[Federal Register: January 8, 2003 (Volume 68, Number 5)]
[Proposed Rules]
[Page 1115-1130]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08ja03-20]
[[Page 1115]]
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Part III
Department of the Treasury
Office of the Comptroller of the Currency
12 CFR Part 19
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Board of Governors of the Federal Reserve System
12 CFR Part 263
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Federal Deposit Insurance Corporation
12 CFR Part 308
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Department of the Treasury
Office of Thrift Supervision
12 CFR Part 513
Removal, Suspension, and Debarment of Accountants From Performing Audit
Services; Proposed Rule
[[Page 1116]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 19
[Docket No. 02-15]
RIN 1557-AB43
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
12 CFR Part 263
[Docket No. R-1139]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 308
RIN 3064-AC57
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 513
[No. 2002-58]
RIN 1550-AB53
Removal, Suspension, and Debarment of Accountants From Performing
Audit Services
AGENCIES: Office of the Comptroller of the Currency (OCC), Treasury;
Board of Governors of the Federal Reserve System (Board); Federal
Deposit Insurance Corporation (FDIC); and Office of Thrift Supervision
(OTS), Treasury.
ACTION: Joint notice of proposed rulemaking.
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SUMMARY: The OCC, Board, FDIC, and OTS (each an Agency, and
collectively, the Agencies) propose to revise their respective rules of
practice pursuant to section 36 of the Federal Deposit Insurance Act
(FDIA) (12 U.S.C. 1831m). Section 36, as implemented by 12 CFR part
363, requires that each insured depository institution with total
assets of $500 million or more produce an annual report containing the
institution's financial statements and certain management assessments.
The depository institution must provide the report to the FDIC, the
appropriate Federal banking agency, and any appropriate state bank
supervisor. Section 36 also requires that the depository institution
obtain an audit of its financial statements and an attestation on
management's assertions concerning internal controls over financial
reporting by an independent public accountant (accountant) and include
the accountant's audit and attestation reports in its annual report.
Congress gave the Agencies authority to remove, suspend, or debar
accountants from performing the audit services required by section 36
if there is good cause to do so. This proposal would amend the
Agencies' rules to establish rules of practice and procedure for the
removal, suspension, and debarment of accountants and their firms from
performing section 36 audit services for insured depository
institutions. The proposal reflects the Agencies' increasing concern
with the quality of audits and internal controls for financial
reporting at insured depository institutions. Although there have been
few bank and thrift failures in recent years, the circumstances of the
failures that have occurred illustrate the importance of maintaining
high quality in the audits of the financial position and attestations
of management assessments of insured depository institutions. The
proposed regulations enhance the Agencies' ability to address
misconduct by accountants who perform annual audit and attestation
services.
DATES: Comments must be received by March 10, 2003.
ADDRESSES:
OCC: Please direct comments to: Public Information Room, Office of
the Comptroller of the Currency, 250 E Street, SW, Mailstop 1-5,
Washington, DC 20219, Attention Docket No. 02-15. Comments are
available for inspection and photocopying at that address. You can make
an appointment to inspect the comments by calling (202) 874-5043. In
addition, comments may be sent by facsimile transmission to (202) 874-
4448, or by electronic mail to regs.comments@occ.treas.gov. Due to
delays in paper mail delivery in the Washington area, commenters are
encouraged to use fax or e-mail delivery, if possible.
Board: Comments should refer to Docket No. R-1139 and may be mailed
to Secretary, Board of Governors of the Federal Reserve System, 20th
Street and Constitution Avenue, NW., Washington, DC 20551; sent by FAX
to (202) 452-3819 or (202) 452-3102; or sent by e-mail to
regs.comments@federalreserve.gov. Members of the public may inspect
comments in Room MP-500 between 9 a.m. and 5 p.m. on weekdays pursuant
to section 261.12 (except as provided in section 261.14) of the Board's
Rules Regarding Availability of Information, 12 CFR 261.12 and 261.14.
FDIC: Written comments should be addressed to Robert E. Feldman,
Executive Secretary, Attention: Comments, Federal Deposit Insurance
Corporation, 550 17th Street, NW, Washington, DC 20429. Commenters are
encouraged to submit comments by facsimile transmission to FAX number
(202) 898-3838 or by electronic mail to Comments@FDIC.gov. Comments
also may be hand delivered to the guard station at the rear of the 550
17th Street Building (located on F Street), on business days between
8:30 am and 5 p.m. Comments may be inspected and photocopied in the
FDIC Public Information Center, Room 100, 801 17th Street, NW,
Washington, DC, between 9 am and 4:30 p.m. on business days.
