rules for changes in method of accounting under section 446 and the applicable procedural guidance.
Alternatively, a taxpayer may rely on the proposed regulations for taxable years beginning after December 31, 2017 (or December 31, 2018, in the case of specified credit card fees) and before January 1, 2021.
In the case of a specified fee that is not a specified credit card fee, a taxpayer may neither choose to apply the final regulations to, nor rely on the proposed regulations for, a taxable year beginning after December 31, 2018, and before January 6, 2022.
The IRS Notices, Revenue Rulings, and Revenue Procedures cited in this document are published in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at
Executive Orders 12866, 13563, and 13771 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. For purposes of E.O. 13771 this rule is regulatory.
These regulations have been designated as subject to review under Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Treasury Department and the Office of Management and Budget (OMB) regarding review of tax regulations. The Office of Information and Regulatory Affairs has designated these regulations as economically significant under section 1(c) of the MOA. Accordingly, the OMB has reviewed these regulations.
The Tax Cuts and Jobs Act (TCJA) substantially modified the statutory rules of section 451, which generally governs when income is recognized for Federal tax purposes. As a result of those changes, the Treasury Department and the IRS recognized that questions were likely to arise regarding the definitions and rules that taxpayers are required to apply in calculating a business's gross income. To provide greater specificity, the Treasury Department and the IRS previously issued separate proposed regulations related to section 451(b) and 451(c) on September 9, 2019.
The proposed regulations regarding section 451(b): (1) Clarify how section 451(b) applies to multi-year contracts; (2) provide rules for taxpayers whose financial results are included on an Applicable Financial Statement (AFS) covering a group of entities; (3) describe and clarify the definition of transaction price and revenue; (4) specify the allocation of a transaction price in the
The proposed regulations for section 451(c) describe the deferral rules for advance payments for taxpayers with and without an AFS; (2) provide acceleration rules for taxpayers that cease to exist; (3) clarify the treatment of financial statement adjustments for taxpayers with deferred advance payments; (4) provide rules relating to the treatment of short taxable years for taxpayers deferring advance payments; and (5) define and clarify the treatment of performance obligations. They also list items excluded from the definition of an advance payment. In response to taxpayer comments received during the development of the proposed regulations, that list includes goods for which (1) the taxpayer does not have goods of a substantially similar kind and in a sufficient quantity at the end of the taxable year the upfront payment is received; and (2) the taxpayer recognizes all of the revenue from the sale of the good in its AFS in the year of delivery.
Comments were received on the proposed regulations for 451(b) and 451(c) requesting further clarification of or changes to those regulations. Based on these comments, the Treasury Department and the IRS determined that final regulations are needed to bring clarity to instances where the statute may be subject to multiple interpretations in the absence of further guidance and to respond to comments received on the proposed regulations. Among other benefits, the final regulations provide greater certainty and consistency in the application of section 451 by taxpayers and the IRS.
Under section 451(a) of the Code, income is “recognized” (that is, included in gross income for tax purposes) in the year in which it is received by the taxpayer unless it is properly accounted for in a different period under the taxpayer's method of accounting. Because of this latter condition, the tax treatment of certain items of income depends on the method of accounting a taxpayer is using. For taxpayers using the accrual method of accounting, income is generally recognized in the year in which all events have occurred that fix the right to receive that income and the amount of income can be determined with reasonable accuracy (all events test).
The timing of income recognition on a firm's financial statement may deviate from these principles. Both the U.S. generally accepted accounting principles (GAAP) and the international financial reporting standards (IFRS) provide income recognition rules that differ from tax reporting rules under certain circumstances. For example, financial accounting rules may require revenue to be recognized when the costs of providing goods or services pursuant to a contract are incurred, while the all-events test may not be satisfied until the contract obligation is fulfilled. New accounting standards released by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) in 2014 further accelerated the timing of income recognition for financial reporting purposes, widening the gap between financial and tax reporting.
The timing of income recognition for tax purposes may also deviate from the all-events test in certain circumstances. For instance, receipt of payment by the business satisfies the all events test. However, recognition of certain payments for goods or services not yet provided may be deferred to the year following receipt of payment, to the extent that recognition is also deferred on the taxpayer's AFS. Such payments are referred to as “advance payments.”
Prior to the enactment of TCJA on December 22, 2017, taxpayers were generally permitted to defer the tax on these advance payments; in other words, advance payments could be recognized in a later taxable year. Under prior law, the period over which an advance payment was deferred varied depending on the alternative regulatory treatment chosen (Revenue Procedure 2004–34 or § 1.451–5) and, within § 1.451–5, the type of good for which an advance payment was accepted (inventoriable goods versus non-inventoriable goods).
Under Revenue Procedure 2004–34, a taxpayer who receives an advance payment includes the advance payment in taxable income in the year of receipt to the extent that the payment is earned (if the taxpayer does not have an AFS) or, if the taxpayer has an AFS, to the extent that the payment is included in revenues in the AFS. The taxpayer includes the remaining amount of the advance payment in taxable income in the next taxable year, unless the next taxable year is a short year of 92 days or less. In the event of such a short year, the taxpayer includes in taxable income the part of the advance payment included in revenue in the AFS for the short tax year or, in the case of a taxpayer that does not have an AFS, the part of the advance payment which is earned in the short tax year. The remaining balance of the advance payment is included in income for the taxable year following the short tax year. Revenue Procedure 2004–34 applies to numerous types of advance payments beyond advance payments for the provision of services and sales of goods. For example, it applies to advance payments for the use of intellectual property and software, the occupancy or use of property if the occupancy or use is ancillary to the provision of services, guaranty or warranty contracts, subscriptions, memberships in organizations, and eligible gift card sales.
Under § 1.451–5, advance payments were defined more narrowly than under Revenue Procedure 2004–34 to include payments received by an accrual-method taxpayer for the future sale of goods held by the taxpayer in the ordinary course of trade or business and as payments for the building, installing, constructing, or manufacturing of goods by the taxpayer in a future taxable year. Such advance payments were generally included in taxable income either in the year of receipt or in the year in which the payment was properly accruable under the taxpayer's method of accounting.
An exception to this general rule occurred in the case of certain advance payments for certain goods properly held in inventory by the taxpayer. In the case of such goods, the receipt of a substantial advance payment required that all previously unrecognized advance payments be included in taxable income by the end of the second taxable year following the taxable year in which the substantial advance payment was received. The taxpayer was considered to have received a substantial advance payment if the sum of the advance payment received in the current taxable year and prior taxable years for the same contract was greater than or equal to total inventoriable costs and expenditures.
The TCJA substantially amended section 451 providing, among other things, new rules addressing deviations from the all-events test. The amended section 451(b) more closely aligns when income is recognized for Federal tax purposes with when it is recognized on businesses' financial accounting statements. In particular, section 13221 of the TCJA amends section 451(b), such that an item of gross income must be included in gross income no later than the period when the item is included in revenue on an AFS. Thus, this new rule requires taxpayers to recognize income upon the earlier of when the all-events test is met or when the taxpayer includes the amount in revenue
The amendments made to section 451(b) only apply to taxpayers that use accrual accounting and have an AFS. Neither the statutory changes to 451(b) nor the final regulations regarding 451(b) change the time at which income is recognized for accrual method taxpayers without an AFS.
Section 451(c), added by the TCJA, allows accrual-method taxpayers to elect to recognize as income only a portion of an advance payment in the taxable year in which it is received, and then recognize the remainder in the following taxable year. Section 451(c) essentially codifies the deferral method of accounting for advance payments that was permitted in Revenue Procedure 2004–34. (Joint Committee on Taxation,
In this analysis, the Treasury Department and the IRS assess the benefits and costs of the final regulations relative to a no-action baseline reflecting anticipated Federal income tax-related behavior in the absence of these final regulations.
The final regulations provide certainty and consistency in the application of sections 451(b) and 451(c) by providing definitions and clarifications regarding the statute's terms and rules. In the absence of the guidance provided in these final regulations, the chance that different taxpayers might interpret the statute differently is exacerbated. For example, two similarly situated taxpayers might interpret the statutory provisions pertaining to the definition of advanced payments differently, with one taxpayer pursuing a project that another comparable taxpayer might decline because of a different interpretation of how the income may be treated under section 451(c). If this second taxpayer's activity is more profitable, an economic loss arises. Similar situations may arise under each of the provisions addressed by these regulations. Certainty and clarity over tax treatment generally also reduce compliance costs for taxpayers.
An economic loss might also arise if all taxpayers have similar interpretations under the baseline of the tax treatment of particular items of income but those interpretations differ slightly from the interpretation Congress intended for these income streams. For example, the final regulations may specify a tax treatment that few or no taxpayers would adopt in the absence of specific guidance but that nonetheless advances Congressional intent. In these cases, guidance provides value by bringing economic decisions closer in line with the intent and purpose of the statute.
While no guidance can curtail all differential or inaccurate interpretations of the statute, the final regulations significantly mitigate the chance for differential or inaccurate interpretations and thereby increase economic efficiency.
Because the final regulations clarify the tax treatment of items of gross income for certain taxpayers, there is the possibility that business decisions may change as a result of these regulations. The final regulations generally have the effect of delaying the timing of tax liability, thus reducing effective tax rates for affected taxpayers. This reduction in effective tax rates, viewed in isolation, will generally lead to an increase in economic activity by these taxpayers.
This delay in the timing of tax liability, viewed in isolation, will also decrease Federal tax revenue. A decrease in Federal tax revenue either increases the deficit or necessitates increases in other taxes or a reduction in spending. This revenue effect will be mitigated to some degree by improved economic performance (and accompanying tax revenues) under these regulations due to (i) the enhanced alignment in the timing of taxes on income and costs; (ii) the enhanced certainty and clarity provided by the final regulations as described previously; and (iii) enhanced economic activity due to lower effective tax rates for affected taxpayers.
The Treasury Department and the IRS have not estimated these effects relative to the no-action baseline or alternative regulatory approaches because they do not have readily available data or models that measure: (i) The volume of cost offsets allowed under the final regulations;
The Treasury Department and the IRS have also not made projections of any change in compliance costs arising from the final regulations, relative to the no-action baseline. Treasury generally projects that compliance costs will be lower under the final regulations relative to the no-action baseline because enhanced clarity and certainty reduce compliance costs. The Treasury Department and the IRS recognize that some taxpayers may take advantage of favorable provisions in the final regulations and that this decision could increase their compliance costs. Taxpayers would not take advantage of these provisions, however, unless the overall treatment was beneficial to the taxpayer.
The proposed regulations noted that the economic analysis of the final regulations under section 451(c) would address the economic effects of regulatory guidance, if any, under sections 460 and 461(h) or other sections of the Code that interact with section 451(c), that was issued between the proposed and final regulations. Since the release of the proposed regulations on September 5, 2019, no such regulatory guidance has been issued.
The proposed regulations for 451(b) and 451(c) solicited comments on the economic effects of the proposed regulations. No such comments were received.
The Treasury Department and the IRS estimate that between 174,000 and 299,000 entities are likely to be affected by the final regulations.
Section 451(b) and (c) and the regulations under § 1.451–3 affect only those business entities that (i) use an accrual method of accounting, and (ii) have an AFS. One provision in § 1.451–8 applies to accrual method taxpayers without an AFS. Regarding the accrual method of accounting, section 13102 of TCJA modified section 448 to expand the number of taxpayers eligible to use the cash receipts and disbursements method of accounting (cash method of accounting). In general, C corporations and partnerships with a C corporation
The statute and the regulations generally affect only those entities that also have an AFS although one provision in the regulations under § 1.451–8 applies to non-AFS taxpayers. The Treasury Department and the IRS do not have readily available data to measure the prevalence of these affected entities. However, Schedule M–3, which is used to reconcile an entity's net income or loss for tax purposes with its book income or loss, reports whether an entity has a certified audited income statement. Schedule M–3 is required to be filed only by entities with at least $10 million of assets. This population is more likely to possess an AFS and, conversely, entities that do not file Schedule M–3 are less likely to possess an AFS or otherwise be affected by the regulations as owners and/or creditors of such smaller entities are less likely to require the entity to certify its financial results via a financial statement audit. Data are currently available only for electronic filers.
The Treasury Department and the IRS estimated the number of affected taxpayers separately for entities with gross receipts of $26 million or less and those with gross receipts above $26 million. For taxable year 2017, 89 percent of accrual-method entities filing Forms 1120, 1120–S, and 1065 with gross receipts of $26 million or less were filers of electronic tax forms. About 11 percent, or 288,000 returns, included a Schedule M–3. About 40 percent of the returns with Schedule M–3, or 113,000, indicated they had a certified audited income statement.
For entities with gross receipts above $26 million and that are accrual method entities, the comparable calculations are that 95 percent of returns are e-filed and that 73 percent of those included a Schedule M–3. Based on the assumption that filers of paper tax forms have the same incidence as electronic filers and that entities that do not include a Schedule M–3 generally do not have an AFS, the Treasury Department and the IRS estimate that 47,000 (45,000/0.95) entities with gross receipts above $26 million are accrual-method entities that have an AFS. If 5 percent of entities that do not file a Schedule M–3 also have an AFS, then approximately 48,000 of these entities are potentially affected by these regulations.
Together, these calculations imply that between 174,000 and 299,000 entities are potentially affected by the final regulations.
Section 451(b) as amended by TCJA addresses the timing of revenue recognition for tax purposes but makes no mention of the timing of cost recognition. The Treasury Department and the IRS considered three options for addressing the treatment of costs under section 451(b): (i) Do not allow a cost offset; (ii) allow a cost offset for incurred costs; and (iii) expand the allowance for incurred costs by further allowing a cost offset for projected costs. The proposed regulations did not provide a cost offset for the AFS income inclusion rule.
In the proposed section 451(b) regulations (in this part C.4,
In response to the comments received, the Treasury Department and the IRS have decided to include in the final regulations an offset for the cost of goods in progress (cost offset). This cost offset allows taxpayers to reduce the amount of revenue from the sale of inventory that is otherwise required to be included in gross income under the AFS income inclusion rule in a taxable year prior to the year in which ownership of the inventory is transferred to the customer and defer such revenue to the taxable year in which the ownership of the inventory is transferred to the customer. The amount of such reduction, or cost offset, is determined by reference to the inventoriable costs incurred to date. The offset applies only to incurred costs, not estimated or projected costs. Further, the cost offset cannot reduce the amount of revenue that is included in gross income under the AFS inclusion rule below zero. Any incurred costs subject to this limitation may be carried forward to determine the cost offset in subsequent taxable years.
The cost offset in the final regulations generally reduces the amount of revenue that is required to be included in gross income in a taxable year prior to the year in which ownership of inventory is transferred to the customer relative to the proposed regulations. An improved match of income and cost timing is generally held to provide a more accurate measure of economic activity and thus would lead to a more efficient tax system than under the proposed regulations, within the context of the statute and the overall Code.
This enhanced alignment in the tax treatment of revenue and costs can be expected to reduce financing costs for at least some projects and taxpayers. This reduction in financing costs relative to the proposed regulations may arise because in some cases under the proposed regulations, the inability of taxpayers to match the timing of revenue and cost associated with a project leads to a large, front-loaded tax liability, which may require a costly rebalancing of other assets, particularly for liquidity-constrained taxpayers. Taxpayers who experience a reduction in financing costs as a result of these final regulations, relative to the proposed regulations, may, as a result, increase other expenditures, including investment. The provision of the cost offset in the final regulations may further encourage longer-run projects relative to the proposed regulations.
The Treasury Department and the IRS considered expanding the cost offset to allow for projected costs, with several possible formats for how projected costs would be accounted for. Allowing an offset for projected costs would entail a higher administrative burden than the offset (only) for incurred costs and would not definitively improve the alignment of when income and costs are recognized for tax purposes relative to the offset for incurred costs. The Treasury Department and the IRS project that under an offset for projected costs, more disputes would likely arise over the projected costs because taxpayers would have an incentive to overstate projected costs in order to delay income recognition.
The Treasury Department and the IRS have not estimated the difference in compliance costs, administrative burden, or income-cost alignment (and any subsequent effects on economic activity) between the final regulations and alternative regulatory approaches using projected costs. The Treasury Department and the IRS have not undertaken this estimation because they do not have sufficiently detailed data or models that capture possible differences in cost offset formats that use incurred costs versus projected costs.
The final regulations also address concerns raised by commenters regarding recent changes to the financial accounting standards. The commenters suggested that the AFS inclusion rule is overly broad in light of these new standards, which generally accelerate AFS revenue recognition relative to the prior standards, and could cause taxpayers to incur a tax liability before they receive, or have a fixed right to receive, the money to pay the liability. Accordingly, the final regulations provide that under the AFS inclusion rule, amounts taken into account as AFS revenue include only those amounts that the taxpayer has an enforceable right to recover if the customer were to terminate the contract at the end of the taxable year.
The final regulations further provide, however, that a taxpayer may treat any amount reported as AFS revenue as being taken into account as AFS revenue regardless of whether the taxpayer has an enforceable right to recover such amounts. The Treasury Department and the IRS project that this option will lead to reduced compliance burden, reduced administrative burden, and to fewer taxpayer disputes relative to an alternative regulatory approach under which amounts taken into account as AFS revenue include only those amounts that the taxpayer has an enforceable right to recover if the customer were to terminate the contract at the end of the taxable year. Under this “enforceable right” approach, taxpayers would be required to analyze each contract to determine amounts for which the taxpayer has an enforceable right to recover if the customer were to terminate the contract at the end of the year; this analysis would be potentially costly.
The Treasury Department and the IRS also considered an alternative regulatory approach under which taxpayers would be permitted to defer “increases” in the transactions price that are taken into account as AFS revenue in a given year but to which a taxpayer's entitlement is contingent on a future event (contingent transaction price approach). This alternative regulatory approach was reflected in the proposed regulations. However, commenters expressed confusion as to what constitutes an “increase” in the transaction price and the types of contingencies that were intended to be included within the scope of the rule. Because of the uncertainties created by the contingent transaction price approach, and the potential for multiple interpretations, the Treasury Department and the IRS decided against this approach. The enforceable right standard adopted by the final regulations may accelerate income inclusion relative to the contingent transaction price approach, although the Treasury Department and the IRS recognize that the opposite result may hold for some taxpayers.
The Treasury Department and the IRS have not estimated the differences in income inclusion between the final regulations and this alternative regulatory approach because they do not have readily available data on the income inclusion timing differences under an enforceable right standard versus the contingent transactions price approach. Because of this lack of data, the Treasury Department and the IRS have further not estimated the difference in compliance costs between the final regulations and the alternative regulatory approach.
The final regulations clarify how section 451(b) applies to multi-year contracts. The Treasury Department and
In contrast, under a cumulative approach, in each taxable year a taxpayer would compare the cumulative amount of revenue included in its AFS up to and including that taxable year with the cumulative amount of income that meets the requirements for recognition under the all events test up to and including that taxable year. The taxpayer would then take the larger of the two amounts and reduce it for any prior taxable year income inclusions with respect to that item of gross income to determine the amount that is required to be included in gross income in the current taxable year.
The difference between the annual approach and the cumulative approach are illustrated by the following example. In 2021, D, an engineering services provider, enters into a non-severable contract with a customer to provide engineering services through 2024 for a total of $100x. Under the contract, D receives payments of $25x in each calendar year of the contract. For its AFS, D reports $50x, $0, $20x, and $30x of AFS revenue from the contract for 2021, 2022, 2023, and 2024, respectively. D has an enforceable right, as defined in § 1.451–3(a)(9), to recover all amounts reported as AFS revenue through the end of a given contract year if the customer were to terminate the contract on the last day of such year. The $25x payment received for 2023 is an advance payment, as defined in § 1.451–8(a)(1), because $5x of the $25x payment is reported as AFS revenue for 2024. D uses the full inclusion method for advance payments.
The accompanying table shows the treatment of gross income under the two approaches.
An annual approach could accelerate the recognition of taxable income to a greater degree than what is reflected in revenue for AFS purposes. In this example, such an approach would ignore in 2022 the fact that cumulative AFS revenue of $50x had been recognized as taxable gross income in 2021. Accordingly, the annual approach would require that an additional $25x of income be recognized in 2022, since a payment of that amount was received in that year. In effect, an annual approach would accelerate the recognition of $25x from 2023 to 2022 relative to gross income recognition under the cumulative AFS income inclusion rule.
The Treasury Department and IRS concluded that the extent of acceleration of income that may occur when using an annual approach would be excessive relative to the cumulative approach when considered against the intent and purpose of the statute. The final regulations therefore adopt the cumulative approach.
The Treasury Department and the IRS have not estimated the difference in compliance costs, administrative burden, or economic activity between the final regulations and an alternative regulatory approach of using an annual comparison. The Treasury Department and the IRS have not undertaken this estimation because they do not have sufficiently detailed data or models that capture possible differences in taxpayers' income inclusions under these two alternative regulatory approaches.
The final regulations provide rules for taxpayers whose financial results are included on an AFS covering a group of entities. These rules specify that, if a taxpayer's financial results are reported on the AFS for a group of entities, the taxpayer's AFS is the group's AFS. However, if the taxpayer also reports financial results on a separate AFS that is of equal or higher priority, then the separate AFS is the taxpayer's AFS. The rules also specify how a taxpayer using a group AFS is to determine the amount of revenue allocated to the taxpayer. The Treasury Department and the IRS considered as an alternative not providing substantive rules on how taxpayers should apply the AFS income inclusion rule when their financial results are included in an AFS for a group of entities. This alternative was rejected because it would have increased compliance burdens and potentially led to similarly situated taxpayers applying the AFS income inclusion rule differently.
The Code does not specify how the AFS income inclusion rule is to function whenever the AFS accounting period and the taxable year do not coincide. The final regulations do not adopt a single, one-size-fits-all approach, but rather provide taxpayers three separate options for addressing this situation. A change from one option to another, however, would be considered a change in method of accounting requiring the permission of the IRS. By providing taxpayers with several options, the final regulations will minimize taxpayer compliance costs when dealing with non-congruent tax and financial accounting periods relative to an alternative approach of specifying a single option, with no significant revenue implications or effects on economic decisions.
The final regulations describe and clarify the definition of AFS revenue to broadly include amounts characterized as revenue in a taxpayer's AFS as well as amounts reported in other comprehensive income or retained earnings provided such amounts relate to an item of gross income that is subject to the rules under section 451(b) and (c). The Treasury Department and the IRS considered and rejected a narrower definition of revenue or a definition that was tied to the AFS definition of revenue. The definition of revenue advanced in the final regulations is consistent with the current application of the all events test under § 1.451–1(a) and ensures that all relevant financial statement items are taken into account for tax purposes. In contrast, a narrow definition of revenue would allow, or even encourage, taxpayers to avoid the AFS income inclusion rule by not
Section 451(b)(2) states that the AFS inclusion rule does not apply to items of gross income for which a taxpayer uses a special method of accounting provided under the Code. However, the Code does not apply this exception to special accounting rules that apply to original issue discount (OID), market discount, and certain other items with respect to debt instruments under part V of Subchapter P of the Code.
The final regulations implement this provision by providing a non-exhaustive list of special methods of accounting, and by clarifying how section 451(b) applies to certain credit card receivables. The final regulations specifically except from section 451(b) the timing rules for accrued market discount on bonds and the general OID timing rules, as well as the timing rules for OID determined with respect to special debt instruments (contingent payment and variable rate debt instruments, certain hedged debt instruments, and inflation-indexed debt instruments). Nevertheless, following the legislative history of the TCJA (see Conference Report, p. 276), the final regulations provide that credit card late fees, credit card cash advance fees, and interchange fees are subject to the AFS income inclusion rule. The final regulations further specify that if these credit card fees are subject to the AFS income inclusion rule, they are not to be taken into account in determining whether a debt instrument associated with them has OID. Existing rules continue to apply to these items for taxpayers not possessing an AFS. The Treasury Department and the IRS expect that this treatment will provide a straightforward application of section 451(b) consistent with Congressional intent without unnecessarily complicating OID calculations and adding to taxpayer compliance burdens.
The Treasury Department and the IRS considered and rejected a broader application of the AFS income inclusion rule to include all amounts determined under the OID and market discount accounting methods, even in cases where the items are treated as discount or as an adjustment to the yield of a debt instrument over the life of the instrument in its AFS for financial reporting purposes. The final regulations do not subject these amounts to the AFS income inclusion rule because these special accounting methods do not generally rely on the all events test to determine the timing of income inclusion and these current special accounting methods provide workable income-recognition timing rules that appropriately measure income. The Treasury Department and the IRS expect that subjecting these items to the AFS income inclusion rule of section 451(b) would disrupt and complicate current tax accounting practices with no general economic benefit.
The Treasury Department and the IRS considered three options for addressing the treatment of costs under section 451(c): (i) No cost offset; (ii) a cost offset for incurred costs; and (iii) a cost offset that further allowed for projected costs. The proposed section 451(c) regulations (in this part C.5,
In response to these comments on the proposed regulations, the Treasury Department and the IRS have written the final regulations to include an offset for cost of goods in progress (cost offset). This cost offset allows taxpayers to reduce the amount of an advance payment for the future sale of inventory that is required to be included in gross income in a year prior to the year in which ownership of the inventory is transferred to the customer. The amount of such reduction, or cost offset, is equal to the inventoriable costs incurred as of the end of the taxable year in which the advance payment is required to be included in gross income under the taxpayer's method of accounting for advance payments. This provision of the final regulations allows taxpayers to offset advance payments included in income under either the full inclusion method or the deferral method. However, the cost of goods in progress offset cannot reduce the amount of the advance payment income inclusion below zero. Any incurred costs subject to this limitation may be carried forward to determine the cost of goods in progress in subsequent taxable years.
The cost offset in the final regulations generally reduces the amount of the advance payment that is required to be included in gross income in a taxable year prior to the year in which ownership of the inventory is transferred to the customer relative to the proposed regulations. An improved match of income and cost timing is generally held to provide a more accurate measure of economic activity and thus provide a more efficient tax system than under the proposed regulations. For further discussion of the economic effects of the cost offset for advance payments and for income more generally see 4.a.i.
The Treasury Department and the IRS considered expanding the cost offset to allow for projected costs, with several possible formats being considered for how projected costs would be treated. Allowing an offset for projected costs would entail a higher administrative burden than the offset for incurred costs and may not definitively improve the alignment of when income and costs are recognized for tax purposes relative to the offset for incurred costs.
The Treasury Department and the IRS have not estimated the difference in compliance costs, administrative burden, or income-cost alignment (and any subsequent effects on economic activity) between the final regulations and alternative regulatory approaches using projected costs associated with advance payments. The Treasury Department and the IRS have not undertaken this estimation because they do not have sufficiently detailed data or models that capture possible differences in cost offset formats that use incurred costs versus projected costs.
The statute prescribes a particular deferral method for accrual-method taxpayers that have an AFS (AFS taxpayers) but does not explicitly describe a deferral method to be used by taxpayers that do not have an AFS (non-AFS taxpayers). To remedy this gap, the proposed and final regulations describe and clarify that a method similar to the deferral method available to non-AFS taxpayers under Revenue Procedure 2004–34 will be available to non-AFS taxpayers.
The Treasury Department and the IRS considered and rejected a narrow interpretation of section 451(c) that would have precluded non-AFS taxpayers from using a deferral method similar to that provided in Revenue Procedure 2004–34. Section 451(c) does not explicitly prohibit the use of such a method by non-AFS taxpayers, and the Treasury Department and IRS continue to have authority under the Code to prescribe a deferral method for such taxpayers. Precluding non-AFS taxpayers from using a deferral method similar to that of AFS taxpayers would treat AFS and non-AFS taxpayers quite differently regarding business decisions they might make that are otherwise similar. Such treatment would result in a less economically efficient tax system, which generally treats similar economic decisions similarly.
If a taxpayer ceases to exist by the close of a taxable year in which an advance payment has been received and deferred, then issues may arise as to when or whether the remaining amount of the payment will be recognized as taxable income because there may not be a succeeding taxable year in which such income can be recognized.
Under the statute, if the taxpayer dies or ceases to exist by the close of the taxable year in which the advance payment was received, any remaining untaxed amounts of advance payments must be included in income in the year they were received. The final regulations extend this payment “acceleration” rule to situations in which a performance obligation is satisfied or otherwise ends in the taxable year of receipt or in a succeeding short taxable year, a treatment that is consistent with a similar rule in Revenue Procedure 2004–34.
The Treasury Department and the IRS considered not modifying or expanding the acceleration rule contained in section 451(c) but rejected this alternative because the remaining amount may never be included in income, thus risking a permanent exclusion of the amount from taxable income. The possibility of a permanent exclusion of income provides incentives for taxpayers to structure payments in ways that avoid tax liability, thus reducing Federal tax revenue without providing an accompanying general economic benefit. The proposed and final regulations treat the expanded set of accelerated transactions consistently with similar types of transactions based on the timing and structure of the payments involved.
Under the statute, if a taxpayer counts an advance payment as an item of deferred revenue, under certain conditions (for example, certain acquisitions of one corporation by another), the taxpayer may be required by its system of accounting to adjust that item on the balance sheet in a subsequent year. The item would then not be included in current earnings or AFS revenues. In this case, taxpayers might argue that they can exclude the amount deferred from taxable income because it is never “earned” nor included in revenue under their AFS. If this argument were upheld, taxpayers could convert an income “deferral” amount into an income “exemption” amount. To address this issue and avoid this possibility, the proposed and final regulations specify that such financial statement adjustments are to be treated as “revenue.”
The Treasury Department and the IRS considered not providing clarity on the treatment of financial statement write-downs but rejected that approach because it would have risked an inappropriate permanent exclusion of income. The possibility of a permanent exclusion of income provides incentives for taxpayers to structure payments in ways that avoid tax liability, thus reducing Federal tax revenue without providing an accompanying general economic benefit.
Section 451(c) does not provide a rule relating to the treatment of short taxable years. In the absence of such a rule, it will be unclear to taxpayers how they should implement the deferral method provided in section 451(c) in the case of a short taxable year. To address this issue, the proposed and final regulations provide rules relating to the treatment of short taxable years for advance payments that are generally consistent with Revenue Procedure 2004–34. The Treasury Department and the IRS considered and rejected not providing short taxable year rules because such a decision would have created significant confusion among taxpayers, increased administrative costs for the IRS, and increased compliance costs for taxpayers.
A performance obligation is generally a contractual arrangement with a customer to provide a good, service or a series of goods or services that are basically the same and have a routine pattern of transfer. Further, each performance obligation in a contract generally yields a separate item of gross income. The Treasury Department and the IRS interpret the statute as requiring taxpayers to allocate payments attributable to multiple items of gross income in the same manner as such payments are allocated to the corresponding performance obligations in the taxpayer's AFS. The statute does not, however, specify the allocation rules to be used by non-AFS taxpayers.
To address this issue, the proposed and final regulations provide allocation rules for non-AFS taxpayers consistent with a similar rule in Revenue Procedure 2004–34. That rule specifies that a payment that is attributable to multiple items of gross income is required to be allocated to such items in a manner that is based on objective criteria. The objective criteria standard will be satisfied if the allocation method is based on payments the taxpayer regularly receives for an item or items that are regularly sold or provided separately. The Treasury Department and the IRS considered not providing allocation rules for non-AFS taxpayers but rejected such an approach because it would have treated similarly situated taxpayers quite differently and would have led to increased administrative costs for the IRS and increased compliance costs for taxpayers relative to the rules provided in the final regulations. While the allocation rules for AFS taxpayers and non-AFS taxpayers differ to some degree under the final regulations, the chosen provision provides a rule upon which non-AFS taxpayers can rely, while minimizing the differences between AFS and non-AFS taxpayers in this regard within the constraints imposed by the statute.
Section 451(c) provides that certain items are excluded from the definition of an advance payment. Those items include rent; insurance premiums governed by subchapter L; payments with respect to financial instruments; payments with respect to certain warranty or guaranty contracts; payments subject to section 871(a), 881, 1441, or 1442; payments in property to which section 83 applies; and other payments identified by the Secretary. This list of items excluded from the definition of an advance payment is generally comparable to the list of items excluded from the definition of an advance payment in Revenue Procedure 2004–34.
Prior to release of the proposed regulations, several commenters requested that the list of excluded items be expanded to include certain goods that require a significant amount of capital to produce and that may require considerable time from development to delivery. Generally, for financial statement purposes, such manufacturers recognize revenue related to these goods when the product is completed and delivered and the title and risk of loss have transferred to the customer.
To address this issue, the proposed regulations crafted a narrow specified-goods exception for taxpayers who receive advance payments but do not perform the work or deliver the good for several years in the future. Specifically, an exclusion was introduced for certain goods for which a taxpayer requires a customer to make an upfront payment under the contract if (i) the contracted delivery month and year of the good occurs at least two taxable years after an upfront payment, (ii) the taxpayer does not have the good or a substantially similar good on hand at the end of the year the upfront payment is received, and (iii) the taxpayer recognizes all of the revenue from the sale of the good in its AFS in the year of delivery.
The final regulations make one minor modification to the specified good exception. In response to comments, the final regulations give taxpayers the option to treat upfront payments that satisfy the criteria for the specified good exception as a typical advance payment under section 451(c). In other words, taxpayers have the option of including the advance payment in gross income under the full inclusion method or the deferral method. This flexibility in the section 451(c) regime reduces uncertainty for taxpayers who may be unsure if a contract meets the specified good exception relative to the proposed regulations. It also allows taxpayers using the 1-year deferral under Revenue Procedure 2004–34 prior to the passage of the TCJA the option to continue to do so.
The Treasury Department and the IRS considered as an alternative not using the authority granted to the Secretary in section 451(c)(4)(B)(vii) to exclude certain payments. For manufacturers of highly customizable goods with a delivery date more than two years after the upfront payment, the one-year deferral period has the potential to increase book-tax accounting differences relative to the final regulations. For some companies, a one-year deferral period may require the creation of separate records to track advance payments for accounting and tax purposes. Thus, for these taxpayers, the final regulations may provide greater conformity between accounting (book) income and taxable income to the extent that applicable case law would defer the inclusion of income related to the specified goods exception.
These regulations do not impose any additional information collection requirements in the form of reporting, recordkeeping requirements or third-party disclosure requirements related to tax compliance. Instead, because section 451(b) and section 451(c) and these regulations provide various methods of accounting affecting the timing of income inclusion, taxpayers without an existing method of accounting for these items may initially adopt such method without the consent of the Commissioner. However, the consent of the Commissioner under section 446(e) and the accompanying regulations is required before implementing method changes from one method to another method. See §§ 1.451–3(l) and 1.451–8(g). Some of the methods of accounting referenced by and discussed in these regulations are represented in the following chart.
Taxpayers request consent to use a method in these regulations by filing Form 3115,
For the Paperwork Reduction Act (PRA), the reporting burden associated with the collections of information in these regulations will be reflected in the IRS Form 3115 PRA Submissions (OMB control numbers 1545–0074 for individual filers, 1545–0123 for business filers, and 1545–2070 for all other types of filers).
In 2018, the IRS released and invited comment on a draft of Form 3115 to give the public the opportunity to benefit from certain specific revisions made to the Code. The IRS received no comments on the forms during the comment period. Consequently, the IRS made the forms available in January 2019 for use by the public. Form 3115 applies to changes of accounting methods generally and is therefore broader than section 451(b).
On November 25, 2019, the Treasury Department and the IRS published Revenue Procedure 2019–43, 2019–28 I.R.B. 1107, which updated Revenue Procedure 2018–31, and provides a
The current status of the PRA submissions that will be revised as a result of the information collections in these regulations is provided in the accompanying table. As described earlier, the reporting burdens associated with the information collections in these regulations are included in the aggregated burden estimates for OMB control numbers 1545–0074 (in the case of individual filers of Form 3115), 1545–0123 (in the case of business filers of Form 3115 and filers subject to Revenue Procedure 2018–31). The overall burden estimates associated with the OMB control numbers identified later are aggregate amounts that relate to the entire package of forms associated with the applicable OMB control number and will in the future include, but not isolate, the estimated burden of the tax forms that will be created or revised as a result of the information collections in these regulations. These numbers are therefore unrelated to the future calculations needed to assess the burden imposed by these regulations. These burdens have been reported for other income tax regulations that rely on the same information collections, and the Treasury Department and the IRS urge readers to recognize that these numbers are duplicates and to guard against overcounting the burdens imposed by tax provisions prior to the TCJA.
No burden estimates specific to the forms affected by these regulations are currently available. The Treasury Department and the IRS have not estimated the burden, including that of any new information collections, related to the requirements under these regulations. For the OMB control numbers discussed in the preceding paragraphs, the Treasury Department and the IRS estimate PRA burdens on a taxpayer-type basis rather than a provision-specific basis. Those estimates capture both changes made by the TCJA and those that arise out of discretionary authority exercised in these regulations and other regulations that affect the compliance burden for that form.
The Treasury Department and IRS request comment on all aspects of information collection burdens related to these regulations, including estimates for how much time it would take to comply with the paperwork burdens described earlier for each relevant form and ways for the IRS to minimize the paperwork burden. In addition, when available, drafts of IRS forms are posted for comment at
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities within the meaning of section 601(6) of the Regulatory Flexibility Act (small entities). This certification can be made because the Treasury Department and the IRS have determined that the regulations may affect a substantial number of small entities but have also concluded that the economic effect on small entities as a result of these regulations is not expected to be significant. Section 451(b) requires that an item of income be included in gross income for tax purposes no later than when the item is counted as revenue in an AFS. Due to the revised financial accounting standards for calculating revenue in an AFS under ASC 606, the result of section 451(b) generally will be to move the recognition of income forward by a year or two compared to previous law. Section 451(c) provides rules regarding the treatment of advance payments. These regulations provide general guidance on the rules, including the scope of the rules, exceptions to the rules, definitions of key terms, and examples demonstrating applicability of the rules.
The Treasury Department and the IRS have estimated the number of small
Regarding the accrual method of accounting, section 13102 of TCJA modified section 448 to expand the number of taxpayers eligible to use the cash receipts and disbursements method of accounting (cash method of accounting). In general, C corporations and partnerships with a C corporation partner are now permitted to use the cash method of accounting if average annual gross receipts are $25 million or less for taxable years beginning in 2018 (up from $5 million or less in 2017). The $25 million figure is considered for adjustment for inflation annually. This amount was adjusted for inflation for taxable years beginning after December 31, 2018. The amount was $26 million for taxable year 2019. The Treasury Department and the IRS estimate that approximately 3,128,000 business entities with gross receipts of $26 million or less used an accrual method of accounting in taxable year 2017, which represents approximately 8.5 percent of all business entities with gross receipts of $26 million or less. The Treasury Department and the IRS project that in future years, the number of entities with gross receipts not greater than $26 million that will be using the accrual method will be less than 8.5 percent of all entities with gross receipts of $26 million or less.
Many small business entities use the cash method of accounting, as opposed to an accrual method, and thus are not subject to these regulations. The percent of returns that use an accrual method of accounting, by entity types and for entities with gross receipts not greater than $26 million, is shown in the accompanying table.
The Treasury Department and the IRS next examined the second condition, that entities with an AFS are affected by section 451(b) and the regulations. The Treasury Department and the IRS do not have readily available data to measure the prevalence of entities with an AFS, as defined in the statute and in § 1.451–3(b)(1). However, Schedule M–3, which is used to reconcile an entity's net income or loss for tax purposes with its book income or loss, reports whether an entity has a certified audited income statement. The Schedule M–3 is required to be filed only by entities with at least $10 million of assets. This population is more likely to possess an AFS and, conversely, entities that do not file Schedule M–3 are less likely to possess an AFS as owners and/or creditors of such smaller entities are less likely to require the entity to certify its financial results via a financial statement audit. Data is currently available only for electronic filers.
For taxable year 2017, approximately 89 percent of accrual-method entities filing Forms 1120, 1120–S, and 1065 with gross receipts of $26 million or less were filers of electronic tax forms. About 11 percent, or 288,000 returns, included a Schedule M–3. About 40 percent of the returns with Schedule M–3, or 113,000, indicated they had a certified audited income statement. Based on the assumption that filers of paper tax forms have the same incidence as electronic filers and that entities that do not file a Schedule M–3 generally do not have an AFS, then the Treasury Department and the IRS estimate that roughly 127,000 (113,000/0.89) entities with gross receipts of $26 million or less are accrual-method entities that have an AFS. If 5 percent of entities that do not file a Schedule M–3 also have an AFS then approximately 224,000 entities with gross receipts of $26 million or less are potentially affected by these regulations. These estimates of affected filing entities are reproduced in the following table.
This rule would not have a significant economic impact on small entities affected. The costs to comply with these regulations are reflected in modest reporting activities. Taxpayers needing to make method changes pursuant to these regulations will be required to file a Form 3115. The Treasury Department and the IRS have provided streamlined procedures for certain taxpayers to change their method of accounting to comply with section 451(b) and (c), and plan to provide streamlined procedures for such taxpayers to change to the methods of accounting described in these regulations. Under the streamlined procedures, eligible taxpayers would either complete only a portion of the Form 3115 or would not complete the Form 3115 at all to comply with the guidance. The streamlined method change procedures are available to taxpayers, other than a tax shelter, who satisfy the gross receipts test under section 448(c) and for taxpayers making such a method change which results in a zero section 481(a) adjustment. In addition, contemporaneous with these regulations, the Treasury Department and the IRS are issuing a streamlined procedure for taxpayers using a section 451(b) method who have a change in their AFS for revenue recognition that requires a method change for tax purposes.
The estimated cumulative annual reporting and/or recordkeeping burden for the statutory method changes relating to the streamlined procedures used to be described under OMB control number 1545–1551. In 2019, OMB number 1545–1551 was merged into OMB number 1545–0123. The estimated number of respondents, after taking into account the streamlined procedures that are being issued is 28,046 respondents, and a total annual reporting and/or recordkeeping burden of 34,279 hours. The estimated annual burden per respondent/recordkeeper under OMB control number 1545–0123 before publication of this revenue procedure varies from
Accordingly, the Secretary certifies that the rule will not have a significant economic impact on a substantial number of small entities.