OTS: Mail: Send comments to Regulation Comments, Chief Counsel's
Office, Office of Thrift Supervision, 1700 G Street, NW., Washington,
DC 20552, Attention No. 2002-58.
Delivery: Hand deliver comments to the Guard's Desk, East Lobby
Entrance, 1700 G Street, N.W. from 9 a.m. to 4 p.m. on business days,
Attention: Regulation Comments, Chief Counsel's Office, Attention No.
2002-58.
Facsimiles: Send facsimile transmissions to FAX Number (202) 906-
6518, Attention Docket No. 2002-58.
E-mail: Send e-mails to <regs.comments@ots.treas.gov,
Attention Docket No. 2002-58 and include your name and telephone
number. Due to temporary disruptions in mail service in the Washington,
D.C. area, commenters are encouraged to send comments by fax or e-mail
if possible.
Public Inspection: Interested persons may inspect comments at the
Public Reading Room, 1700 G St. NW., from 10 a.m. until 4 p.m. on
business days by appointment or obtain comments and/or an index of
comments by facsimile by telephoning the Public Reading Room at (202)
906-5922 from 9 a.m. until 5 p.m. on business days. Comments and the
related index will also be posted on the OTS Internet site at http://www.ots.treas.gov
.
FOR FURTHER INFORMATION CONTACT:
OCC: Mitchell Plave, Counsel, Legislative and Regulatory Activities
Division, (202) 874-5090; Richard Shack, Senior Accountant, Office of
the Chief Accountant, (202) 874-4911; and Karen Besser, National Bank
Examiner, Special Supervision/Fraud, (202) 874-4464.
Board: Richard Ashton, Associate General Counsel, (202) 452-3750;
Nina Nichols, Counsel, (202) 452-2961; Arthur Lindo, Project Manager,
(202)
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452-2695; and Salome Tinker, Senior Financial Analyst, (202) 452-3034,
Division of Banking Supervision and Regulation; for users of
Telecommunication Devices for the Deaf (TDD) only, contact (202) 263-
4869.
FDIC: Richard Bogue, Counsel, Enforcement Unit, (202) 898-3726;
Robert F. Storch, Chief, Accounting and Securities Disclosure Section,
(202) 898-8906.
OTS: Christine A. Smith, Project Manager, (202) 906-5740,
Supervision Policy; Teresa A. Scott, Counsel (Banking & Finance), (202)
906-6478, Regulations and Legislation Division, Office of Thrift
Supervision, 1700 G Street, NW., Washington, DC 20552.
SUPPLEMENTARY INFORMATION:
I. Background
Section 36 of the FDIA, as implemented by FDIC regulations,
requires every large insured depository institution to submit an annual
report containing its financial statements and certain management
assessments to the FDIC, the appropriate Federal banking agency, and
any appropriate state bank supervisor.\1\ Section 36 of the FDIA also
requires that an independent public accountant audit such insured
depository institution's annual financial statements to determine
whether those statements are presented fairly in accordance with
generally accepted accounting principles (GAAP) and with the accounting
objectives, standards, and requirements described in section 37 of the
FDIA.
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\1\ 12 U.S.C. 1831m, 1831m(j)(2); see also 12 CFR part 363
(describing the requirements for independent audits and reporting
for all insured depository institutions). The statute gives the FDIC
Board of Directors the discretion to establish the threshold asset
size at which a section 36 annual report is required. That amount is
currently set at $500 million. See 12 CFR 363.1(a). While a section
36 audit is not required of financial institutions with less than
$500 million in total assets, the Agencies encourage every insured
depository institution, regardless of its size or character, to have
an annual audit of its financial statements performed by an
independent public accountant. See 12 CFR part 363 App. A
(Introduction).