Pursuant to section 7805(f), the notice of proposed rulemaking preceding this final rule was submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on its impact on small business. No comments on the notice were received from the Chief Counsel for the Office of Advocacy of the Small Business Administration.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a state, local, or tribal government, in the aggregate, or by the private section, of $100 million in 1995 dollars, update annually for inflation. This rule does not include any Federal mandate that may result in expenditures by state, local, or tribal governments, or by the private section in excess of that threshold.
Executive Order 13132 (entitled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on state and local governments, and is not required by statute, or preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. This final rule does not have federalism implications and does not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the Executive order.
The Administrator of the Office of Information and Regulatory Affairs of the Office of Management and Budget has determined that this is a major rule for purposes of the Congressional Review Act (5 U.S.C. 801
Notwithstanding this requirement, 5 U.S.C. 808(2) allows agencies to dispense with the requirements of 5 U.S.C. 801 when the agency for good cause finds that such procedure would be impracticable, unnecessary, or contrary to the public interest and the rule shall take effect at such time as the agency promulgating the rule determines. Pursuant to 5 U.S.C. 808(2), the Treasury Department and the IRS find, for good cause, that a 60-day delay in the effective date is contrary to the public interest.
Following the amendments to section 451(b) and (c) by the TCJA, the Treasury Department and the IRS published the proposed regulations to provide certainty to taxpayers. In particular, as demonstrated by the wide variety of public comments in response to the proposed regulations received,
The principal author of these regulations is Jo Lynn Ricks (Office of the Associate Chief Counsel (Income Tax and Accounting)). Other personnel from the Treasury Department and the IRS, including Kate Abdoo, John Aramburu, James Beatty (formerly Income Tax and Accounting), David Christensen, Alexa Dubert, Sean Dwyer, Peter Ford, Christina Glendening, Anna Gleysteen, Charlie Gorham, Evan Hewitt, William Jackson, Doug Kim, Tom McElroy, and Karla Meola, Office of the Associate Chief Counsel (Income Tax and Accounting); and William E. Blanchard, Charles Culmer, and Deepan Patel, Office of the Associate Chief Counsel (Financial Institutions and Products), participated in their development.
Income taxes, Reporting and recordkeeping requirements.
Accordingly, 26 CFR part 1 is amended as follows:
26 U.S.C. 7805.
Section 1.451–3 also issued under 26 U.S.C. 451(b)(1)(A)(ii), (b)(3)(C) and 461(h).
Section 1.451–8 also issued under 26 U.S.C. 451(c)(2)(A), (3), (4)(A)(iii), (4)(b)(vii), and 461(h).
(c) * * *
(1) * * *
(ii) * * *
(A) * * * (See § 1.451–1 for rules relating to the taxable year of inclusion.) * * *
(a) * * *
(2) * * *
(i) * * *
(G) Section 1.451–3(j) (special ordering rule for specified fees).
The additions read as follows:
(b)
(c)
(a)
(1)
(2)
(3)
(4)
(5)
(i)
(A) A Form 10–K (or successor form), or annual statement to shareholders, filed with the United States Securities and Exchange Commission (SEC);
(B) An audited financial statement of the taxpayer that is used for:
(
(
(
(C) A financial statement, other than a tax return, filed with the Federal Government or any Federal agency, other than the SEC or the Internal Revenue Service (IRS);
(ii)
(A) Filed by the taxpayer with an agency of a foreign government that is equivalent to the SEC, and has financial reporting standards not less stringent than the standards required by the SEC;
(B) An audited financial statement of the taxpayer that is used for:
(
(
(
(C) A financial statement, other than a tax return, filed with the Federal Government, Federal agency, a foreign government, or agency of a foreign government, other than the SEC, IRS, or an agency that is equivalent to the SEC or the IRS; or
(iii)
(iv)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(i) The crop method of accounting under sections 61 and 162;
(ii) Methods of accounting provided in sections 453 through 460;
(iii) Methods of accounting for notional principal contracts under § 1.446–3;
(iv) Methods of accounting for hedging transactions under § 1.446–4;
(v) Methods of accounting for REMIC inducement fees under § 1.446–6;
(vi) Methods of accounting for gain on shares in a money market fund under § 1.446–7;
(vii) Methods of accounting for certain rental payments under section 467;
(viii) The mark-to-market method of accounting under section 475;
(ix) Timing rules for income and gain associated with a transaction that is integrated under § 1.988–5, and income and gain under the nonfunctional currency contingent payment debt instrument rules in § 1.988–6;
(x) Except as otherwise provided in paragraph (j) of this section, timing rules for original issue discount (OID) under section 811(b)(3) or 1272 (and the regulations in this part under section 1272 of the Code), income under the contingent payment debt instrument rules in § 1.1275–4, income under the
(xi) Timing rules for de minimis OID under § 1.1273–1(d) and for de minimis market discount (as defined in section 1278(a)(2)(C));
(xii) Timing rules for accrued market discount under sections 1276 and 1278(b);
(xiii) Timing rules for short-term obligations under sections 1281 through 1283;
(xiv) Timing rules for stripped bonds under section 1286; and
(xv) Methods of accounting provided in sections 1502 and 1503 and the regulations thereunder, including the method of accounting relating to intercompany transactions under § 1.1502–13.
(14)
(b)
(2)
(A) If AFS revenue reflects a reduction for amounts described in paragraph (b)(2)(i)(A)(
(
(
(B) If AFS revenue includes an amount the taxpayer does not have an enforceable right to recover if the customer were to terminate the contract on the last day of the taxable year (regardless of whether the customer actually terminates the contract), AFS revenue is reduced by such amount.
(C) If the transaction price was increased because a significant financing component is deemed to exist under the standards the taxpayer uses to prepare its AFS, then any AFS revenue attributable to such increase is disregarded.
(D) AFS revenue may be increased or reduced by additional amounts as provided in guidance published in the Internal Revenue Bulletin (see § 601.601(d) of this chapter).
(ii)
(3)
(i) Any item of gross income, or portion thereof, if the timing of income inclusion for that item, or portion thereof, is determined using a special method of accounting;
(ii) Any item of gross income, or portion thereof, in connection with a mortgage servicing contract; or
(iii) Any taxable year that is not covered for the entire year by one or more AFS.
(4)
(i)
(B)
(ii)
(B)
(iii)
(B)
(iv)
(B)
(v)
(B)
(vi)
(B)
(vii)
(viii)
(B)
(ix)
(
(B)
(x)
(B)
(c)
(2)
(i)
(A)
(
(
(
(
(B) [Reserved]
(ii)
(A) The taxpayer first takes the greater of the amount described in paragraph (c)(2)(ii)(A)(
(
(
(B) The taxpayer then reduces such amount by any prior income inclusion amounts with respect to such item of inventory. This net amount is required to be included in gross income for the taxable year. The taxpayer does not further reduce such amount by a cost of goods in progress offset under paragraph (c)(3) of this section. However, the taxpayer is entitled to recover the costs capitalized to the item of inventory as cost of goods sold in accordance with sections 471 and 263A or any other applicable provision of the Internal Revenue Code. See § 1.61–3.
(3)
(i) The cost of goods allocable to the item of inventory through the last day of the taxable year; reduced by
(ii) The cumulative cost of goods in progress offset attributable to the item of inventory, if any.
(4)
(5)
(ii)
(iii)
Total section 471 costs for all items of inventory subject to the simplified method
(6)
(i) If, in that taxable year, the taxpayer either dies or ceases to exist in a transaction other than a transaction to which section 381(a) applies; or
(ii) If, and to the extent that, in that taxable year, the taxpayer's obligation to the customer with respect to the item of inventory ends other than in:
(A) A transaction to which section 381(a) applies; or
(B) A section 351(a) transfer that is part of a section 351 transaction in which:
(
(
(
(7)
(8)
(i)
(B)
(C)
(
(
(ii) The cumulative amount of revenue that is treated as “taken into account as AFS revenue” through the last day of 2022 ($100x) (or if the two amounts are equal, the equal amount).
(
(ii)
(B)
(C)
(
(
(
(
(D)
(
(
(ii) The cumulative amount of revenue that is treated as taken into account as AFS revenue through the last day of 2023 ($10x per item) (or if the two amounts are equal, the equal amount).
(
(iii)
(B)
(C)
(
(
(
(
(iv)
(B)
(
(
(
(
(
(C)
(
(
(
(
(
(D)
(
(
(
(
(v)
(B)
(C)
(vi)
(B)
(
(
(
(
(
(C)
(
(
(
(
(
(D)
(
(
(
(
(d)
(2)
(3)
(ii)
(4)
(i)
(
(
(
(
(B)
(ii)
(
(
(
(B)
(iii)
(
(
(
(B)
(iv)
(
(
(
(B)
(v)
(
(
(
(B)
(5)
(ii)
(iii)
(iv)
(2)
(e)
(i)
(ii)
(2)
(i)
(B)
(C)
(D)
(E)
(ii)
(B)
(C)
(D)
(f)
(1) A transaction treated as a lease, license, or similar transaction for Federal income tax purposes that is treated as a sale or financing for AFS purposes, and vice versa;
(2) A transaction or instrument that is not required to be marked-to-market for Federal income tax purposes but that is marked-to-market for AFS purposes;
(3) Asset sale and liquidation treatment under section 336(e) or 338(h)(10);
(4) A distribution of a corporation or the allocable share of partnership items or an income inclusion under section 951, 951A, or 1293(a) for Federal income tax purposes that is accounted for under the equity method for AFS purposes;
(5) A distribution of previously taxed earnings and profits of a foreign corporation; and
(6) A deposit, return of capital, or conduit payment that is not gross income for Federal income tax purposes that is treated as AFS revenue.
(g)
(i) Any non-recognition transaction, within the meaning of section 7701(a)(45), including, for example, a liquidation described in sections 332 and 337, an exchange described in section 351, a distribution described in section 355, a reorganization described in section 368, a contribution described in section 721, or transactions described in sections 1031 through 1045; and
(ii) Items specifically excluded from income under sections 101 through 140.
(2)
(A)(
(
(B) The transaction qualifies as a reorganization under section 368(a)(1)(D) and a distribution to which section 355 applies (D reorganization). Distributing's realized gain on the transferred assets for book and tax purposes is $150x. On January 15, 2022, in pursuance of the plan of reorganization, Distributing distributes the $100x to its shareholders. Consequently, no gain to Distributing is recognized under section 361(b)(1)(A). On Distributing's 2021 AFS, Distributing recognizes revenue of $150x related to the D reorganization.
(ii)
(A)(
(
(
(B) Pursuant to paragraph (g) of this section, the AFS income inclusion rule does not change the result of this paragraph (g)(2).
(h)
(ii)
(2)
(3)
(4)
(A) The taxpayer computes AFS revenue as if its financial reporting period is the same as its taxable year by conducting an interim closing of its books using the accounting principles it uses to prepare its AFS.
(B) The taxpayer computes AFS revenue by including a pro rata portion of AFS revenue for each financial accounting year that includes any part of the taxpayer's taxable year. If the taxpayer's AFS for part of the taxable year is not available by the due date of the return (with extension), the taxpayer must make a reasonable estimate of AFS revenue for the pro rata portion of the taxable year for which an AFS is not yet available. See § 1.451–1(a) for adjustments after actual amounts are determined.
(C) If a taxpayer's financial accounting year ends five or more months after the end of its taxable year, the taxpayer computes AFS revenue for the taxable year based on the AFS revenue reported on the AFS prepared for the financial accounting year ending within the taxpayer's taxable year. For this paragraph (h)(4)(i)(C), if a taxpayer uses a 52–53 week year for financial accounting or Federal income tax purposes, the last day of such year shall be deemed to occur on the last day of the calendar month ending closest to the end of such year.
(ii)
(A)
(B)
(C)
(i) [Reserved]
(j)
(2)
(i) A payment of additional interest or a similar charge provided with respect to amounts that are not paid when due on a credit card account (for example, credit card late fees);
(ii) Amounts charged under a credit card agreement when the cardholder uses the credit card to conduct a cash advance transaction (for example, credit card cash advance fees); and
(iii) Amounts a credit or debit card issuer is entitled to upon a purchase of goods or services by one of its cardholders (for example, interchange fees, which are sometimes labeled merchant discount in certain private label credit card transactions).
(3)
(k)
(2)
(ii)
(iii)
(l)
(2)
(ii)
(iii)
(m)
(2)
(3)
(ii)
(B)
(a)
(1)
(A) The full inclusion of the payment in the gross income of the taxpayer for the taxable year of receipt is a permissible method of accounting, without regard to this section;
(B) Any portion of the payment is taken into account as AFS revenue for a subsequent taxable year, or, if the taxpayer does not have an applicable financial statement any portion of the payment is earned by the taxpayer in a subsequent taxable year. To determine the amount of the payment that is treated as “taken into account as AFS revenue,” the taxpayer must adjust AFS revenue for any amounts described in § 1.451–3(b)(2)(i)(A), (C), and (D);
(C) The payment is for:
(
(
(
(
(
(
(
(
(
(
(
(ii)
(A) Rent, except for amounts paid for an item or items described in paragraph (a)(1)(i)(C)(
(B) Insurance premiums, to the extent the inclusion of those premiums is governed by Subchapter L of the Internal Revenue Code;
(C) Payments with respect to financial instruments (for example, debt instruments, deposits, letters of credit, notional principal contracts, options, forward contracts, futures contracts, foreign currency contracts, credit card agreements (including rewards or loyalty points under such agreements), financial derivatives, or similar items), including purported prepayments of interest;
(D) Payments with respect to service warranty contracts for which the taxpayer uses the accounting method provided in Revenue Procedure 97–38, 1997–2 C.B. 479 (see § 601.601(d)(2) of this chapter);
(E) Payments with respect to warranty and guaranty contracts under which a third party is the primary obligor;
(F) Payments subject to section 871(a), 881, 1441, or 1442;
(G) Payments in property to which section 83 applies;
(H) Payments received in a taxable year earlier than the taxable year immediately preceding the taxable year of the contractual delivery date for a specified good (specified good exception) unless the taxpayer uses the method under paragraph (f) of this section;
(I) Any other payment identified by the Secretary under section 451(c)(4)(B)(vii), including in guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2) of this chapter); and
(J) Any combination of items described in paragraphs (a)(1)(ii)(A) through (I) of this section.
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(i) The taxpayer is primarily liable to the customer, or holder of the gift card, for the value of the card until redemption or expiration; and
(ii) The gift card is redeemable by the taxpayer or by any other entity that is legally obligated to the taxpayer to accept the gift card from a customer as payment for items listed in paragraphs (a)(1)(i)(C)(
(11)
(12)
(13)
(14)
(15)
(i) During the taxable year a payment is received, the taxpayer does not have on hand, or available to it in such year through its normal source of supply, goods of a substantially similar kind and in a sufficient quantity to satisfy the contract to transfer the good to the customer; and
(ii) All the revenue from the sale of the good is recognized in the taxpayer's AFS in the year of delivery.
(16)
(b)
(c)
(i) Include the advance payment, or any portion thereof, in gross income in the taxable year of receipt to the extent
(ii) Include the remaining portion of such advance payment in gross income in the taxable year following the taxable year in which such payment is received (next succeeding year).
(2)
(3)
(i)
(ii)
(4)
(A) If, in that taxable year, the taxpayer either dies or ceases to exist in a transaction other than a transaction to which section 381(a) applies; or
(B) If, and to the extent that, in that taxable year, the taxpayer's obligation for the advance payments is satisfied or otherwise ends other than in:
(
(
(
(
(
(ii)
(A)
(B)
(
(5)
(ii)
(A)
(
(B)
(
(6)
(ii)
(B)
(iii)
(B)
(7)
(8)
(ii)
(
(
(
(B)
(iii)
(B)
(iv)
(B)
(9)
(10)
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(B)
(x)
(B)
(xi)
(B)
(xii)
(B)
(xiii)
(B)
(xiv)
(B)
(C)
(xv)
(B)
(xvi)
(B)
(xvii)
(B)
(xviii)
(B)
(xix)
(B)
(xx)
(B)
(xxi)
(B)
(d)
(2)
(3)
(ii)
(A) On a statistical basis if adequate data are available to the taxpayer;
(B) On a straight-line basis over the term of the agreement if the taxpayer receives the advance payment under a fixed term agreement and if it is reasonable to anticipate at the end of the taxable year of receipt that the advance payment will be earned ratably over the term of the agreement; or
(C) Using any other method that may be provided in guidance published in the Internal Revenue Bulletin (see § 601.601(d) of this chapter).
(4)
(ii)
(5)
(6)
(7)
(8)
(i)
(B)
(ii)
(B)
(e)
(i) Following the rules in paragraph (e)(2) of this section, subject to the additional rules and limitations in paragraphs (e)(5) through (8) of this section, if the taxable year is a taxable year prior to the taxable year in which ownership of the item of inventory is transferred to the customer; and
(ii) Following the rules in paragraph (e)(3) of this section, subject to the additional rules and limitations in paragraphs (e)(5) through (8) of this section, if the taxable year is the taxable year in which ownership of the item of inventory is transferred to the customer.
(2)
(3)
(4)
(i) The cost of goods allocable to the item of inventory through the last day of the taxable year; reduced by
(ii) The cumulative cost of goods in progress offset attributable to the item of inventory, if any.
(5)
(6)
(7)
(8)
(ii)
(iii)
(9)
(10)
(i)
(B)
(ii)
(B)
(iii)
(B)
(iv)
(B)
(C)
(f)
(2)
(g)
(2)
(h)
(2)
(l)
(1) In general.
(2) Applicability dates.
(l)
(2)
(ii)
(iii)
Environmental Protection Agency (EPA).
Final rule.
The Environmental Protection Agency (EPA) is finalizing a rule under the Toxic Substances Control Act (TSCA) to address its obligations under TSCA for 2,4,6-tris(tert-butyl)phenol (2,4,6-TTBP) (CASRN 732–26–3), which EPA has determined meets the requirements for expedited action under TSCA. This final rule prohibits the distribution in commerce of 2,4,6-TTBP and products containing 2,4,6-TTBP at concentrations above 0.3% in any container with a volume of less than 35 gallons for any use, in order to effectively prevent the use of 2,4,6-TTBP as an antioxidant in fuel additives or fuel injector cleaners by consumers and small commercial operations (
This final rule is effective February 5, 2021. For purposes of judicial review and 40 CFR 23.5, this rule shall be promulgated at 1 p.m. (e.s.t.) on January 21, 2021.
The docket for this action, identified by docket identification (ID) number EPA–HQ–OPPT–2019–0080, is available at
Please note that due to the public health emergency, the EPA Docket Center (EPA/DC) and Reading Room was closed to public visitors on March 31, 2020. Our EPA/DC staff will continue to provide customer service via email, phone, and webform. For further information on EPA/DC services, docket contact information and the current status of the EPA/DC and Reading Room, please visit
You may be potentially affected by this action if you manufacture (including import), process, distribute in commerce, or use products containing this chemical, 2,4,6-tris(tert-butyl)phenol (2,4,6-TTBP), especially fuel additives, fuel injector cleaners and oil and lubricants. The following list of North American Industrial Classification System (NAICS) codes is not intended to be exhaustive, but rather provides a guide to help readers determine whether this document applies to them. Potentially affected entities may include:
• Petroleum Refineries (NAICS Code: 324110);
• Petrochemical Manufacturing (NAICS Code: 325110);
• All Other Basic Organic Chemical Manufacturing (NAICS Code: 325199);
• Polish and Other Sanitation Good Manufacturing (NAICS Code: 325612);
• All Other Miscellaneous Chemical Product and Preparation Manufacturing (NAICS Code: 325998);
• Lawn and Garden Tractor and Home Lawn and Garden Equipment Manufacturing (NAICS Code: 333112);
• Aircraft Manufacturing (NAICS Code: 336411);
• Motor Vehicle Supplies and New Parts Merchant Wholesalers (NAICS Code: 423120);
• Petroleum and Petroleum Products Merchant Wholesalers (except Bulk Stations and Terminals) (NAICS Code: 424720);
• Farm Supplies Merchant Wholesalers (NAICS Code: 424910); Boat Dealers (NAICS Code: 441222);
• Automotive Parts and Accessories Stores (NAICS Code: 441310);
• Gasoline Stations with Convenience Stores (NAICS Code: 447110);
• Other Gasoline Stations (NAICS Code: 447190);
• General Merchandise Stores (NAICS Code: 452);
• Aircraft Maintenance and Repair Services (NAICS Code: 488190);
• Marinas (NAICS Code: 713930); and
• General Automotive Repair (NAICS Code: 811111).
If you have any questions regarding the applicability of this action to a particular entity, consult the technical information contact listed under
Section 6(h) of TSCA, 15 U.S.C. 2601
EPA published a proposed rule on July 29, 2019 to address the five PBT
EPA is issuing this final rule to fulfill EPA's obligations under TSCA section 6(h) to take timely regulatory action on PBT chemicals—specifically, “to address the risks of injury to health or the environment that the Administrator determines are presented by the chemical substance and to reduce exposure to the substance to the extent practicable.” Consistent with that requirement, the Agency is finalizing this rule to reduce exposures to 2,4,6-TTBP to the extent practicable.
EPA has evaluated the potential costs of these final restrictions and prohibitions and the associated reporting and recordkeeping requirements. The “Economic Analysis for Final Regulation of 2,4,6-Tris(tert-butyl)phenol (2,4,6-TTBP) Under TSCA Section 6(h)” (Economic Analysis) (Ref. 3) is available in the docket and is briefly summarized here.
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Executive Order 13045 applies if the regulatory action is economically significant and concerns an environmental health risk or safety risk that may disproportionately affect children. This final rule is not subject to Executive Order 13045 because it is not an economically significant regulatory action as defined by Executive Order 12866. While the action is not subject to Executive Order 13045, the Agency's Policy on Evaluating Health Risks to Children (
TSCA section 6(h) requires EPA to take expedited regulatory action under TSCA section 6(a) for certain PBT chemicals identified in the 2014 Update to the TSCA Work Plan for Chemical Assessments (Ref. 1). As required by the statute, EPA issued a proposed rule to address five persistent, bioaccumulative, and toxic chemicals identified pursuant to TSCA section 6(h) (84 FR 36728, July 29, 2019). The statute required that this be followed by promulgation of a final rule no later than 18 months after the proposal. While EPA proposed regulatory actions on each chemical substance in one proposal, in response to public comments requesting these five actions be separated, EPA is finalizing five separate actions to individually address each of the PBT chemicals. EPA intends for the five separate final rules to publish in the same issue of the
Under TSCA section 6(h)(1)(A), chemical substances subject to expedited action are those that:
• EPA has a reasonable basis to conclude are toxic and that with respect to persistence and bioaccumulation score high for one and either high or moderate for the other, pursuant to the 2012 TSCA Work Plan Chemicals: Methods Document or a successor scoring system;
• Are not a metal or a metal compound; and
• Are chemical substances for which EPA has not completed a TSCA Work Plan Problem Formulation, initiated a review under TSCA section 5, or entered into a consent agreement under TSCA section 4, prior to June 22, 2016, the date that TSCA was amended by the Frank R. Lautenberg Chemical Safety for the 21st Century Act (Pub. L. 114–182, 130 Stat. 448).
In addition, in order for a chemical substance to be subject to expedited action, TSCA section 6(h)(1)(B) states that EPA must find that exposure to the chemical substance under the conditions of use is likely to the general population or to a potentially exposed or susceptible subpopulation identified by the Administrator (such as infants, children, pregnant women, workers, or the elderly), or to the environment on
Based on the criteria set forth in TSCA section 6(h), EPA proposed to determine that five chemical substances meet the TSCA section 6(h)(1)(A) criteria for expedited action, and 2,4,6-TTBP is one of these five chemical substances. In addition, and in accordance with the statutory requirements to demonstrate that exposure to the chemical substance is likely under the conditions of use, EPA conducted an Exposure and Use Assessment for 2,4,6-TTBP. As described in the proposed rule, EPA conducted a review of available literature with respect to 2,4,6-TTBP to identify, screen, extract, and evaluate reasonably available information on use and exposures. This information is in the document entitled “Exposure and Use Assessment of Five Persistent, Bioaccumulative and Toxic Chemicals” (Ref. 4). Based on this review, which was subject to peer review and public comment, EPA finds that exposure to 2,4,6-TTBP is likely, based on information detailed in the Exposure and Use Assessment.
TSCA section 6(h)(4) requires EPA to issue a TSCA section 6(a) rule to “address the risks of injury to health or the environment that the Administrator determines are presented by the chemical substance and reduce exposure to the substance to the extent practicable.” EPA reads this text to require action on the chemical, not specific conditions of use.
The approach EPA takes is consistent with the language of TSCA section 6(h)(4) and its distinct differences from other provisions of TSCA section 6 for chemicals that are the subject of required risk evaluations. First, the term “condition of use” is only used in TSCA section 6(h) in the context of the TSCA section 6(h)(1)(B) finding relating to likely exposures under “conditions of use” to “the general population or to a potentially exposed or susceptible subpopulation . . . or the environment.” In contrast to the risk evaluation process under TSCA section 6(b), this TSCA section 6(h)(1)(B) threshold criterion is triggered only through an Exposure and Use Assessment regarding the likelihood of exposure and does not require identification of every condition of use (Ref. 4). As a result, EPA collected all the information it could on the use of each chemical substance, without regard to whether any chemical activity would be characterized as “known, intended or reasonably foreseen to be manufactured, processed, distributed in commerce, used, or disposed of,” and from that information created use profiles and then an Exposure and Use Assessment to make the TSCA section 6(h)(1)(B) finding for at least one or more “condition of use” activities where some exposure is likely. EPA did not attempt to precisely classify all activities for each chemical substance as a “condition of use” and thus did not attempt to make a TSCA section 6(h)(1)(B) finding for all chemical activities summarized in the Exposure and Use Assessment. Second, TSCA section 6 generally requires a risk evaluation under TSCA section 6(b) for chemicals based on the identified conditions of use. However, pursuant to TSCA section 6(h)(2), for chemical substances that meet the criteria of TSCA section 6(h)(1), a risk evaluation is neither required nor contemplated to be conducted for EPA to meet its obligations under TSCA section 6(h)(4). Rather, as noted in Unit II.B.3., if a previously prepared TSCA risk assessment exists, EPA would have authority to use that risk assessment to “address risks” under TSCA section 6(h)(4), but even that risk assessment would not necessarily be focused on whether an activity is “known, intended or reasonably foreseen,” as those terms were not used in TSCA prior to the 2016 amendments and a preexisting assessment of risks would have had no reason to use such terminology or make such judgments. It is for this reason EPA believes that the TSCA section 6(h)(4) “address risk” standard refers to the risks the Administrator determines “are presented
Similarly, the TSCA amendments require EPA to “reduce exposure
Taking this into account, EPA reads its TSCA section 6(h)(4) obligation to apply to the chemical substance generally, thus requiring EPA to address risks and reduce exposures to the chemical substance without focusing on whether the measure taken is specific to an activity that might be characterized as a “condition of use” as that term is defined in TSCA section 3(4) and interpreted by EPA in the Risk Evaluation Rule, 82 FR 33726 (July 20, 2017). This approach ensures that any activity involving a TSCA section 6(h) PBT chemical, past, present or future, is addressed by the regulatory approach taken. Thus, under this final rule, EPA grouped all activities with 2,4,6-TTBP into four general categories, and addressed the practicability of specific standards for each group. As described in detail in Unit II.F., EPA has considered the uses of 2,4,6-TTBP in these four general categories: (1) Domestic manufacture and use as an intermediate/reactant in processing at chemical facilities; (2) use in formulations and mixtures for fuel treatment in refineries and fuel facilities; (3) use in formulations intended for the maintenance or repair of motor vehicles and machinery at small commercial entities and for retail sale, and (4) use in formulations and mixtures for liquid lubricant and grease additives/antioxidants additives. This final rule prohibits distribution of 2,4,6-TTBP and products containing 2,4,6-TTBP in any container with a volume of less than 35 gallons for any use, as well as processing and distribution of 2,4,6-TTBP and products containing 2,4,6-TTBP for use as an oil or lubricant additive, and thus reduces the exposures that will result with resumption of past activities or the initiation of similar or other activities in the future. Therefore, EPA has determined that prohibiting these activities will reduce exposures to the extent practicable. The approach taken for this rulemaking is limited to implementation of TSCA section 6(h) and is not relevant to any other action under TSCA section 6 or other statutory actions.
The term “practicable” is not defined in TSCA. EPA interprets this requirement as generally directing the Agency to consider such factors as achievability, feasibility, workability, and reasonableness. In addition, EPA's approach to determining whether particular prohibitions or restrictions are practicable is informed in part by a consideration of certain other provisions in TSCA section 6, such as TSCA
EPA received comments on the proposed rule regarding this interpretation of “practicable.” EPA has reviewed these comments and believes the interpretation described previously within this Unit is consistent with the intent of TSCA and has not changed that interpretation. EPA's interpretation of an ambiguous statutory term receives deference. More discussion on these comments is in the Response to Comments document for this rulemaking (Ref. 5).
As EPA explained in the proposed rule, EPA does not interpret the “address risk” language to require EPA to determine, through a risk assessment or risk evaluation, whether risks are presented. EPA believes this reading gives the Administrator the flexibility Congress intended for issuance of expedited rules for PBTs and is consistent with TSCA section 6(h)(2) which makes clear that a risk evaluation is not required to support this rulemaking.
EPA received comments on the proposed rule regarding its interpretation of TSCA section 6(h)(4) and regarding EPA's lack of risk assessment or risk evaluation of 2,4,6-TTBP. A number of commenters commented that, while EPA was not compelled to conduct a risk evaluation, EPA should have conducted a risk evaluation under TSCA section 6(b) regardless. The rationales provided by the commenters for such a risk assessment or risk evaluation included that one was needed for EPA to fully quantify the benefits to support this rulemaking, and that without a risk evaluation, EPA would not be able to determine the benefits, risks, and cost effectiveness of the rule in a meaningful way. As described by the commenters, EPA would therefore not be able to meet the TSCA section 6(c)(2) requirement for a statement of these considerations. Regarding the contradiction between the mandate in TSCA section 6(h) to expeditiously issue a rulemaking and the time needed to conduct a risk evaluation, some commenters argued that EPA would have had enough time to conduct a risk evaluation and issue a proposed rule by the statutory deadline.
For similar reasons, EPA does not believe that TSCA section 6(c)(2) requires a quantification of benefits, much less a specific kind of quantification. Under TSCA section 6(c)(2)(A)(iv), EPA must consider and publish a statement, based on reasonably available information, on the reasonably ascertainable economic consequences of the rule, but that provision does not require quantification, particularly if quantification is not possible. EPA has reasonably complied with this requirement by including a quantification of direct costs and a qualitative discussion of benefits in each of the preambles to the final rules. EPA was unable to quantify the indirect costs associated with the rule. Further discussion on these issues can be found in the Response to Comment document. (Ref. 5)
EPA disagrees with the commenters' interpretation of EPA's obligations with respect to chemicals subject to TSCA section 6(h)(4). TSCA section 6(h)(4) provides that EPA shall: (1) “Address the risks of injury to health or the environment that the Administrator determines are presented by the chemical substance” and (2) “reduce exposure to the substance to the extent practicable.” With respect to the first requirement, that standard is distinct from the “unreasonable risk” standard for all other chemicals for which a section 6(a) rule might be issued. EPA does not believe that TSCA section 6(h) contemplates a new evaluation of any kind, given that evaluations to determine risks are now addressed through the TSCA section 6(b) risk evaluation process and that TSCA section 6(h)(2) explicitly provides that no risk evaluation is required. Moreover, it would have been impossible to prepare a meaningful evaluation under TSCA and subsequently develop a proposed rule in the time contemplated for issuance of a proposed rule under TSCA section 6(h)(1). Although EPA does not believe the statute contemplates a new evaluation of any kind for these reasons, EPA reviewed the hazard and exposure information on the five PBT chemicals EPA had compiled. However, while this information appropriately addresses the criteria of TSCA section 6(h)(1)(A) and (B), it did not provide a basis for EPA to develop sufficient and scientifically robust and representative risk estimates to evaluate whether or not any of the chemicals present an identifiable risk of injury to health or the environment.
Rather than suggesting a new assessment is required, EPA reads the “address risk” language in TSCA section 6(h)(4) to contemplate reliance on an existing EPA assessment under TSCA, similar to a risk assessment that may be permissibly used under TSCA section 26(l)(4) to regulate the chemical under TSCA section 6(a). This interpretation gives meaning to the “address risk” phrase, without compelling an evaluation contrary to TSCA section 6(h)(2), and would allow use of an existing determination, or development of a new determination based on such an existing risk assessment, in the timeframe contemplated for issuance of a proposed rule under TSCA section 6(h). However, there were no existing EPA assessments of risk for any of the PBT chemicals. Thus, because EPA had no existing EPA risk assessments or determinations of risk, the regulatory measures addressed in this final rule focus on reducing exposures “to the extent practicable.”
In sum, because neither the statute nor the legislative history suggests that a new evaluation is compelled to identify and thereby provide a basis for the Agency to “address risks” and one could not be done prior to preparation and timely issuance of a proposed rule, and no existing TSCA risk assessment exists for any of the chemicals, EPA has made no risk determination finding for any of the PBT chemicals. Instead, EPA implements the requirement of TSCA section 6(h)(4) by reducing exposures of each PBT chemical “to the extent practicable.”
More discussion on these comments is in the response to comments document (Ref. 5).
The use information presented in this Unit is based on the EPA's review of the reasonably available information, as presented in the rulemaking record, including public comments on the use documents, proposed regulation and other stakeholder input.
Uses of 2,4,6-TTBP may be grouped into four general categories: (1) Domestic manufacture and use as an intermediate/reactant in processing at chemical facilities; (2) use in formulations and mixtures for fuel treatment in refineries and fuel facilities; (3) use in formulations intended for the maintenance or repair of motor vehicles and machinery at small commercial operations and for retail sale, and (4) use in formulations
SI Group is currently the only large volume domestic manufacturer of 2,4,6-TTBP. Historical CDR data indicate that in the 1986 to 1998 reporting years, the aggregate range of production of 2,4,6-TTBP was between one and 10 million pounds per year and increased to a range of 10 to 50 million pounds per year in reporting years 2002 and 2006. The range of production in 2012, 2013, 2014, and 2015 was confidential business information (CBI) in the 2016 CDR (Ref. 6). There have not been any indications of substantial importation of 2,4,6-TTBP into the United States from other countries.
2,4,6-TTBP is predominantly created in chemical reactions as a co-product with a closely related alkylphenol, 2,6 di(tert-butyl)phenol (2,6–DTBP). Neither chemical can be effectively produced commercially without co-production of the other. The chemical is produced as a mixture with its co-products, primarily 2,6–DTBP, at a concentration of approximately 85% 2,6–DTBP and 12% 2,4,6-TTBP. (Ref. 7, EPA–HQ–OPPT–2019–0080–0537). SI Group notes that while the reaction profile for this trans-alkylation process can be shifted based on temperature of the reaction and ratio of isobutylene to phenol, there is no feasible way to eliminate the production of 2,4,6-TTBP in this reaction chemistry.
Approximately 94% of the 2,4,6-TTBP produced by SI Group is consumed by the company in internal chemical processes as a feedstock for further production of other alkylphenol chemicals. This quantity of the chemical is not sold to other chemical processors; it is used by SI Group itself. 2,4,6-TTBP has value as a chemical intermediate in the production of dialkylphenol chemicals. Moreover, SI Group reports it is not possible to significantly suppress the formation of 2,4,6-TTBP without severely constraining the yield of other desired dialkylphenol products, therefore its manufacture has impacts beyond the commercial use of 2,4,6-TTBP itself. The production of other dialkylphenol products, including alternative antioxidants, is therefore a benefit of ongoing 2,4,6-TTBP manufacture.
As noted, approximately 94% of the 2,4,6-TTBP produced by SI Group is consumed by the company in internal processes, being used as a feedstock for further production of alkylphenol chemical products. The chemical reactions that use 2,4,6-TTBP as a chemical feedstock consume (destroy) the feedstock during the process, on site within the facility. An additional 4% of 2,4,6-TTBP produced by SI Group, which is in excess of what it requires for chemical feedstock use, is sold as a waste fuel for energy use. This excess material stream containing 2,4,6-TTBP is used as a waste fuel for energy value, which is burned and destroyed during use (Ref. 8). A hydrocarbon, 2,4,6-TTBP has a high energy value and can be sold as a fuel. (The remaining 2% manufactured is used as a fuel additive, discussed later in this document.)
SI Group notes that in the course of normal operations, the manufacturing stream of the 2,4,6-TTBP containing product is as a liquid, eliminating the possibility of fugitive and stack air (dust) emissions and therefore inhalation or exposure to dust (EPA–HQ–OPPT–2018–0314–0018). Based on the low vapor pressure of 2,4,6-TTBP, 6.6 × 10
EPA has not identified releases, or potential releases from SI Group's operations, that are posing an exposure to the environment and that can be targeted for reduction with practicable measures under TSCA section 6(a). Similarly, EPA has not identified exposure or potential exposures to workers (or the general population from chemical facility production and use) that can be targeted for reduction with specific measures in this rule. As discussed in Unit II.F., EPA believes that in industrial settings worker protection measures used by employers reduce exposures to the extent practicable and EPA has determined that it is not practicable to regulate worker exposures in this rule through engineering or process controls or PPE requirements.
The production and use of 2,4,6-TTBP as a chemical intermediate has significance for other alkylphenol chemical products beyond the immediate uses of 2,4,6-TTBP itself, as a result of the difficulty in commercially producing these other chemicals without generating or using 2,4,6-TTBP (EPA–HQ–OPPT–2018–0314–0018), EPA did not propose to prohibit the manufacture of 2,4,6-TTBP or processing and use of 2,4,6-TTBP as a chemical intermediate. During the public comment period, EPA received no specific information addressing these issues as it might related to 2,4,6-TTBP chemical facility operations. EPA therefore is not imposing any additional regulatory controls for the manufacture of 2,4,6-TTBP for any use.
As noted, of the 2,4,6-TTBP it produces, SI Group itself consumes 94% as a chemical intermediate and sells off another 4% as waste fuel. The remaining 2% of 2,4,6-TTBP produced by SI Group is sold for use in fuel as an antioxidant. The chemical is sold in a mixture with its co-products, primarily 2,6–DTBP, at a concentration of approximately 85% 2,6–DTBP and 12% 2,4,6-TTBP (primarily two proprietary chemical mixtures, Isonox® 133 and Ethanox® 4733) (Ref. 7). SI Group also stated that it does not sell, supply, or distribute into commerce 2,4,6-TTBP in a pure (neat) form.
Most of SI Group's antioxidant product goes to use at refineries: After refining, petroleum products such as fuels quickly begin to degrade due to oxidation. A small portion of its sales volume goes to processors of aftermarket fuel treatment products (discussed in the next section). SI Group does not sell its mixtures containing 2,4,6-TTBP directly to consumers. The majority of the 2,4,6-TTBP mixtures sold are blended into the fuel at the refinery or soon after at tank farms prior to commercial distribution of the fuel. Once blended into fuel, the resultant concentration of 2,4,6-TTBP in fuel is low, in the five to 50 ppm range.
As summarized in the proposed rule, the 2,4,6-TTBP mixture is a widely used antioxidant for jet, automotive, and marine fuels. Antioxidant additives are essential to the storage and transport of fuel, as without them, fuel quickly begins to degrade and form harmful sludge and varnish. The 2,4,6-TTBP mixtures are the primary antioxidants
Once blended into fuel, the resultant concentration of 2,4,6-TTBP in fuel is low, in the five to 50 ppm range. Treated fuel is distributed through the nation's fuel supply chain (pipeline or vehicle transportation, storage and distribution to end points such as airports, gas stations and military facilities). 2,4,6-TTBP, a hydrocarbon, is destroyed (burned) as the fuel to which it is added is consumed during end use (Ref. 7).
SI Group typically ships its product to refineries in tankers or other large containers. Fugitive air releases of 2,4,6-TTBP are expected to be minimal (due to the low vapor pressure) from unloading and transfer operations. Releases may possibly occur from spills and leaks from loading operations, but exposure would be addressed at these industrial sites through spill control measures. Waste from equipment cleaning with organic cleaning solutions is anticipated to be collected for incineration. Water releases are possible from equipment and general area cleaning with aqueous cleaning solutions. Dermal exposure to 2,4,6-TTBP to workers may occur from transfer and fuel loading operations; however, dermal exposure at fuel production facilities is expected to be minimal due to the required use of engineering controls and personal protective equipment (PPE) noted above (EPA–HQ–OPPT–2018–0314–0018). Refineries, fuel distribution and fuel storage facilities also operate with the same or similar engineering controls, PPE (gloves, slickers, boots, respirators, etc.), worker training, leak detection and spill control measures; vapor recovery systems are used during distribution and storage (EPA–HQ–OPPT–2016–0734–0006), similar to procedures used at the manufacturing facility. Once blended into fuel, the resultant concentration of 2,4,6-TTBP in fuel is low, in the five to 50 ppm range, limiting the exposure resulting from handling and spills or leaks.
EPA has not identified releases, or potential releases from the use of 2,4,6-TTBP for fuel treatment at refineries and fuel facilities that can be targeted for reduction with practicable measures under TSCA section 6(a). Similarly, EPA has not identified exposure or potential exposures to workers (or the general population from refinery and fuel facility use) that can be targeted for reduction with practicable measures under TSCA section 6(a). As discussed in Unit II.F., EPA believes that in industrial settings worker protection measures used by employers reduce exposures to the extent practicable and EPA has determined that it is not practicable to regulate worker exposures in this rule through additional engineering or process controls or PPE requirements.
The benefit to continuing the use of existing antioxidants containing 2,4,6-TTBP is a result of the necessity of antioxidants to the nation's fuel supply and the difficulties inherent in removing 2,4,6-TTBP in terms of standards and performance specifications. Given the absence of and difficulty with identifying and adopting alternatives, EPA did not propose to prohibit the manufacturing, processing, or distribution for use of 2,4,6-TTBP as an additive at refineries and fuel facilities.
SI Group does not sell its Isonox or Ethanox mixtures directly to consumers. However, a portion (approximately 6%) of the 2,4,6-TTBP mixtures SI Group sells for use in fuels are sold to processors who blend and distribute antioxidant products that are intended to be added to the fuel tanks/systems in vehicles or machinery by repair shops or the owner/operators of the equipment themselves. These fuel stabilizer products, which contain a percentage of Isonox or Ethanox as an antioxidant component, are sold to consumers at various retail locations, as well as online. These additives are typically sold in small bottles containing up to 32 ounces; gallon containers are available through some retailers. Specialty products are also sold for cleaning fuel injectors or use in 2-stroke engines (pre-blended with oil).
Regarding the retail sale of fuel additives and fuel injector cleaners, EPA was unable to find any specifications or standards for retail fuel antioxidants or additives that explicitly require the use of 2,4,6-TTBP. As discussed in Unit III.B, EPA has identified a number of substitute chemicals and substitute products in the Exposure and Use Assessment for this rule for this specific use.
Use of retail fuel additive products which are sold in small containers to mechanics and consumers to service cars, boats, small engines, etc., present opportunities for release and dermal exposure during transfer activities if users are unprotected. Use of the product involves pouring it from the bottle either into a fuel storage container, such as a gas can that is used to refill equipment such as lawn mowers, or it may be poured directly into the fuel tank of the lawn equipment, or car, boat, etc.
EPA believes that the general public does not routinely use PPE while using this product in these mundane activities, and has not received special training in the handling of the product. No PPE is specified for the use of retail fuel additive products and EPA has no information to indicate that the general public takes any further protective measures when adding this product to
Spillage may occur when the product is being poured into fuel tanks and storage cans. Retail product containers may also leak during transportation, handling, storage and disposal. After use by mechanics and consumers, used retail product containers are disposed of in the municipal solid waste stream without special handling. If released to the indoor environment, 2,4,6-TTBP could partition to particulates and dust based on its chemical relationship with organic carbon compared to that of air. If released into a sanitary sewer system or storm water system, 2,4,6-TTBP would likely transport to nearby wastewater treatment plants due to relative mobility in water due to high water solubility and low Koc (soil organic carbon/water partitioning coefficient).
EPA believes these identified releases and potential releases can be targeted for reduction with practicable measures under TSCA section 6(a). Accordingly, EPA proposed to prohibit the distribution in commerce of 2,4,6-TTBP in formulations intended for the maintenance or repair of motor vehicles and machinery through a container size restriction. EPA is finalizing these regulations, with changes based on public comments discussed elsewhere in this notice.
The Agency is addressing the use of 2,4,6-TTBP in liquid lubricant and grease additives/antioxidants. Although EPA has not identified users of 2,4,6-TTBP for liquid lubricant and grease additives/antioxidants, it found indications of current use, and a manufacturer has reported that it is aware that some customers may use its products for this end use, although it does not actively market products with 2,4,6-TTBP for lubricant applications.
Other countries have reported that 2,4,6-TTBP is, or has been, used as an additive in oils and lubricants (EPA–HQ–OPPT–2016–0734–0002). SI Group states that it does not actively market products containing 2,4,6-TTBP for lubricant applications, but that it is aware that some customers may use these products in lubricant applications (Ref. 8). Regarding the use of 2,4,6-TTBP as an antioxidant additive in oil and lubricants, EPA was unable to find any specifications or standards for oil, lubricant, or grease additives that require the use of 2,4,6-TTBP. No commenters during this rulemaking identified uses without substitutes.
While no releases were specifically identified, EPA believes potential for exposure can be targeted for reduction with practicable measures under TSCA section 6(a). Given this and the general availability of substitutes, EPA is prohibiting the use of 2,4,6-TTBP in oil and lubricant additives.
Exposure information for 2,4,6-TTBP is detailed in EPA's Exposure and Use Assessment (Ref. 4). Based on reasonably available information, EPA did not identify any studies with extractable 2,4,6-TTBP data in drinking water or any studies with detectable levels of 2,4,6-TTBP in soil, sludge/biosolids, or vegetation/diet. Additionally, EPA did not identify any studies with detectable levels of 2,4,6-TTBP in human blood (serum), other human organs, aquatic invertebrates, aquatic vertebrates, terrestrial invertebrates, birds, or terrestrial mammals.
2,4,6-TTBP is toxic to aquatic plants, aquatic invertebrates, and fish. Data indicate the potential for liver and developmental effects. The studies presented in the document entitled “Environmental and Human Health Hazards of Five Persistent, Bioaccumulative and Toxic Chemicals (Hazard Summary) (Ref. 10) demonstrate these hazardous endpoints. EPA did not perform a systematic review or a weight of the scientific evidence assessment for the hazard characterization of these chemicals. As a result, this hazard characterization is not definitive or comprehensive. Other hazard information on these chemicals may exist in addition to the studies summarized in the Hazard Summary that could alter the hazard characterization. In the 2014 Update to the TSCA Work Plan for Chemical Assessments (Ref. 1), 2,4,6-TTBP scored moderate (2) for hazard (based on toxicity following chronic exposure including liver effects); moderate (2) for exposure (based on its wide use in consumer products, presence in indoor environments, and estimation to have moderate releases to the environment); and high (3) for persistence and bioaccumulation (based on moderate environmental persistence and high bioaccumulation potential). The overall screening score for 2,4,6-TTBP was high (7).
Taking all this into account, EPA determines that 2,4,6-TTBP meets the TSCA section 6(h)(1)(A) criteria. In addition, EPA determines, in accordance with TSCA section 6(h)(1)(B), that, based on the Exposure and Use Assessment and other reasonably available information, exposure to 2,4,6-TTBP is likely under the conditions of use to the general population, to a potentially exposed or susceptible subpopulation, or to the environment. EPA's determination is based on the opportunities for exposure to 2,4,6-TTBP including the potential for consumer exposures.
In the proposed rule (84 FR 36728), EPA proposed to restrict all distribution in commerce of 2,4,6-TTBP and products containing 2,4,6-TTBP in containers with a volume of less than 55 gallons. This was intended to effectively prevent use of 2,4,6-TTBP as a retail fuel additive or fuel injector cleaner by consumers and small commercial operations. Exposures to humans and the environment would be reduced by eliminating retail uses of 2,4,6-TTBP that have a higher potential for releases. EPA believed that this proposal intentionally would not impact use of this chemical in the nation's fuel supply system (
EPA proposed to define 2,4,6-TTBP to mean the chemical substance 2,4,6-tris(tert-butyl)phenol (CASRN 732–26–3) at any concentration above 0.01% by weight. EPA stated its belief that this concentration limit would distinguish between products which contain 2,4,6-TTBP as a functional additive and those in which it may be present in low concentrations as a byproduct or impurity, noting that 2,4,6-TTBP is a co-product and byproduct present in other alkylphenols, including other antioxidants that are potential substitutes for it.
EPA also proposed to prohibit all processing and distribution in commerce of 2,4,6-TTBP for use as an additive in oils and lubricants. There are numerous available substitutes for this use of 2,4,6-TTBP. To support this provision, EPA proposed a definition of oil and lubricant additive for this rule to mean any intentional additive to a product of any viscosity intended to reduce friction between moving parts, whether mineral oil or synthetic base, including engine crankcase oils and bearing greases.
Regarding the timing of these prohibitions, EPA stated in the proposed rule that at that time it had no information indicating a compliance date of 60 days after publication of the final rule is not practicable for the activities that would be prohibited, or that additional time is needed for products to clear the channels of trade.
EPA proposed for recordkeeping that after 60 days following the date of publication of the final rule, distributors of 2,4,6-TTBP and products containing 2,4,6-TTBP must maintain ordinary business records, such as invoices and bills-of-lading, that demonstrate 2,4,6-TTBP is not distributed in containers with a volume less than 55 gallons or for use as an oil and lubricant additive. These records would have to be maintained for a period of three years from the date the record is generated.
The proposed rule provided a 60-day public comment period, with an additional 30-day extension granted. (84 FR 50809, September 26, 2019). The comment period closed on October 28, 2019. EPA received a total of 48 comments, with three commenters sending multiple submissions with attached files, for a total of 58 submissions on the proposal for all the PBT chemicals. This includes the previous request for a comment period extension (EPA–HQ–OPPT–2019–0080–0526). Two commenters submitted confidential business information (CBI) or copyrighted documents with information regarding economic analysis and market trends. Copies of all the non-CBI documents, or redacted versions without CBI are available in the docket for this action. EPA also communicated with companies, and other stakeholders to identify and verify uses of 2,4,6-TTBP. These interactions and comments further informed EPA's understanding of the current status of uses for 2,4,6-TTBP. Public comments and stakeholder meeting summaries are available in the public docket at EPA–HQ–OPPT–2019–0080.
In this preamble, EPA has responded to the major comments relevant to the 2,4,6-TTBP final rule. Of the comment submissions, 12 directly addressed EPA's proposed regulation of 2,4,6-TTBP. EPA's more comprehensive responses to comments related to this final action are in the Response to Comments document (Ref. 5).
EPA proposed not to use its TSCA section 6(a) authorities to directly regulate occupational exposures in industrial settings. As explained in the proposed rule, as a matter of policy, EPA assumes compliance with federal and state requirements, such as worker protection standards, unless case-specific facts indicate otherwise. The Occupational Safety and Health Administration (OSHA) has not established a permissible exposure limit (PEL) for 2,4,6-TTBP. However, under section 5(a)(1) of the Occupational Safety and Health Act of 1970, 29 U.S.C. 654(a)(1), each employer has a legal obligation to furnish to each of its employees employment and a place of employment that are free from recognized hazards that are causing or are likely to cause death or serious physical harm. The OSHA Hazard Communication Standard at 29 CFR 1910.1200 requires chemical manufacturers and importers to classify the hazards of chemicals they produce or import, and all employers to provide information to employees about hazardous chemicals to which they may be exposed under normal conditions of use or in foreseeable emergencies. The OSHA standard at 29 CFR 1910.134(a)(1) requires the use of feasible engineering controls to prevent atmospheric contamination by harmful substances. Other provisions of 29 CFR 1910.134 require the use of respirators where effective engineering controls are not feasible and spell out details of the required respiratory protection program. The OSHA standard at 29 CFR 1910.132(a) requires the use of personal protective equipment (PPE) when workers are exposed to chemical and other hazards; 29 CFR 1910.133 requires the use of eye and face protection when employees are exposed to hazards from, among other things, liquid chemicals; and 29 CFR 1910.138 requires the use of PPE to protect employees' hands from, among other hazards, skin absorption of harmful substances. The provisions of 29 CFR 1910.132(d) and (f) address hazard assessment, PPE selection, and training with respect to PPE required under 29 CFR 1910.133, 29 CFR 1910.138, and certain other standards. EPA assumes that employers will require, and workers will use, appropriate PPE consistent with OSHA standards, taking into account employer-based assessments, in a manner sufficient to prevent occupational exposures that are capable of causing injury.
EPA assumes compliance with other federal requirements, including OSHA standards and regulations. EPA does not read TSCA section 6(h)(4) to direct EPA to adopt potentially redundant or conflicting requirements. Not only would it be difficult to support broadly applicable and safe additional measures for each specific activity without a risk evaluation and in the limited time for issuance of this regulation under TSCA section 6(h), but imposing such measures without sufficient analysis could inadvertently result in conflicting or confusing requirements and make it difficult for employers to understand their obligations. Such regulations would not be practicable. Rather, where EPA has identified worker exposures and available substitutes, EPA is finalizing measures to reduce those exposures,
Under a newly created general provisions section at 40 CFR 751.401(b), EPA is listing three activities to which the prohibitions and restrictions under the PBT regulations at subpart E of 40 CFR 751 do not apply in general, unless otherwise specified in the individual chemical regulations.
The first activity is distribution in commerce of any chemical substance, or products and articles that contain the chemical substance, that has previously been sold or supplied to an end user,
The second activity is disposal of any chemical substance, or products and articles that contain the chemical substance, including importation, processing and distribution-in-commerce for purposes of disposal. EPA explained in the proposed rule the basis of its determination that, as a general matter, disposal is adequately regulated under the authority of the Resource Conservation and Recovery Act (RCRA) which governs the disposal of hazardous and non-hazardous wastes, and it is not practicable to impose additional requirements under TSCA on the disposal of the PBT chemicals in the proposed rule. (84 FR 36744.) EPA received a number of comments on this aspect of its proposal. Some commenters agreed with EPA's proposed determination that it is not practicable to regulate disposal, while others disagreed. Comments specific to other PBT chemicals, are addressed in those chemicals' final rule notices. More information on the comments received and EPA's responses can be found in the Response to Comments document (Ref. 5). One commenter noted that, while EPA proposed to not regulate disposal of the PBT chemicals under TSCA, the effect of EPA's proposed prohibition on manufacturing, processing, and distribution in commerce would prohibit the processing and distribution in commerce of the PBTs and articles and products containing the PBT chemicals for disposal. EPA did not intend such an effect, and is including a general provision in the final regulatory text in the new section 40 CFR 751.401(b) to address disposal of any chemical substance, or products and articles that contain the chemical substance, including importation, processing and distribution in commerce for purposes of disposal. In regard to the disposal of 2,4,6-TTBP, use of the chemical as a feedstock, use as a waste fuel, and use as a fuel additive all result in the destruction of the chemical through combustion. This final rule will ultimately eliminate releases from the use of 2,4,6-TTBP-containing retail fuel additive products which are sold in small containers, such as spillage which may occur when the product is poured into fuel tanks or fuel cans, as well as releases from the disposal of used small containers that held those products in the municipal solid waste stream.
EPA also received comments regarding the use of PBT chemicals in research and development and lab use. The final activity addressed under newly established 40 CFR 751.401(b) is the manufacturing, processing, distribution in commerce and use of any chemical substance, or products and articles that contain the chemical substance, for research and development, as defined in new 40 CFR 751.403.
EPA carefully considered all public comments related to the proposal. This rule finalizes EPA's proposal to prohibit all distribution in commerce of 2,4,6-TTBP and products containing 2,4,6-TTBP in small containers, and prohibit all processing and distribution in commerce of 2,4,6-TTBP, and products containing 2,4,6-TTBP, for use as an oil or lubricant additive, with changes being made from the proposal to the container size limit, the concentration limit for 2,4,6-TTBP, and the compliance date for the prohibitions.
In the proposed rule, EPA solicited comment from the public on the optimal container size limit to impose: Specifically, whether a 35-gallon container size would impact industrial use less than a 55-gallon container size while also preventing the sale of retail products with 2,4,6-TTBP. Two comments were received on this issue. SI Group recommended EPA adopt a 35-gallon size limit, commenting that: “Industrial users of chemicals occasionally ship materials in the non-standard 55-gallon drum size. This slight decrease in container size will not impact the intent or outcome of the original proposal—consumer access to 2,4,6-TTBP will be restricted” (EPA–HQ–OPPT–2019–0080–0537). API stated that: “A 35-gallon container size would be more appropriate, because it would impact industrial use less while also preventing the commercial and retail sale of products with 2,4,6-TTBP.” Based on this information EPA is adopting a 35-gallon container size limit in the final regulation, which will still reduce the exposure to consumers to the same extent (EPA–HQ–OPPT–2019–0080–0539).
EPA proposed to define 2,4,6-TTBP to mean the chemical substance 2,4,6-tris(tert-butyl)phenol (CASRN 732–26–3) at any concentration above 0.01% by weight for the purpose of distinguishing between products which contain 2,4,6-TTBP as a functional additive and those in which it may be present in low concentrations as a byproduct or impurity, noting that 2,4,6-TTBP is a co-product and byproduct present in other alkylphenols, including other antioxidants that are potential substitutes for it.
In response to EPA's concentration proposal to distinguish between products that contain 2,4,6-TTBP as a functional additive and those with low concentrations as a byproduct or impurity, SI Group (EPA–HQ–OPPT–2019–0080–0537) provided more detailed information:
• Impurity levels of 2,4,6-TTBP are typically very low, but may range up to 0.3%. SI Group's engineering staff recently conducted modeling studies of its processes and the output suggests the company is unable to decrease impurity levels of 2,4,6-TTBP with current manufacturing operations.
• These models indicate there is no way to achieve a zero residual value for 2,4,6-TTBP as an impurity due to numerous factors.
• The hindered phenolic antioxidant 2,6-di-tert-4-secbutylphenol contains an average 2,4,6-TTBP impurity concentration of 0.3%, the highest in SI's portfolio. This substance is the predominant antioxidant technology utilized in automotive brake fluid in the United States.
Given these detailed comments from the manufacturer of 2,4,6-TTBP, EPA believes adopting a 0.3% concentration limit in the final regulation will better achieve the distinction between functional additives and impurities EPA seeks to establish, and thereby avoid unintended and unassessed impacts on other alkylphenols used in products such as brake fluid. For clarity, EPA is stating this concentration limit within the prohibitions for 2,4,6-TTBP under 40 CFR 751.409(a) in the final regulation; EPA believes this will reduce opportunity for the concentration limit to be overlooked by readers of the regulation.
The proposed rule did not delay the compliance date beyond the rule's effective date; the processing and distribution bans would come into effect 60 days after publication of the final rule notice. EPA stated in the proposed rule that at that time it had no information indicating that a compliance date of 60 days after publication of the final rule is not practicable for the activities that would be prohibited, or that additional time is needed for products to clear the channels of trade. The phrases “as soon as practicable” and “reasonable transition period” as used in TSCA section 6(d)(1) are undefined, and the legislative history on TSCA section 6(d) is limited. Given the ambiguity in the statute, for purposes of this expedited rulemaking, EPA presumed a 60-day compliance date was “as soon as practicable,” unless there was support for a lengthier period of time on the basis of reasonably available information, such as information submitted in comments on the Exposure and Use Assessment or in stakeholder dialogues. Such a presumption is consistent with the general effective date often adopted for rulemakings and ensures the compliance schedule is “as soon as practicable,” particularly in the context of the TSCA section 6(h) rules for chemicals identified as persistent, bioaccumulative and toxic, and given the expedited timeframe for issuing a TSCA section 6(h) proposed rule did not allow time for collection and assessment of new information separate from the comment opportunities during the development of and in response to the proposed rule. Such presumption also allows for submission of information from the sources most likely to have the information that will affect an EPA determination on whether or how best to adjust the compliance deadline to ensure that the chosen final compliance deadline is both “as soon as practicable” and provides a “reasonable transition period.”
On this issue, SI Group provided comment and recommended a 5-year delay in implementation, commenting that “. . . there could be significant implications to the current aftermarket fuel additives and oil/lubricant value chains with enactment of this rule and the very short time for implementation. Complying with this rule will likely require a considerable amount of time given the requirements of Federal, State, standardization bodies, Original Equipment Manufacturers (OEMs), and brand holders in reformulating and requalifying products as well as managing current inventory” (EPA–HQ–OPPT–2019–0080–0537). EPA also received comment on this issue from Gold Eagle Company, which identifies itself as the maker of the #1 selling fuel stabilizer in the United States, and produces several brands of fuel stabilizer under various brand names; it commented that “over 100 OEMs [original equipment manufacturers] endorse this fuel stabilizer in their owners manual and/or sell the product in their dealerships, or buy a private label product from Gold Eagle.” (EPA–HQ–OPPT–2019–0080–0533). It states that 2,4,6-TTBP is an essential component of its fuel stabilizers; that it has used the same antioxidant chemistry since 1988; that evaluated alternative antioxidant chemistries do not provide equivalent fuel stability; and that “even if an effective substitute could be found, ASTM approval would likely take about six years.” (EPA–HQ–OPPT–2019–0080–0533). Gold Eagle comments that an alternative antioxidant must be evaluated using ASTM D525 Fuel Stability test referenced in ASTM D4814, Standard Specification for Automotive Spark-Ignition Engine Fuel, used to test refinery gasoline for compliance to fuel specifications for automotive use.
Overall, EPA considers these comments to have considerable merit. EPA does not agree with Gold Eagle on the availability of substitute antioxidants for use in fuel additive products; EPA has identified alternative fuel additive products without 2,4,6-TTBP as an active ingredient that are available and can be substituted for fuel additive products with 2,4,6-TTBP that will be removed from the market (Ref. 3). EPA therefore concludes that it is possible for Gold Eagle to reformulate its products to remove the 2,4,6-TTBP component and replace it with other antioxidants. However, EPA does agree with the assertion that it will take time to develop new formulations for various product lines, test them and obtain required approvals. Additionally, as a predominant supplier, Gold Eagle has a complex supply network and relationships with many other companies that supply its product, sell it under other brand names, or endorse its use in their equipment; EPA acknowledges that Gold Eagle's modifications to the formulation of its product line may require it to engage with these customers and business partners to assure them that its products provide similar performance, a process that will also take time. EPA also agrees with the comment that managing existing inventory will require time. Like other basic automotive supplies, such as engine oil and windshield wiper fluid, aftermarket fuel additive products are widely available nationally at varied retail outlets, such as auto parts stores, hardware stores, general retail outlets, gas stations and convenience stores. Unopened product is stable and may be
In consideration of these comments and the issues that they raise, especially in regard to potential unquantified potential costs and market disruption with provision of these needed products, EPA does not believe it is practicable to implement this prohibition without a delay in the compliance date. However, Gold Eagle expresses some uncertainty about its six-year estimate and does not establish the reasoned basis to support that a six-year estimate is “as soon as practicable,” compared to the five-year period estimated by SI Group. Therefore, EPA is delaying the compliance date for the prohibition on distribution of 2,4,6-TTBP and products containing 2,4,6-TTBP in any container with a volume of less than 35 gallons for any use, as well as processing and distribution in commerce of 2,4,6-TTBP for use in oil and lubricant additives and of 2,4,6-TTBP-containing oil and lubricant additives, for five years, to give the producers of fuel additives containing 2,4,6-TTBP sufficient time to reformulate their products, requalify them with the necessary entities and clear non-compliant inventory from their distribution chains.
In this final rule, EPA is also establishing a new subpart E of 40 CFR 751 for TSCA section 6(h) PBT chemical provisions, including general provisions at 40 CFR 751.401 as discussed in Unit II.F. of this document, and definitions applicable to subpart E at 40 CFR 751.403. Terms defined in 40 CFR 751.403 include
EPA is requiring that distributors of 2,4,6-TTBP and products containing 2,4,6-TTBP must maintain ordinary business records, such as invoices and bills-of-lading, related to compliance with the prohibitions and restrictions in this regulation. These records must be maintained for a period of three years from the date the record is generated. EPA revised this language slightly from the proposal to improve clarity.
2,4,6-TTBP is toxic to aquatic plants, aquatic invertebrates, and fish. Data indicate the potential for liver and developmental effects. The studies presented in the Hazard Summary (Ref. 10) demonstrate these hazardous endpoints. These hazard statements are not based on a systematic review of the available literature and information may exist that could refine the hazard characterization.
Additional information about 2,4,6-TTBP health effects, use, and exposure is in Unit II.C. and is further detailed in the Hazard Summary (Ref. 10), and information on use and exposure is also in Unit II.C. and is further detailed in EPA's Exposure and Use Assessment (Ref. 4).
2,4,6-TTBP has value as a chemical intermediate in the production of dialkylphenol chemicals. With respect to use as an antioxidant in the general fuel supply, antioxidant additives are essential to the storage and transport of fuel, as without them, fuel quickly begins to degrade and form harmful sludge and varnish. The 2,4,6-TTBP mixtures are the primary antioxidants used in aviation, marine, and automotive fuel streams in the United States. Many current performance specifications for fuel require their use, including for specialty fuels for aviation and the military. Antioxidants are also an important component in retail fuel additives and fuel injector cleaners, which are used for engines maintenance. Similarly, antioxidants are also used in oil and lubricants to prevent degradation of the product.
Substitution costs were estimated on the industry level using the price differential between the cost of the chemical and identified substitutes. Costs for rule familiarization and recordkeeping were estimated based on burdens estimated for other similar rulemakings. Costs were annualized over a 25-year period. Other potential costs include, but are not limited to, those associated with testing, reformulation, imported articles, and some portion of potential revenue loss. However, these costs are discussed only qualitatively, due to lack of data availability to estimate quantified costs. More details of this analysis are presented in the Economic Analysis (Ref. 3), which is in the public docket for this action.
As discussed in Unit II.A., while EPA reviewed hazard and exposure information for the PBT chemicals, this information did not provide a basis for EPA to develop scientifically robust and representative risk estimates to evaluate whether or not any of the chemicals present a risk of injury to health or the environment. Benefits were not quantified due to the lack of risk estimates. A qualitative discussion of the potential benefits associated with the proposed and alternative actions for each chemical is provided. 2,4,6-TTBP is persistent and bioaccumulative, and has been associated with liver toxicity and reproductive and developmental effects in mammals. Under the final regulatory action, 2,4,6-TTBP and products containing 2,4,6-TTBP at concentrations above 0.3% would be prohibited for distribution in containers less than 35 gallons and would be prohibited in processing and distribution for use as an additive to oil/lubricants. Therefore, the rule is expected to reduce the exposure to humans and the environment, by reducing the potential for consumer exposures to 2,4,6-TTBP and potential occupational exposure in certain industries, where workers are unprotected, as well as potential releases to the environment from
With respect to the cost effectiveness of the final regulatory action and the primary alternative regulatory action, EPA is unable to perform a traditional cost-effectiveness analysis of the actions and alternatives for the PBT chemicals. As discussed in the proposed rule, the cost effectiveness of a policy option would properly be calculated by dividing the annualized costs of the option by a final outcome, such as cancer cases avoided, or to intermediate outputs such as tons of emissions of a pollutant curtailed. Without the supporting analyses for a risk determination, EPA is unable to calculate either a health-based or environment-based denominator. Thus, EPA is unable to perform a quantitative cost-effectiveness analysis of the final and alternative regulatory actions. However, by evaluating the practicability of the final and alternative regulatory actions, EPA believes that it has considered elements related to the cost effectiveness of the actions, including the cost and the effect on exposure to the PBT chemicals of the final and alternative regulatory actions.
EPA considered the anticipated effect of this rule on the national economy and concluded that this rule is highly unlikely to have any measurable effect on the national economy (Ref. 3). EPA analyzed the expected impacts on small business and found that no small entities are expected to experience impacts of more than 1% of revenues (Ref. 3). Finally, EPA has determined that this rule is unlikely to have significant impacts on technological innovation.
EPA conducted a screening level analysis of two possible substitutes for 2,4,6-TTBP based on the TSCA Work Plan Chemicals: Methods Document (Ref. 2). One alternative antioxidant suitable as a fuel additive is 2,4-dimethyl-6-tert-butylphenol, CASRN 1879–09–0, and the other is 2,6-di-tert-butyl-p-cresol, also known as butylated hydroxytoluene or BHT, CASRN 128–37–0. Both chemicals have a lower bioaccumulation potential than 2,4,6-TTBP, but equivalent or higher scores for persistence, environmental hazard and human health hazard (Ref. 11). EPA did not assess the hazard of the chemical mixtures in commercial products containing 2,4,6-TTBP, nor did it assess the hazard of substitute products that do not contain 2,4,6-TTBP, so no conclusions as to the relative hazard of product substitutes can be drawn.
Based on a screening level analysis of likely alternatives, as noted previously, EPA believes that there are readily available substitutes for the retail fuel additives, as well as oil and lubricant additives containing 2,4,6-TTBP. EPA believes that the overwhelming predominance in the marketplace of oil and lubricant products that do not contain 2,4,6-TTBP is itself sufficient evidence of the availability of those substitute chemicals or products. While EPA did not identify the specific alternative chemicals used in each product, for the Economic Analysis (Ref. 3), EPA was able to determine 35 product substitutes exist for retail fuel stabilizer products and 15 product substitutes exist for retail fuel injector cleaner products (for purposes of the analysis, product substitutes are considered those that serve the same purpose but do not contain 2,4,6-TTBP).
In accordance with TSCA section 26(h) and taking into account the requirements of TSCA section 6(h), EPA has used scientific information, technical procedures, measures, and methodologies that are fit for purpose and consistent with the best available science. For example, EPA based its determination that human and environmental exposures are likely with 2,4,6-TTBP in the Exposure and Use Assessment (Ref. 4) discussed in Unit II.A.2, which underwent a peer review and public comment process, as well as using best available science and methods sufficient, to make that determination. The extent to which the various information, procedures, measures, and methodologies, as applicable, used in EPA's decision making have been subjected to independent verification or peer review is adequate to justify their use, collectively, is in the record for this rule. Additional information on the peer review and public comment process, such as the peer review plan, the peer review report, and the Agency's Response to Comments document, are in the public docket for this action (EPA–HQ–OPPT–2019–0080). In addition, in accordance with TSCA section 26(i) and taking into account the requirements of TSCA section 6(h), EPA has made scientific decisions based on the weight of the scientific evidence.
The following is a list of the documents that are specifically referenced in this document. The docket includes these documents and other information considered by EPA, including documents that are referenced within the documents that are included in the docket, even if the referenced document is not physically located in the docket. All records in docket EPA–HQ–OPPT–2019–0080 are part of the record for this rulemaking. For assistance in locating these other documents, please consult the technical person listed under
Additional information about these statutes and Executive orders can be found at
This action is a significant regulatory action that was submitted to the Office of Management and Budget (OMB) for review under Executive Order 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011). Any changes made in response to OMB recommendations have been documented in the docket for this action as required by section 6(a)(3)(E) of Executive Order 12866.
EPA prepared an economic analysis of the potential costs and benefits associated with this action. A copy of this economic analysis
This action is considered a regulatory action under Executive Order 13771 (82 FR 9339, February 3, 2017). Details on the estimated costs of this final rule can be found in the Economic Analysis (Ref. 3), which is briefly summarized in Unit III.B.3.
The information collection activities in this rule have been submitted for approval to the Office of Management and Budget (OMB) under the PRA, 44 U.S.C. 3501
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9. When OMB approves this ICR, the Agency will announce that approval in the
This action will not have a significant economic impact on a substantial number of small entities under the RFA, 5 U.S.C. 601
This action does not contain an unfunded mandate of $100 million or more as described in UMRA, 2 U.S.C. 1531–1538, and would not significantly or uniquely affect small governments. The final rule is not expected to result in expenditures by State, local, and Tribal governments, in the aggregate, or by the private sector, of $100 million or more (when adjusted annually for inflation) in any one year. Accordingly, this final rule is not subject to the requirements of sections 202, 203, or 205 of UMRA. The total quantified annualized social costs for this final rule under are approximately $5.6 million at a 3% discount rate and $4.9 million at a 7% discount rate, which does not exceed the inflation-adjusted unfunded mandate threshold of $160 million.
This action does not have federalism implications because it is not expected to 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 as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). Thus, Executive Order 13132 does not apply to this action.
This action does not have tribal implications because it is not expected to have substantial direct effects on tribal governments, on the relationship between the Federal Government and the Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes as specified in Executive Order 13175 (65 FR 67249, November 9, 2000). Thus, Executive Order 13175 does not apply to this final rule.
Consistent with the EPA Policy on Consultation and Coordination with Indian Tribes, the EPA consulted with tribal officials during the development of this action. EPA consulted with representatives of Tribes via teleconference on August 31, 2018, and September 6, 2018, concerning the prospective regulation of the five PBT chemicals under TSCA section 6(h). Tribal members were encouraged to provide additional comments after the teleconferences. EPA received two comments from the Keweenaw Bay Indian Community (Ref. 12) and Maine Tribes (Ref. 13).
This action is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997) because it is not an economically significant regulatory action as defined by Executive Order 12866. Although the action is not subject to Executive Order 13045, the Agency considered the risks to infants and children under EPA's Policy on Evaluating Health Risks to Children. EPA did not perform a risk assessment or risk evaluation of 2,4,6-TTBP, however available data indicate the potential for reproductive and developmental effects from 2,4,6-TTBP. More information can be found in the Exposure and Use Assessment (Ref. 4) and the “Environmental and Human Health Hazards of Five Persistent, Bioaccumulative and Toxic Chemicals” (Ref. 10). This regulation will reduce the exposure to 2,4,6-TTBP for the general population and for susceptible subpopulations such as workers and children.
This action is not a “significant energy action” as defined in Executive Order 13211 (66 FR 28355, May 22, 2001) because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy and has not otherwise been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. While this action regulates a fuel additive, because the restrictions are limited to fuel additives purchased and used by consumers, it will not significantly affect the nation's fuel supply.
This rulemaking does not involve any technical standards. Therefore, NTTAA section 12(d), 15 U.S.C. 272
EPA believes that this action does not have disproportionately high and adverse health or environmental effects on minority populations, low-income populations and/or indigenous peoples, as specified in Executive Order 12898 (59 FR 7629, February 16, 1994). The documentation for this decision is contained in the Economic Analysis (Ref. 3), which is in the public docket for this action.
This action is subject to the CRA, 5 U.S.C. 801
Environmental protection, Chemicals, Export Notification, Hazardous substances, Import certification, Reporting and recordkeeping.
Therefore, for the reasons stated in the preamble, 40 CFR part 751 is amended as follows:
15 U.S.C. 2605, 15 U.S.C. 2625(l)(4).
(a) This subpart establishes prohibitions and restrictions on the manufacturing, processing, and distribution in commerce of persistent, bioaccumulative, and toxic chemicals in accordance with TSCA section 6(h), 15 U.S.C 2605(h).
(b) Unless otherwise specified in this subpart, prohibitions and restrictions of this subpart do not apply to the following activities:
(1) Distribution in commerce of any chemical substance, or any product or article that contains the chemical substance, that has previously been sold or supplied to an end user,
(2) Disposal of any chemical substance, or any product or article that contains the chemical substance, as well as importation, processing and distribution in commerce of any chemical substance or any product or article that contains the chemical substance for purposes of disposal.
(3) Manufacturing, processing, distribution in commerce, and use of any chemical substance, or any product or article that contains the chemical substance, for research and development, as defined in § 751.403.
The definitions in subpart A of this part apply to this subpart unless otherwise specified in this section.
(1) Which is formed to a specific shape or design during manufacture,
(2) Which has end use function(s) dependent in whole or in part upon its shape or design during end use, and
(3) Which has either no change of chemical composition during its end use or only those changes of composition which have no commercial purpose separate from that of the article, and that result from a chemical reaction that occurs upon end use of other chemical substances, mixtures, or articles; except that fluids and particles are not considered articles regardless of shape or design.
(a)
(2) After January 6, 2026, all persons are prohibited from all processing and distribution in commerce of 2,4,6-TTBP oil and lubricant additives at any concentration above 0.3 percent by weight.
(b)
Environmental Protection Agency (EPA).
Final rule.
The Environmental Protection Agency (EPA) is finalizing a rule under the Toxic Substances Control Act (TSCA) to address its obligations under TSCA for decabromodiphenyl ether (decaBDE) (CASRN 1163–19–5), which EPA has determined meets the requirements for expedited action under of TSCA. This final rule prohibits all manufacture (including import), processing, and distribution in commerce of decaBDE, or decaBDE-containing products or articles, with some exclusions. These requirements will result in lower amounts of decaBDE being manufactured, processed, distributed in commerce, used and disposed, thus reducing the exposures to humans and the environment.
This final rule is February 5, 2021. For purposes of judicial review and 40 CFR 23.5, this rule shall be promulgated at 1 p.m. eastern standard time on January 21, 2021.
The docket for this action, identified by docket identification (ID) number EPA–HQ–OPPT–2019–0080, is available at
Please note that due to the public health emergency, the EPA Docket Center (EPA/DC) and Reading Room was closed to public visitors on March 31, 2020. Our EPA/DC staff will continue to provide customer service via email, phone, and webform. For further information on EPA/DC services, docket contact information and the current status of the EPA/DC and Reading Room, please visit
You may be potentially affected by this action if you manufacture (including import), process, distribute in commerce, or use decabromodiphenyl ether (decaBDE) and decaBDE-containing products and articles, especially wire and cable rubber casings, textiles, electronic equipment casings, building and construction materials, and imported articles such as aerospace and automotive parts. The following list of North American Industrial Classification System (NAICS) codes is not intended to be exhaustive, but rather provides a guide to help readers determine whether this document applies to them. Potentially affected entities may include:
• Nuclear Electric Power Generation (NAICS Code 221113);
• Power and Communication Line and Related Structures Construction (NAICS Code 237130);
• Nonwoven Fabric Mills (NAICS Code 313230);
• Fabric Coating Mills (NAICS Code 313320);
• All Other Basic Organic Chemical Manufacturing (NAICS Code 325199);
• Paint and Coating Manufacturing (NAICS Code 325510);
• Custom Compounding of Purchased Resins (NAICS Code 325991);
• All Other Miscellaneous Chemical Product and Preparation Manufacturing (NAICS Code 325998);
• Unlaminated Plastics Film and Sheet (except Packaging) Manufacturing (NAICS Code 326113);
• Laminated Plastics Plate, Sheet (except Packaging), and Shape Manufacturing (NAICS Code 326130);
• Urethane and Other Foam Product (except Polystyrene) Manufacturing (NAICS Code 326150);
• All Other Plastics Product Manufacturing (NAICS Code 326199);
• Copper Rolling, Drawing, Extruding, and Alloying (NAICS Code 331420);
• Computer and Peripheral Equipment Manufacturing (NAICS Code 3341);
• Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing (NAICS Code 334220);
• Other Communications Equipment Manufacturing (NAICS Code 334290);
• Audio and Video Equipment Manufacturing (NAICS Code 334310);
• Other Communication and Energy Wire Manufacturing (NAICS Code 335929);
• Current-Carrying Wiring Device Manufacturing (NAICS Code 335931);
• Motor Vehicle Manufacturing (NAICS Code 3361),
• Other Motor Vehicle Parts Manufacturing (NAICS Code 336390);
• Aircraft Manufacturing (NAICS Code 336411);
• Guided Missile and Space Vehicle Manufacturing (NAICS Code 336414);
• Surgical Appliance and Supplies Manufacturing (NAICS Code 339113);
• Doll, Toy, and Game Manufacturing (NAICS Code 33993);
• Automobile and Other Motor Vehicle Merchant Wholesalers (NAICS Code 423110);
• Motor Vehicle Supplies and New Parts Merchant Wholesalers (NAICS Code 423120);
• Hotel Equipment and Supplies (except Furniture) Merchant Wholesalers (NAICS Code 423440);
• Household Appliances, Electric Housewares, and Consumer Electronics Merchant
Wholesalers (NAICS Code 423620);
• Sporting and Recreational Goods and Supplies Merchant Wholesalers (NAICS Code 423910);
• Toy and Hobby Goods and Supplies Merchant Wholesalers (NAICS Code 423920);
• Other Chemical and Allied Products Merchant Wholesalers (NAICS Code 424690);
• New Car Dealers (NAICS Code 441110);
• Boat Dealers (NAICS Code 441222);
• Automotive Parts and Accessories Stores (NAICS Code 441310);
• Furniture Stores (NAICS Code 442110);
• Household Appliance Stores (NAICS Code 443141);
• Electronics Stores (NAICS Code 443142);
• All Other Home Furnishing Stores (NAICS Code 442299);
• Children's and Infant's Clothing Stores (NAICS Code 448130);
• Hobby, Toy, and Game Stores (NAICS Code 451120);
• General Merchandise Stores (NAICS Code 452);
• Electronic Shopping and Mail-Order Houses (NAICS Code 454110);
• Aircraft Maintenance and Repair Services (NAICS Code 488190);
• Traveler Accommodations (NAICS Code 7211);
• General Automotive Repair (NAICS Code 811111).
If you have any questions regarding the applicability of this action to a particular entity, consult the technical information contact listed under
Section 6(h) of TSCA, 15 U.S.C. 2601
EPA published a proposed rule on July 29, 2019, to address the five PBT chemicals EPA identified pursuant to TSCA section 6(h) (84 FR 36728; FRL–9995–76). After publication of the proposed rule, EPA determined to address each of the five PBT chemicals in separate final actions. This final rule prohibits the manufacture (including import) and processing of decaBDE, and products and articles to which decaBDE has been added effective 60 days after publication of the final rule, and distribution in commerce of products and articles to which decaBDE has been added one year after the effective date of the rule. Different compliance dates or exclusions from the date of publication of this prohibition include:
• 18 months for any manufacture, processing and distribution in commerce of decaBDE for use in curtains in the hospitality industry, and the curtains to which decaBDE has been added.
• Two years for any processing and distribution in commerce of decaBDE for use in wire and cable insulation in nuclear power generation facilities, and the decaBDE-containing wire and cable insulation.
• Three years for any manufacture, processing and distribution in commerce of decaBDE for use in parts installed in and distributed as part of new aerospace vehicles, and the parts to which decaBDE has been added for such vehicles. After the end of their service lives for import, processing, and distribution in commerce of aerospace vehicles manufactured before January 7, 2024 that contain decaBDE in any part. After the end of their service lives for manufacture, processing, and distribution in commerce of decaBDE for use in replacement parts for aerospace vehicles, and the replacement parts to which decaBDE has been added for such vehicles.
• After the end of their service lives, or 2036, whichever is earlier, for manufacture, processing, and distribution in commerce of decaBDE for use in replacement parts for motor vehicles, and the replacement parts to which decaBDE has been added for such vehicles.
• After the end of their service lives for distribution in commerce of plastic shipping pallets manufactured prior to March 8, 2021 that contain decaBDE.
• Exclusion for processing and distribution in commerce for recycling of decaBDE-containing plastic products and articles (
Persons manufacturing, processing, and distributing in commerce decaBDE or decaBDE-containing products and articles are required to maintain, for three years from the date the record is generated, ordinary business records related to compliance with this rule that include the name of the purchaser, and list the products or articles. Excluded from the recordkeeping requirement are persons processing and distributing in commerce for; recycling of plastic that contains decaBDE, those products and articles containing decaBDE from recycled plastic as long as no new decaBDE was added during the recycling process, and plastic shipping pallets manufactured prior to the effective date of the rule. These records must include a statement that the decaBDE, or the decaBDE-containing products and articles, are in compliance with 40 CFR 751.405(a) and be made available to EPA within 30 calendar days upon request.
EPA is issuing this final rule to fulfill EPA's obligations under TSCA section 6(h) to take timely regulatory action on PBT chemicals, including decaBDE, “to address the risks of injury to health or the environment that the Administrator determines are presented by the chemical substance and to reduce exposure to the substance to the extent practicable.” Consistent with that requirement, the Agency is finalizing this rule to reduce exposures to decaBDE to the extent practicable.
EPA has evaluated the potential costs of these restrictions and prohibitions and the associated reporting and recordkeeping requirements. The “Economic Analysis for Final Regulation of Decabromodiphenyl ether (decaBDE) under TSCA section 6(h)” (Economic Analysis) (Ref. 3), is available in the docket and is briefly summarized here.
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Executive Order 13045 applies if the regulatory action is economically significant and concerns an environmental health risk or safety risk that may disproportionately affect children. While the action is not subject to Executive Order 13045, the Agency's Policy on Evaluating Health Risks to Children (
TSCA section 6(h) requires EPA to take expedited regulatory action under TSCA section 6(a) for certain PBT chemicals identified in the 2014 Update to the TSCA Work Plan for Chemical Assessments (Ref. 1). As required by the statute, EPA issued a proposed rule to address five persistent, bioaccumulative, and toxic (PBT) chemicals identified pursuant to TSCA section 6(h) (84 FR 36728, July 29, 2019). The statute required that this be followed by promulgation of a final rule no later than 18 months after the proposal. While EPA proposed regulatory actions on each chemical substance in one proposal, in response to public comments (EPA–HQ–OPPT–2019–0080–0544), (EPA–HQ–OPPT–2019–0080–0553), (EPA–HQ–OPPT–2019–0080–0556), (EPA–HQ–OPPT–2019–0080–0562) requesting these five actions be separated, EPA is finalizing five separate actions. EPA intends for the five separate final rules to publish in the same issue of the
Under TSCA section 6(h)(1)(A), the subject chemical substances subject to expedited action are those that:
• EPA has a reasonable basis to conclude are toxic and that with respect to persistence and bioaccumulation score high for one and either high or moderate for the other, pursuant to the 2012 TSCA Work Plan Chemicals: Methods Document or a successor scoring system;
• Are not a metal or a metal compound; and
• Are chemical substances for which EPA has not completed a TSCA Work Plan Problem Formulation, initiated a review under TSCA section 5, or entered into a consent agreement under TSCA section 4, prior to June 22, 2016, the date that the Frank R. Lautenberg Chemical Safety for the 21st Century Act was enacted.
In addition, in order for a chemical substance to be subject to expedited action, TSCA section 6(h)(1)(B) states that EPA must find that exposure to the chemical substance under the conditions of use is likely to the general population or to a potentially exposed or susceptible subpopulation identified by the Administrator (such as infants, children, pregnant women, workers or the elderly), or to the environment on the basis of an exposure and use assessment conducted by the Administrator. TSCA section 6(h)(2) further provides that the Administrator shall not be required to conduct risk evaluations on chemical substances that are subject to TSCA section 6(h)(1).
Based on the criteria set forth in TSCA section 6(h), EPA proposed to determine that five chemical substances meet the TSCA section 6(h)(1)(A) criteria for expedited action, and decaBDE is one of these five chemical substances. In addition, in accordance with the statutory requirements to demonstrate that exposure to the chemical substance is likely under the conditions of use, EPA conducted an Exposure and Use Assessment for decaBDE. As described in the proposed rule, EPA conducted a review of available literature with respect to decaBDE to identify, screen, extract, and evaluate reasonably available information on use and exposures. This information is in the document entitled “Exposure and Use Assessment of Five Persistent, Bioaccumulative and Toxic Chemicals” (Ref. 4). Based on this review, which was subject to peer review and public comment, EPA proposed to find that exposure to decaBDE is likely, based on information detailed in the Exposure and Use Assessment.
TSCA section 6(h)(4) requires EPA to issue a final TSCA section 6(a) rule to “address the risks of injury to health or the environment that the Administrator determines are presented by the chemical substance and reduce exposure to the substance to the extent practicable.” EPA reads this text to require action on the chemical, not specific conditions of use. The approach EPA takes is consistent with the language of TSCA section 6(h)(4) and its distinct differences from other provisions of TSCA section 6 for chemicals that are the subject of required risk evaluations. First, the term “condition of use” is only used in TSCA section 6(h) in the context of the TSCA section 6(h)(1)(B) finding relating to likely exposures under “conditions of use” to “the general population or to a potentially exposed or susceptible subpopulation . . . or the environment.” In contrast to the risk evaluation process under TSCA section 6(b), this TSCA section 6(h)(1)(B) threshold criterion is triggered only through an Exposure and Use Assessment regarding the likelihood of exposure and does not require identification of every condition of use (Ref. 4). As a result, EPA collected all the information it could on the use of each chemical substance, without regard to whether any chemical activity would be characterized as “known, intended or reasonably foreseen to be manufactured, processed, distributed in commerce, used, or disposed of,” and from that information created use profiles and then an Exposure and Use Assessment to make the TSCA section 6(h)(1)(B) finding for at least one or more “condition of use” activities where some exposure is likely. EPA did not attempt to precisely classify all activities for each chemical substance as a “condition of use” and thus did not attempt to make a TSCA section
Taking this into account, EPA reads its TSCA section 6(h)(4) obligation to apply to the chemical substance generally, thus requiring EPA to address risks and reduce exposures to the chemical substance without focusing on whether the measure taken is specific to an activity that might be characterized as a “condition of use” as that term is defined in TSCA section 3(4) and interpreted by EPA in the Risk Evaluation Rule, 82 FR 33726 (July 20, 2017). This approach ensures that any activity involving a TSCA section 6(h) PBT chemical, past, present or future, is addressed by the regulatory approach taken. Thus, under this final rule, manufacturing, processing, and distribution in commerce activities that are not specifically excluded are prohibited. The specified activities with particular exclusions are those which EPA determined were not appropriate to regulate under the TSCA section 6(h)(4) standard. Consistently, based on the Exposure and Use Assessment, activities associated with decaBDE that may no longer be occurring, such as domestic manufacture of the chemical substance or production of plastic enclosure for electronics, are addressed by this rule and thus the prohibitions adopted in this rule reduce the exposures that will result with resumption of past activities or the initiation of similar or other activities in the future. Therefore, EPA has determined that prohibiting these activities will reduce exposures to the extent practicable. The approach taken for this final rule is limited to implementation of TSCA section 6(h) and is not relevant to any other action under TSCA section 6 or other TSCA statutory actions.
2.
The term “practicable” is not defined in TSCA. EPA interprets this requirement as generally directing the Agency to consider such factors as achievability, feasibility, workability, and reasonableness. In addition, EPA's approach to determining whether particular prohibitions or restrictions are practicable is informed in part by certain other provisions in TSCA section 6, such as TSCA section 6(c)(2)(A) which requires the Administrator to consider health effects, exposure, and environmental effects of the chemical substance; benefits of the chemical substance; and the reasonably ascertainable economic consequences of the rule. In addition, pursuant to TSCA section 6(c)(2)(B), in selecting the appropriate TSCA section 6(a) regulatory approach, the Administrator is directed to “factor in, to the extent practicable” those same considerations.
EPA received comments on the proposed rule regarding this interpretation of “practicable.” EPA has reviewed these comments and believes the interpretation described previously within this Unit is consistent with the intent of TSCA and has not changed that interpretation. EPA's interpretation of an ambiguous statutory term receives deference. More discussion on these comments is in the Response to Comments document for this rulemaking (Ref. 5).
3.
As EPA explained in the proposed rule, EPA does not interpret the “address risk” language to require EPA to determine, through a risk assessment or risk evaluation, whether risks are presented. EPA believes this reading gives the Administrator the flexibility Congress intended for issuance of expedited rules for PBTs and is consistent with TSCA section 6(h)(2) which makes clear a risk evaluation is not required to support this rulemaking.
EPA received comments on the proposed rule regarding its interpretation of TSCA section 6(h)(4) and regarding EPA's lack of risk assessment or risk evaluation of decaBDE. A number of commenters asserted that while EPA was not compelled to conduct a risk evaluation, EPA should have conducted a risk evaluation under TSCA section 6(b) regardless. The rationales provided by the commenters for such a risk assessment or risk evaluation included that one was needed for EPA to fully quantify the benefits to support this rulemaking, and that without a risk evaluation, EPA would not be able to determine the benefits, risks, and cost effectiveness of the rule in a meaningful way. As described by the commenters, EPA would therefore not be able to meet the TSCA section 6(c)(2) requirement for a statement of these considerations. Regarding the contradiction between the mandate in TSCA section 6(h) to expeditiously issue a rulemaking and the time needed to conduct a risk evaluation, some commenters argued that EPA would have had enough time to conduct a risk evaluation and issue a proposed rule by the statutory deadline.
EPA disagrees with the commenters' interpretation of EPA's obligations with respect to chemicals subject to TSCA section 6(h)(4). TSCA section 6(h)(4) provides that EPA shall: (1) “Address the risks of injury to health or the environment that the Administrator determines are presented by the chemical substance” and (2) “reduce exposure to the substance to the extent practicable.” With respect to the first requirement, that standard is distinct from the “unreasonable risk” standard for all other chemicals for which a section 6(a) rule might be issued. EPA does not believe that TSCA section 6(h) contemplates a new evaluation of any kind, given that evaluations to determine risks are now addressed through the TSCA section 6(b) risk evaluation process and that TSCA section 6(h)(2) explicitly provides that no risk evaluation is required. Moreover, it would have been impossible to prepare a meaningful evaluation under TSCA and subsequently develop a proposed rule in the time contemplated for issuance of a proposed rule under TSCA section 6(h)(1). Although EPA does not believe the statute contemplates a new
Rather than suggesting a new assessment is required, EPA reads the “address risk” language in TSCA section 6(h)(4) to contemplate reliance on an existing EPA assessment under TSCA, similar to a risk assessment that may be permissibly used under TSCA section 26(l)(4) to regulate the chemical under TSCA section 6(a). This interpretation gives meaning to the “address risk” phrase, without compelling an evaluation contrary to TSCA section 6(h)(2), and would allow use of an existing determination, or development of a new determination based on such an existing risk assessment, in the timeframe contemplated for issuance of a proposed rule under TSCA section 6(h). However, there were no existing EPA assessments of risk for any of the PBT chemicals. Thus, because EPA had no existing EPA risk assessments or determinations of risk, the regulatory measures addressed in this final rule focus on reducing exposures “to the extent practicable.”
In sum, because neither the statute nor the legislative history suggests that a new evaluation is compelled to identify and thereby provide a basis for the Agency to “address risks” and one could not be done prior to preparation and timely issuance of a proposed rule, and no existing TSCA risk assessment exists for any of the chemicals, EPA has made no risk determination finding for any of the PBT chemicals. Instead, EPA implements the requirement of TSCA section 6(h)(4) by reducing exposures of each PBT chemical “to the extent practicable.”
For similar reasons, EPA does not believe that TSCA section 6(c)(2) requires a quantification of benefits, much less a specific kind of quantification. Under TSCA section 6(c)(2)(A)(iv), EPA must consider and publish a statement, based on reasonably available information, on the reasonably ascertainable economic consequences of the rule, but that provision does not require quantification, particularly if quantification is not possible. EPA has reasonably complied with this requirement by including a quantification of direct costs and a qualitative discussion of benefits in each of the preambles to the final rules. EPA was unable to quantify the indirect costs associated with the rule. More discussion on these issues raised in the comments is in the Response to Comments document (Ref. 5).
4.
In the preamble to the proposed rule, EPA explained that it did not read provisions of TSCA section 6 that conflict with TSCA section 6(h) to apply to TSCA section 6(h) rules. Specifically, TSCA sections 6(c)(2)(D) and (E) require a risk finding pursuant to a TSCA section 6(b) risk evaluation to regulate replacement parts and articles. Yet, TSCA section 6(h) neither compels nor contemplates a risk evaluation to precede or support the compelled regulatory action to “address the risks . . .” and “reduce exposures to the substance to the extent practicable”. TSCA section 6(h)(2) makes clear no risk evaluation is required, and the timing required for conducting a risk evaluation is not consistent with the timing compelled for issuance of a proposed rule under TSCA section 6(h). Moreover, even assuming a prior risk assessment might allow a risk determination under the TSCA section 6(h)(4) “address risk” standard, such assessment would still not satisfy the requirement in TSCA section 6(c)(2)(D) and (E) for a risk finding pursuant to a TSCA section 6(b) risk evaluation. Because of the clear conflict between these provisions, EPA determined that those provisions of TSCA section 6(c) that assume the existence of a TSCA section 6(b) risk evaluation do not apply in the context of this TSCA section 6(h) rulemaking. Instead, EPA resolves this conflict in these provisions by taking into account the TSCA section 6(c) considerations in its determinations as to what measures “reduce exposure to the substance to the extent practicable”.
Commenters contended that TSCA section 6(c)(2)(D) and (E) bar a TSCA section 6(h) rule in the absence of a risk evaluation, representing Congress's recognition of the special burdens associated with regulating replacement parts and articles, including the difficulty of certifying newly designed replacement parts for automobiles and aircraft, and the difficulty importers face in knowing what chemicals are present in the articles they import. As noted earlier in this Unit and further discussed in the Response to Comment document, while EPA determined that provisions of TSCA section 6(c)(2)(D) and (E) do not apply because they conflict with the requirements of TSCA section 6(h), EPA interpreted the “practicability” standard in TSCA section 6(h)(4) to reasonably contemplate the considerations embodied by TSCA section 6(c)(2)(D) and (E). As a result, EPA disagrees with any suggestion that the clear conflict between Congress' mandates in TSCA section 6(h) and TSCA section 6(c)(2)(D) and (E) must be read to bar regulation of replacement parts and articles made with chemicals that Congress believed were worthy of expedited action under TSCA section 6(h) and in the absence of a risk evaluation. The statute does not clearly communicate that outcome. Instead, Congress left ambiguous how best to address the conflict in these provisions, and EPA's approach for taking into consideration the TSCA section 6(c)(2)(D) and (E) concepts in its TSCA section 6(h)(4) “practicability” determinations is a reasonable approach. In addition, with respect to comments that TSCA section 6(c)(2)(D) and (E) were intended to address Congress's concerns regarding burdens associated with regulation of replacement parts and articles, EPA agrees that these concerns are relevant and takes them into account in its implementation of the TSCA section 6(h)(4) mandate, with respect to the circumstances for each chemical. Finally, EPA does not believe that Congress intended, through the article provisions incorporated into the TSCA amendments, to absolve importers of the duty to know what they are importing. Importers can and should take steps to determine whether the articles they are importing contain chemicals that are prohibited or restricted. Therefore, as discussed earlier in this Unit and in the Response to Comment document, EPA is continuing to interpret TSCA sections 6(c)(2)(D) and 6(c)(2)(E) to be inapplicable to this rulemaking. While this interpretation has not changed, EPA has reviewed the practicability of regulating replacement parts and articles in accordance with the statutory directive in TSCA section 6(h)(4) to reduce exposures to the PBT chemicals to the extent practicable. This is discussed further in Unit III.A.
DecaBDE is used as an additive flame retardant in plastic enclosures for televisions, computers, audio and video equipment, textiles and upholstered articles, wire and cables for communication and electronic equipment, and other applications (Ref. 6). DecaBDE is also used as a flame retardant for multiple applications for aerospace and automotive vehicles, including replacement parts for aircraft and cars (Refs. 7, 8). Exposure
Exposure assessments on decaBDE have been conducted by EPA (including industry-supplied information as part of the Voluntary Children's Chemical Evaluation Program), the National Academy of Sciences, and international governments. These assessments describe exposure potential for polybrominated diphenyl ethers (PBDEs), including decaBDE, through a variety of pathways. Adult and child exposures occur via dust ingestion, dermal contact with dust, and dietary exposures (such as dairy consumption). Household consumer products have been identified as the main source of PBDEs (including decaBDE) in house dust. The next highest exposure pathways included dairy ingestion, and inhalation of indoor air (via dust). Infant and child exposures occur via breastmilk ingestion and mouthing of hard plastic toys and fabrics. Occupational exposures for breastfeeding women were highest in women engaged in activities resulting in direct contact with decaBDE (Ref. 4).
DecaBDE is toxic to aquatic invertebrates, fish, and terrestrial invertebrates. Data indicate the potential for developmental, neurological, and immunological effects, general developmental toxicity and liver effects in mammals. There was some evidence of genotoxicity and carcinogenicity. The studies presented in the document entitled “Environmental and Human Health Hazards of Five Persistent, Bioaccumulative and Toxic Chemicals (Hazard Summary) (Ref. 9) demonstrate these hazardous endpoints. EPA did not perform a systematic review or a weight of the scientific evidence assessment for the hazard characterization of these chemicals. As a result, this hazard characterization is not definitive or comprehensive. Other hazard information on these chemicals may exist in addition to the studies summarized in the Hazard Summary that could alter the hazard characterization. In the 2014 Update to the TSCA Work Plan for Chemical Assessments (Ref. 1), decaBDE scored high (3) for hazard (based on developmental effects in mammals and aquatic toxicity); high (3) for exposure (based on its use in textiles, plastics, and polyurethane foam; and information reported to the 2012 and 2016 Chemical Data Reporting (CDR) and the 2017 Toxics Release Inventory (TRI))(Ref. 10,11,12); and high (3) for persistence and bioaccumulation (based on high environmental persistence and high bioaccumulation potential). The overall screening score for decaBDE was high (9).
Taking all this into account, and the discussion in Response to Comments Document and in this preamble, EPA determines in this final rule that decaBDE meets the TSCA section 6(h)(1)(A) criteria. In addition, EPA determines, in accordance with TSCA section 6(h)(1)(B), that, based on the Exposure and Use Assessment and other reasonably-available information, exposure to decaBDE is likely under the conditions of use to the general population, to a potentially exposed or susceptible subpopulation, or the environment. EPA's determination is based on the opportunities for exposure throughout the lifecycle of decaBDE, including the potential for consumer exposures. EPA did not receive any comments with information to call the exposure finding into question.
In the proposed rule (84 FR 36728), EPA proposed to prohibit the manufacture (including import), processing, and distribution in commerce of decaBDE, and articles and products to which decaBDE has been added. Proposed compliance dates or exclusions from the date of publication of the prohibition included:
• 18 months for any manufacture, processing and distribution in commerce of decaBDE for use in curtains in the hospitality industry, and the curtains to which decaBDE has been added.
• Three years for manufacture, processing and distribution in commerce of decaBDE for use in parts installed in and distributed as part of new aerospace vehicles, and the parts to which decaBDE has been added for such vehicles.
• The exclusion from prohibitions for manufacturing (including import), processing, and distribution in commerce for use in replacement parts for motor and aerospace vehicles, and the replacement parts to which decaBDE has been added for such vehicles.
• The exclusion from prohibitions for processing and distribution in commerce for recycling of plastic that contains decaBDE, (
• The exclusion from processing and distribution in commerce of finished products and articles made from plastic recycled from products and articles containing decaBDE, where no new decaBDE was added during the production of the products and articles.
In addition, EPA proposed to require that all persons who manufacture, process, or distribute in commerce decaBDE and decaBDE-containing products and articles maintain ordinary business records, such as invoices and bills-of-lading, that demonstrate compliance with the prohibitions and restrictions. EPA proposed that these records would have to be maintained for a period of three years from the date the record is generated with an exclusion for persons processing and distributing in commerce for recycling of plastic that contains decaBDE, and those products or articles containing decaBDE from recycled plastic, as long as no new decaBDE was added during the recycling process.
The proposed rule provided a 60-day public comment period, with a 30-day extension provided. (Ref. 5) The comment period closed on October 28, 2019. EPA received a total of 48 comments, with three commenters sending multiple submissions with attached files, for a total of 58 submissions on the proposal for all the PBT chemicals. This includes the previous request for a comment period extension (EPA–HQ–OPPT–2019–0080–0526). Two commenters submitted confidential business information (CBI) or copyrighted documents with information regarding economic analysis and market trends. Copies of all the non-CBI documents, or redacted versions without CBI, are available in the docket for this action. EPA also communicated with companies, and other stakeholders to identify and verify uses of decaBDE. These interactions and comments further informed EPA's understanding of the current status of uses for decaBDE. Public comments and stakeholder meeting summaries are available in the public docket at EPA–HQ–OPPT–2019–0080.
In this preamble, EPA has responded to the major comments relevant to the decaBDE final rule. Of the comment
EPA is not regulating all activities or exposures to decaBDE, even though the Exposure and Use Assessment (Ref. 4) identified potential for exposures under many conditions of use. One such activity is disposal. EPA generally presumes compliance with federal and state laws and regulations, including, for example, Resource Conservation and Recovery Act (RCRA) and its implementing regulations and state laws, as well as the Clean Air Act, the Clean Water Act, and the Safe Drinking Water Act (SDWA). As described in the proposed rule, regulations promulgated under the authority of the RCRA govern the disposal of hazardous and non-hazardous wastes. Although decaBDE is not a listed hazardous waste under RCRA, it is subject to the requirements applicable to solid waste under Subtitle D of RCRA. This means there is a general prohibition on open dumping (which includes a prohibition on open burning). Wastes containing this chemical that do not otherwise meet the criteria for hazardous waste would be disposed of in municipal solid waste landfills (MSWLFs), industrial nonhazardous, or, in a few instances construction/demolition landfills. Non-hazardous solid waste is regulated under Subtitle D of RCRA, and states play a lead role in ensuring that the federal requirements are met. The requirements for MSWLFs include location restrictions, composite liners, leachate collection and removal systems, operating practices, groundwater monitoring, closure and post-closure care, corrective action provisions, and financial assurance. Industrial waste (non-hazardous) landfills and construction/demolition waste landfills are primarily regulated under state regulatory programs, and in addition they must meet the criteria set forth in federal regulations, which may include requirements such as siting, groundwater monitoring and corrective action depending upon what types of waste are accepted. Disposal by underground injection is regulated under both RCRA and SDWA. In view of this comprehensive, stringent program for addressing disposal, EPA proposed that it is not practicable to impose additional requirements under TSCA on the disposal of the PBT chemicals, including decaBDE.
EPA received a number of comments on this aspect of its proposal. Some commenters agreed with EPA's proposed determination that it is not practicable to regulate disposal, while others disagreed. However, in EPA's view establishing an entirely new disposal program for decaBDE-containing wastes would be expensive and difficult to establish and administer. In addition, imposing a requirement to treat these wastes as if they were listed as hazardous wastes would have impacts on hazardous waste disposal capacity and be very expensive for states and local governments as well as for affected industries. Therefore, EPA has determined that it is not practicable to further regulate decaBDE-containing wastes for disposal. More information on the comments received and EPA's responses can be found in the Response to Comments document (Ref. 5). One commenter, the Institute of Scrap Recycling Industries, Inc. (ISRI) (EPA–HQ–OPPT–2019–0080–0559) noted that while EPA proposed to not regulate disposal of the PBT chemicals under TSCA, the effect of EPA's proposed prohibition on manufacturing, processing, and distribution in commerce would prohibit the processing and distribution in commerce of the PBTs and products and articles containing the PBT chemicals for disposal. EPA did not intend such an effect, and has added an exclusion in the final regulatory text for processing and distribution in commerce for disposal.
EPA also proposed not to use its TSCA section 6(a) authorities to regulate commercial use of products and articles containing the PBT chemicals, such as televisions and computers, because such regulation would not be practicable. It would be extremely burdensome, necessitating the identification of products containing decaBDE, and the disposal of countless products and articles, that would have to be replaced. If EPA prohibited the continued commercial use of these items, widespread economic impacts and disruption in the channels of trade would occur while the prohibited items were identified and replaced. While some commenters agreed with EPA's proposed determination that it is not practicable to regulate commercial use, and others disagreed, for the reasons noted in the proposal and discussed further in the Response to Comments document (Ref. 5), EPA continues to believe that prohibiting or otherwise restricting the continued commercial use of products and articles containing decaBDE would result in extreme burdens in exchange for what in most cases will be low exposure reductions. For example, as discussed in the Exposure and Use Assessment, releases from articles are expected to be minimal because decaBDE is entrained in the articles and is not expected to volatize or migrate readily under normal use (Ref. 4). Thus, EPA concludes that it is impracticable to prohibit or otherwise restrict the continued commercial use of decaBDE-containing products and articles.
EPA also proposed not to use its TSCA section 6(a) authorities to directly regulate occupational exposures. As explained in the proposed rule, as a matter of policy, EPA assumes compliance with federal and state requirements, such as worker protection standards, unless case-specific facts indicate otherwise. The Occupational Safety and Health Administration (OSHA) has not established a permissible exposure limit (PEL) for decaBDE. However, under section 5(a)(1) of the Occupational Safety and Health Act of 1970, 29 U.S.C. 654(a)(1), each employer has a legal obligation to furnish to each of its employees employment and a place of employment that are free from recognized hazards that are causing or are likely to cause death or serious physical harm. The OSHA Hazard Communication Standard at 29 CFR 1910.1200 requires chemical manufacturers and importers to classify the hazards of chemicals they produce or import, and all employers to provide information to employees about hazardous chemicals to which they may be exposed under normal conditions of use or in foreseeable emergencies. The OSHA standard at 29 CFR 1910.134(a)(1) requires the use of feasible engineering controls to prevent atmospheric contamination by harmful substances and requires the use of the use of respirators where effective engineering controls are not feasible. The OSHA standard at 29 CFR 1910.134(c) details the required respiratory protection program. The OSHA standard at 29 CFR 1910.132(a) requires the use of personal protective equipment (PPE) by workers when necessary due to a chemical hazard; 29 CFR 1910.133 requires the use of eye and face protection when employees are exposed to hazards including liquid chemicals; and 29 CFR 1910.138 requires the use of PPE to protect employees' hands including from skin absorption of harmful substances. The provisions of 29 CFR 1910.132(d) and (f) address hazard assessment, PPE selection, and training with respect to PPE required under 29 CFR 1910.133,
EPA assumes compliance with other federal requirements, including OSHA standards and regulations. EPA does not read TSCA section 6(h)(4) to direct EPA to adopt potentially redundant or conflicting requirements. Not only would it be difficult to support broadly applicable and safe additional measures for each specific activity without a risk evaluation and in the limited time for issuance of this regulation under TSCA section 6(h), but imposing such measures without sufficient analysis could inadvertently result in conflicting or confusing requirements and make it difficult for employers to understand their obligations. Such regulations would not be practicable. Rather, where EPA has identified worker exposures and available substitutes, EPA is finalizing measures to reduce those exposures. As discussed in the proposed rule, EPA assumes that the worker protection methods used by employers, including in response to existing OSHA standards, in addition to the regulatory measures taken for each chemical, meaningfully reduce the potential for occupational exposures. Although some commenters agreed with this approach, others thought that EPA should establish worker protection requirements for those uses that would be allowed to continue under the final rule. Information provided to EPA before and during the public comment period on the proposed rule indicates that employers are using engineering and process controls and providing appropriate personal protective equipment (PPE) to their employees consistent with these requirements, and EPA received no information on decaBDE to suggest this is not the case. Further, EPA has not conducted a risk evaluation on decaBDE or any of the five PBT chemicals. Without a risk evaluation and given the time allotted for this rulemaking, EPA cannot identify additional engineering or process controls or PPE requirements that would be appropriate to each chemical-specific circumstance. For these reasons, EPA has determined that it is not practicable to regulate worker exposures in this rule through engineering or process controls or PPE requirements.
EPA received comments regarding the use of PBT chemicals in research and development and lab use. Lab use is addressed under newly established 40 CFR 751.401(b) as the manufacturing, processing, distribution-in-commerce and use of any chemical substance, or products and articles that contain the chemical substance, for research and development, as defined in new 40 CFR 751.403. Research and Development is defined in new 40 CFR 751.403 to mean laboratory and research use only for purposes of scientific experimentation or analysis, or chemical research on, or analysis of, the chemical substance, including methods for disposal, but not for research or analysis for the development of a new product, or refinement of an existing product that contains the chemical substance. This will allow, for example, for samples of environmental media containing PBTs, such as contaminated soil and water, to be collected, packaged and shipped to a laboratory for analysis. Laboratories also must obtain reference standards containing PBTs to calibrate their equipment, otherwise they may not be able to accurately quantify these chemical substances in samples being analyzed. However, research to develop new products that use PBTs subject to 40 CFR part 751 subpart E, or the refinement of existing uses of those chemicals, is not included in this definition, and those activities remain potentially subject to the chemical specific provisions in 40 CFR part 751 subpart E. EPA believes it is not practicable to limit research and development activity as defined, given the critical importance of this activity to the detection, quantification and control of these chemical substances.
Finally, EPA received comments regarding requirements for resale of decaBDE-containing products and articles, as well as products and articles containing other PBT chemicals undergoing TSCA section 6(h) rulemaking. One commenter stated that because the proposed definition of “person” includes “any natural person,” the proposed prohibitions would seem to apply to anyone selling products or articles containing decaBDE at a garage or yard sale. (EPA–HQ–OPPT–2019–0080–0559) EPA did not intend to impose these final decaBDE regulations on yard sales or used product or article sales and has added language in 40 CFR 751.401 to clarify this. The prohibition and recordkeeping requirements in this final rule exclude decaBDE-containing products and articles that have previously been sold or supplied to an end user,
EPA carefully considered all public comments and information received related to the proposal. This rule finalizes with some modifications EPA's proposal to prohibit the manufacturing and processing of decaBDE, and products and articles that contain decaBDE, except for the following exclusions and delayed compliance dates from the date of publication of the prohibition:
• One year for distribution in commerce of products and articles containing decaBDE.
• 18 months for any manufacture, processing and distribution in commerce of decaBDE for use in curtains in the hospitality industry, and the curtains to which decaBDE has been added.
• Two years for any processing and distribution in commerce of decaBDE for wire and cable insulation in nuclear power generation facilities, and the decaBDE-containing wire and cable insulation.
• Three years for any manufacture, processing and distribution in commerce of decaBDE for use in parts installed in and distributed as part of new aerospace vehicles, and the parts to which decaBDE has been added for such vehicles. After the end of their service lives for import, processing, and distribution in commerce of aerospace vehicles manufactured before three years after the effective date of the rule that contain decaBDE in any part. After the end of their service lives for manufacture, processing, and distribution in commerce for use in replacement parts for aerospace vehicles, and the replacement parts to which decaBDE has been added for such vehicles.
• After the end of their service lives, or 2036, whichever is earlier, for manufacture, processing, and distribution in commerce for use in replacement parts for motor vehicles, and the replacement parts to which decaBDE has been added for such vehicles.
• After the end of their service lives for distribution in commerce of plastic shipping pallets manufactured prior to publication of the final rule, that contain decaBDE.
• The exclusion for processing and distribution in commerce for recycling of decaBDE-containing plastic products and articles (
Affected persons manufacturing, processing, and distributing in commerce decaBDE or decaBDE-containing products and articles are required to maintain, for three years from the date the record is generated, ordinary business records related to compliance with the restrictions, prohibitions, and other requirements, with an exclusion for persons processing and distributing in commerce for; recycling of plastic that contains decaBDE, those products and articles containing decaBDE from recycled plastic as long as no new decaBDE was added during the recycling process, and plastic shipping pallets manufactured prior to the effective date of the rule. These records must include a statement of compliance with this final rule and be made available to EPA within 30 calendar days upon request.
EPA received comments supporting and opposing the proposed general prohibition on manufacture, processing and distribution in commerce of decaBDE and products and articles containing decaBDE. A few commenters suggested a total ban would be practicable instead of the proposed prohibition with exclusions. EPA disagrees, and believes that this rule prohibits the manufacture, processing and distribution in commerce for use of decaBDE to the extent practicable, reducing any potential activities involving the chemical as a whole, while allowing for several industries to safely finish and replace their applications of the chemical substance. However, even these uses of decaBDE are not unlimited and therefore are expected to decline until they cease completely. EPA may review these particular practicability determinations in the future. The prohibition on manufacture, processing and distribution in commerce for all but excluded activities is expected to result in the reduced potential for exposures. The practicability of prohibiting an excluded activity is further discussed in this Unit and in the Response to Comment document.
As described in the proposed rule, with respect to curtains used in the hospitality industry, EPA understands that most of the industry has moved away from using decaBDE as a flame retardant. However, EPA is aware of one small business that is still using decaBDE while it searches for a replacement flame retardant. EPA believes that 18 months from the date of publication of the final rule, rather than an immediate compliance date from manufacturing, processing, and distribution in commerce, is the soonest practicable date for the small business to find a substitute.
As described in the proposed rule, aerospace and automotive vehicles have included parts made with decaBDE, and in many cases decaBDE has been used to meet various flame-retardant standards. Based on comments received, all production of new automotive vehicles with decaBDE-containing parts will have ceased prior to the effective date for this rule; aerospace vehicles will cease such production within a 3-year timeframe. However, the decaBDE-containing parts originally produced for such automotive or for such aerospace vehicles may require replacement parts to meet flame-retardancy standards through the end of the service lifves of the vehicles. Any transition to alternatives for those replacement parts will require verification to meet these standards.
Imposing immediate restrictions on replacement parts for those vehicles could increase costs and safety concerns, but, as noted in this Unit, without meaningful exposure reductions. As a result, in this final rule, EPA is adopting an alternative compliance deadline of 2036 for motor vehicles and the end of the service lives for aerospace vehicles from the prohibition on the manufacture (including import), processing, and distribution in commerce of decaBDE for use in aerospace or automotive replacement parts, and the replacement parts that contain decaBDE. The manufacture (including import), processing, and distribution in commerce of decaBDE for use in new automotive parts will be prohibited, as discussed further in this Unit, and the manufacture (including import), processing, and distribution in commerce of decaBDE for use in new aerospace parts will be prohibited three years after publication of the final rule. For the purpose of this rule, replacement parts are those parts designed before the rule promulgation date to replace parts already made with decaBDE. Thus, for example, this exclusion does not allow replacement parts containing decaBDE to be manufactured, processed or distributed in commerce to replace parts that were not previously designed to contain decaBDE.
EPA's alternative compliance deadline for replacement parts for these vehicles results from several considerations. Article components containing decaBDE for finished parts in automobiles and aircraft have limited releases. (Exposure and Use Assessment). In addition to limited releases, and therefore limited exposures, as further discussed in the proposed rule and in the Response to Comment document, identifying and adopting appropriate substitutes for use in replacement parts for these vehicles can be a complex and time-consuming process. Further, the scope of this alternative compliance deadline is limited. For automotive vehicles, the scope is limited only to those parts intended to replace decaBDE-containing parts for automotive vehicles already produced; no new parts may be produced for new automotive vehicles under this alternative deadline. For aerospace vehicles, the scope is similarly limited to only those parts intended to replace decaBDE-containing parts for aerospace vehicles produced before the 3-year compliance deadline for such vehicles. That means those aerospace parts and the vehicles will have already been designed and in the production process; no newly designed parts may be produced using decaBDE even during the 3-year alternative compliance period, and after the 3-year compliance period only replacement parts, as defined earlier in the Unit, will be permitted. Finally, the compliance deadlines in each case are consistent with comments provided,
In addition, as noted in the proposed rule and according to comments received from various industries, including the Aerospace Industries Association (AIA) (Ref. 5), the aerospace industry expects to have phased out its use of decaBDE in new aircraft products by the end of 2023. As a result, EPA is finalizing its proposed compliance date to allow the manufacture, processing and distribution in commerce for use of decaBDE and products and articles containing decaBDE, for use in new parts produced through 2023. In addition, the manufacture, processing and distribution in commerce of decaBDE for use in replacement parts intended for aerospace vehicles will continue to be allowed until the end of the service lives of the vehicles. However, this compliance deadline does not allow the manufacture, processing or distribution in commerce of decaBDE for parts that are newly designed for such new aerospace vehicles. This compliance deadline is based on comments received indicating the intent to phase-out use of decaBDE in parts for aerospace vehicles already designed, but which specify the need for replacement parts for the service lives of the vehicles to avoid the high cost of identifying appropriate and safe alternatives for vehicles already designed and in production, but for a limited period of time. (EPA–HQ–OPPT–2019–0080–0542) The deadline for new parts also is more restrictive than the Stockholm Convention's specific exemption for use of decaBDE in parts for those aerospace vehicles with designs approved by 2022, and thus further supports that the market for parts containing decaBDE for these vehicles will have diminished by the compliance date in this rule. For similar reasons, EPA is also not prohibiting the manufacture (including import), processing and distribution in commerce of whole aircraft manufactured within that specified compliance deadline and containing those new parts with decaBDE. With respect to motor vehicles, comments received from automotive industries, including the Motor Equipment and Manufacturers Association (MEMA) (EPA–HQ–OPPT–2019–0080–0547) indicate that the automotive industry will have phased out use of decaBDE for newly produced motor vehicles by the effective date of this final rule and therefore the final rule prohibits any manufacture, processing or distribution in commerce of decaBDE for any use in motor vehicles manufactured after the effective date of the rule.
Thus, for all the reasons noted, the prohibitions and compliance deadlines adopted in this final rule for the aerospace and automotive industries will reduce exposures to the extent practicable as required under TSCA section 6(h)(4) and will do so as “soon as practicable” pursuant to TSCA section 6(d)(1)(D), while allowing a reasonable transition time as contemplated by TSCA section 6(d)(1)(E).
EPA received submissions from 14 environmental groups that recommended EPA remove the exclusions for recycling. Commenters disagreed that it would be overly burdensome and not practicable to impose restrictions on the recycling of decaBDE containing plastic of products and articles that may contain decaBDE. The commenters cited and attached the Stockholm Convention 2015 Report of the Persistent Organic Pollutants Review Committee on the work of its eleventh meeting: Risk Management Evaluation on decabromodiphenyl ether (commercial mixture, c-decaBDE) (Ref. 13), which did not include recycling exemptions.
EPA recognizes the importance and impact of recycling, which contributes to American prosperity and the protection of our environment. EPA believes that it would be overly burdensome and not practicable to impose restrictions on the recycling of plastics that may contain decaBDE, or on the use of recycled plastic in plastic articles, because the decaBDE is typically present in such articles at low levels (Ref. 14). Because these articles typically contain low levels of decaBDE and taking into account the significant prohibitions being adopted in this rulemaking that are in alignment or more stringent than requirements under the Stockholm Convention and the general movement to use of substitutes, EPA expects the amount of recycled plastic that contains decaBDE from recycled plastic to significantly decline over time. In contrast, banning the recycling of plastics containing decaBDE would require this decaBDE-containing plastic to be identified through prohibitively expensive and complicated testing, and separated from other types of plastic before recycling, which is usually done manually. EPA believes it would be difficult to make plastic sorting for this purpose to be cost-effective, and that it would be overly burdensome and not practicable to prohibit recycling of decaBDE-containing plastic in the United States at this time. Further discussion on the burdens with prohibiting recycling are in the Response to Comments document (Ref. 5).
EPA received a comment from a company requesting to continue to process and distribute in commerce their existing inventory of plastic shipping pallets that contain decaBDE previously added as a flame retardant. (EPA–HQ–OPPT–2019–0080–0535) Although the company ceased its use of decaBDE in the manufacture of new pallets prior to 2013, those previously manufactured pallets are still in use and being rented for use. This final rule allows such continued rental and use until the end of the service lives of the pallet, at which point it may be recycled into new plastic pallets consistent with 40 CFR 751.405(b). No new decaBDE may be added during this recycling process. Based on the comment received, EPA has added a delayed compliance date for the continued distribution in commerce of such pallets.
EPA requested comment from companies still processing and using wire and cable insulation containing decaBDE despite phase-out initiatives and the availability of relatively inexpensive substitutes. One commenter responded that while alternatives were available, they would need more time to successfully test and qualify an alternative chemical to decaBDE to meet the Institute of Electrical and Electronics Engineers (IEEE) 383 standard for instrumentation and power cable insulation for nuclear power plants. (EPA–HQ–OPPT–2019–0080–0583) Considering the unique safety certifications to qualify and approve an alternative chemical for this use, EPA has added a compliance delay of two years for the prohibition on the manufacture, processing and distribution in commerce of decaBDE for use in wire and cable insulation and of decaBDE containing wire and cable insulation.
The proposed rule did not delay the compliance date beyond the rule's effective date; the processing and distribution bans would come into effect 60 days after publication of the final rule notice. EPA stated in the proposed rule that at that time it had no information indicating that a compliance date of 60 days after publication of the final rule is not practicable for the activities that would be prohibited, or that additional time is needed for products to clear the channels of trade. The phrases “as soon as practicable” and “reasonable transition period” as used in TSCA section 6(d)(1) are undefined, and the legislative history on TSCA section 6(d) is limited. Given the ambiguity in the statute, for purposes of this expedited rulemaking, EPA presumed a 60-day compliance date was “as soon as practicable,” unless there was support for a lengthier period of time on the basis of reasonable available information, such as information submitted in comments on the Exposure and Use Assessment or in stakeholder dialogues. Such a presumption ensures the compliance schedule is “as soon as practicable,” particularly in the context of the TSCA section 6(h) rules for chemicals identified as persistent, bioaccumulative and toxic, and given the expedited timeframe for issuing a TSCA section 6(h) proposed rule did not allow time for collection and assessment of new information separate from the comment opportunities during the development of and in response to the proposed rule. Such presumption also allows for submission of information from the sources most likely to have the information that will affect an EPA determination on whether or how best to adjust the compliance deadline to ensure that the final compliance deadline is both “as soon as practicable” and provides a “reasonable transition period.”
EPA received public comments regarding the 60-day compliance date for the prohibition in the proposed rule. Many commenters stated that this date would be unrealistic and requested that EPA phase in the compliance deadlines for the bans on importation or distribution of products and articles containing decaBDE over a longer period following promulgation of the final rule. In addition, commenters requested that EPA allow products and articles containing decaBDE that are manufactured and imported prior to the compliance deadlines to be distributed thereafter without restriction and that this would be needed to prevent an untold number of lawfully manufactured and imported products and articles from suddenly becoming unsaleable, which would result in significant costs for retailers and importers. Other commenters supported the compliance date.
However, in response to retail and business commenters requesting additional time given complex supply chains and the need to educate downstream users, EPA is extending the compliance date for distribution in commerce to one year after publication of the final rule. Extending the compliance date for one year will, as commenters note, allow additional time for products and articles containing decaBDE that were produced prior to the effective date for the prohibition on manufacture and processing to clear channels of trade. However, EPA is not extending the compliance date for manufacture or processing of these products and articles containing decaBDE, and therefore is not extending the compliance date for import which under TSCA section 3 is a subset of manufacture activities. Unless reasonably available information otherwise supports that it is not practicable to impose a 60-day compliance deadline for manufacture, which includes import, or for processing of decaBDE and decaBDE-containing products and articles, for purposes of meeting EPA's obligations under TSCA section 6(h), EPA presumes a compliance date of 60 days is “as soon as practicable.” EPA received only general comments taking the position, without support, that the 60-day compliance period for the prohibition on manufacture or processing is not practicable. Specified exclusions to the manufacturing compliance date are described in Unit I.C.
8. Recordkeeping.
EPA is requiring that all persons who manufacture, process, or distribute in commerce decaBDE and products and articles containing decaBDE maintain ordinary business records, such as invoices and bills-of-lading, related to compliance with the prohibitions and restrictions. EPA revised this language slightly from the proposal to improve clarity. These records will have to be maintained for a period of three years from the date the record is generated, beginning on March 8, 2021. Exempted from the recordkeeping requirement are persons processing and distributing in commerce for recycling of decaBDE containing plastic products or articles and decaBDE containing products or articles made from such recycled plastic as long as no new decaBDE is added during the recycling process, and persons distributing in commerce until the end of their service life plastic shipping pallets manufactured prior to the publication of the final rule. EPA requested comment on alternative recordkeeping requirements that could help ensure compliance with the decaBDE prohibitions, particularly for importers and others who do not produce articles. After reviewing the comments received, EPA has decided to include two additional requirements to help ensure compliance (EPA–HQ–OPPT–2019–0080–0539; –0542; –0546; –0549). First, the records that are kept must include a statement that the decaBDE, or the decaBDE-containing products and articles, are in compliance with 40 CFR 751.405(a). The statement need not be included on every business record, such as every invoice or bill of lading, although regulated entities may certainly choose to reformat their documents to include the statement. Importers of replacement automobile parts that contain decaBDE who, for example, import from the same suppliers over and over, need only have a single statement for each part or each supplier. Finally, EPA is adding a requirement that the records kept pursuant to this final rule be made available to EPA within 30 calendar days upon request to ensure that EPA can review records in a timely manner.
DecaBDE is toxic to aquatic invertebrates, fish, and terrestrial invertebrates. Data indicate the potential for developmental, neurological, and immunological effects, general developmental toxicity and liver effects in mammals. Additionally, toxicological studies indicated evidence of genotoxicity and evidence of carcinogenicity. These hazard statements are not based on a systematic review of the available literature and information may exist that could refine the hazard characterization. Additional information about decaBDE's health effects, use, and exposure is in Unit II.C. and is further detailed in EPA's Hazard Summary (Ref. 9) and Exposure and Use Assessment (Ref. 4).
DecaBDE is a brominated flame retardant that has been added to plastics, textiles, and other materials. When fire occurs, decaBDE and other PBDEs, are part of vapor-phase chemical reactions that interfere with the combustion process, thus delaying ignition and inhibiting the spread of fire. DecaBDE has been considered an
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Total quantified annualized social costs for the final rule are estimated to be $157,000 at both 3% and 7% discount rate. As described earlier in Unit III.B.3., potential costs such as testing, reformulation, release prevention, and imported articles, could not be quantified due to lack of data availability to estimate quantified costs. These costs are discussed qualitatively in the Economic Analysis (Ref. 3).
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EPA considered the anticipated effect of this rule on the national economy and concluded that this rule is highly unlikely to have any measurable effect on the national economy (Ref. 3). EPA analyzed the expected impacts on small business and found that no small entities are expected to experience impacts of more than 1% of revenues (Ref. 3). Finally, EPA has determined that this rule is unlikely to have significant impacts on technological innovation, although the rule may create some incentives for chemical manufacturers to develop new chemical alternatives to decaBDE.
EPA believes that there are viable substitutes that may be used as an alternative to decaBDE. In January 2014, EPA's Design for the Environment (DfE) published an alternatives assessment for decaBDE (Ref. 15). EPA identified 29 potential functional, viable alternatives to decaBDE for use in select polyolefins, styrenics, engineering thermoplastics, thermosets, elastomers, or waterborne emulsions and coatings (Ref. 15).
In accordance with TSCA section 26(h) and taking into account the requirements of TSCA section 6(h), EPA has used scientific information, technical procedures, measures, and methodologies that are fit for purpose and consistent with the best available science. EPA based its determination that human and environmental exposures to decaBDE are likely in the Exposure and Use Assessment (Ref. 4) discussed in Unit II.A.2., which underwent a peer review and public comment process, as well as using best available science and methods sufficient to make that determination. The extent to which the various information, procedures, measures, and methodologies, as applicable, used in EPA's decision making have been subject to independent verification or peer review is adequate to justify their use, collectively, in the record for this rule. Additional information on the peer review and public comment process, such as the peer review plan, the peer review report, and the Agency's Response to Comments document, are in the public docket for this action (EPA–HQ–OPPT–2018–0314). In
The following is a list of the documents that are specifically referenced in this document. The docket includes these documents and other information considered by EPA, including documents that are referenced within the documents that are included in the docket, even if the referenced document is not physically located in the docket. For assistance in locating these other documents, please consult the technical person listed under
Additional information about these statutes and Executive orders can be found at
This action is a significant regulatory action that was submitted to the Office of Management and Budget (OMB) for review under Executive Order 12866 (58 FR 51,735 (Oct. 4, 1993)) and Executive Order 13563 (76 FR 3821 (Jan. 21, 2011)). Any changes made in response to OMB recommendations have been documented in the docket for this action as required by section 6(a)(3)(E) of Executive Order 12866.
EPA prepared an economic analysis of the potential costs and benefits associated with this action. A copy of this economic analysis,
This action is considered a regulatory action under Executive Order 13771 (82 FR 9339 (Feb. 3, 2017)). Details on the estimated costs of this final rule can be found in the Economic Analysis (Ref. 3), which is briefly summarized in Unit III.B.3.
The information collection activities in this rule have been submitted for approval to OMB under the PRA. The Information Collection Request (ICR) document that the EPA prepared has been assigned EPA ICR number 2599.02 and OMB Control No. 2070–0213. A copy of the ICR is available in the docket for this rule, and it is briefly summarized here. The information collection requirements are not enforceable until OMB approves them.
Affected persons manufacturing, processing, and distributing in commerce decaBDE or decaBDE-containing products and articles are expected to familiarize themselves with the rule and are required to maintain, for three years from the date the record is generated, ordinary business records related to compliance with the restrictions, prohibitions, and other requirements, with an exclusion for persons processing and distributing in commerce for; recycling of plastic that contains decaBDE, those products and articles containing decaBDE from recycled plastic as long as no new decaBDE was added during the recycling process, and plastic shipping pallets manufactured prior to the effective date of the rule.
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for EPA's regulations in 40
I certify that this action will not have a significant economic impact on a substantial number of small entities under the RFA, 5 U.S.C. 601
This action does not contain an unfunded mandate of $100 million or more as described in UMRA, 2 U.S.C. 1531–1538, and would not significantly or uniquely affect small governments. The final rule is not expected to result in expenditures by State, local, and Tribal governments, in the aggregate, or by the private sector, of $100 million or more (when adjusted annually for inflation) in any one year. Accordingly, this final rule is not subject to the requirements of sections 202, 203, or 205 of UMRA. The total quantified annualized social costs for this the final rule are approximately $157,000 (at both 3% and 7% discount rates), which does not exceed the inflation-adjusted unfunded mandate threshold of $160 million.
This action does not have federalism implications because it is not expected to 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 as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). Thus, Executive Order 13132 does not apply to this action.
This action does not have tribal implications because it is not expected to have substantial direct effects on tribal governments, on the relationship between the Federal Government and the Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes as specified in Executive Order 13175 (65 FR 67249, November 9, 2000). Thus, Executive Order 13175 does not apply to this final rule.
Consistent with the EPA Policy on Consultation and Coordination with Indian Tribes, the EPA consulted with tribal officials during the development of this action. EPA consulted with representatives of Tribes via teleconference on August 31, 2018, and September 6, 2018, concerning the prospective regulation of the five PBT chemicals under TSCA section 6(h).
Tribal members were encouraged to provide additional comments after the teleconferences. EPA received two comments from the Keweenaw Bay Indian Community and Maine Tribes (Ref. 16, 17).
This action is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997) because it is not an economically significant regulatory action as defined by Executive Order 12866. Although the action is not subject to Executive Order 13045, the Agency considered the risks to infants and children under EPA's Policy on Evaluating Health Risks to Children. EPA did not perform a risk assessment or risk evaluation of decaBDE, however available data indicate exposure to decaBDE may disproportionately affect children, and information indicates decaBDE is a neurodevelopment toxicant and has been detected in breastmilk. More information can be found in the Exposure and Use Assessment (Ref. 4) and the “Environmental and Human Health Hazards of Five Persistent, Bioaccumulative and Toxic Chemicals” (Ref. 9). This regulation will reduce the exposure to decaBDE for the general population and for potentially exposed or susceptible subpopulations such as workers and children.
This action is not a “significant energy action” as defined in Executive Order 13211 (66 FR 28355, May 22, 2001) because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy and has not been designated by the Administrator of the Office of Information and Regulatory Affairs of the Office of Management and Budget as a significant energy action.
Because this action does not involve any technical standards, NTTAA section 12(d), 15 U.S.C. 272 note, does not apply to this action.
The EPA believes that this action does not have disproportionately high and adverse health or environmental effects on minority populations, low-income populations and/or indigenous peoples, as specified in Executive Order 12898 (59 FR 7629, February 16, 1994). The documentation for this decision is contained in the Economic Analysis (Ref. 3), which is in the public docket for this action. EPA believes that the restrictions in on decaBDE in this final rule will reduce the potential for exposure in the United States over time, thus benefitting all communities including environmental justice communities.
This action is subject to the CRA, 5 U.S.C. 801
Environmental protection, Chemicals, Export Notification, Hazardous substances, Import certification, Reporting and recordkeeping.
Therefore, for the reasons stated in the preamble, 40 CFR part 751 is amended as follows:
15 U.S.C. 2605, 15 U.S.C. 2625(l)(4).
(a)
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(ii) After January 6, 2023, all persons are prohibited from all processing and distribution in commerce of decaBDE for use in wire and cable insulation in nuclear power generation facilities, and decaBDE-containing wire and cable insulation.
(iii) After January 8, 2024, all persons are prohibited from all manufacturing, processing, and distribution in commerce of decaBDE for use in parts installed in and distributed as part of new aerospace vehicles, and the parts to which decaBDE has been added for such vehicles. After the end of the aerospace vehicles service lives, all persons are prohibited from all importing, processing, and distribution in commerce of aerospace vehicles manufactured before January 8, 2024 that contain decaBDE in any part. After the end of the aerospace vehicles service lives, all persons are prohibited from all manufacture, processing and distribution in commerce of decaBDE for use in replacement parts for aerospace vehicles, and the replacement parts to which decaBDE has been added for such vehicles.
(iv) After the end of the vehicles service lives or 2036, whichever is earlier, all persons are prohibited from all manufacture, processing and distribution in commerce of decaBDE for use in replacement parts for motor vehicles, and the replacement parts to which decaBDE has been added for such vehicles.
(v) After the end of the pallets' service life, all persons are prohibited from all distribution in commerce of plastic shipping pallets that contain decaBDE and were manufactured prior March 8, 2021.
(b)
(c)
(i) These records must be maintained for a period of three years from the date the record is generated.
(ii) These records must include a statement that the decaBDE or the decaBDE-containing products or articles are in compliance with 40 CFR 751.405(a).
(iii) These records must be made available to EPA within 30 calendar days upon request.
(2) The recordkeeping requirements in paragraph (c)(1) do not apply to the activities described in paragraphs (a)(2)(v) and (b) of this section.
Environmental Protection Agency (EPA).
Final rule.
The Environmental Protection Agency (EPA) is finalizing a rule under the Toxic Substances Control Act (TSCA) to address its obligations under TSCA for phenol, isopropylated phosphate (3:1) (PIP (3:1)) (CASRN 68937–41–7), which EPA has determined meets the requirements for expedited action under TSCA. This final rule prohibits the processing and distribution of PIP (3:1) and PIP (3:1)-containing products, with specified exclusions, and prohibits the release of PIP (3:1) to water during manufacturing, processing, and distribution. This final rule also requires commercial users to follow existing regulations and best practices to prevent the release to water of PIP (3:1) and products containing PIP (3:1) during use. These requirements will result in lower amounts of PIP (3:1) being manufactured, processed, distributed in commerce, used and disposed, thereby reducing exposures to humans and the environment.
This final rule is effective February 5, 2021. For purposes of judicial review and 40 CFR 23.5, this rule shall be promulgated at 1 p.m. eastern standard time on January 21, 2021.
The docket for this action, identified by docket identification (ID) number EPA–HQ–OPPT–2019–0080, is available at
Please note that due to the public health emergency, the EPA Docket Center (EPA/DC) and Reading Room was closed to public visitors on March 31, 2020. Our EPA/DC staff will continue to provide customer service via email, phone, and webform. For further information on EPA/DC services, docket contact information and the current status of the EPA/DC and Reading Room, please visit
You may be potentially affected by this action if you manufacture (including import), process, distribute in commerce, or use phenol, isopropylated phosphate (3:1) (PIP (3:1)) or products containing PIP (3:1), especially flame retardants in plastics or functional fluids in aircraft and industrial machinery. The following list of North American Industrial Classification System (NAICS) codes is not intended to be exhaustive, but rather provides a guide to help readers determine whether this document applies to them. Potentially affected entities may include:
• Petroleum Refineries (NAICS Code 324110);
• Petroleum Lubricating Oil and Grease Manufacturing (324191);
• Paint and Coating Manufacturing (NAICS Code 32510)
• All Other Basic Organic Chemical Manufacturing (NAICS Code 325199);
• Plastics Material and Resin Manufacturing (NAICS Code 325211):
• Adhesive Manufacturing (NAICS Code 325520);
• Polish and Other Sanitation Good Manufacturing (NAICS Code 325612);
• All Other Miscellaneous Chemical Product and Preparation Manufacturing (NAICS Code 325998);
• Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing (NAICS Code 333415);
• Other Communications Equipment Manufacturing (NAICS Code 334290);
• Automobile Manufacturing (NAICS Code 336111);
• Other Motor Vehicle Parts Manufacturing (NAICS Code 336390);
• Automobile and Other Motor Vehicle Merchant Wholesalers (NAICS Code 423110);
• Other Chemical and Allied Products Merchant Wholesalers (NAICS Code 424690);
• New Car Dealers (NAICS Code 441110);
• Research and Development in the Physical, Engineering, and Life Sciences (NAICS Code 541710);
If you have any questions regarding the applicability of this action to a particular entity, consult the technical information contact listed under
Section 6(h) of TSCA, 15 U.S.C. 2601
EPA published a proposed rule on July 29, 2019, to address the five PBT chemicals EPA identified pursuant to TSCA section 6(h) (84 FR 36728; FRL–9995–76). After publication of the proposed rule, EPA determined to address each of the five PBT chemicals in separate final actions. This final rule prohibits the processing and distribution in commerce of PIP (3:1) and products containing PIP (3:1) except for the following:
• Processing and distribution in commerce for use in hydraulic fluids either for the aviation industry or to meet military specifications for safety and performance where no alternative chemical is available that meets U.S. Department of Defense specification requirements;
• Processing and distribution in commerce for use in lubricants and greases;
• Processing and distribution in commerce for use in new and replacement parts for the automotive and aerospace industry, and the distribution in commerce of those parts to which PIP (3:1) has been added;
• Processing and distribution in commerce for use as an intermediate in a closed system to produce cyanoacrylate adhesives;
• Processing and distribution in commerce for use as an adhesive and sealant until January 6, 2025, after which such activity is prohibited;
• Processing and distribution in commerce for use in specialized engine filters for locomotive and marine applications;
• Processing for recycling and distribution in commerce for the recycling of PIP (3:1) containing plastic provided no new PIP (3:1) is added during the recycling process;
• Processing and distribution in commerce of articles and products made from recycled PIP (3:1)-containing plastic provided no new PIP (3:1) is added during the recycling process or to the articles and products made from the recycled plastic; and
• Processing and distribution in commerce of PIP (3:1) for use in photographic printing articles and PIP (3:1)-containing photographic printing articles until January 1, 2022.
This final rule also prohibits releases to water for from manufacture, processing, distribution in commerce, and commercial uses that are permitted to occur, as outlined in the preceding bullets.
Persons manufacturing, processing, and distributing in commerce PIP (3:1) and products containing PIP (3:1) are required to notify their customers of these prohibitions on processing and distribution, and the prohibition on releases to water via Safety Data Sheet (SDS) or labeling.
Persons manufacturing, processing, and distributing in commerce PIP (3:1) are required to maintain, for three years from the date the record was generated, ordinary business records related to compliance with the restrictions, prohibitions, and other requirements set forth in this rule. These records must include a statement that the PIP (3:1), or the PIP (3:1)-containing products or articles, are in compliance with 40 CFR 751.407(a) and be made available to EPA within 30 calendar days upon request.
EPA is issuing this final rule to fulfill EPA's obligations under TSCA section 6(h) to take timely regulatory action on PBT chemicals, including PIP (3:1), “to address the risks of injury to health or the environment that the Administrator determines are presented by the chemical substance and to reduce exposure to the substance to the extent practicable.” As required by the statute, the Agency is finalizing this rule to reduce exposure to PIP (3:1) to the extent practicable.
EPA has evaluated the potential costs of these restrictions and prohibitions and the associated reporting and recordkeeping requirements. The
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Executive Order 13045 applies if the regulatory action is economically significant and concerns an environmental health risk or safety risk that may disproportionately affect children. While the action is not subject to Executive Order 13045, the Agency's Policy on Evaluating Health Risks to Children (
TSCA section 6(h) requires EPA to take expedited regulatory action under TSCA section 6(a) for certain PBT chemicals identified in the 2014 Update to the TSCA Work Plan for Chemical Assessments (Ref. 1). As required by the statute, EPA issued a proposed rule to address five persistent, bioaccumulative, and toxic (PBT) chemicals identified pursuant to TSCA section 6(h) (84 FR 36728 (July 29, 2019)). The statute required that this be followed by promulgation of a final rule no later than 18 months after the proposal. While EPA proposed regulatory actions on each chemical substance in one proposal, in response to public comments (EPA–HQ–OPPT–2019–0080–0544), (EPA–HQ–OPPT–2019–0080–0553), (EPA–HQ–OPPT–2019–0080–0556), (EPA–HQ–OPPT–2019–0080–0562) requesting these five actions be separated, EPA is finalizing five separate actions to individually address each of the PBT chemicals. EPA intends for the five separate final rules to publish in the same issue of the
Under TSCA section 6(h)(1)(A), chemical substances subject to expedited action are those that:
• EPA has a reasonable basis to conclude are toxic and that with respect to persistence and bioaccumulation score high for one and either high or moderate for the other, pursuant to the 2012 TSCA Work Plan Chemicals: Methods Document or a successor scoring system;
• Are not a metal or a metal compound; and
• Are chemical substances for which EPA has not completed a TSCA Work Plan Problem Formulation, initiated a review under TSCA section 5, or entered into a consent agreement under TSCA section 4, prior to June 22, 2016, the date that TSCA was amended by the Frank R. Lautenberg Chemical Safety for the 21st Century Act (Pub. L. 114–182, 130 Stat. 448).
In addition, in order for a chemical substance to be subject to expedited action, TSCA section 6(h)(1)(B) states that EPA must find that exposure to the chemical substance under the conditions of use is likely to the general population or to a potentially exposed or susceptible subpopulation identified by the Administrator (such as infants, children, pregnant women, workers, including occupational nonusers, consumers, or the elderly), or to the environment on the basis of an exposure and use assessment conducted by the Administrator. TSCA section 6(h)(2) further provides that the Administrator shall not be required to conduct risk evaluations on chemical substances that are subject to TSCA section 6(h)(1).
Based on the criteria set forth in TSCA section 6(h), EPA proposed to determine that five chemical substances meet the TSCA section 6(h)(1)(A) criteria for expedited action, and PIP (3:1) is one of these five chemical substances. In addition, and in accordance with the statutory requirements to demonstrate that exposure to the chemical substance is likely under the conditions of use, EPA conducted an Exposure and Use Assessment for PIP (3:1). As described in the proposed rule, EPA conducted a review of available literature with respect to PIP (3:1) to identify, screen, extract, and evaluate reasonably available information on use and exposures. This information is in the document entitled “Exposure and Use Assessment of Five Persistent, Bioaccumulative and Toxic Chemicals” (Ref. 4). Based on this review, which was subject to peer review and public comment, EPA proposed to find that exposure to PIP (3:1) is likely, based on information detailed in the Exposure and Use Assessment.
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TSCA section 6(h)(4) requires EPA to issue a final TSCA section 6(a) rule to “address the risks of injury to health or the environment that the Administrator determines are presented by the chemical substance and reduce exposure to the substance to the extent practicable.” EPA reads this text to require action on the chemical, not specific conditions of use. The approach EPA takes is consistent with the language of TSCA section 6(h)(4) and its distinct differences from other provisions of TSCA section 6 for chemicals that are the subject of required risk evaluations. First, the term “condition of use” is only used in TSCA section 6(h) in the context of the TSCA section 6(h)(1)(B) finding relating to likely exposures under “conditions of use” to “the general population or to a potentially exposed or susceptible subpopulation . . . or the environment.” In contrast to the risk evaluation process under TSCA section
Similarly, the TSCA amendments require EPA to “reduce
Taking all of this into account, EPA reads its TSCA section 6(h)(4) obligation to apply to the chemical substance generally, thus requiring EPA to address risks and reduce exposures to the chemical substance without focusing on whether the measure taken is specific to an activity that might be characterized as a “condition of use” as that term is defined in TSCA section 3(4) and interpreted by EPA in the Risk Evaluation Rule, 82 FR 33726 (July 20, 2017). This approach ensures that any activity involving a TSCA section 6(h) PBT chemical, past, present or future, is addressed by the regulatory approach taken. Thus, under this final rule, processing and distribution in commerce activities that are for uses not specifically excluded are prohibited. The specified activities with particular exclusions are those which EPA determined were not appropriate to regulate under the TSCA section 6(h)(4) standard. Consistently, based on the Exposure and Use Assessment, activities associated with PIP (3:1) that are no longer occurring are addressed by this rule and thus the prohibitions adopted in this rule reduce the exposures that will result with resumption of past activities or the initiation of similar or other activities in the future. Therefore, EPA has determined that prohibiting these activities will reduce exposures to the extent practicable. The approach taken for this final rule is limited to implementation of TSCA section 6(h) and is not relevant to any other action under TSCA section 6 or other TSCA statutory actions.
The term “practicable” is not defined in TSCA. EPA interprets this requirement as generally directing the Agency to consider such factors as achievability, feasibility, workability, and reasonableness. In addition, EPA's approach to determining whether particular prohibitions or restrictions are practicable is informed in part by certain other provisions in TSCA section 6, such as TSCA section 6(c)(2)(A), which requires the Administrator to consider health effects, exposure, and environmental effects of the chemical substance; benefits of the chemical substance; and the reasonably ascertainable economic consequences of the rule. In addition, pursuant to TSCA section 6(c)(2)(B), in selecting the appropriate TSCA section 6(a) regulatory approach, the Administrator is directed to “factor in, to the extent practicable” those same considerations.
EPA received comments on the proposed rule regarding this interpretation of “practicable.” EPA has reviewed these comments and believes the interpretation described previously within this Unit is consistent with the intent of TSCA and has not changed that interpretation. EPA's interpretation of an ambiguous statutory term receives deference. More discussion on these comments is in the Response to Comments document for this rulemaking (Ref. 5).
As EPA explained in the proposed rule, EPA does not interpret the “address risk” language to require EPA to determine, through a risk assessment or risk evaluation, whether risks are presented. EPA believes this reading gives the Administrator the flexibility Congress intended for issuance of expedited rules for PBTs and is consistent with TSCA section 6(h)(2), which makes clear a risk evaluation is not required to support this rulemaking.
EPA received comments on the proposed rule regarding its interpretation of TSCA section 6(h)(4) and regarding EPA's lack of risk assessment or risk evaluation of PIP (3:1). A number of commenters asserted that while EPA was not compelled to conduct a risk evaluation, EPA should have conducted a risk evaluation under TSCA section 6(b) regardless. The rationales provided by the commenters for such a risk assessment or risk evaluation included that one was needed for EPA to fully quantify the benefits to support this rulemaking, and that without a risk evaluation, EPA would not be able to determine the benefits, risks, and cost effectiveness of the rule in a meaningful way. As described by the commenters, EPA would therefore not be able to meet the TSCA section 6(c)(2) requirement for a statement of these considerations. Regarding the contradiction between the mandate in TSCA section 6(h) to expeditiously issue a rulemaking and the time needed to conduct a risk evaluation, some commenters argued that EPA would have had enough time to conduct a risk evaluation and issue a proposed rule by the statutory deadline.
EPA disagrees with the commenters' interpretation of EPA's obligations with respect to chemicals subject to TSCA section 6(h)(4). TSCA section 6(h)(4) provides that EPA shall: (1) “Address the risks of injury to health or the environment that the Administrator determines are presented by the
Rather than suggesting a new assessment is required, EPA reads the “address risk” language in TSCA section 6(h)(4) to contemplate reliance on an existing EPA assessment under TSCA, similar to a risk assessment that may be permissibly used under TSCA section 26(l)(4) to regulate the chemical under TSCA section 6(a). This interpretation gives meaning to the “address risk” phrase, without compelling an evaluation contrary to TSCA section 6(h)(2) and would allow use of an existing determination, or development of a new determination based on such an existing risk assessment, in the timeframe contemplated for issuance of a proposed rule under TSCA section 6(h). However, there were no existing EPA assessments of risk for any of the PBT chemicals. Thus, because EPA had no existing EPA risk assessments or determinations of risk, the regulatory measures addressed in this final rule focus on reducing exposures “to the extent practicable.”
In sum, because neither the statute nor the legislative history suggests that a new evaluation is compelled to identify and thereby provide a basis for the Agency to “address risks” and one could not be done prior to preparation and timely issuance of a proposed rule, and no existing TSCA risk assessment exists for any of the chemicals, EPA has made no risk determination finding for any of the PBT chemicals. Instead, EPA implements the requirement of TSCA section 6(h)(4) by reducing exposures of each PBT chemical “to the extent practicable.”
For similar reasons, EPA does not believe that TSCA section 6(c)(2) requires a quantification of benefits, much less a specific kind of quantification. Under TSCA section 6(c)(2)(A)(iv), EPA must consider and publish a statement, based on reasonably available information, on the reasonably ascertainable economic consequences of the rule, but that provision does not require quantification, particularly if quantification is not possible. EPA has reasonably complied with this requirement by including a quantification of direct costs and a qualitative discussion of benefits in each of the preambles to the final rules. EPA was unable to quantify the indirect costs associated with the rule. More discussion on these issues raised in the comments is in the Response to Comments document (Ref. 5).
In the preamble to the proposed rule, EPA explained that it did not read provisions of TSCA section 6 that conflict with TSCA section 6(h) to apply to TSCA section 6(h) rules. Specifically, TSCA sections 6(c)(2)(D) and (E) require a risk finding pursuant to a TSCA section 6(b) risk evaluation to regulate replacement parts and articles. Yet, TSCA section 6(h) neither compels nor contemplates a risk evaluation to precede or support the compelled regulatory action to “address the risks. . .” and “reduce exposures to the substance to the extent practicable”. TSCA section 6(h)(2) makes clear no risk evaluation is required, and the timing required for conducting a risk evaluation is not consistent with the timing compelled for issuance of a proposed rule under TSCA section 6(h). Moreover, even assuming a prior risk assessment might allow a risk determination under the TSCA section 6(h)(4) “address risk” standard, such assessment would still not satisfy the requirement in TSCA section 6(c)(2)(D) and (E) for a risk finding pursuant to a TSCA section 6(b) risk evaluation. Because of the clear conflict between these provisions, EPA determined that those provisions of TSCA section 6(c) that assume the existence of a TSCA section 6(b) risk evaluation do not apply in the context of this TSCA section 6(h) rulemaking. Instead, EPA resolves this conflict in these provisions by taking into account the TSCA section 6(c) considerations in its determinations as to what measures “reduce exposure to the substance to the extent practicable”.
Commenters contended that TSCA section 6(c)(2)(D) and (E) bar a TSCA section 6(h) rule in the absence of a risk evaluation, representing Congress's recognition of the special burdens associated with regulating replacement parts and articles, including the difficulty of certifying newly designed replacement parts for automobiles and aircraft, and the difficulty importers face in knowing what chemicals are present in the articles they import. As noted in this Unit and further discussed in the Response to Comment document, while EPA determined that provisions of TSCA section 6(c)(2)(D) and (E) do not apply because they conflict with the requirements of TSCA section 6(h), EPA interpreted the “practicability” standard in TSCA section 6(h)(4) to reasonably contemplate the considerations embodied by TSCA section 6(c)(2)(D) and (E). As a result, EPA disagrees with any suggestion that the clear conflict between Congress' mandates in TSCA section 6(h) and TSCA section 6(c)(2)(D) and (E) must be read to bar regulation of replacement parts and articles made with chemicals that Congress believed were worthy of expedited action under TSCA section 6(h) and in the absence of a risk evaluation. The statute does not clearly communicate that outcome. Instead, Congress left ambiguous how best to address the conflict in these provisions, and EPA's approach for taking into consideration the TSCA section 6(c)(2)(D) and (E) concepts in its TSCA section 6(h)(4) “practicability” determinations is a reasonable approach. In addition, with respect to comments that TSCA section 6(C)(2)(D) and (E) were intended to address Congress's concerns regarding burdens associated with regulation of replacement parts and articles, EPA agrees that these concerns are relevant and takes them into account in its implementation of the TSCA section 6(h)(4) mandate, with respect to the circumstances for each chemical. Finally, EPA does not believe that Congress intended, through the article provisions incorporated into the TSCA amendments, to absolve importers of the duty to know what they are importing. Importers can and should take steps to determine whether the articles they are importing contain chemicals that are prohibited or restricted. Therefore, taking the discussion in this
PIP (3:1) is used as a plasticizer, a flame retardant, an anti-wear additive, or an anti-compressibility additive in hydraulic fluid, lubricating oils, lubricants and greases, various industrial coatings, adhesives, sealants, and plastic articles. As a chemical that can perform several functions simultaneously, sometimes under extreme conditions, it has several distinctive applications. In lubricating oils, PIP (3:1) is a flame retardant, anti-wear additive, anti-compressibility additive, or some combination of the three. In adhesives and sealants, PIP (3:1) is a plasticizer and flame retardant (Ref. 4). PIP (3:1) can also be added to paints, coatings, and plastic components, where it is a plasticizer or flame-retardant additive. In the past, some plastic components to which PIP (3:1) may have been added included those intended for use by children. EPA received comments that PIP (3:1) acts as a flame-retardant gel in filters surrounding engines in some marine and locomotive applications (EPA–HQ–OPPT–2019–0080–0569).
Exposure information for PIP (3:1) is summarized here and is detailed in EPA's Exposure and Use Assessment (Ref. 4), and the proposal. There is potential for exposure to PIP (3:1) under the conditions of use at all stages of its lifecycle (
PIP (3:1) is toxic to aquatic plants, aquatic invertebrates, sediment invertebrates, and fish. Data indicate the potential for reproductive and developmental effects, neurological effects and effects on systemic organs, specifically adrenals, liver, ovary, and heart in mammals. The studies presented in the document entitled “Environmental and Human Health Hazards of Five Persistent, Bioaccumulative and Toxic Chemicals (Hazard Summary) (Ref. 8) demonstrate these hazardous endpoints. EPA did not perform a systematic review or a weight of the scientific evidence assessment for the hazard characterization of these chemicals. As a result, this hazard characterization is not definitive or comprehensive. Other hazard information on these chemicals may exist in addition to the studies summarized in the Hazard Summary that could alter the hazard characterization (Ref. 8).
In the 2014 Update to the TSCA Work Plan for Chemical Assessments, PIP (3:1) scored high (3) for hazard (based on neurotoxicity in mammals and aquatic toxicity); high (3) for exposure (based on use as a flame retardant in industrial and consumer products); and high (3) for persistence and bioaccumulation (based on high environmental persistence and high bioaccumulation potential) (Ref. 1). The overall screening score for PIP (3:1) was high (9).
Taking all this into account, and the discussion in Response to Comments document and in this Unit and in Unit III., EPA determines in this final rule that PIP (3:1) meets the TSCA section 6(h)(1)(A) criteria. Comments received pertaining to this finding are discussed further in Unit III.A.1. In addition, EPA determines, in accordance with TSCA section 6(h)(1)(B), that based on the Exposure and Use Assessment and other reasonably available information, exposure to PIP (3:1) is likely under the conditions of use to the general population, to a potentially exposed or susceptible subpopulation, or the environment. EPA's determination is based on the opportunities for exposure throughout the lifecycle of PIP (3:1). EPA did not receive any comments with information to call the exposure finding into question.
In the proposed rule (84 FR 36728), EPA proposed to prohibit the processing and distribution in commerce of PIP (3:1), and products containing the chemical substance except for the following:
• Processing and distribution in commerce for use in aviation hydraulic fluid;
• Processing and distribution in commerce for use in lubricants and greases; and
• Processing and distribution in commerce for use in new and replacement parts for the automotive industry, and the distribution in commerce of those parts to which PIP (3:1) has been added.
EPA proposed to prohibit releases to water from manufacture, processing, distribution in commerce, and commercial use activities that are permitted to occur. EPA also proposed to require persons manufacturing, processing, and distributing PIP (3:1), and products containing PIP (3:1), in commerce to notify their customers of these prohibitions on processing and distribution, and the prohibition on releases to water.
In addition, EPA proposed to require that all persons who manufacture, process, or distribute in commerce PIP (3:1) and articles and products containing PIP (3:1) maintain ordinary business records, such as invoices and bills-of-lading, that demonstrate compliance with the prohibitions and restrictions. EPA proposed that these records would have to be maintained for a period of three years from the date the record is generated.
The proposed rule provided a 60-day public comment period, with a 30-day extension provided (Ref. 5). The comment period closed on October 28, 2019. EPA received a total of 48 comments, with three commenters sending multiple submissions with attached files, for a total of 58 submissions on the proposal for all the PBT chemicals. This includes the previous request for a comment period extension (EPA–HQ–OPPT–2019–0080–0526). Two commenters submitted confidential business information (CBI) or copyrighted documents with information regarding economic analysis and market trends. Copies of all the non-CBI documents, or redacted versions without CBI, are available in the docket for this action.
In this preamble, EPA has responded to the major comments relevant to the PIP (3:1) final rule. Of these comment submissions, thirty addressed EPA's proposed regulation of PIP (3:1). Additional discussion related to this final action can be found in the Response to Comments document (Ref. 5).
EPA is not regulating all activities or exposures to PIP (3:1), even though the Exposure and Use Assessment (Ref. 4) identified potential for exposures under many conditions of use. One such activity is disposal. EPA generally presumes compliance with federal and state laws and regulations, including, for example, Resource Conservation and Recovery Act (RCRA) and its implementing regulations and state laws, as well as the Clean Air Act, the Clean Water Act (CWA), and the Safe Drinking Water Act (SDWA). As described in the proposed rule, regulations promulgated under the authority of the RCRA govern the disposal of hazardous and non-hazardous wastes. Although PIP (3:1) is not a listed or characteristic hazardous waste under RCRA, it is subject to the requirements applicable to solid waste under Subtitle D of RCRA. This means there is a general prohibition on open dumping (which includes a prohibition on open burning). Wastes containing this chemical that do not otherwise meet the criteria for hazardous waste would be disposed of in municipal solid waste landfills (MSWLFs), industrial nonhazardous, or, in a few instances, construction/demolition landfills. Non-hazardous solid waste is regulated under Subtitle D of RCRA, and states play a lead role in ensuring that the federal requirements are met. The requirements for MSWLFs include location restrictions, composite liners, leachate collection and removal systems, operating practices, groundwater monitoring, closure and post-closure care, corrective action provisions, and financial assurance. Industrial waste (non-hazardous) landfills and construction/demolition waste landfills are primarily regulated under state regulatory programs, and in addition they must meet the criteria set forth in federal regulations, which may include requirements such as siting, groundwater monitoring and corrective action depending upon what types of waste are accepted. Disposal by underground injection is regulated under both RCRA and SDWA. In view of this comprehensive, stringent program for addressing disposal, EPA proposed that it is not practicable to impose additional requirements under TSCA on the disposal of the PBT chemicals, including PIP (3:1).
EPA received a number of comments on this aspect of its proposal. Some commenters agreed with EPA's proposed determination that it is not practicable to regulate disposal, while others disagreed. However, in EPA's view, establishing an entirely new disposal program for PIP (3:1)-containing wastes would be expensive and difficult to establish and administer. In addition, imposing a requirement to treat these wastes as if they were listed as hazardous wastes would have impacts on hazardous waste disposal capacity and be very expensive for states and local governments as well as for affected industries. Therefore, EPA has determined that it is not practicable to further regulate PIP (3:1)-containing wastes for disposal. More information on the comments received and EPA's responses can be found in the Response to Comments document (Ref. 5). One commenter, the Institute of Scrap Recycling Industries, Inc. (ISRI) (EPA–HQ–OPPT–2019–0080–0559), noted that, while EPA proposed to not regulate disposal of the PBT chemicals under TSCA, the effect of EPA's proposed prohibition on manufacturing, processing, and distribution in commerce would prohibit the processing and distribution in commerce of the PBTs and articles and products containing the PBT chemicals for disposal. EPA did not intend such an effect and has added an exclusion in the final regulatory text for processing and distribution in commerce for disposal.
EPA also proposed not to use its TSCA section 6(a) authorities to regulate commercial use of products and articles containing the PBT chemicals, such as televisions and computers, because such regulation would not be practicable. It would be extremely burdensome, necessitating the identification of products containing PIP (3:1), and the disposal of countless products and articles that would have to be replaced. If EPA prohibited the continued commercial use of these items, widespread economic impacts and disruption in the channels of trade would occur while the prohibited items were identified and replaced. Although some commenters agreed with EPA's proposed determination that it is not practicable to regulate commercial use, and others disagreed, for the reasons noted in the proposal and discussed further in the Response to Comments document (Ref. 5), EPA continues to believe that prohibiting or otherwise restricting the continued commercial use of products and articles containing PIP (3:1) would result in extreme burdens in exchange for what in most cases would be minimal exposure reductions. Thus, EPA concludes that it is impracticable to prohibit or otherwise restrict the continued commercial use of PIP (3:1)-containing products.
EPA also proposed not to use its TSCA section 6(a) authorities to directly regulate occupational exposures. As explained in the proposed rule, as a matter of policy, EPA assumes compliance with federal and state requirements, such as worker protection standards, unless case-specific facts indicate otherwise. The OSHA has not established a permissible exposure limit (PEL) for PIP (3:1). However, under section 5(a)(1) of the Occupational Safety and Health Act of 1970, 29 U.S.C. 654(a)(1), each employer has a legal obligation to furnish to each of its employees employment and a place of employment that are free from recognized hazards that are causing or are likely to cause death or serious physical harm. The OSHA Hazard Communication Standard at 29 CFR 1910.1200 requires chemical manufacturers and importers to classify the hazards of chemicals they produce or import, and all employers to provide information to employees about hazardous chemicals to which they may be exposed under normal conditions of use or in foreseeable emergencies. The OSHA standard at 29 CFR 1920.134(a)(1) requires the use of feasible engineering controls to prevent atmospheric contamination by harmful substances and requires the use of respirators where effective engineering controls are not feasible. The OSHA standard at 29 CFR 1920.134(c) details the required respiratory protection program. The OSHA standard at 29 CFR 1910.132(a) requires the use of personal protective equipment (PPE) by workers when necessary due to a chemical hazard; 29 CFR 1910.133 requires the use of eye and face protection when employees are exposed to hazards including liquid chemicals; and 29 CFR 1910.138 requires the use of PPE to protect employees' hands including from skin absorption of harmful substances. The provisions of 29 CFR 1910.132(d) and (f) address hazard assessment, PPE selection, and training with respect to PPE required under 29 CFR 1910.133, 1910.135, 1910.136, 1910.138 and 1910.140. EPA assumes that employers will require, and workers will use, appropriate PPE consistent with OSHA standards, taking into account employer-based assessments, in a manner sufficient to prevent occupational exposures that are capable of causing injury.
EPA assumes compliance with other federal requirements, including OSHA standards and regulations. EPA does not read TSCA section 6(h)(4) to direct EPA to adopt potentially redundant or conflicting requirements. Not only
EPA received comments regarding the use of PBT chemicals in research and development and lab use. Lab use is addressed under newly established 40 CFR 751.401(b) as the manufacturing, processing, distribution in commerce and use of any chemical substance, or products and articles that contain the chemical substance, for research and development, as defined in new 40 CFR 751.403.
Finally, EPA received comments regarding requirements for resale of PIP (3:1)-containing products and articles, as well as products and articles containing other PBT chemicals undergoing Section 6(h) rulemaking. One commenter stated that because the proposed definition of “person” includes “any natural person,” the proposed prohibitions would seem to apply to anyone selling products or articles containing PIP (3:1) at a garage or yard sale (EPA–HQ–OPPT–2019–0080–0559). EPA did not intend to impose these final PIP (3:1) regulations on yard sales or used product or article sales and has added language in 40 CFR 751.401 to clarify this. The prohibition and recordkeeping requirements in this final rule exclude PIP (3:1)-containing products and articles that have previously been sold or supplied to an end user,
EPA carefully considered all public comments related to the proposal. This rule finalizes with some modifications EPA's proposal to prohibit the processing and distribution in commerce of PIP (3:1), and products containing the chemical substance. The following are excluded from the prohibition in this final rule:
• Processing and distribution in commerce for use in hydraulic fluids either for the aviation industry or to meet military specifications for safety and performance where no alternative chemical is available that meets U.S. Department of Defense specification requirements;
• Processing and distribution in commerce for use in lubricants and greases;
• Processing and distribution in commerce for use in new and replacement parts for the automotive and aerospace industry, and the distribution in commerce of those parts to which PIP (3:1) has been added;
• Processing and distribution in commerce for use as an intermediate in a closed system to produce cyanoacrylate adhesives;
• Processing and distribution in commerce for use as an adhesive and sealant until January 6, 2025, after which such activity is prohibited;
• Processing and distribution in commerce for use in specialized engine filters for locomotive and marine applications;
• Processing for recycling and distribution in commerce for the recycling of PIP (3:1) containing plastic provided no new PIP (3:1) is added during the recycling process;
• Processing and distribution in commerce of articles and products made from recycled PIP (3:1) containing plastic provided no new PIP (3:1) is added during the recycling process or to the articles and products made from the recycled plastic; and
• Processing and distribution in commerce of PIP (3:1) for use in photographic printing articles and PIP (3:1)-containing photographic printing articles until January 1, 2022.
This final rule also prohibits releases to water from manufacture, processing, distribution in commerce, and commercial uses that are permitted to occur, as outlined in the preceding bullets.
Persons manufacturing, processing, and distributing in commerce PIP (3:1) and products containing PIP (3:1) are required to notify their customers of these prohibitions on processing and distribution, and the prohibition on releases to water via Safety Data Sheet (SDS) or labeling.
Persons manufacturing, processing, and distributing in commerce PIP (3:1) are required to maintain, for three years from the date the record is generated, ordinary business records related to compliance with the restrictions, prohibitions, and other requirements set forth in this rule. These records must include a statement of compliance with this final rule and be made available to
In the proposed rule, EPA identified the five chemical substances EPA proposed as meeting the TSCA section 6(h)(1)(A) criteria for expedited action. PIP (3:1) is one of those five substances, with a “high” bioaccumulation score. The information EPA collected and reviewed in developing the proposal provided no basis to call into question the scoring for persistence, bioaccumulation, and toxicity performed in 2014 for these five PBT chemicals. Four commenters addressed classification of PIP (3:1) as a PBT, and one specifically took issue with PIP (3:1)'s classification as a PBT under TSCA section 6(h)(1)(A), with a focus on its bioaccumulation properties. Their concerns are described in this final rule and addressed in the Response to Comments for this rulemaking (Ref. 5). While one commenter submitted additional data, these comments and data submitted do not call into question the PIP (3:1) bioaccumulation score identified in the 2014 Update to the TSCA Work Plan for Chemical Assessments for the reasons described in the Response to Comments Document (Ref. 5).
Four commenters indicated that PIP (3:1) is not considered a PBT by the European Chemicals Agency (ECHA), based on information in the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) dossiers; according to the commenters, therefore PIP (3:1) does not meet the TSCA section 6(h)(1)(A) criteria. However, information in the REACH dossiers reflect the results of studies submitted to ECHA, and not necessarily determinations by ECHA. A single study submitted by industry representing results from their particular commercial product is not sufficient justification to call into question whether PIP (3:1) meets the bioaccumulation criterion. Commercial products may contain varying amounts of different isomers which constitute PIP (3:1) thus, a study on a particular commercial product alone for a chemical that may differ between various commercial products, is not adequate to call into question the specified score identified in the 2014 Update to the TSCA Work Plan for Chemical Assessments.
Additionally, PIP (3:1) is a UVCB substance, or a substance of unknown or variable composition, complex reaction and biological materials. In the case of PIP (3:1), it is a substance of unknown or variable composition. The chemical substance PIP (3:1), which is the subject of this regulation, has a variable composition in that mixtures of or containing PIP (3:1) may contain different proportions of isomers of PIP (3:1) or of different chemical congeners. An isomer is defined as “one of several species (or molecular entities) that have the same atomic composition (molecular formula) but different line formulae or different stereochemical formulae and hence different physical and/or chemical properties” (Ref. 9). A congener is defined as “one of two or more substances related to each other by origin, structure, or function” (Ref. 9). When considering a UVCB substance, the Agency considers whether any isomers or congeners which might be present in a UVCB substance are bioaccumulative and, if so, EPA considers the UVCB substance to be bioaccumulative. In these cases, the Agency has a longstanding approach for chemical evaluation and regulation that considers whether particular isomers or congeners which might be present in an identified substance are, for example, bioaccumulative and, as in this case, if so, EPA considers that identified substance to meet the criterion (Ref. 10). Because PIP (3:1) is a UVCB, and because commercial products may contain varying amounts of different isomers which constitute PIP (3:1), and, as detailed in the 2014 Update to the TSCA Work Plan for Chemical Assessments and the proposed rule, some of those isomers are identified as bioaccumulative, EPA continues to consider PIP (3:1) to be bioaccumulative.
Additionally, EPA does not interpret TSCA section 6(h)(1)(A) to require, as the commenter suggests, a “fresh look” at the scores for or issues of toxicity, persistence, or bioaccumulation of the Work Plan chemicals. Requiring EPA to re-evaluate any of these issues would delay what Congress intended to be an expedited rulemaking process. It also suggests a level of analysis not contemplated by Congress or clearly required for this rulemaking given that Congress did not compel risk evaluations for any chemicals meeting the TSCA section 6(h)(1) criteria. The only required additional assessment is the “exposure and use assessment” used to make the TSCA section 6(h)(1)(B) finding that exposures are likely under the conditions of use.
To the extent that commenters suggest that EPA used a “successor scoring system” (via the use and exposure assessment and hazard summary) to identify the score for the PBT chemicals, that is not the case. The Agency reaffirms that the scores identified in the 2014 Update to the TSCA Work Plan for Chemical Assessments and referenced in the proposed rule are based on the 2012 Methods Document criteria, and EPA's responses to comments are based on those criteria. Because of PIP (3:1)'s status as a UVCB, any study on a single congener or commercial product would need to be considered in the context of all available information that informs the persistence and bioaccumulation of PIP (3:1). To the extent that commenters are suggesting that the statute requires, or that EPA should do an analysis consistent with, a systematic review to re-evaluate the persistence and bioaccumulation score for PIP (3:1), the Agency notes that it views that effort to be a successor scoring system approach. Systematic review or an analysis consistent with systematic review is inconsistent with the criteria and tools referenced in the 2012 TSCA Work Plan Chemicals: Methods Document. If EPA had used a successor scoring system, it would need to rescore the chemicals identified on the 2014 Update to the TSCA Work Plan for Chemical Assessments and the Agency did not do that and has no plans to do that at this time.
One commenter indicated that EPA has not adequately identified the chemical substance. EPA emphasizes that PIP (3:1) has been properly identified as the subject of this rulemaking. To clarify, TSCA section 6(h) requires EPA to issue a proposed rule to address chemicals “identified” in the 2014 Update to the TSCA Work Plan for Chemical Assessments and that meet other specified criteria. Chemicals “identified” in the 2014 Update to the TSCA Work Plan for Chemical Assessments are specified by chemical name and CASRN. In this case, PIP (3:1) is identified as Phenol, isopropylated phosphate (3:1) (iPTPP) and with CASRN 68937–41–7.
In this final rule EPA amends the language in the proposed rule on the exclusion from the processing and distribution in commerce restrictions of PIP (3:1) for use in for aviation hydraulic fluid and of PIP (3:1)-containing aviation hydraulic fluid, to include an exclusion from the prohibition on the processing and distribution in commerce of PIP (3:1) for use in hydraulic fluids either for the aviation industry or to meet military specifications for safety and performance where no alternative chemical is available that meets U.S.
Five commenters confirmed or elaborated on the degree to which it would be impracticable to replace or reformulate hydraulic fluids containing PIP (3:1). Several of those comments supported the concerns outlined in the proposed rule, namely that aviation fluids are approved by major aircraft manufacturers who work closely with the Federal Aviation Administration (FAA), and any change in formula composition results in a full requalification process. As described in the proposed rule, this process is a joint effort between the fluid manufacturer and aircraft manufacturer, and resulting fluids are subject to extensive laboratory and field testing. At the end of this iterative evaluation process, there is no guarantee that a technically equivalent alternative will be developed (Refs. 3, 11 and 12).
While no comments opposed the exclusion for aviation hydraulic fluid specifically, several commenters opposed the exclusions from the prohibition on processing and distribution outlined in the proposal more broadly, particularly in that the exclusions are not time limited (EPA–HQ–OPPT–2019–0080–0546; –0567; –0570; –0572; –0575). Additional information is available in the Response to Comments document (Ref. 5).
EPA received one comment requesting that hydraulic fluid which may contain PIP (3:1) for other industries, including use specialized, industrial applications that include hydraulic control of valves for certain higher pressure, and more extreme environments, also be excluded from the rule. As explained in the proposal, for industrial hydraulic fluids (excluding aviation), various alternative products not containing PIP (3:1) are already available in commerce. However, to the commenter's point, synthetic hydraulic fluids which contain low levels of PIP (3:1) are certified to military specifications, such as MIL–DTL–32353A (Ref. 13) and represent an emerging technology in hydraulic fluids for various applications important to national security including hydraulic lubricating oils for valves in vessels. To that end, EPA is expanding the exclusion to ensure inclusion of those hydraulic fluids certified to military specifications which may be used in industries other than aviation. To be eligible for this exclusion, the hydraulic fluid must be required to meet military specifications for safety and performance and no alternative chemical is available that meets U.S. Department of Defense specification requirements. To the extent that PIP (3:1) containing hydraulic fluids are certified for turbine hydraulic fluid military specifications, those products would be encompassed by aviation hydraulic fluid.
For hydraulic fluids that are in use by the aviation industry or to meet military specifications for safety and performance where no alternative chemical is available to the end user to meet U.S. Department of Defense specification requirements, their processing and distribution in commerce must be excluded from the prohibition. For the reasons summarized in Unit III.A.2. and supported by the comments and Economic Analysis, the Agency is finalizing the proposed exclusion for processing and distribution in commerce for use in hydraulic fluids either for the aviation industry or to meet military specifications for safety and performance where no alternative chemical is available that meets U.S. Department of Defense specification requirements.
EPA is finalizing as proposed the exclusion from the processing and distribution in commerce restrictions of PIP (3:1) for use in lubricants and greases and of PIP (3:1)-containing lubricants and greases. Five commenters confirmed or elaborated on the degree to which it would be impracticable to replace or reformulate lubricants and greases containing PIP (3:1), which, as noted in the proposed rule, are necessary for the safe operation of commercial and military aircraft, as well as some non-aviation uses such as turbines for power generation (EPA–HQ–OPPT–2019–0080–0562; –0536; –0545; –0542; –0539). One commenter did not support the exclusion for PIP (3:1) in lubricants and greases, citing concerns over potential occupational and consumer exposure (EPA–HQ–OPPT–2019–0080–0572). EPA does not expect lubricants and greases containing PIP (3:1) to be available to consumers or workers in non-industrial settings, as lubricants and greases that contain PIP (3:1) are those that need to function in extreme environments, including extreme heat, cold, and high pressure. As mentioned in Unit III.A.2. several commenters oppose the exclusions from the prohibition on processing and distribution outlined in the proposal more broadly, particularly in that the exclusions are not time limited (EPA–HQ–OPPT–2019–0080–0546; –0567; –0570; –0572; –0575). Additional information is available in the Response to Comments document (Ref. 5).
In the proposal, EPA acknowledged the degree to which PIP (3:1) is crucial to the safe and effective performance of lubricants and greases, where it functions as a crucial anti-wear component. The Agency requested comment on the degree to which PIP (3:1) is crucial to the safe and effective performance of lubricants and greases in non-aviation industries. EPA received information from several commenters supporting the lack of alternatives to PIP (3:1) for aviation and non-aviation industries, the mandatory safety standards that are in place for non-aviation lubricants and greases, and the degree to which exposures are minimized. Additional details are in the docket and the Response to Comments document (Ref. 5). For lubricants and greases to be available to the end user, their processing and distribution in commerce must be excluded from the prohibition. For the reasons noted in Unit III.A.3., EPA is finalizing the proposed exclusion for lubricants and greases.
Several commenters requested clarification on the scope of the exclusion for lubricants and greases. One commenter asked if metalworking fluids were within the scope of the exclusion. Two additional commenters requested clarification that brake fluids used in landing gear fall within the scope of lubricants and greases. Another noted that the scope should include lubricants used in marine and rail engine applications. EPA confirms that all the uses outlined in this paragraph, as well as use in aviation and non-aviation lubricants and greases more broadly, are within the scope of those lubricants and greases excluded from the proposed processing and distribution restrictions, as the regulatory definition of lubricants includes any chemical substance used to reduce friction, heat, or wear between moving or adjacent solid surfaces, or that enhance the lubricity of other substances (Ref. 14)
As requested by a commenter, EPA also confirms that, under the final rule, used oils, which fall within the scope of lubricants and greases, may continue to be recycled.
EPA is finalizing as proposed the exclusion from the proposed processing and distribution in commerce prohibitions of PIP (3:1) for use in new and replacement parts for automobiles and of PIP (3:1)-containing new and replacement parts for automobiles. Numerous commenters confirmed or
The rationale given by commenters from industry supported the information outlined in the proposal; namely, PIP (3:1) is used to meet safety standards in new and replacement parts for automobiles and there is currently no feasible alternative.
Three commenters from non-governmental organizations (NGOs) opposed the exclusion, noting that it should be time limited (EPA–HQ–OPPT–2019–0080–0541; –0572; –0575). Two of those NGOs are among commenters mentioned in Unit III.A.2. who oppose the exclusions from the prohibition on processing and distribution outlined in the proposal more broadly, particularly in that the exclusions are not time limited (EPA–HQ–OPPT–2019–0080–0546; –0567; –0570; –0572; –0575). EPA determined that prohibiting the processing and distribution of PIP (3:1) for use in replacement parts is not practicable because PIP (3:1) is used to meet safety standards in new and replacement parts for automobiles and there is currently no feasible alternative. For those same reasons, EPA could not identify a time limit on the exclusion that would be practicable. Additional information is available in the Response to Comments document (Ref. 5).
Requiring the automotive industry to reformulate or redesign replacement parts for vehicle models currently on the market or vehicles no longer being manufactured is not practicable because of the safety concerns recognized in Unit III.A.4. Most importantly, any restriction on new and replacement parts for the automotive industries could increase costs and safety concerns.
In addition to the exclusion outlined in Unit III.A.4., in this final rule, EPA is broadening the scope of the exclusion from the proposed processing and distribution in commerce prohibitions to include processing and distribution in commerce of PIP (3:1) for use in new and replacement parts for aerospace vehicles and processing and distribution in commerce of PIP (3:1)-containing new and replacement parts for aerospace vehicles. Numerous commenters noted that many of the same challenges outlined for automobiles apply equally, if not more so, for aerospace vehicles. As noted by the commenters, the aerospace sector faces challenges similar to the automotive industry, including a multi-tiered international supply chain, strict safety standards, and the absence of feasible alternatives for these uses and costs. An airplane may be in use for 20 years and will need replacement parts to maintain airworthiness (EPA–HQ–OPPT–2019–0080–0545). As with the automotive sector, restrictions on new and replacement parts for the aerospace industries could increase costs and safety concerns. Therefore, EPA is finalizing an exclusion from the proposed processing and distribution in commerce prohibitions that includes processing and distribution in commerce of PIP (3:1) for use in new and replacement parts for aerospace vehicles and processing and distribution in commerce of PIP (3:1)-containing new and replacement parts for aerospace vehicles.
In the proposal, EPA did not exclude processing or distribution in commerce of PIP (3:1) for use in adhesives and sealants or processing or distribution in commerce of PIP (3:1)-containing adhesives and sealants from the prohibitions on processing and distribution, except under those circumstances where an adhesive is part of a new or replacement part for an automobile. EPA received numerous comments requesting clarification or modification of the proposed regulations relative to adhesives. Based on those comments, in the final rule, EPA has added an exclusion from the processing and distribution prohibitions for the processing and distribution of PIP (3:1) when used in a closed system as an intermediate in the production of cyanoacrylate adhesives, and additionally delayed the compliance date for the prohibitions on the processing and distribution in commerce of PIP (3:1) for use in any type of adhesives and sealants and the processing and distribution in commerce of PIP (3:1)-containing adhesives and sealants, from 60 days to four years.
Two commenters identified PIP (3:1)'s use as an intermediate in the production of cyanoacrylate adhesives (EPA–HQ–OPPT–2019–0538; –0558). At the time of proposal, EPA believed there were feasible alternatives to PIP (3:1) for this use. However, EPA received additional information in a public comment to indicate that while some cyanoacrylate adhesives are made without PIP (3:1), PIP (3:1)'s use as an intermediate can be central to achieving properties necessary to meet performance standards for cyanoacrylates used in important applications including medical, military, automotive, and aerospace sectors. PIP (3:1) is not expected to be present in the final product since it is used as an intermediate, and the manufacturing of cyanoacrylate adhesives occurs in a closed system. Therefore, EPA is finalizing an exclusion from the prohibitions for the processing and distribution in commerce of PIP (3:1) for this use because, without a feasible alternative for these applications, it would be impracticable to prohibit.
The proposed rule did not delay the compliance date beyond the rule's effective date; the processing and distribution bans would come into effect 60 days after publication of the final rule notice. EPA stated in the proposed rule that at that time it had no information indicating that a compliance date of 60 days after publication of the final rule is not practicable for the activities that would be prohibited, or that additional time is needed for products to clear the channels of trade. The phrases “as soon as practicable” and “reasonable transition period” as used in TSCA section 6(d)(1) are undefined, and the legislative history on TSCA section 6(d) is limited. Given the ambiguity in the statute, for purposes of this expedited rulemaking, EPA presumed a 60-day compliance date was “as soon as practicable,” unless there was support for a lengthier period of time on the basis of reasonably available information, such as information submitted in comments on the Exposure and Use Assessment or in stakeholder dialogues. Such a presumption ensures the compliance schedule is “as soon as practicable,” particularly in the context of the TSCA section 6(h) rules for chemicals identified as persistent, bioaccumulative and toxic, and given the expedited timeframe for issuing a TSCA section 6(h) proposed rule did not allow time for collection and assessment of new information separate from the comment opportunities during the development of and in response to the proposed rule. Such presumption also allows for submission of information from the sources most likely to have the information that will impact an EPA determination on whether or how best to adjust the compliance deadline to ensure that the final compliance deadline chosen is both “as soon as practicable” and provides a “reasonable transition period.”
For the prohibition on the processing and distribution in commerce of PIP (3:1) for use in adhesives and sealants, and the processing and distribution in commerce of PIP (3:1)-containing adhesives and sealants more broadly, EPA is delaying the compliance date of the prohibition for four years. A
EPA also clarifies that, regardless of the compliance date for the prohibition on the processing and distribution of PIP (3:1)-containing adhesives and sealants, processing and distribution of PIP (3:1) for use in adhesives and sealants in new or replacement parts for automobiles or aerospace and processing and distribution of such PIP (3:1)-containing adhesives and sealants are excluded from the general prohibition.
In the proposal, EPA did not exclude processing or distribution in commerce of PIP (3:1) for use in specialized engine air filters for marine and locomotive applications from the prohibitions on processing and distribution. Based on a public comment (EPA–HQ–OPPT–2019–0080–0569), in this final rule, EPA has added an exclusion from the processing and distribution prohibitions for the processing and distribution of PIP (3:1) when used in specialized engine air filters for marine and locomotive applications and the processing and distribution of such PIP (3:1)-containing engine air filters.
The identified filters clean the combustion air intake for large, heavy duty industrial diesel engines, and prevent abrasive particles from entering the engines. The PIP (3:1) gel within the filters is the only identified substance able to self-extinguish in the event of sparks and to maintain its functionality at freezing temperatures. Based on information received in the comment, EPA believes that it would not be practicable to prohibit processing or distribution of PIP (3:1) for this use, due to the critical role of PIP (3:1) for the functionality of heavy duty industrial diesel engines important to the transportation sector, and the lack of alternatives currently in use or under development.
In the proposed rule, EPA requested comment on the extent to which plastic articles containing PIP (3:1) are recycled and whether the recycling of such plastic, and the manufacture, processing, and distribution in commerce of plastic items made from such recycled plastic, should be specifically excluded from this rule. EPA received numerous comments either supporting or opposing such exclusion, and EPA received no substantive information pertaining to PIP (3:1)'s presence in recycled plastics. Therefore, EPA is excluding articles made from recycled plastics containing PIP (3:1) and to which no PIP (3:1) has been added from the prohibitions in this final rule. This exclusion will allow processing, distribution, and use of PIP (3:1) in recycled products, when no new PIP (3:1) has been added. EPA is excluding from the processing and distribution prohibitions the processing and distribution in commerce of articles and products made from recycled PIP (3:1) containing plastic that has no new PIP (3:1) added during the recycling process or added to the articles and products made from the recycled plastic. A prohibition on these processing and distribution activities would result in potentially very high costs associated with testing and compliance assurance with respect to all articles and, based on reasonably available information at this time, without meaningful exposure reductions. Because PIP (3:1)'s addition to plastics will be prohibited, with a certain exclusion, over time PIP (3:1) will decrease in plastics overall, and, it follows, in recycled plastics. Additional details are in the docket and the Response to Comments document (Ref. 5).
EPA received one comment requesting a TSCA section 6(g) critical use exemption for use of PIP (3:1) in photographic printing articles. PIP (3:1) is used as a solvent in photographic paper with commercial end uses in many sectors. Domestic manufacture and processing of PIP (3:1) for use in photographic printing articles was discontinued in October 2016 (Ref. 15). However, photographic printing articles containing PIP (3:1) are already in the channels of U.S. trade and are intended for import through October 2020, before the required promulgation of the TSCA section 6(h) final rule. As a result, the commenter requests additional time to allow for the continued processing and distribution in commerce of these articles. The commenter expects to cease import of articles containing PIP (3:1) and instead import the same product using an alternative to PIP (3:1) by October 1, 2020, and the shelf life and distribution period of existing stocks of articles is expected to be around 18 months (EPA–HQ–OPPT–2019–0080–0584). Exposure is unlikely during processing and distribution, and an immediate prohibition would require the commenter to dispose of the product all at once thereby increasing the incremental exposure from the disposal of film articles. EPA agrees an immediate prohibition is not practicable. It is costly to require disposal of articles already in the channels of U.S. trade by the time the rule is finalized and made effective, including costs for removal, disposal, and replacement. In addition, such action has potential to increase exposure by concentrating disposals in times and space, as opposed to allowing the articles to complete their natural lifecycle and be disposed of over time. Therefore, EPA adds a compliance date of January 1, 2022, for the prohibition on processing and distribution in commerce of photographic printing articles, in order to allow time to permit existing stocks of articles to clear the channels of trade, which is “as soon as practicable” and provides a “reasonable transition period,” pursuant to TSCA section 6(d)(1), while reducing exposure “to the extent practicable” as required by TSCA section 6(h)(4).
EPA proposed to prohibit releases to water from the manufacturing, processing, distribution in commerce, and commercial use activities that are permitted to occur (
While in some cases EPA has determined that it is not practicable to exercise its section 6(a) authorities to regulate certain exposures under TSCA section 6(h), outlined in Unit II.F., this is not the case for releases of PIP (3:1) to water for formulated products and end uses. The formulated products and end uses of PIP (3:1) are highly regulated, though unintentional releases are possible. As discussed in this Unit, many regulatory restrictions on releases to water are administered by the EPA (
Persons manufacturing, processing, and distributing PIP (3:1) and products containing PIP (3:1) will be required to notify their customers of these prohibitions on processing, distribution, and releases to water. EPA proposed the method of downstream notification was text inserted in sections 1 and 15 of the safety data sheet (SDS). Several commenters requested clarification on the downstream notification requirements or suggested changes to the proposed requirement. EPA clarifies in this final rule that the downstream notification requirement applies only to those scenarios where a product has an accompanying SDS.
EPA is also including in this final rule, an alternative method of compliance for downstream notification. If a manufacturer, processor, or distributor chooses, they may include specified text on their label, instead of on their SDS. This alternative allows manufacturers, processors, and distributors to choose the manner of notification most appropriate for their customers and is not intended to broaden the scope of persons subject to the requirement.
Lastly, based on comments received, EPA has delayed the compliance date for downstream notification from 60 days to 180 days for processors and distributors from the date of publication, in order to allow adequate time for the notices to make their way through the supply chain. This length of time would allow downstream processors and distributors to gather information from suppliers and incorporate it in SDSs, and is consistent with the grace period offered under the Registration, Evaluation, Authorisation and Restriction of Chemicals regulation in Europe (EPA–HQ–OPPT–2019–0080–0542). Manufacturers (including importers) of PIP (3:1) are still required to implement downstream notification within 60 days from the date of the publication. Excluded from the downstream notification requirement are articles made from recycled plastics as described in Unit III.A.8., as long as no new PIP (3:1) is added during the processing of recycled materials.
EPA is requiring that all persons who manufacture, process, or distribute in commerce PIP (3:1) and articles and products containing PIP (3:1) maintain ordinary business records, such as invoices and bills-of-lading, that are related to compliance with the prohibitions and restrictions. EPA revised this language slightly from the proposal to improve clarity. These records will have to be maintained for a period of three years from the date the record is generated, beginning on March 8, 2021. Exempted from the recordkeeping requirement are articles made from recycled plastics, as described in Unit III.A.8., as long as no new PIP (3:1) is added during the processing of recycled materials. EPA requested comment on alternative recordkeeping requirements that could help ensure compliance with the regulatory prohibitions, particularly for importers and others who do not produce articles. After reviewing the comments received, EPA has decided to include two additional requirements to help ensure compliance (EPA–HQ–OPPT–2019–0080–0539; –0542; –0546; –0549). First, the records that are kept must include a statement that the PIP (3:1), or the PIP (3:1)-containing products or articles, are in compliance with 40 CFR 751.407(a). The statement need not be included on every business record, such as every invoice or bill of lading, although regulated entities may certainly choose to reformat their documents to include the statement. For example, importers of replacement automobile parts that contain PIP (3:1) who import from the same suppliers over and over need only have a single statement for each part or each supplier. Finally, EPA is adding a requirement that the records kept pursuant to this final rule be made available to EPA within 30 calendar days upon request to ensure that EPA can review records in a timely manner.
PIP (3:1) is toxic to aquatic plants, aquatic invertebrates, sediment invertebrates and fish. Data indicate the potential for reproductive and developmental effects, neurological effects and effects on systemic organs, specifically adrenals, liver, ovary, and heart in mammals. These hazard statements are not based on a systematic review of the available literature and information may exist that could refine the hazard characterization. Additional
PIP (3:1) has multiple functional uses, including as a plasticizer, flame retardant, anti-wear additive, or as an anti-compressibility additive (Ref. 4). When PIP (3:1) is included in a formula, it is often for a combination of these functional uses; for example, as a flame retardant and an anti-wear additive. Additionally, PIP (3:1) is an isomer mixture, and through manufacturing, the proportion of various isomers can be manipulated to achieve specific properties which can affect the performance of a formula (Ref. 16). As an additional benefit, when used as an intermediate in the processing of cyanoacrylate glues, PIP (3:1) aids in the ability of these glues to meet the requisite performance standards for specialized markets (EPA–HQ–OPPT–2019–0080–0538).
i.
ii.
Total quantified annualized social costs for the final rule are $23.8 million at a 3% discount rates, and $23.0 million at a 7% discount rate. As described earlier in Unit III.B.3, potential costs such as testing, reformulation, release prevention, and imported articles, could not be quantified due to lack of data availability to estimate quantified costs. These costs are discussed qualitatively in the Economic Analysis (Ref. 3).
iii.
iv.
EPA considered the anticipated effect of this rule on the national economy and concluded that this rule is highly unlikely to have any measurable effect on the national economy (Ref. 3). EPA analyzed the expected impacts on small business and found that no small entities are expected to experience impacts of more than 1% of revenues (Ref. 3). Finally, EPA has determined that this rule is unlikely to have significant impacts on technological innovation, although the rule may create some incentives for chemical manufacturers to develop new chemical alternatives to PIP (3:1).
EPA believes there are viable substitutes for PIP (3:1), except for the specified processing and distribution in commerce activities excluded from the final rule. In addition, EPA conducted an analysis of three identified potential substitutes for PIP (3:1) based on the process described in the TSCA Work Plan Chemicals: Methods Document (Ref. 2). Those potential substitutes all scored lower than PIP (3:1) in at least one criterion, indicating lower concern for hazard, exposure, or bioaccumulation/persistence. The economic feasibility of alternatives for all activities other than those excluded from the final rule is discussed in the Economic Analysis (Ref. 3).
In accordance with TSCA section 26(h) and taking into account the requirements of TSCA section 6(h), EPA has used scientific information, technical procedures, measures, and methodologies that are fit for purpose and consistent with the best available science. For example, EPA based its determination that human and environmental exposures are likely with PIP (3:1) on the Exposure and Use Assessment (Ref. 4) discussed in Unit II.A.2., which underwent a peer review and public comment process, as well as using best available science and methods sufficient to make that determination. The extent to which the various information, procedures, measures, and methodologies, as applicable, used in EPA's decision making have been subject to independent verification or peer review
The following is a list of the documents that are specifically referenced in this document. The docket includes these documents and other information considered by EPA, including documents that are referenced within the documents that are included in the docket, even if the referenced document is not physically located in the docket. For assistance in locating these other documents, please consult the technical person listed under
Additional information about these statutes and Executive orders can be found at
This action is a significant regulatory action that was submitted to the Office of Management and Budget (OMB) for review under Executive Order 12866 (58 FR 51735, October 4, 1993) and Executive Order 13563 (76 FR 3821, January 21, 2011). Any changes made in response to OMB recommendations have been documented in the docket for this action as required by section 6(a)(3)(E) of Executive Order 12866.
EPA prepared an economic analysis of the potential costs and benefits associated with this action. A copy of this economic analysis, entitled
This action is considered a regulatory action under Executive Order 13771 (82 FR 9339, February 3, 2017). Details on the estimated costs of this final rule can be found in the Economic Analysis (Ref. 3), which is briefly summarized in Unit.III.B.3.
The information collection activities in this rule have been submitted for approval to the Office of Management and Budget (OMB) under the PRA, 44 U.S.C. 3501
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9. When OMB approves this ICR, the Agency will announce that approval in the
I certify that this action will not have a significant economic impact on a substantial number of small entities under the RFA, 5 U.S.C. 601
This action does not contain an unfunded mandate of $100 million or more as described in UMRA, 2 U.S.C. 1531–1538, and will not significantly or uniquely affect small governments. The final rule is not expected to result in expenditures by State, local, and Tribal governments, in the aggregate, or by the private sector, of $100 million or more (when adjusted annually for inflation) in any one year. Accordingly, this final rule is not subject to the requirements of sections 202, 203, or 205 of UMRA. The total quantified annualized social costs for this final rule are approximately $23.8 million at a 3% discount rates, and $23.0 million at a 7% discount rate, which does not exceed the inflation-adjusted unfunded mandate threshold of $160 million.
This action does not have federalism implications because it is not expected to 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 as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). Thus, Executive Order 13132 does not apply to this action.
This action does not have tribal implications because it is not expected to have substantial direct effects on tribal governments, on the relationship between the Federal Government and the Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes as specified in Executive Order 13175 (65 FR 67249, November 9, 2000). Thus, Executive Order 13175 does not apply to this final rule.
Consistent with the EPA Policy on Consultation and Coordination with Indian Tribes, EPA consulted with tribal officials during the development of this action. EPA consulted with representatives of Tribes via teleconference on August 31, 2018, and September 6, 2018, concerning the prospective regulation of the five PBT chemicals under TSCA section 6(h).
Tribal members were encouraged to provide additional comments after the teleconferences. EPA received two comments from the Keweenaw Bay Indian Community and Maine Tribes (Refs. 17 and 18).
This action is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997) because it is not an economically significant regulatory action as defined by Executive Order 12866. Although the action is not subject to Executive Order 13045, the Agency considered the risks to infants and children under EPA's Policy on Evaluating Health Risks to Children. EPA did not perform a risk assessment or risk evaluation of PIP (3:1), however available data indicate the potential for reproductive and developmental effects from PIP (3:1). More information can be found in the Exposure and Use Assessment (Ref. 4) and the “Environmental and Human Health Hazards of Five Persistent, Bioaccumulative and Toxic Chemicals” (Ref. 8). This regulation will reduce exposure to PIP (3:1) for the general population and for potentially exposed or susceptible subpopulations such as workers and children.
This action is not a “significant energy action” as defined in Executive Order 13211 (66 FR 28355, May 22, 2001) because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy and has not otherwise been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action.
This rulemaking does not involve any technical standards. Therefore, NTTAA section 12(d), 15 U.S.C. 272
EPA believes that this action does not have disproportionately high and adverse health or environmental effects on minority populations, low-income populations and/or indigenous peoples, as specified in Executive Order 12898 (59 FR 7629, February 16, 1994). The documentation for this decision is contained in the Economic Analysis (Ref. 3), which is in the public docket for this action.
This action is subject to the CRA, 5 U.S.C. 801
Environmental protection, Chemicals, Export Notification, Hazardous substances, Import certification, Reporting and recordkeeping.
Therefore, for the reasons stated in the preamble, 40 CFR part 751 is amended as follows:
15 U.S.C. 2605, 15 U.S.C. 2625(l)(4).
(a)
(2)
(ii) After January 1, 2022, all persons are prohibited from all processing and distributing in commerce of PIP (3:1) for use in photographic printing articles and PIP (3:1)-containing photographic printing articles.
(b)
(1) Processing and distribution in commerce of:
(i) PIP (3:1) for use in hydraulic fluids either for the aviation industry or to meet military specifications for safety and performance where no alternative chemical is available that meets U.S. Department of Defense specification requirements, PIP (3:1)-containing products for use in such hydraulic fluids, and PIP (3:1)-containing hydraulic fluids either for the aviation industry or to meet military specifications for safety and performance where no alternative chemical is available that meets U.S. Department of Defense specification requirements.
(ii) PIP (3:1) for use in lubricants and greases, PIP (3:1) containing products for use in lubricants and greases, and PIP (3:1)-containing lubricants and greases.
(iii) PIP (3:1) and PIP (3:1)-containing products for use in new and replacement parts for motor and aerospace vehicles, the new and replacement parts to which PIP (3:1) has been added for such vehicles, and the motor and aerospace vehicles that contain new and replacement parts to which PIP (3:1) has been added;
(iv) PIP (3:1) and PIP (3:1)-containing products for use as an intermediate in a closed system to produce cyanoacrylate adhesives;
(v) PIP (3:1) for use in specialized engine air filters for locomotive and marine applications, PIP (3:1) containing products for use in specialized engine air filters for locomotive and marine applications, and PIP (3:1)-containing specialized engine air filters for locomotive and marine applications;
(vi) Plastic for recycling from products or articles containing PIP (3:1), where no new PIP (3:1) is added during the recycling process; and
(vii) Finished products or articles made of plastic recycled from products or articles containing PIP (3:1), where no new PIP (3:1) was added during the production of the products or articles made of recycled plastic.
(2) Reserved.
(c)
(d)
(2) These records must include a statement that the PIP (3:1), or the PIP (3:1)-containing products or articles, are in compliance with 40 CFR 751.407(a).
(3) These records must be made available to EPA within 30 calendar days upon request.
(4) The recordkeeping requirements in this paragraph (d)(1) do not apply to the activities described in paragraphs (b)(1)(vi) and (vii) of this section.
(e)
(2) Each person who processes or distributes in commerce PIP (3:1) or PIP (3:1)-containing products for any use after July 6, 2021 must, prior to or concurrent with the shipment, notify persons to whom PIP (3:1) is shipped, in writing, of the restrictions described in this subpart.
(3) Notification must occur by inserting the text in paragraphs (e)(3)(i) and (e)(3)(ii) in the Safety Data Sheet (SDS) or by including on the label of any PIP (3:1) or PIP (3:1)-containing product the label language in paragraph (e)(3)(iii):
(i) SDS Section 1.(c): “The Environmental Protection Agency prohibits processing and distribution of this chemical/product for any use other than: (1) In hydraulic fluids either for the aviation industry or to meet military specifications for safety and performance where no alternative chemical is available that meets U.S. Department of Defense specification requirements, (2) lubricants and greases, (3) new or replacement parts for motor and aerospace vehicles, (4) as an intermediate in the manufacture of cyanoacrylate glue, (5) in specialized engine air filters for locomotive and marine applications, and (6) in adhesives and sealants before January 6, 2025, after which use in adhesives and sealants is prohibited. In addition, all persons are prohibited from releasing PIP (3:1) to water during manufacturing, processing and distribution in commerce, and must follow all existing regulations and best practices to prevent the release of PIP (3:1) to water during the commercial use of PIP (3:1).”; and
(ii) SDS Section 15: “The Environmental Protection Agency prohibits processing and distribution of this chemical/product for any use other than: (1) In hydraulic fluids either for the aviation industry or to meet military specifications for safety and performance where no alternative chemical is available that meets U.S. Department of Defense specification requirements, (2) lubricants and greases, (3) new or replacement parts for motor and aerospace vehicles, (4) as an intermediate in the manufacture of cyanoacrylate glue, (5) in specialized engine air filters for locomotive and marine applications, and (6) in adhesives and sealants before January 6, 2025, after which use in adhesives and sealants is prohibited. In addition, all persons are prohibited from releasing PIP (3:1) to water during manufacturing, processing and distribution in commerce, and must follow all existing regulations and best practices to prevent the release of PIP (3:1) to water during the commercial use of PIP (3:1).”; or
(iii) Labeling: “The Environmental Protection Agency prohibits processing and distribution of this chemical/product for any use other than: (1) In hydraulic fluids either for the aviation industry or to meet military specifications for safety and performance where no alternative chemical is available that meets U.S. Department of Defense specification requirements, (2) lubricants and greases, (3) new or replacement parts for motor and aerospace vehicles, (4) as an intermediate in the manufacture of cyanoacrylate glue, (5) in specialized engine air filters for locomotive and marine applications, and (6) in adhesives and sealants before January 6, 2025, after which use in adhesives and sealants is prohibited. In addition, all persons are prohibited from releasing PIP (3:1) to water during manufacturing, processing and distribution in commerce, and must follow all existing
(4) The downstream notification requirements in this paragraph (e) do not apply to the activities described in paragraphs (b)(1)(vi) and (vii) of this section.
Environmental Protection Agency (EPA).
Final rule.
The Environmental Protection Agency is finalizing a rule under the Toxic Substances Control Act (TSCA) to address its obligations under TSCA for pentachlorothiophenol (PCTP) (CASRN 133–49–3), which EPA has determined meets the requirements for expedited action under TSCA. This final rule prohibits all manufacturing (including import), processing, and distribution in commerce of PCTP and PCTP-containing products or articles for any use, unless PCTP concentrations are at or below 1% by weight. This rule will result in lower amounts of PCTP being manufactured, processed, and distributed, which will impact the amount that will be available for use or disposal, thus reducing the exposures to humans and the environment.
This final rule is effective February 5, 2021. For purposes of judicial review and 40 CFR 23.5, this rule shall be promulgated at 1 p.m. eastern standard time on January 21, 2021.
The docket for this action, identified by docket identification (ID) number EPA–HQ–OPPT–2019–0080, is available at
Please note that due to the public health emergency, the EPA Docket Center (EPA/DC) and Reading Room was closed to public visitors on March 31, 2020. Our EPA/DC staff will continue to provide customer service via email, phone, and webform. For further information on EPA/DC services, docket contact information and the current status of the EPA/DC and Reading Room, please visit
You may be potentially affected by this action if you manufacture (including import), process, distribute in commerce, or use pentachlorothiophenol (PCTP) or products or articles that contain PCTP, especially rubber products. The following list of North American Industrial Classification System (NAICS) codes is not intended to be exhaustive, but rather provides a guide to help readers determine whether this document applies to them. Potentially affected entities may include:
• Sporting and Athletic Goods Manufacturing (NAICS Code 339920);
• Sporting and Recreational Goods and Supplies Merchant Wholesale (NAICS Code 423910);
• Sporting Goods Stores (NAICS Code 451110);
• All Other Rubber Product Manufacturing (NAICS Code 326299).
If you have any questions regarding the applicability of this action to a particular entity, consult the technical information contact listed under
Section 6(h) of TSCA, 15 U.S.C. 2601
EPA published a proposed rule on July 29, 2019 to address the five PBT chemicals EPA identified pursuant to TSCA section 6(h) (84 FR 36728; FRL–9995–76). After publication of the proposed rule, EPA determined to address each of the five PBT chemicals in separate final actions. This final rule prohibits the manufacture (including import), processing, and distribution in commerce of PCTP and products and articles containing PCTP, unless PCTP concentrations are at or below 1% by weight. Specifically, all persons are prohibited from all manufacturing and processing of PCTP or PCTP-containing products or articles, unless PCTP concentrations are at or below 1% by weight after March 8, 2021, and all persons are prohibited from all distribution in commerce of PCTP or PCTP-containing products or articles, unless PCTP concentrations are at or below 1% by weight after January 6, 2022. In addition, after March 8, 2021, persons manufacturing, processing, and distributing in commerce PCTP and articles and products containing PTCP must maintain, for three years from the date the record is generated, ordinary business records related to compliance with the prohibitions and restrictions that include the name of the purchaser and list the products or articles. This
EPA is issuing this final rule to fulfill EPA's obligations under TSCA section 6(h) to take timely regulatory action on PBT chemicals, including PCTP, “to address the risks of injury to health or the environment that the Administrator determines are presented by the chemical substance and to reduce exposure to the substance to the extent practicable.” As required by the statute, the Agency is finalizing this rule to reduce exposures to PCTP to the extent practicable.
EPA has evaluated the potential costs of these restrictions and prohibitions and the associated reporting and recordkeeping requirements. The “Economic Analysis for Regulation of Pentachlorothiophenol (PCTP) Under TSCA Section 6(h)” (Economic Analysis) (Ref. 3), is available in the docket and is briefly summarized here.
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Executive Order 13045 applies if the regulatory action is economically significant and concerns an environmental health risk or safety risk that may disproportionately affect children. While the action is not subject to Executive Order 13045, the Agency's Policy on Evaluating Health Risks to Children (
TSCA section 6(h) requires EPA to take expedited regulatory action under TSCA section 6(a) for certain PBT chemicals identified in the 2014 Update to the TSCA Work Plan for Chemical Assessments (Ref. 1). As required by the statute, EPA issued a proposed rule to address five PBT chemicals identified pursuant to TSCA section 6(h) (84 FR 36728, July 29, 2019). The statute required that this be followed by promulgation of a final rule no later than 18 months after the proposal. Although EPA proposed regulatory actions on each chemical substance in one proposal, in response to public comments (EPA–HQ–OPPT–2019–0080–0544), (EPA–HQ–OPPT–2019–0080–0553), (EPA–HQ–OPPT–2019–0080–0556), (EPA–HQ–OPPT–2019–0080–0562) requesting these five actions be separated, EPA is finalizing five separate actions to individually address each of the PBT chemicals. EPA intends for the five separate final rules to publish in the same issue of the
Under TSCA section 6(h)(1)(A), the chemical substances subject to expedited action are those that:
• EPA has a reasonable basis to conclude are toxic and that with respect to persistence and bioaccumulation score high for one and either high or moderate for the other, pursuant to the 2012 TSCA Work Plan Chemicals: Methods Document or a successor scoring system;
• Are not a metal or a metal compound; and
• Are chemical substances for which EPA has not completed a TSCA Work Plan Problem Formulation, initiated a review under TSCA section 5, or entered into a consent agreement under TSCA section 4, prior to June 22, 2016, the date that TSCA was amended by the Frank R. Lautenberg Chemical Safety for the 21st Century Act (Pub. L. 114–182, 130 Stat. 448).
In addition, in order for a chemical substance to be subject to expedited action, TSCA section 6(h)(1)(B) states that EPA must find that exposure to the chemical substance under the conditions of use is likely to the general population or to a potentially exposed or susceptible subpopulation identified by the Administrator (
Based on the criteria set forth in TSCA section 6(h), EPA proposed to determine that five chemical substances meet the TSCA section 6(h)(1)(A) criteria for expedited action, and PCTP is one of these five chemical substances. In addition, and in accordance with the statutory requirements to demonstrate that exposure to the chemical substance is likely under the conditions of use, EPA conducted an Exposure and Use Assessment for PCTP. As described in the proposed rule, EPA conducted a review of available literature with respect to PCTP to identify, screen, extract, and evaluate reasonably available information on use and exposures. This information is in the document entitled “Exposure and Use Assessment of Five Persistent, Bioaccumulative and Toxic Chemicals” (Ref. 5). Based on this review, which was subject to peer review and public comment, EPA proposed to find that exposure to PCTP is likely based on information detailed in the Exposure and Use Assessment.
TSCA section 6(h)(4) requires EPA to issue a final TSCA section 6(a) rule to
The approach EPA takes is consistent with the language of TSCA section 6(h)(4) and its distinct differences from other provisions of TSCA section 6 for chemicals that are the subject of required risk evaluations. First, the term “condition of use” is only used in TSCA section 6(h) in the context of the TSCA section 6(h)(1)(B) finding relating to likely exposures under “conditions of use” to “the general population or to a potentially exposed or susceptible subpopulation . . . or the environment.” In contrast to the risk evaluation process under TSCA section 6(b), this TSCA section 6(h)(1)(B) threshold criterion is triggered only through an Exposure and Use Assessment regarding the likelihood of exposure and does not require identification of every condition of use. As a result, EPA collected all the information it could on the use of each chemical substance, without regard to whether any chemical activity would be characterized as “known, intended or reasonably foreseen to be manufactured, processed, distributed in commerce, used, or disposed of,” and from that information created use profiles and then an Exposure and Use Assessment (Ref. 4) to make the TSCA section 6(h)(1)(B) finding for at least one or more “condition of use” activities where some exposure is likely. EPA did not attempt to precisely classify all activities for each chemical substance as a “condition of use” and thus did not attempt to make a TSCA section 6(h)(1)(B) finding for all chemical activities summarized in the Exposure and Use Assessment (Ref. 4). Second, TSCA section 6 generally requires a risk evaluation under TSCA section 6(b) for chemicals based on the identified conditions of use. However, pursuant to TSCA section 6(h)(2), for chemical substances that meet the criteria of TSCA section 6(h)(1), a risk evaluation is neither required nor contemplated to be conducted for EPA to meet its obligations under TSCA section 6(h)(4). Rather, as noted in Unit II.B.3., if a previously prepared TSCA risk assessment exists, EPA would have authority to use that risk assessment to “address risks” under TSCA section 6(h)(4), but even that risk assessment would not necessarily be focused on whether an activity is “known, intended or reasonably foreseen,” as those terms were not used in TSCA prior to the 2016 amendments and a preexisting assessment of risks would have had no reason to use such terminology or make such judgments. It is for this reason EPA believes that the TSCA section 6(h)(4) “address risk” standard refers to the risks the Administrator determines “are presented by the chemical substance” and makes no reference to “conditions of use.” Congress did not contemplate or require a risk evaluation identifying the conditions of use as defined under TSCA section 3(4). The kind of analysis required to identify and evaluate the conditions of use for a chemical substance is only contemplated in the context of a TSCA section 6(b) risk evaluation, not in the context of an expedited rulemaking to address PBT chemicals.
Similarly, the TSCA amendments require EPA to “reduce
Taking all of this into account, EPA reads its TSCA section 6(h)(4) obligation to apply to the chemical substance generally, thus requiring EPA to address risks and reduce exposures to the chemical substance without focusing on whether the measure taken is specific to an activity that might be characterized as a “condition of use” as that term is defined in TSCA section 3(4) and interpreted by EPA in the Risk Evaluation Rule, 82 FR 33726 (July 20, 2017). This approach ensures that any activity involving a TSCA section 6(h) PBT chemical, past, present or future, is addressed by the regulatory approach taken. Thus, under this final rule, manufacturing, processing, and distribution in commerce activities that are not specifically excluded are prohibited. The specified excluded activities are those which EPA determined were not appropriate to regulate under TSCA section 6(h)(4) standard. Consistently, based on the Exposure and Use Assessment, activities associated with PCTP are that are no longer occurring are addressed by this rule and thus the prohibitions adopted in this rule reduce the exposures that will result with resumption of past activities or the initiation of similar or other activities in the future. Therefore, EPA has determined that prohibiting these activities will reduce exposures to the extent practicable. The approach taken for this final rule is limited to implementation of TSCA section 6(h) and is not relevant to any other action under TSCA section 6 or other TSCA statutory actions.
The term “practicable” is not defined in TSCA. EPA interprets this requirement as generally directing the Agency to consider such factors as achievability, feasibility, workability, and reasonableness. In addition, EPA's approach to determining whether particular prohibitions or restrictions are practicable is informed in part by certain other provisions in TSCA section 6, such as TSCA section 6(c)(2)(A), which requires the Administrator to consider health effects, exposure, and environmental effects of the chemical substance; benefits of the chemical substance; and the reasonably ascertainable economic consequences of the rule. In addition, pursuant to TSCA section 6(c)(2)(B), in selecting the appropriate TSCA section 6(a) regulatory approach, the Administrator is directed to “factor in, to the extent practicable” those same considerations.
EPA received comments on the proposed rule regarding this interpretation of “practicable.” EPA has reviewed these comments and believes the interpretation described previously within this Unit is consistent with the intent of TSCA and has not changed that interpretation. EPA's interpretation of an ambiguous statutory term receives deference. More discussion on these comments can be found in the Response to Comments document for this rulemaking (Ref. 4).
As EPA explained in the proposed rule, EPA does not interpret the “address risk” language to require EPA to determine, through a risk assessment or risk evaluation, whether risks are presented. EPA believes this reading gives the Administrator the flexibility Congress intended for issuance of expedited rules for PBTs and is consistent with TSCA section 6(h)(2) which makes clear risk evaluation is not required to support this rulemaking.
EPA received comments on the proposed rule regarding its interpretation of TSCA section 6(h)(4) and regarding EPA's lack of risk assessment or risk evaluation of PCTP. A number of commenters asserted that while EPA was not compelled to conduct a risk evaluation, EPA should have conducted a risk evaluation under TSCA section 6(b) regardless. The rationales provided by the commenters for such a risk assessment or risk evaluation included that one was needed for EPA to fully quantify the benefits to support this rulemaking, and that without a risk evaluation, EPA would not be able to determine the
EPA disagrees with the commenters' interpretation of EPA's obligations with respect to chemicals subject to TSCA section 6(h)(4). TSCA section 6(h)(4) provides that EPA shall: (1) “Address the risks of injury to health or the environment that the Administrator determines are presented by the chemical substance” and (2) “reduce exposure to the substance to the extent practicable.” With respect to the first requirement, that standard is distinct from the “unreasonable risk” standard for all other chemicals for which a section 6(a) rule might be issued. EPA does not believe that TSCA section 6(h) contemplates a new evaluation of any kind, given evaluations to determine risks are now addressed through the TSCA section 6(b) risk evaluation process and TSCA section 6(h)(2) explicitly provides that no risk evaluation is required. Moreover, it would have been impossible to prepare a meaningful evaluation under TSCA and subsequently develop a proposed rule in the time contemplated for issuance of a proposed rule under TSCA section 6(h)(1). Although EPA does not believe the statute contemplates a new evaluation of any kind for these reasons, EPA reviewed the hazard and exposure information on the five PBT chemicals EPA had compiled. However, while this information appropriately addresses the criteria of TSCA section 6(h)(1)(A) and (B), it did not provide a basis for EPA to develop sufficient and scientifically robust and representative risk estimates to evaluate whether or not any of the chemicals present an identifiable risk of injury to health or the environment.
Rather than suggesting a new assessment is required, EPA reads the “address risk” language in TSCA section 6(h)(4) to contemplate reliance on an existing EPA assessment under TSCA, similar to a risk assessment that may be permissibly used under TSCA section 26(l)(4) to regulate the chemical under TSCA section 6(a). This interpretation gives meaning to the “address risk” phrase, without compelling an evaluation contrary to TSCA section 6(h)(2) and would allow use of an existing determination, or development of a new determination based on such an existing risk assessment, in the timeframe contemplated for issuance of a proposed rule under TSCA section 6(h). However, there were no existing EPA assessments of risk for any of the PBT chemicals. Thus, because EPA had no existing EPA risk assessments or determinations of risk, the regulatory measures addressed in this final rule focus on reducing exposures “to the extent practicable.”
In sum, because neither the statute nor the legislative history suggests that a new evaluation is compelled to identify and thereby provide a basis for the Agency to “address risks” and one could not be done prior to preparation and timely issuance of a proposed rule, and no existing TSCA risk assessment exists for any of the chemicals, EPA has made no risk determination finding for any of the PBT chemicals. Instead, EPA implements the requirement of TSCA section 6(h)(4) by reducing exposures of each PBT chemical “to the extent practicable.” For similar reasons, EPA does not believe that TSCA section 6(c)(2) requires a quantification of benefits, much less a specific kind of quantification. Under TSCA section 6(c)(2)(A)(iv), EPA must consider and publish a statement, based on reasonably available information, on the reasonably ascertainable economic consequences of the rule, but that provision does not require quantification, particularly if quantification is not possible. EPA has reasonably complied with this requirement by including a quantification of direct costs and a qualitative discussion of benefits in each of the preambles to the final rules. EPA was unable to quantify the indirect costs associated with the rule. More discussion on the issue raised is in the Response to Comments document (Ref. 4).
In the preamble to the proposed rule, EPA explained that it did not read provisions of TSCA that conflict with TSCA section 6(h) to apply to TSCA section 6(h) rules. Specifically, TSCA sections 6(c)(2)(D) and (E) require a risk finding pursuant to a TSCA section 6(b) risk evaluation to regulate replacement parts and articles. Yet, TSCA section 6(h) neither compels nor contemplates a risk evaluation to precede or support the compelled regulatory action to “address the risks. . .” and “reduce exposures to the substance to the extent practicable”. TSCA section 6(h)(2) makes clear no risk evaluation is required, and the timing required for conducting a risk evaluation is not consistent with the timing compelled for issuance of a proposed rule under TSCA section 6(h). Moreover, even assuming a prior risk assessment might allow a risk determination under the TSCA section 6(h)(4) “address risk” standard, such assessment would still not satisfy the requirement in TSCA section 6(c)(2)(D) and (E) for a risk finding pursuant to a TSCA section 6(b) risk evaluation. Because of the clear conflict between these provisions, EPA determined that those provisions of TSCA section 6(c) that assume the existence of a TSCA section 6(b) risk evaluation do not apply in the context of this TSCA section 6(h) rulemaking. Instead, EPA resolves this conflict in these provisions by taking into account the TSCA section 6(c) considerations in its determinations as to what measures “reduce exposure to the substance to the extent practicable”.
Commenters contended that TSCA section 6(c)(2)(D) and (E) bar a TSCA section 6(h) rule in the absence of a risk evaluation, representing Congress's recognition of the special burdens associated with regulating replacement parts and articles and the difficulty importers face in knowing what chemicals are present in the articles they import. As noted earlier in this Unit and further discussed in the Response to Comment document, while EPA determined that provisions of TSCA section 6(c)(2)(D) and (E) do not apply because they conflict with the requirements of TSCA section 6(h), EPA interpreted the “practicability” standard in TSCA section 6(h)(4) to reasonably contemplate the considerations embodied by TSCA section 6(c)(2)(D) and (E). As a result, EPA disagrees with any suggestions that the clear conflict between Congress' mandates in TSCA section 6(h) and TSCA section 6(c)(2)(D) and (E) must be read to bar regulation of replacement parts and articles made with chemicals that Congress believed were worthy of expedited action under TSCA section 6(h) and in the absence of a risk evaluation. The statute does not clearly communicate that outcome. Instead, Congress left ambiguous how best to address the conflict in these provisions, and EPA's approach for taking into consideration the TSCA section 6(c)(2)(D) and (E) concepts in its TSCA section 6(h)(4) “practicability” determinations is a reasonable approach. In addition, with respect to comments that TSCA section 6(c)(2)(D) and (E) were intended to address Congress's concerns regarding burdens associated with regulation of replacement parts and articles, EPA agrees that these concerns are relevant
Historically, PCTP was used in rubber manufacturing as a peptizer, or a chemical that makes rubber more amenable to processing. As described in the proposed rule, there are few data on end-use products and articles that contain PCTP. For years, PCTP was produced in the United States, but domestic manufacture appears to have ceased (Ref. 6). Although it is likely that PCTP is no longer used as a peptizer, it can be found as an impurity in the zinc salt of PCTP (zinc PCTP) (CASRN 117–97–5) after zinc PCTP manufacturing (Ref. 7). As shown by a number of patents, zinc PCTP can be used as a peptizer in rubber manufacturing and as an ingredient in the rubber core of golf balls to enhance certain performance characteristics of the ball, such as spin, rebound, and distance (Ref. 8, 9, and 10). EPA considers the presence of PCTP in rubber during manufacturing, whether as a peptizer or an impurity, to be processing under TSCA. Zinc PCTP is imported into the United States, with approximately 65,000 lbs. imported in 2017 (Ref. 3). EPA believes that some or all of the zinc PCTP could contain PCTP. The importation of PCTP, including as an impurity with zinc PCTP, is considered manufacturing under TSCA.
There is likely exposure to the general population, workers, and the environment, including water releases from process water and from cleaning the processing area and equipment, and worker exposure during unloading and transfer of the chemical. Women of childbearing age exposed in the workplace may transfer PCTP to infants via breastmilk. Exposure information for PCTP is detailed in EPA's Exposure and Use Assessment (Ref. 5) and the proposed rule.
PCTP is toxic to protozoa, fish, terrestrial plants, and birds. Data for analogous chemicals (pentachloronitrobenzene and hexachlorobenzene) indicate the potential for liver effects in mammals and systemic (body weight) effects for PCTP in mammals (no repeated-dose animal or human epidemiological data were identified for PCTP) (Ref. 11). The studies presented in the document entitled “Environmental and Human Health Hazards of Five Persistent, Bioaccumulative and Toxic Chemicals (Hazard Summary) (Ref. 11) demonstrate these hazardous endpoints. EPA did not perform a systematic review or a weight of the scientific evidence assessment for the hazard characterization of these chemicals. As a result, this hazard characterization is not definitive or comprehensive. Other hazard information on these chemicals may exist in addition to the studies summarized in the Hazard Summary that could alter the hazard characterization.
In the 2014 Update to the TSCA Work Plan for Chemical Assessments (Ref. 1), PCTP scored high (3) for hazard (based on toxicity for acute and chronic exposures); low (1) for exposure (based on 2012 CDR data); and high (3) for persistence and bioaccumulation (based on high environmental persistence and high bioaccumulation potential). The overall screening score for PCTP was high (7).
In consideration of the production and use of PCTP, the environmental and human health hazards of PCTP, and the public comments on the proposed rule that are further discussed in Unit III.A., EPA determines that PCTP meets the TSCA section 6(h)(1)(A) criteria. In addition, EPA determines, in accordance with TSCA section 6(h)(1)(B), that, based on the Exposure and Use Assessment and other reasonably available information, exposure to PCTP under the conditions of use is likely to the general population, to a potentially exposed or susceptible subpopulation, or to the environment. EPA's determination is based on the opportunities for exposure throughout the lifecycle of PCTP, including the potential for consumer exposures. EPA did not receive any significant comments or information to call the exposure finding into question.
In the proposed rule, EPA proposed to prohibit all manufacturing, processing, and distribution of PCTP and PCTP-containing products and articles for any use, unless PCTP concentrations are at or below 1% by weight.
In addition, EPA proposed to require, that all persons who manufacture, process, or distribute in commerce PCTP and articles and products containing PCTP maintain ordinary business records, such as invoices and bills-of-lading, that demonstrate compliance with the prohibitions and restrictions. EPA proposed that these records will have to be maintained for a period of three years from the date the record is generated.
The proposed rule provided a 60-day public comment period, with a 30-day extension provided (Ref. 4). The comment period closed on October 28, 2019. EPA received a total of 48 comments, with three commenters sending multiple submissions with attached files, for a total of 58 submissions. This includes the previous request for a comment period extension (EPA–HQ–OPPT–2019–0080–0526). Two commenters submitted confidential business information (CBI) or copyrighted documents with information regarding economic analysis and market trends. Copies of all the non-CBI documents, or redacted versions without CBI, are available in the docket for this action.
In this preamble, EPA has responded to the major comments relevant to the PCTP final rule. Of the comment submissions, 10 directly addressed EPA's proposed regulation of PCTP. Additional discussion related to this final action can be found in the Response to Comments document (Ref. 4).
EPA is not regulating all activities or exposures to PCTP, even though the Exposure and Use Assessment (Ref. 5) identified potential for exposures under many conditions of use. One such activity is disposal. EPA generally presumes compliance with federal and state laws and regulations, including, for example, the Resource Conservation and Recovery Act (RCRA) and its implementing regulations and state laws, as well as the Clean Air Act, the Clean Water Act, and the Safe Drinking Water Act (SDWA). As described in the
EPA received a number of comments on this aspect of its proposal. Some commenters agreed with EPA's proposed determination that it is not practicable to regulate disposal, while others disagreed. However, in EPA's view, establishing an entirely new disposal program for PCTP-containing wastes would be expensive and difficult to establish and administer. A requirement to treat these wastes as if they were listed as hazardous wastes would have impacts on hazardous waste disposal capacity and be very expensive for states and local governments, as well as for affected industries. Therefore, EPA has determined that it is not practicable to further regulate PCTP-containing wastes. More information on the comments received and EPA's responses can be found in the Response to Comments document (Ref. 4).
EPA proposed not to use its TSCA section 6(a) authorities to directly regulate occupational exposures. As explained in the proposed rule, as a matter of policy, EPA assumes compliance with federal and state requirements, such as worker protection standards, unless case-specific facts indicate otherwise. The Occupational Safety and Health Administration (OSHA) has not established a permissible exposure limit (PEL) for PCTP. However, under section 5(a)(1) of the Occupational Safety and Health Act of 1970, 29 U.S.C. 654(a)(1), each employer has a legal obligation to furnish to each of its employees employment and a place of employment that are free from recognized hazards that are causing or are likely to cause death or serious physical harm. The OSHA Hazard Communication Standard at 29 CFR 1910.1200 requires chemical manufacturers and importers to classify the hazards of chemicals they produce or import, and all employers to provide information to employees about hazardous chemicals to which they may be exposed under normal conditions of use or in foreseeable emergencies. The OSHA standard at 29 CFR 1910.134(a)(1) requires the use of feasible engineering controls to prevent atmospheric contamination by harmful substances and requires the use of respirators where effective engineering controls are not feasible. The OSHA standard at 29 CFR 1910.143(c) details the required respiratory protection program. The OSHA standard at 29 CFR 1910.132(a) requires the use of personal protective equipment (PPE) by workers when necessary due to a chemical hazard; 29 CFR 1910.133 requires the use of eye and face protection when employees are exposed to hazards including liquid chemicals; and 29 CFR 1910.138 requires the use of PPE to protect employees' hands including from skin absorption of harmful substances. The provisions of 29 CFR 1910.132(d) and (f) address hazard assessment, PPE selection, and training with respect to PPE required under 29 CFR 1910.133, 1910.135, 1910.136, 1910.138, and 1910.140. EPA assumes that employers will require, and workers will use, appropriate PPE consistent with OSHA standards, taking into account employer-based assessments, in a manner sufficient to prevent occupational exposures that are capable of causing injury.
EPA assumes compliance with other federal requirements, including OSHA standards and regulations. EPA does not read TSCA section 6(h)(4) to direct EPA to adopt potentially redundant or conflicting requirements. Not only would it be difficult to support broadly applicable and safe additional measures for each specific activity without a risk evaluation and in the limited time for issuance of this regulation under TSCA section 6(h), but imposing such measures without sufficient analysis could inadvertently result in conflicting or confusing requirements and make it difficult for employers to understand their obligations. Furthermore, EPA cannot conclude that broadly imposing specific measures is practicable for all of the varied workplaces. Rather, where EPA has identified worker exposures and available substitutes, EPA is finalizing measures to reduce those exposures. As discussed in the proposed rule, EPA assumes that the worker protection methods used by employers, including in response to existing OSHA standards, in addition to the regulatory measures taken for each chemical, meaningfully reduce the potential for occupational exposures. Although some commenters agreed with this approach, others thought EPA should establish worker protection requirements for those uses that would be allowed to continue under the final rule. Information provided to EPA before and during the public comment period on the proposed rule indicates that employers are using engineering and process controls and providing appropriate personal protective equipment (PPE) to their employees consistent with these requirements and EPA received no information on PCTP to suggest this is not the case. Further, EPA has not conducted a risk evaluation on PCTP or any of the other PBT chemicals. Without a risk evaluation and given the time allotted for this rulemaking, EPA cannot identify additional engineering or process controls or PPE requirements that would be appropriate to each chemical-specific circumstance. For these reasons, EPA has determined that it is not practicable to regulate worker exposures in this rule through additional engineering or process controls or PPE requirements.
EPA received comments regarding the use of PBT chemicals in research and development and lab use. Lab use is addressed under newly established 40 CFR 751.401(b) as the manufacturing, processing, distribution-in-commerce and use of any chemical substance, or products and articles that contain the chemical substance, for research and development, as defined in new 40 CFR 751.403. “Research and Development” is defined in new 40 CFR 751.403 to mean laboratory and research use only for purposes of scientific
Finally, EPA received comments regarding requirements for recycling and resale of PCTP-containing products and articles, as well as other PBT chemicals undergoing Section 6(h) rulemaking. One commenter stated that because the proposed definition of “person” includes “any natural person,” the proposed prohibitions would seem to apply to anyone selling golf balls containing PCTP above the 1% concentration by weight threshold at a garage or yard sale (EPA–HQ–OPPT–2019–0080–0559). EPA did not intend to impose these final PCTP regulations on yard sales or used golf ball sales and has added a provision in 40 CFR 751.401 to clarify this issue. Distribution in commerce of PCTP, or products and articles that contain PCTP, that have previously been sold or supplied to an end user are excluded. The prohibition and recordkeeping requirements in this final rule exclude PCTP-containing products and articles that have previously been sold or supplied to an end user for purposes other than resale. An individual or entity that purchased or acquired the finished good in good faith for purposes other than resale are excluded; for example, a consumer who resells a product they no longer intend to use or donates a product or article to charity, such as a golf course that resells used PCTP-containing golf balls it no longer intends to use, or donates used PCTP-containing golf balls to charity.
EPA carefully considered all public comments related to the proposal. This rule finalizes EPA's proposal to prohibit the manufacturing, processing, and distribution in commerce of PCTP or PCTP-containing products and articles, unless PCTP concentrations are at or below 1% by weight, with changes being made from the proposal to the compliance date of distribution in commerce of PCTP and PCTP-containing products and articles.
EPA received numerous comments regarding the practicability of regulating PCTP. Specifically, commenters expressed concern with EPA's statement that it would be “unreasonable, because of the low concentrations of PCTP in golf balls, for example, and thus, impracticable to prohibit or otherwise restrict the continued commercial use of the products” (84 FR 145). Some commenters stated that a ban would be practicable given that EPA had already identified the sole golf ball manufacturer using PCTP. Commenters also discussed practicability in the context of availability of PCTP alternatives. Other commenters supported EPA's proposed rule and stated that EPA's regulation will allow manufacturers to continue the safe use of zinc PCTP while restricting potentially more dangerous uses of PCTP in greater concentrations or in its pure form.
EPA received comments from one processor of PCTP (
EPA believes restricting the allowable concentration will result in limited use options for PCTP and will encourage the use of available PCTP alternatives, if other PCTP-related production occurs. EPA does not expect any domestic production of PCTP or domestic use of PCTP to prepare zinc PCTP, which is the only known intermediate use of PCTP. Import of zinc PCTP may occur but only if meeting the concentration threshold of 1% by weight or less of PCTP. As a result, EPA believes these stringent measures will result in limited use of PCTP and encourage the use of alternatives, if that has not already occurred.
To the extent there are continued manufacturing and processing of products and articles, within the permitted 1% threshold, the potential for consumer exposures is not expected from these known activities or products,
EPA requested comment on the proposed concentration limit, including whether the option is practicable, and whether further exposure reductions would be practicable. EPA specifically requested comment on the practicability of a lower limit on the PCTP content in zinc PCTP, and whether it is possible to completely eliminate unreacted PCTP in the manufacture of zinc PCTP. EPA did not receive comments on an alternative or lower concentration limit. However, some commenters did express concern that EPA has not demonstrated that levels below 1% by weight do not present risks. Comments regarding eliminating the concentration limit altogether and issuing a total ban are discussed in Unit III.A.1. Other commenters supported the proposed concentration limit and one commenter provided information on studies to support their opinion that “the 1% concentration threshold provides a more-than-adequate level of safety for workers and the public, and the available science does not support any further restrictions” (EPA–HQ–OPPT–2019–0080–0566).
As noted earlier, zinc PCTP is manufactured using PCTP, by reacting PCTP with zinc oxide, and depending on the yield of the reaction, zinc PCTP may contain PCTP as an impurity. Zinc PCTP is sold with varying concentrations of zinc salt, including at a purity of 99% (Ref. 12). According to several patents, golf balls can be made
The proposed rule did not delay the compliance date beyond the rule's effective date; the manufacturing and processing bans would come into effect 60 days after publication of the final rule notice. EPA stated in the proposed rule that at that time it had no information indicating that a compliance date of 60 days after publication of the final rule is not practicable for the activities that would be prohibited, or that additional time is needed for products to clear the channels of trade. The phrases “as soon as practicable” and “reasonable transition period” as used in TSCA section 6(d)(1) are undefined, and the legislative history on TSCA section 6(d) is limited. Given the ambiguity in the statute, for purposes of this expedited rulemaking, EPA presumed a 60-day compliance date was “as soon as practicable,” unless there was support for a lengthier period of time on the basis of reasonable available information, such as information submitted in comments on the Exposure and Use Assessment or in stakeholder dialogues. Such a presumption ensures the compliance schedule is “as soon as practicable,” particularly in the context of the TSCA section 6(h) rules for chemicals identified as persistent, bioaccumulative and toxic, and given the expedited timeframe for issuing a TSCA section 6(h) proposed rule did not allow time for collection and assessment of new information separate from the comment opportunities during the development of and in response to the proposed rule. Such presumption also allows for submission of information from the sources most likely to have the information that will impact an EPA determination on whether or how best to adjust the compliance deadline to ensure that the final compliance deadline chosen is both “as soon as practicable” and provides a “reasonable transition period.”
EPA received public comments regarding the 60-day compliance date for the prohibition in the proposed rule. Commenters stated that this date would be unrealistic and requested that EPA phase in the compliance deadlines for the bans on importation or distribution of products and articles containing PCTP over a longer period following promulgation of the final rule (EPA–HQ–OPPT–2019–0080–0549, EPA–HQ–OPPT–2019–0080–0557). In addition, one commenter requested EPA allow products or articles containing PCTP that are manufactured and imported prior to the compliance deadlines to be distributed thereafter without restriction (EPA–HQ–OPPT–2019–0080–0549). Commenters stated this would be needed to prevent an untold number of lawfully manufactured and imported articles from suddenly becoming unsaleable, which would result in significant costs for retailers and importers. Other commenters supported the compliance date (EPA–HQ–OPPT–2019–0080–0566).
However, in response to commenters requesting additional time for products and articles to clear the channels of trade,
EPA is not extending the compliance date for the prohibition on manufacture and therefore is not extending the compliance deadline for the prohibition on import which under TSCA section 3 is a subset of manufacture activities. Unless reasonably available information otherwise supports that it is not practicable to impose a 60-day compliance deadline for manufacture, which includes import, or for processing of PCTP and PCTP-containing products and articles, for purposes of meeting EPA's obligations under TSCA section 6(h), EPA presumes a compliance date of 60 days is “as soon as practicable.” EPA received only general comments taking the position, without support, that the 60-day compliance period for the prohibition on manufacture or processing is not practicable, while also receiving more specific support from a manufacturer of PCTP-containing products for the proposed 60-day timeframe (EPA–HQ–OPPT–2019–0080–0566).
Therefore, this final rule includes a compliance date of 60 days after publication of the final rule for the restrictions on manufacturing and processing and, to address commenters' concerns, a compliance date of one year after the publication of this final rule for the restrictions on distribution in commerce of PCTP and PCTP-containing products and articles, unless PCTP concentrations are at or below 1% by weight.
In addition, EPA is requiring that all persons who manufacture, process, or distribute in commerce PCTP and articles and products containing PCTP maintain ordinary business records related to compliance with the prohibitions and restrictions, such as invoices and bills-of-lading. EPA revised this language slightly from the proposal to improve clarity. These records will have to be maintained for a period of three years from the date the record is generated, beginning on March 8, 2021.
PCTP is toxic to protozoa, fish, terrestrial plants, and birds, with data for analogous chemicals indicating the potential for liver effects in mammals and systemic effects for PCTP in mammals. These hazard statements are not based on a systematic review of the available literature and information may exist that could refine the hazard characterization. Additional information about PTCP's health effects, use, and exposure is in Unit II.C. and is further detailed in EPA's Hazard Summary (Ref. 11) and Exposure and Use Assessment (Ref. 5).
During the manufacture of rubber, PCTP has been used as a peptizer to reduce the viscosity of rubber during processing. PCTP has been used as a mastication agent in the rubber industry and, more specifically, a peptizing agent for natural rubber viscosity reduction in the early stages of rubber manufacturing (Ref. 13). Mastication and peptization are processing stages during which the viscosity of rubber is reduced to a level facilitating further processing (Ref. 14). It is possible to reduce the viscosity of natural and synthetic rubbers through solely mechanical efforts, but peptizers allow this process to be less sensitive to varying time and temperature, which improves the uniformity between batches (Ref. 13).
Total quantified annualized social costs for the final rule are approximately $108,000 (at both 3% and 7% discount rates). As described earlier in Unit III.B.3, potential costs such as testing, reformulation, release prevention, and imported articles, could not be quantified due to lack of data availability to estimate quantified costs. These costs are discussed qualitatively in the Economic Analysis (Ref. 3).
EPA considered the anticipated effect of this rule on the national economy and concluded that this rule is highly unlikely to have any measurable effect on the national economy (Ref. 3). EPA analyzed the expected impacts on small business and found that no small entities are expected to experience impacts of more than 1% of revenues (Ref. 3). Finally, EPA has determined that this rule is unlikely to have significant impacts on technological innovation, although the rule may create some incentives for chemical manufacturers to develop new chemical alternatives to PCTP.
As the result of a screening level analysis of likely alternatives based on the TSCA Work Plan Chemicals: Methods Document (Ref. 2), EPA believes that there are viable substitutes for PCTP in rubber manufacturing. Although this final rule is not prohibiting the manufacture or processing of PCTP and PCTP-containing products and articles for any use when PCTP concentrations are at or below 1% by weight, it is possible that some manufacturers and processors may choose to use alternatives instead of using PCTP at the concentration limit. At this time, EPA does not know whether products, including golf balls, are currently being made with halogenated organosulfur compound substitutes instead of PCTP. Based on information from patents, EPA believes
The potential alternatives were evaluated and scored on three characteristics: Hazard, exposure and the potential for persistence and/or bioaccumulation. Two chemicals, diphenyldisulfide and 2,2′-dibenzamidodiphenyl disulfide, scored lower for at least one characteristic (Ref. 3). With respect to pentafluorothiophenol, there was not enough information available to score each characteristic (Ref. 16).
In accordance with TSCA section 26(h) and taking into account the requirements of TSCA section 6(h), EPA has used scientific information, technical procedures, measures, and methodologies that are fit for purpose and consistent with the best available science. For example, EPA based its determination that human and environmental exposures to PCTP are likely in the Exposure and Use Assessment (Ref. 5) discussed in Unit II.A.2, which underwent a peer review and public comment process, as well as using best available science and methods sufficient to make that determination. The extent to which the various information, procedures, measures, and methodologies, as applicable, used in EPA's decision making have been subject to independent verification or peer review is adequate to justify their use, collectively, in the record for this rule. Additional information on the peer review and public comment process, such as the peer review plan, the peer review report, and the Agency's response to comments, are in the public docket for this action (EPA–HQ–OPPT–2018–0314). In addition, in accordance with TSCA section 26(i) and taking into account the requirements of TSCA section 6(h), EPA has made scientific decisions based on the weight of the scientific evidence.
The following is a list of the documents that are specifically referenced in this document. The docket includes these documents and other information considered by EPA, including documents that are referenced within the documents that are included in the docket, even if the referenced document is not physically located in the docket. All records in docket EPA–HQ–OPPT–2019–0080 are part of the record for this rulemaking. For assistance in locating these other documents, please consult the technical person listed under
Additional information about these statutes and Executive Orders can be found at
This action is a significant regulatory action that was submitted to the Office of Management and Budget (OMB) for review under Executive Order 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011). Any changes made in response to OMB recommendations have been documented in the docket for this action as required by section 6(a)(3)(E) of Executive Order 12866.
EPA prepared an economic analysis of the potential costs and benefits associated with this action. A copy of this economic analysis,
This action is considered a regulatory action under Executive Order 13771 (82 FR 9339, February 3, 2017). Details on the estimated costs of this final rule can be found in the Economic Analysis (Ref. 3), which is briefly summarized in Unit III.B.3.
The information collection activities in this rule have been submitted for approval to OMB under the PRA, 44 U.S.C. 3501
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9. When OMB approves this ICR, the Agency will announce that approval in the
I certify that this action will not have a significant economic impact on a substantial number of small entities under the RFA, 5 U.S.C. 601
This action does not contain an unfunded mandate of $100 million or more as described in UMRA, 2 U.S.C. 1531–1538, and will not significantly or uniquely affect small governments. The final rule is not expected to result in expenditures by State, local, and Tribal governments, in the aggregate, or by the private sector, of $100 million or more (when adjusted annually for inflation) in any one year. Accordingly, this final rule is not subject to the requirements of sections 202, 203, or 205 of UMRA. The requirements of this action will primarily affect processors, and a distributor of PCTP. The total quantified annualized social costs for this final rule under are approximately $108,000 (at both 3% and 7% discount rate), which does not exceed the inflation-adjusted unfunded mandate threshold of $160 million.
This action does not have federalism implications because it is not expected to 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 as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). Thus, Executive Order 13132 does not apply to this action.
This action does not have tribal implications because it is not expected to have substantial direct effects on tribal governments, on the relationship between the Federal Government and the Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes as specified in Executive Order 13175 (65 FR 67249, November 9, 2000). Thus, Executive Order 13175 does not apply to this final rule.
Consistent with the EPA Policy on Consultation and Coordination with Indian Tribes, EPA consulted with tribal officials during the development of this action. EPA consulted with representatives of Tribes via teleconference on August 31, 2018, and September 6, 2018, concerning the prospective regulation of the five PBT chemicals under TSCA section 6(h).
Tribal members were encouraged to provide additional comments after the teleconferences. EPA received two comments from the Keweenaw Bay Indian Community and Maine Tribes (Ref. 17 and 18).
This action is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997) because it is not an economically significant regulatory action as defined by Executive Order 12866. Although the action is not subject to Executive Order 13045, the Agency considered the risks to infants and children under EPA's Policy on Evaluating Health Risks to Children. EPA did not perform a risk assessment or risk evaluation of PTCP. More information can be found in the Exposure and Use Assessment (Ref. 5). This regulation will reduce the exposure to PCTP for the general population and for potentially exposed or susceptible subpopulations such as workers and children.
This action is not a “significant energy action” as defined in Executive Order 13211 (66 FR 28355, May 22, 2001) because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy and has not otherwise been designated as a significant energy action by the Administrator of the Office of Information and Regulatory Affairs (OIRA).
This rulemaking does not involve any technical standards. Therefore, NTTAA section 12(d), 15 U.S.C. 272
EPA believes that this action does not have disproportionately high and adverse health or environmental effects on minority populations, low-income populations and/or indigenous peoples,
This action is subject to the CRA, 5 U.S.C. 801
Environmental protection, Chemicals, Export Notification, Hazardous substances, Import certification, Reporting and recordkeeping.
Therefore, for the reasons stated in the preamble, 40 CFR part 751 is amended as follows:
15 U.S.C. 2605, 15 U.S.C. 2625(l)(4).
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Environmental Protection Agency (EPA).
Final rule.
The Environmental Protection Agency (EPA) is finalizing a rule under the Toxic Substances Control Act (TSCA) to address its obligations under TSCA for hexachlorobutadiene (HCBD) (CASRN 87–68–3), which EPA has determined meets the requirements for expedited action under TSCA. This final rule prohibits all manufacturing (including import), processing, and distribution in commerce of HCBD and HCBD-containing products or articles, recognizing that there is unintentional production of HCBD as a byproduct during the production of chlorinated solvents, and that results in distribution in commerce of a very limited subset of that byproduct for burning as a waste fuel. These requirements will impact the amount of HCBD that will be manufactured, processed, distributed in commerce, used or disposed, thus reducing the exposures to humans and the environment from those activities prohibited under this final rule.
This final rule is effective February 5, 2021. For purposes of judicial review and 40 CFR 23.5, this rule shall be promulgated at 1 p.m. eastern standard time on January 21, 2021.
The docket for this action, identified by docket identification (ID) number EPA–HQ–OPPT–2019–0080, is available at
Please note that due to the public health emergency, the EPA Docket Center (EPA/DC) and Reading Room was closed to public visitors on March 31, 2020. Our EPA/DC staff will continue to provide customer service via email, phone, and webform. For further information on EPA/DC services, docket contact information and the current status of the EPA/DC and Reading Room, please visit
You may be potentially affected by this action if you manufacture (including import), process, distribute in commerce, or use hexachlorobutadiene (HCBD) and HCBD-containing products or articles. The following list of North American Industrial Classification System (NAICS) codes is not intended to be exhaustive, but rather provides a guide to help readers determine whether this document applies to them. Potentially affected entities may include:
• Petroleum Lubricating Oil and Grease Manufacturing (NAICS Code 324191);
• Other Basic Inorganic Chemical Manufacturing (NAICS Code 325180);
• All Other Basic Organic Chemical Manufacturing (NAICS Code 325199);
• Plastics Material and Resin Manufacturing (NAICS Code 325211);
• All Other Miscellaneous Chemical Product and Preparation Manufacturing (NAICS Code 325998);
• All Other Plastics Product Manufacturing (NAICS Code 326199);
• All Other Rubber Product Manufacturing (NAICS Code 326299);
• Cement Manufacturing (NAICS Code 327310);
• Hazardous Waste Treatment and Disposal (NAICS Code 562211);
• Hazardous Waste Collection (562112);
• Solid Waste Combustors and Incinerators (NAICS Code 562213);
• Other Chemical and Allied Products Merchant Wholesalers (NAICS Code 424690);
• Crude Petroleum Extraction (NAICS Code 211120);
• Facilities Support Services (NAICS Code 561210);
• All Other Miscellaneous Chemical Product and Preparation Manufacturing (NAICS Code 325998).
If you have any questions regarding the applicability of this action to a particular entity, consult the technical information contact listed under
Section 6(h) of TSCA, 15 U.S.C. 2601
EPA published a proposed rule on July 29, 2019 to address the five PBT chemicals EPA identified pursuant to TSCA section 6(h) (84 FR 36728; FRL–9995–76). After publication of the proposed rule, EPA determined to address each of the five PBT chemicals in separate final actions. This final rule prohibits the manufacturing (including import), processing, and distribution in commerce of HCBD and HCBD-containing products or articles after March 8, 2021, except for the unintentional production of HCBD as a byproduct during the production of chlorinated solvents and the processing and distribution of the byproduct for burning as a waste fuel. In addition, after March 8, 2021, manufacturers, processors and distributors of HCBD or HCBD-containing products or articles must maintain, for three years from the date the record is generated, ordinary business records related to compliance with the prohibitions and restrictions. This provision is not intended to require subject companies to retain records in addition to those specified herein, except as needed pursuant to normal business operations.
EPA is issuing this final rule to fulfill EPA's obligations under TSCA section 6(h) to take timely regulatory action on PBT chemicals, including HCBD, “to address the risks of injury to health or the environment that the Administrator determines are presented by the chemical substance and to reduce exposure to the substance to the extent practicable.” Consistent with that requirement, the Agency is finalizing this rule to reduce exposures to HCBD that could occur from prohibited activities to the extent practicable.
EPA has evaluated the potential costs of these restrictions and prohibitions and the associated reporting and recordkeeping requirements. The “Economic Analysis for Regulation of Hexachlorobutadiene (HCBD) Under TSCA Section 6(h)” (Economic Analysis) (Ref. 3), is available in the docket and is briefly summarized here.
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Executive Order 13045 applies if the regulatory action is economically significant and concerns an environmental health risk or safety risk that may disproportionately affect children. While the action is not subject to Executive Order 13045, the Agency's Policy on Evaluating Health Risks to Children (
TSCA section 6(h) requires EPA to take expedited regulatory action under TSCA section 6(a) for certain PBT chemicals identified in the 2014 Update to the TSCA Work Plan for Chemical Assessments (Ref. 1). As required by the statute, EPA issued a proposed rule to address five PBT chemicals identified pursuant to TSCA section 6(h) (84 FR 36728, July 29, 2019). The statute required that this be followed by promulgation of a final rule no later than 18 months after the proposal. Although EPA proposed regulatory actions on each chemical substance in one proposal, in response to public comments (EPA–HQ–OPPT–2019–
Under TSCA section 6(h)(1)(A), the chemical substances subject to expedited action are those that:
• EPA has a reasonable basis to conclude are toxic and that with respect to persistence and bioaccumulation score high for one and either high or moderate for the other, pursuant to the 2012 TSCA Work Plan Chemicals: Methods Document or a successor scoring system;
• Are not a metal or a metal compound; and
• Are chemical substances for which EPA has not completed a TSCA Work Plan Problem Formulation, initiated a review under TSCA section 5, or entered into a consent agreement under TSCA section 4, prior to June 22, 2016, the date that TSCA was amended by the Frank R. Lautenberg Chemical Safety for the 21st Century Act (Pub. L. 114–182, 130 Stat. 448).
In addition, in order for a chemical substance to be subject to expedited action, TSCA section 6(h)(1)(B) states that EPA must find that exposure to the chemical substance under the conditions of use is likely to the general population or to a potentially exposed or susceptible subpopulation identified by the Administrator (such as infants, children, pregnant women, workers, or the elderly), or to the environment on the basis of an exposure and use assessment conducted by the Administrator. TSCA sections 6(h)(2) further provides that the Administrator shall not be required to conduct risk evaluations on chemical substances that are subject to TSCA section 6(h)(1).
Based on the criteria set forth in TSCA section 6(h), EPA proposed to determine that five chemical substances meet the TSCA section 6(h)(1)(A) criteria for expedited action, and HCBD is one of these five chemical substances. In addition, in accordance with the statutory requirements to demonstrate that exposure to the chemical substance is likely under the conditions of use, EPA conducted an Exposure and Use Assessment for HCBD. As described in the proposed rule, EPA conducted a literature review with respect to HCBD to identify, screen, extract, and evaluate the reasonably available information on use and exposures. This information is in the document entitled “Exposure and Use Assessment of Five Persistent, Bioaccumulative and Toxic Chemicals” (Ref. 5). Based on this review, which was subject to peer review and public comment, EPA proposed to find that exposure to HCBD is likely, based on information detailed in the Exposure and Use Assessment.
1. EPA's approach for implementing TSCA section 6(h)(4).
TSCA section 6(h)(4) requires EPA to issue a final TSCA section 6(a) rule to “address the risks of injury to health or the environment that the Administrator determines are presented by the chemical substance and reduce exposure to the substance to the extent practicable.” EPA reads this text to require action on the chemical, not specific conditions of use.
The approach EPA takes is consistent with the language of TSCA section 6(h)(4) and its distinct differences from other provisions of TSCA section 6 for chemicals that are the subject of required risk evaluations. First, the term “condition of use” is only used in TSCA section 6(h) in the context of the TSCA section 6(h)(1)(B) finding relating to likely exposures under “conditions of use” to “the general population or to a potentially exposed or susceptible subpopulation . . . or the environment.” In contrast to the risk evaluation process under TSCA section 6(b), this TSCA section 6(h)(1)(B) threshold criterion is triggered only through an Exposure and Use Assessment regarding the likelihood of exposure and does not require identification of every condition of use. As a result, EPA collected all the information it could on the use of each chemical substance, without regard to whether any chemical activity would be characterized as “known, intended or reasonably foreseen to be manufactured, processed, distributed in commerce, used, or disposed of,” and from that information created use profiles and then an Exposure and Use Assessment (Ref. 4) to make the TSCA section 6(h)(1)(B) finding for at least one or more “condition of use” activities where some exposure is likely. EPA did not attempt to precisely classify all activities for each chemical substance as a “condition of use” and thus did not attempt to make a TSCA section 6(h)(1)(B) finding for all chemical activities summarized in the Exposure and Use Assessment (Ref. 4). Second, TSCA section 6 generally requires a risk evaluation under TSCA section 6(b) for chemicals based on the identified conditions of use. However, pursuant to TSCA section 6(h)(2), for chemical substances that meet the criteria of TSCA section 6(h)(1), a risk evaluation is neither required nor contemplated to be conducted for EPA to meet its obligations under TSCA section 6(h)(4). Rather, as noted in Unit II.B.3., if a previously prepared TSCA risk assessment exists, EPA would have authority to use that risk assessment to “address risks” under TSCA section 6(h)(4), but even that risk assessment would not necessarily be focused on whether an activity is “known, intended or reasonably foreseen,” as those terms were not used in TSCA prior to the 2016 amendments and a preexisting assessment of risks would have had no reason to use such terminology or make such judgments. It is for this reason EPA believes that the TSCA section 6(h)(4) “address risk” standard refers to the risks the Administrator determines “are presented by the chemical substance” and makes no reference to “conditions of use.” Congress did not contemplate or require a risk evaluation identifying the conditions of use as defined under TSCA section 3(4). The kind of analysis required to identify and evaluate the conditions of use for a chemical substance is only contemplated in the context of a TSCA section 6(b) risk evaluation, not in the context of an expedited rulemaking to address PBT chemicals. Similarly, the TSCA amendments require EPA to “reduce
Taking all of this into account, EPA reads its TSCA section 6(h)(4) obligation to apply to the chemical substance generally, thus requiring EPA to address risks and reduce exposures to the chemical substance without focusing on whether the measure taken is specific to an activity that might be characterized as a “condition of use” as that term is defined in TSCA section 3(4) and interpreted by EPA in the Risk Evaluation Rule, 82 FR 33726 (July 20, 2017). This approach ensures that any activity involving a TSCA section 6(h) PBT chemical, past, present or future, is addressed by the regulatory approach taken. Thus, under this final rule, manufacturing, processing, and distribution in commerce activities that are not specifically excluded are prohibited. The specified excluded activities are those which EPA determined were not appropriate to
2. EPA's interpretation of “practicable.”
The term “practicable” is not defined in TSCA. EPA interprets this requirement as generally directing the Agency to consider such factors as achievability, feasibility, workability, and reasonableness. In addition, EPA's approach to determining whether particular prohibitions or restrictions are practicable is informed in part by certain other provisions in TSCA section 6, such as TSCA section 6(c)(2)(A), which requires the Administrator to consider health effects, exposure, and environmental effects of the chemical substance; benefits of the chemical substance; and the reasonably ascertainable economic consequences of the rule. In addition, pursuant to TSCA section 6(c)(2)(B), in selecting the appropriate TSCA section 6(a) regulatory approach, the Administrator is directed to “factor in, to the extent practicable” those same considerations.
EPA received comments on the proposed rule regarding this interpretation of “practicable.” EPA has reviewed these comments and believes the interpretation described previously within this Unit is consistent with the intent of TSCA and has not changed that interpretation. EPA's interpretation of an ambiguous statutory term receives deference. More discussion on these comments is in the Response to Comments document for this rulemaking (Ref. 4).
3. EPA did not conduct a risk evaluation or assessment.
As EPA explained in the proposed rule, EPA does not interpret the “address risk” language to require EPA to determine, through a risk assessment or risk evaluation, whether risks are presented. EPA believes this reading gives the Administrator the flexibility Congress intended for issuance of expedited rules for PBTs and is consistent with TSCA section 6(h)(2), which makes clear a risk evaluation is not required to support this rulemaking.
EPA received comments on the proposed rule regarding its interpretation of TSCA section 6(h)(4) and regarding EPA's lack of risk assessment or risk evaluation of HCBD. A number of commenters asserted that while EPA was not compelled to conduct a risk evaluation, EPA should have conducted a risk evaluation under TSCA section 6(b) regardless. The rationales provided by the commenters for such a risk assessment or risk evaluation included that one was needed for EPA to fully quantify the benefits to support this rulemaking, and that without a risk evaluation, EPA would not be able to determine the benefits, risks, and cost effectiveness of the rule in a meaningful way. As described by the commenters, EPA would therefore not be able to meet the TSCA section 6(c)(2) requirement for a statement of these considerations. Regarding the contradiction between the mandate in TSCA section 6(h) to expeditiously issue a rulemaking and the time needed to conduct a risk evaluation, some commenters stated that EPA would have had enough time to conduct a risk evaluation and issue a proposed rule by the statutory deadline.
EPA disagrees with the commenters' interpretation of EPA's obligations with respect to chemicals subject to TSCA section 6(h)(4). TSCA section 6(h)(4) provides that EPA shall: (1) “Address the risks of injury to health or the environment that the Administrator determines are presented by the chemical substance” and (2) “reduce exposure to the substance to the extent practicable.” With respect to the first requirement, that standard is distinct from the “unreasonable risk” standard for all other chemicals for which a section 6(a) rule might be issued. EPA does not believe the TSCA section 6(h) contemplates a new evaluation of any kind, given evaluations to determine risks are now addressed through the TSCA section 6(b) risk evaluation process and TSCA section 6(h)(2) explicitly provides that no risk evaluation is required. Moreover, it would have been impossible to prepare a meaningful evaluation under TSCA and subsequently develop a proposed rule in the time contemplated for issuance of a proposed rule under TSCA section 6(h)(1). Although EPA does not believe the statute contemplates a new evaluation of any kind for these reasons, EPA reviewed the hazard and exposure information on the five PBT chemicals EPA had compiled. However, while this information appropriately addresses the criteria of TSCA section 6(h)(1)(A) and (B), it did not provide a basis for EPA to develop sufficient and scientifically robust and representative risk estimates to evaluate whether or not any of the chemicals present an identifiable risk of injury to health or the environment.
Rather than suggesting a new assessment is required, EPA reads the “address risk” language in TSCA section 6(h)(4) to contemplate reliance on an existing EPA assessment under TSCA, similar to a risk assessment that may be permissibly used under TSCA section 26(l)(4) to regulate the chemical under TSCA section 6(a). This interpretation gives meaning to the “address risk” phrase, without compelling an evaluation contrary to TSCA section 6(h)(2) and would allow use of an existing determination, or development of a new determination based on such an existing risk assessment, in the timeframe contemplated for issuance of a proposed rule under TSCA section 6(h). However, there were no existing EPA assessments of risk for any of the PBT chemicals. Thus, because EPA had no existing EPA risk assessments or determinations of risk, the regulatory measures addressed in this final rule focus on reducing exposures “to the extent practicable.”
In sum, because neither the statute nor the legislative history suggests that a new evaluation is compelled to identify and thereby provide a basis for the Agency to “address risks” and one could not be done prior to preparation and timely issuance of a proposed rule, and no existing TSCA risk assessment exists for any of the chemicals, EPA has made no risk determination finding for any of the PBT chemicals. Instead, EPA implements the requirement of TSCA section 6(h)(4) by reducing exposures of each PBT chemical “to the extent practicable.”
For similar reasons, EPA does not believe that TSCA section 6(c)(2) requires a quantification of benefits, much less a specific kind of quantification. Under TSCA section 6(c)(2)(A)(iv), EPA must consider and publish a statement, based on reasonably available information, on the reasonably ascertainable economic consequences of the rule, but that provision does not require quantification, particularly if quantification is not possible. EPA has reasonably complied with this requirement by including a quantification of direct costs and a qualitative discussion of benefits in each of the preambles to the final rules. EPA was unable to quantify the indirect costs associated with the rule. Further discussion on these issues raised in the
HCBD is a halogenated aliphatic hydrocarbon that is produced as a byproduct during the manufacture of chlorinated hydrocarbons, particularly perchloroethylene, trichloroethylene, and carbon tetrachloride (Ref. 6). As described in the proposed rule, the majority of HCBD that is unintentionally produced as a byproduct is destroyed via incineration by the manufacturer, which EPA views as being consistent with the approach taken at the international level under Article 6 of the Stockholm Convention. The remainder of the HCBD byproduct is sent off-site for incineration or for burning as a waste fuel by cement manufacturers in cement kilns (EPA–HQ–OPPT–2016–0738–0012), an identified source category under Annex C of the Stockholm Convention. EPA views this burning of such waste as consistent with the approach taken at the international level under Article 6 of the Stockholm Convention. EPA has not identified any current intentional use of HCBD. The destruction and removal efficiency from incineration of the HCBD byproduct is expected to be significant but not complete, resulting in potential for air releases from incinerator flue gas and land releases from disposal of ash and slag. Minor water releases from equipment cleaning are possible (Ref. 5). According to EPA Toxics Release Inventory (TRI) data, over 9 million lbs of HCBD byproduct were generated by chemical manufacturers in reporting year 2017, with almost 8.9 million lbs treated for destruction on-site via incineration. TRI reports show other waste management activities of HCBD byproduct including 58,000 lbs being treated for destruction off-site, 33,000 lbs burned for energy recovery off-site, and 2,400 lbs released to air (Ref. 7). Exposure information for HCBD is further detailed in EPA's Exposure and Use Assessment (Ref. 5) and discussed in the Response to Comments (Ref. 4).
As described in EPA's Environmental and Human Health Hazards of Five Persistent, Bioaccumulative, and Toxic Chemicals, HCBD is considered a possible human carcinogen (Ref. 8). Inhalation and oral animal data for HCBD indicate renal, reproductive, and developmental effects in rats (Ref. 8). Health effects included renal adenomas and carcinomas, reduced body weight in adults, and reduced fetal body weight. Women who are occupationally exposed may transfer HCBD to infants via breastmilk (Ref. 5).
HCBD is toxic to aquatic life following acute and chronic exposures at very low concentrations (Ref. 8). Data show acute toxicity in aquatic invertebrates, fish and algae, and chronic toxicity in fish. A single toxicity test was identified for terrestrial organisms, showing reduced chick survival in quail. The Hazard Summary provides more information on these hazardous endpoints (Ref. 8). The studies presented in the document entitled “Environmental and Human Health Hazards of Five Persistent, Bioaccumulative and Toxic Chemicals (Hazard Summary) (Ref. 8) demonstrate these hazardous endpoints. EPA did not perform a systematic review or a weight of the scientific evidence assessment for the hazard characterization of these chemicals. As a result, this hazard characterization is not definitive or comprehensive. Other hazard information on these chemicals may exist in addition to the studies summarized in the Hazard Summary that could alter the hazard characterization.
In the 2014 Update to the TSCA Work Plan for Chemical Assessments (Ref. 1), HCBD scored high (3) for hazard (possible human carcinogen); moderate (2) for exposure (based on TRI data); and high (3) for persistence and bioaccumulation (based on high environmental persistence and high bioaccumulation potential). The overall screening score for HCBD was high (8) (Ref. 1).
In consideration of the production, use, and destruction of HCBD, the environmental and human health hazards of HCBD, and the public comments on the proposed rule that are further discussed in Unit III.A., EPA determines that HCBD meets the TSCA section 6(h)(1)(A) criteria. EPA determines in accordance with TSCA section 6(h)(1)(B) that, based on the Exposure and Use Assessment and the reasonably available information, exposure to HCBD under the conditions of use is likely to the general population, to a potentially exposed or susceptible subpopulation, or to the environment. EPA's determination is based on the opportunities for exposure throughout the lifecycle of HCBD, including the potential for exposures, and EPA did not receive any significant comments or information to call the exposure finding into question.
EPA did not propose to regulate HCBD under TSCA section 6(h) because of the limited releases and given that the potential for exposure from uses of this chemical is already addressed by actions taken under other statutes and EPA determined further measures would not be practicable. As discussed in the proposed rule, HCBD is regulated under various statutes implemented by the Federal Government, such as the Clean Air Act (CAA) and Resource Conservation and Recovery Act (RCRA). According to TRI data, most of the HCBD manufactured in the United States is subsequently destroyed via incineration.
EPA, however, proposed an alternative regulatory action of prohibiting the manufacture of HCBD, which is further discussed in the proposed rule.
The proposed rule provided a 60-day public comment period, with a 30-day extension provided. (Ref. 4). The comment period closed on October 28, 2019. EPA received a total of 48 comments, with three commenters sending multiple submissions with attached files, for a total of 58 submissions on the proposal for all the PBT chemicals. This includes the previous request for a comment period extension (EPA–HQ–OPPT–2019–0080–0526). Two commenters submitted confidential business information (CBI) or copyrighted documents with information regarding economic analysis and market trends. Copies of all the non-CBI documents, or redacted versions without CBI, are available in the docket for this action.
In this preamble, EPA has responded to the major comments relevant to the HCBD final rule. Of the comment submissions, 10 directly addressed EPA's proposal regarding HCBD. Additional discussion related to this final action can be found in the Response to Comments document (Ref. 4).
EPA is not regulating all activities or exposures to HCBD in this rule, even though the Exposure and Use Assessment (Ref. 5) identified potential for exposures under conditions of use. One such activity is disposal. EPA generally presumes compliance with federal and state laws and regulations, including, for example, RCRA and its implementing regulations and state laws, as well as the CAA, the Clean Water Act, and the Safe Drinking Water Act (SDWA). As described in the proposed rule, regulations promulgated under the authority of the RCRA govern the disposal of hazardous and non-hazardous wastes. HCBD is listed as a
In addition, the CAA requires EPA to regulate hazardous air pollutants (HAP) such as HCBD. CAA section 112 requires that the Agency establish National Emission Standards for Hazardous Air Pollutants (NESHAP) for the control of hazardous air pollutants from both new and existing major sources. The CAA requires the NESHAP to reflect the maximum degree of reduction in emissions of HAP that is achievable, taking into consideration the cost of achieving the emissions reductions, any non-air quality health and environmental impacts, and energy requirements. This level of control is commonly referred to as maximum achievable control technology (MACT). The CAA also establishes a minimum control level for MACT standards known as the MACT “floor.” The MACT floor is the minimum control level allowed for NESHAP and is defined under the CAA section 112(d)(3) (Ref. 9). The chemical manufacturers that produce HCBD are in NAICS group 325 and therefore fall under the NESHAP regulations for miscellaneous organic chemical manufacturing found at 40 CFR part 63 subpart FFFF. These regulations require facilities to treat chemicals in their waste streams at high efficiencies. For example, emissions from process vents must be reduced by greater than or equal to 99% by weight depending on the chemical in the waste stream. According to TRI data, chemical manufacturers that submit reports for HCBD are treating the byproduct via incineration at greater than 99.99% treatment efficiency with some reporting an efficiency greater than 99.9999%. Under the CAA, facilities in certain industries are required to implement a Leak Detection and Repair (LDAR) program to reduce fugitive air emissions. Included in those industries are synthetic organic chemical manufacturers that produce the HCBD byproduct. The LDAR program requires these facilities to monitor components such as pumps, valves, connectors and compressors for leaks. When leaks are detected, the facility is required to repair or replace the leaking component.
In view of these comprehensive, stringent programs for addressing disposal and air releases, EPA determined that it is not practicable to impose additional requirements under TSCA on the disposal and air releases of the HCBD byproduct.
In addition, EPA proposed not to use its TSCA section 6(a) authorities to directly regulate occupational exposures. As explained in the proposed rule, as a matter of policy, EPA assumes compliance with federal and state requirements, such as worker protection standards, unless case-specific facts indicate otherwise. The Occupational Safety and Health Administration (OSHA) has not established a permissible exposure limit (PEL) for HCBD. However, under section 5(a)(1) of the Occupational Safety and Health Act of 1970, 29 U.S.C. 654(a)(1), each employer has a legal obligation to furnish to each of its employees employment and a place of employment that are free from recognized hazards that are causing or are likely to cause death or serious physical harm. The OSHA Hazard Communication Standard at 29 CFR 1910.1200 requires chemical manufacturers and importers to classify the hazards of chemicals they produce or import, and all employers to provide information to employees about hazardous chemicals to which they may be exposed under normal conditions of use or in foreseeable emergencies. The OSHA standard at 29 CFR 1910.134(a)(1) requires the use of feasible engineering controls to prevent atmospheric contamination by harmful substances and requires the use of respirators where effective engineering controls are not feasible. The OSHA standard at 29 CFR 1910.134(c) details the required respiratory protection program. The OSHA standard at 29 CFR 1910.132(a) requires the use of personal protective equipment (PPE) by workers when necessary due to a chemical hazard; 29 CFR 1910.133 requires the use of eye and face protection when employees are exposed to hazards including liquid chemicals; and 29 CFR 1910.138 requires the use of PPE to protect employees' hands including from skin absorption of harmful substances. The provisions of 29 CFR 1910.132(d) and (f) address hazard assessment, PPE selection, and training with respect to PPE required under 29 CFR 1910.133, 1910.135, 1910.136, 1910.138, and 1910.140. EPA assumes that employers will require, and workers will use, appropriate PPE consistent with OSHA standards, taking into account employer-based assessments, in a manner sufficient to prevent occupational exposures that are capable of causing injury.
EPA assumes compliance with other federal requirements, including OSHA standards and regulations. EPA does not read TSCA section 6(h)(4) to direct EPA to adopt potentially redundant or conflicting requirements. Not only would it be difficult to support broadly applicable and safe additional measures for each specific activity without a risk evaluation and in the limited time for issuance of this regulation under TSCA section 6(h), but imposing such measures without sufficient analysis could inadvertently result in conflicting or confusing requirements and make it difficult for employers to understand their obligations. Furthermore, EPA cannot conclude that broadly imposing specific measures is practicable for all of the varied workplaces. Rather, where EPA has identified worker exposures and available substitutes, EPA is finalizing measures to reduce those exposures. As discussed in the proposed rule, EPA assumes that the worker protection methods used by employers, including in response to existing OSHA standards, in addition to the regulatory measures taken for each chemical, meaningfully reduce the potential for occupational exposures. Although some commenters agreed with this approach, others thought that EPA should establish worker protection requirements for those uses that would be allowed to continue under the final rule. Information provided to EPA before and during the public comment period on the proposed rule indicates that employers are using engineering and process controls and providing appropriate personal protective equipment (PPE) to their employees consistent with these requirements, and EPA received no information on HCBD to suggest this is not the case. Further,
Finally, EPA received comments regarding the use of PBT chemicals in research and development and laboratory use. Laboratory use is addressed under newly established 40 CFR 751.401(b) as the manufacturing, processing, distribution-in-commerce and use of any chemical substance, or products and articles that contain the chemical substance, for research and development, as defined in new 40 CFR 751.403.
More information on the comments received and EPA's responses can be found in the Response to Comments document (Ref. 4).
EPA carefully considered all public comments related to the proposal. This final rule differs from EPA's proposal by finalizing a prohibition on the manufacturing (including import), processing, and distribution in commerce of HCBD, and HCBD-containing products and articles, except for the unintentional production of HCBD as a byproduct during the production of chlorinated solvents, and the limited processing and distribution of HCBD for burning as a waste fuel. The effective date is 30 days after publication of the final rule.
EPA received comments disagreeing with EPA's proposal not to regulate HCBD. One commenter stated that EPA must act under TSCA section 6(h) to include a total phase-out of the chemical (EPA–HQ–OPPT–2019–0080–0575). Another commenter stated that by not prohibiting uses of HCBD, EPA's approach allowed ongoing exposures, including to potentially exposed and susceptible subpopulations, and potential expansion of uses (EPA–HQ–OPPT–2019–0080–0567). Three commenters noted that HCBD was listed in the Stockholm Convention on Persistent Organic Pollutant (POPs) which prohibits the intentional manufacture of HCBD and stated that the manufacture of HCBD should be eliminated (EPA–HQ–OPPT–2019–0080–0570) (EPA–HQ–OPPT–2019–0080–0567) (EPA–HQ–OPPT–2019–0080–0531). EPA received one comment supporting EPA's proposal and finding that no new risk management measures are required to reduce exposure of HCBD to the extent practicable (EPA–HQ–OPPT–2019–0080–0557).
In response to comments, EPA is finalizing a prohibition on the manufacturing, processing, and distribution of HCBD and HCBD-containing products or articles, recognizing that there is unintentional production of HCBD as a byproduct during the production of chlorinated solvents, that results in processing and distribution in commerce of a very limited subset of that byproduct for burning as a waste fuel. However, as explained below, EPA disagrees with commenters that a total ban of HCBD production as a byproduct is practicable. The potential for exposure from incineration and distribution for incineration of the byproduct is substantially addressed by actions taken under other statutes. As discussed in EPA's proposed rule and in Unit II.F., HCBD is regulated under various statutes implemented by the Federal Government, such as CAA and RCRA. According to TRI data, most of the byproduct HCBD manufactured in the United States is subsequently destroyed via incineration due in large part to the high waste treatment efficiencies achieved by the chemical manufacturers. Chemical manufacturers that submit TRI reports for HCBD byproduct are treating the chemical via incineration at greater than 99.99% treatment efficiency with some reporting an efficiency greater than 99.9999%.
Given the known uses and efficiency of the destruction of HCBD created as a byproduct, EPA is issuing a final rule to prohibit all manufacturing, processing, and distribution in commerce of HCBD and products and articles containing HCBD, while recognizing the continuation of the production of HCBD as a byproduct during the production of chlorinated solvents, and the resulting processing and distribution of HCBD for burning as a waste fuel. This final rule allows the current, highly regulated, unintentional production as a byproduct and incineration and distribution for incineration of such byproduct to continue and ensures that other uses do not commence.
Multiple commenters submitted comments to EPA discussing HCBD uses. Commenters pointed out that EPA's website had previously identified uses of HCBD as a solvent in rubber manufacturing and in hydraulic, heat transfer, or transformer fluid (EPA–HQ–OPPT–2019–0080–0575) (EPA–HQ–OPPT–2019–0080–0546). Commenters further noted that EPA's Preliminary Information on Manufacturing, Processing, Distribution, Use, and Disposal for HCBD document identified numerous uses for HCBD beyond its production as a byproduct (Ref. 4) (EPA–HQ–OPPT–2019–0080–0575) (EPA–HQ–OPPT–2019–0080–0546). According to one commenter, EPA had not addressed these activities in its proposed rule, much less established that it would be impracticable to ban these uses to reduce exposure. This commenter stated that EPA should ban these past uses (EPA–HQ–OPPT–2019–0080–0546). Another commenter felt that EPA's proposed rule neglected to discuss or mention legacy uses and legacy disposals of PBT chemicals, and other commenters stated that HCBD has been listed in Annex A of the Stockholm Convention in order to avoid new possible future uses of HCBD (EPA–HQ–OPPT–2019–0080–0541) (EPA–HQ–OPPT–2019–0080–0531) (EPA–HQ–OPPT–2019–0080–0575).
In addition, multiple commenters expressed concerns about EPA's conclusion that “a prohibition on the manufacture of HCBD would effectively prohibit the manufacture of the three
EPA appreciates the comments provided regarding HCBD. EPA's Preliminary Information on Manufacturing, Processing, Distribution, Use, and Disposal for HCBD document was a preliminary summary of available information on uses, past and present, of HCBD (Ref. 4). EPA requested comment on the document but did not receive confirmation of ongoing uses other than those discussed in the proposed rule. EPA has not identified any uses of HCBD. The only activity involving HCBD is burning as a waste fuel as a result of unintentional HCBD production as a byproduct.
However, recognizing commenters' concern about prohibiting HCBD uses that are not currently ongoing to avoid, for example, the return of past uses, EPA is finalizing a change from the proposal and is prohibiting all manufacturing, processing, and distribution in commerce of HCBD and products and articles containing HCBD, but allowing the continuation of the unintentional production of HCBD as a byproduct during the production of chlorinated solvents and the resulting processing and distribution of HCBD for burning as a waste fuel. This approach ensures that the types of allowable activities involving HCBD are severely limited by precluding the manufacture, processing, or distribution of HCBD for a purpose other than its incidental and unintentional production as a byproduct and allows burning of that byproduct as a waste fuel. Any other activity involving HCBD is prohibited by the final rule, and thus the final requirements are consistent with restrictions on the intentional production and use of HCBD under Annex A of the Stockholm Convention. Moreover, the highly regulated burning of the byproduct as a waste fuel is also consistent with Article 6 of the same Convention. Thus, the final rule requirements reduce the exposures to humans and the environment that could occur with any activity involving HCBD not directly related to its manufacture as a byproduct or burning as a waste fuel.
EPA received comments regarding the chlorinated solvents that unintentionally produce HCBD as a byproduct. One commenter recommended that EPA consider whether viable alternative synthetic routes exist that do not result in such production (EPA–HQ–OPPT–2019–0080–0541). One commenter stated that EPA should solicit information, regarding whether HCBD-free production methods for chlorinated solvents exist from industry before concluding that a ban on HCBD would entail a ban on chlorinated solvents (EPA–HQ–OPPT–2019–0080–0551). Another commenter stated that EPA must act under section 6(h) to include a total phase-out of the chemical and any processes that lead to creation of HCBD as a byproduct (EPA–HQ–OPPT–2019–0080–0575). Others requested EPA require best available techniques and environmental practices to control emissions and releases from sources of HCBD, and suggested EPA develop a plan to eliminate HCBD to the extent practicable through alternative chlorinated solvent manufacturing (EPA–HQ–OPPT–2019–0080–0567).
EPA appreciates the comments regarding alternatives and actions to be taken on chlorinated hydrocarbons, particularly perchloroethylene, trichloroethylene, and carbon tetrachloride, that unintentionally create HCBD as a byproduct. EPA is not aware of alternative methods for the production of chlorinated solvents that do not unintentionally produce HCBD as a byproduct and did not receive additional information in the comments on the proposal. As discussed in the proposed rule, prohibiting all manufacture of HCBD would effectively preclude the manufacture of trichloroethylene, carbon tetrachloride and perchloroethylene and EPA does not believe precluding manufacture of these solvents to reduce the exposure to the HCBD byproduct is practicable at this time. EPA is not addressing these three solvents during this TSCA section 6(h) rule making, which applies solely to PBT chemicals. Additionally, the solvents are the subject of the risk evaluation process pursuant to TSCA section 6(b). Where unreasonable risks are identified as part of those risk evaluations, EPA is required to take action under TSCA section 6(a) to address unreasonable risk. In addition, these chlorinated solvents are widely used in dry cleaning, metal degreasing, and other industries. To broadly assess the economic impact of a prohibition of the manufacture of these three chemicals, EPA estimated the potential market value loss by multiplying the national production volume of each of these chemicals by an average price per pound. This resulted in an estimated impact $213 million to $541 million (average $368 million) worth of production (see the Economic Analysis for the proposed rule for details on this estimation) (Ref. 10). Therefore, EPA's final rule allows the continuation of the unintentional production of HCBD as a byproduct during the production of chlorinated solvents and processing and distribution of the HCBD byproduct for burning as a waste fuel, and prohibits all other manufacturing, processing, and distribution in commerce of HCBD and products and articles containing HCBD.
In addition, EPA is requiring that all persons who manufacture, process, or distribute in commerce HCBD and HCBD-containing products or articles maintain ordinary business records related to compliance with the prohibitions and restrictions, such as invoices and bills-of-lading. EPA revised this language slightly from the proposal to improve clarity. These records will have to be maintained for a period of three years from the date the record is generated, beginning on March 8, 2021.
HCBD is toxic to aquatic invertebrates, fish, and birds. Data indicate the potential for renal, liver, and developmental effects in mammals. HCBD has been identified as a possible human carcinogen. The studies presented in the Hazard Summary (Ref. 8) demonstrate these hazardous endpoints. These hazard statements are not based on a systematic review of the available literature and information may exist that could refine the hazard characterization. Additional information about HCBD health effects, use, and exposure is in Unit II.C. and further detailed in the Hazard Summary (Ref. 8). Information on use and exposures is also in Unit II.C. and is further detailed in EPA's Exposure and Use Assessment (Ref. 5, Ref. 8).
HCBD is unintentionally manufactured as a waste byproduct by chemical manufacturers. The majority of
EPA has evaluated the potential costs of the final action for HCBD. Costs of the final rule were estimated based on the assumption that under regulatory limitations on HCBD, processors that use HCBD in their products would switch to available alternative chemicals to manufacture the product, or to products that do not contain HCBD. Costs for rule familiarization and recordkeeping were estimated based on burdens estimated for other similar rulemakings. Costs were annualized over a 25-year period. Other potential costs include, but are not limited to, those associated with testing, reformulation, imported articles, and some portion of potential revenue loss. However, these costs are discussed only qualitatively, due to lack of data availability to estimate quantified costs. More details of this analysis are presented in the Economic Analysis (Ref. 3).
Total quantified annualized industry costs for the final rule is $354. Total annualized Agency costs associated with implementation of the final rule were based on EPA's best judgment and experience with other similar rules. For the final regulatory action, EPA estimates it will require 0.5 FTE at $77,576 per year (Ref. 3).
Total quantified annualized social costs for the final rule are estimated to be $77,930 (at both 3% and 7% discount rates annualized over 25 years). As described earlier in Unit III.B.3, potential costs such as testing, reformulation, and imported articles, could not be quantified due to lack of data availability to estimate quantified costs. These costs are discussed qualitatively in the Economic Analysis (Ref. 3).
As discussed in Unit II., although EPA reviewed hazard and exposure information for the PBT chemicals, this information did not provide a basis for EPA to develop scientifically robust and representative risk estimates to evaluate whether or not any of the chemicals present a risk of injury to health or the environment. Benefits were not quantified due to the lack of risk estimates. A qualitative discussion of the potential benefits associated with the final action for HCBD is provided. HCBD is persistent, bioaccumulative, and a possible human carcinogen. It is not intentionally manufactured in the United States. Since EPA is effectively excluding from prohibition all current activities involving HCBD as a byproduct, no benefits to human health or the environment are expected; the benefit is the prevention of individuals from being occupationally exposed to HCBD via the inhalation and dermal routes in the future. The toxicity of potential substitutes for HCBD has not been assessed at this time.
With respect to the cost effectiveness of the final regulatory action and the primary alternative regulatory action, EPA is unable to perform a traditional cost-effectiveness analysis of the actions and alternatives for the PBT chemicals. As discussed in the proposed rule, the cost effectiveness of a policy option would properly be calculated by dividing the annualized costs of the option by a final outcome, such as cancer cases avoided, or to intermediate outputs such as tons of emissions of a pollutant curtailed. Without the supporting analyses for a risk determination, EPA is unable to calculate either a health-based or environment-based denominator. Thus, EPA is unable to perform a quantitative cost-effectiveness analysis of the final and alternative regulatory actions. However, by evaluating the practicability of the final and alternative regulatory actions, EPA believes that it has considered elements related to the cost effectiveness of the actions, including the cost and the effect on exposure to the PBT chemicals of the final and alternative regulatory actions.
EPA considered the anticipated effect of this rule on the national economy and concluded that this rule is highly unlikely to have any measurable effect on the national economy (Ref. 3). EPA analyzed the expected impacts on small business and found that no small entities are expected to experience impacts of more than 1% of revenues (Ref. 3). Finally, EPA has determined that this rule is unlikely to have significant impacts on technological innovation.
EPA has not identified any uses of HCBD. Therefore, chemical alternatives were not considered.
In accordance with TSCA section 26(h) and taking into account the requirements of TSCA section 6(h), EPA has used scientific information, technical procedures, measures, and methodologies that are fit for purpose and consistent with the best available science. For example, EPA based its determination that human and environmental exposures to the HCBD byproduct are likely in the Exposure and Use Assessment (Ref. 5) discussed in Unit II.A.2, which underwent a peer review and public comment process, as well as using best available science and methods sufficient to make that determination. The extent to which the various information, procedures, measures, and methodologies, as applicable, used in EPA's decision making have been subject to independent verification or peer review is adequate to justify their use, collectively, in the record for this final rule. Additional information on the peer review and public comment process, such as the peer review plan, the peer review report, and the Agency's response to comments, are in the public docket for this action (EPA–HQ–OPPT–2019–0080). In addition, in accordance with TSCA section 26(i), and taking into account the requirements of TSCA section 6(h), EPA has made scientific decisions based on the weight of the scientific evidence.
The following is a list of the documents that are specifically referenced in this document. The docket includes these documents and other information considered by EPA, including documents that are referenced within the documents that are included in the docket, even if the referenced document is not physically located in the docket. All records in docket EPA–HQ–OPPT–2019–0080 are part of the record for this rulemaking. For assistance in locating these other documents, please consult the technical person listed under
Additional information about these statutes and Executive Orders can be found at
This action is a significant regulatory action that was submitted to the Office of Management and Budget (OMB) for review under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011). Any changes made in response to OMB recommendations have been documented in the docket for this action as required by section 6(a)(3)(E) of Executive Order 12866.
EPA prepared an economic analysis of the potential costs and benefits associated with this action. A copy of this economic analysis,
This action is considered a regulatory action under Executive Order 13771 (82 FR 9339, February 3, 2017). Details on the estimated costs of this final rule can be found in the Economic Analysis (Ref. 3), which is briefly summarized in Unit III.B.3.
The information collection activities in this rule have been submitted for approval to the OMB under the PRA, 44 U.S.C. 3501
The ICR submitted to OMB for approval under OMB Control No. 2070–0213 addresses the paperwork requirements of this final rule as well as the paperwork requirements of the other final rules addressing PBT chemicals under TSCA section 6(h) promulgated by EPA elsewhere in this issue of the
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9. When OMB approves this ICR, the Agency will announce that approval in the
I certify that this action will not have a significant economic impact on a substantial number of small entities under the RFA, 5 U.S.C. 601
This action does not contain an unfunded mandate of $100 million or more as described in UMRA, 2 U.S.C. 1531–1538, and will not significantly or uniquely affect small governments. The final rule is not expected to result in expenditures by State, local, and Tribal governments, in the aggregate, or by the private sector, of $100 million or more (when adjusted annually for inflation) in any one year. Accordingly, this final rule is not subject to the requirements of sections 202, 203, or 205 of UMRA. The total quantified annualized social costs for this final rule are approximately $77,900 (at both 3% and 7% discount rate), which does not exceed the inflation-adjusted unfunded mandate threshold of $160 million.
This action does not have federalism implications because it is not expected to 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 as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). Thus, Executive Order 13132 does not apply to this action.
This action does not have tribal implications because it is not expected to have substantial direct effects on tribal governments, on the relationship between the Federal Government and the Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian
Consistent with the EPA Policy on Consultation and Coordination with Indian Tribes, EPA consulted with tribal officials during the development of this action. EPA consulted with representatives of Tribes via teleconference on August 31, 2018, and September 6, 2018, concerning the prospective regulation of the five PBT chemicals under TSCA section 6(h).
Tribal members were encouraged to provide additional comments after the teleconferences. EPA received two comments from the Keweenaw Bay Indian Community and Maine Tribes (Refs. 11 and 12).
This action is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997) because it is not an economically significant regulatory action as defined by Executive Order 12866. While the action is not subject to Executive Order 13045, the Agency considered the risks to infants and children under EPA's Policy on Evaluating Health Risks to Children. EPA did not perform a risk assessment or risk evaluation of HCBD, the available data indicate exposure to HCBD may disproportionately affect children, and effects information indicating developmental effects. This regulation will reduce the exposure to HCBD that could occur from the prohibited activities for the general population and for potentially exposed or susceptible subpopulations such as children. More information can be found in the Exposure and Use Assessment (Ref. 5).
This action is not a “significant energy action” as defined in Executive Order 13211 (66 FR 28355, May 22, 2001) because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy and has not otherwise been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action.
This rulemaking does not involve any technical standards. Therefore, NTTAA section 12(d), 15 U.S.C. 272
EPA believes that this action does not have disproportionately high and adverse health or environmental effects on minority populations, low-income populations and/or indigenous peoples, as specified in Executive Order 12898 (59 FR 7629, February 16, 1994). The documentation for this decision is contained in the Economic Analysis (Ref. 3), which is in the public docket for this action. EPA believes that the restrictions on HCBD in this final rule will reduce the potential for exposure in the United States, thus benefitting all communities, including environmental justice communities.
This action is subject to the CRA, 5 U.S.C. 801
Environmental protection, Chemicals, Export Notification, Hazardous substances, Import certification, Reporting and recordkeeping.
Therefore, for the reasons stated in the preamble, 40 CFR part 751 is amended as follows:
15 U.S.C. 2605, 15 U.S.C. 2625(l)(4).
(a)
(1) Unintentional production of HCBD as a byproduct in the production of chlorinated solvents; and
(2) Processing and distribution in commerce of HCBD for burning as a waste fuel.
(b) Recordkeeping. After March 8, 2021, manufacturers, processors and distributors of HCBD or HCBD-containing products or articles must maintain ordinary business records related to compliance with the prohibitions, restrictions and other provisions of this section, such as invoices and bills-of-lading. These records must be maintained for a period of three years from the date the record is generated.