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Under section 37, the accounting principles applicable to financial
statements required to be filed with the Agencies must be uniform and
consistent with GAAP.\2\ In addition, the accountant must attest to and
report on management's assertions concerning internal controls over
financial reporting.\3\ The institution's annual report also must
contain the accountant's audit and attestation reports.\4\ Section 36
of the FDIA gives the Agencies the authority to remove, suspend, or bar
an accountant from performing the audit services required under section
36 for good cause.\5\ This authority is in addition to the enforcement
tools the Agencies have under section 8 of the FDIA, which enable the
Agencies to remove or prohibit an institution-affiliated party (IAP),
including an accountant, from further participation in the affairs of
an insured depository institution for certain types of misconduct.\6\
Section 36 authority is also distinct from the Agency's capability to
remove, suspend, or debar from practice before the Agency parties, such
as accountants, who represent others.\7\
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\2\ 12 U.S.C. 1831m(d), 1831n.
\3\ Id. 1831m(c): see also 12 CFR part 363 (independent audit
and reporting requirements).
\4\ 12 U.S.C. 1831m(a)(1) and (2).
\5\ Id. 1831m(g)(4)(A).
\6\ Id. 1813(u)(4), 1818(e)(1).
\7\ See 12 CFR part 19, subpart K; 12 CFR part 263, subpart F;
and 12 CFR part 513.
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Section 36 does not define good cause, but authorizes the Agencies
to implement section 36 through the joint issuance of rules of
practice.\8\ A removal, suspension, or debarment under section 36 would
limit an accountant's or accounting firm's eligibility to provide audit
services to insured depository institutions with total assets of $500
million or more. A section 36 action would not restrict the ability of
accountants and firms to provide audit services to financial
institutions with less than $500 million in total assets, however, or
to provide other types of services to all financial institutions.
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\8\ 12 U.S.C. 1831m(g)(4)(B).
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The Agencies have jointly prepared proposed rules of practice to
implement the provisions of section 36. The texts of the Agencies'
proposed regulations are substantively identical and differ with
respect to conforming changes each Agency is making to its existing
rules. These proposed rules do not create independent professional
standards or obligations for accountants or firms. Rather, they are
consistent with an accountant's existing responsibility to adhere to
applicable professional standards such as generally accepted auditing
standards and generally accepted standards for attestation engagements.
The proposed rules are also consistent with the Sarbanes-Oxley Act of
2002 (Sarbanes-Oxley Act),\9\ which, among other things, provides for
significant reforms in the oversight of the accounting industry. The
discussion that follows refers more specifically to the provisions of
the Sarbanes-Oxley Act that are relevant to this proposal.
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\9\ The Sarbanes-Oxley Act of 2002, Pub. L. 107-204, 116 Stat
745 (2002).
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II. Discussion of the Proposal and Request for Comment
The proposal would amend the Agencies' rules of practice by adding
provisions for removal, suspension, or debarment of accountants or
accounting firms from performing the audit services required by section
36 of the FDIA. The proposed rules would define ``good cause'' to
remove, suspend, or debar an accountant or firm from performing audit
services and establish procedures for removal, suspension, or debarment
of accountants or firms if the ``good cause'' standards are satisfied.
The first part of the discussion that follows describes the common
elements of the proposed rules. The second part explains proposed
technical and conforming changes to the existing rules of the OCC,
Board, and FDIC. The Agencies invite comment on all aspects of the
proposed rules.
A. Proposed Additions to the Rules of All the Agencies
1. Audit Services
The proposed rules define ``audit services'' as any service
required to be performed under section 36 of the FDIA (12 U.S.C. 1831m)
and 12 CFR part 363, including attestation services.\10\
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\10\ For the Board and OTS, ``audit services'' also includes
services provided to a bank holding company or thrift holding
company that satisfy the audit requirements under section 36 of a
subsidiary bank or thrift of that holding company.
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2. Good Cause for Agency Action
The proposed rules define good cause for removal, suspension, or
debarment of accountants from providing audit services required by
section 36. Under the proposal, the Agencies would have ``good cause''
if the accountant does not possess the requisite qualifications to
perform audit services; engages in knowing or reckless conduct that
results in a violation of applicable professional standards, including
those standards and conflicts of interest provisions applicable to
accountants through the Sarbanes-Oxley Act and developed by the Public
Company Accounting Oversight Board (Accounting Oversight Board) and the
Securities and Exchange Commission (SEC), as such standards and
provisions become effective;\11\
[[Page 1118]]
engages in a single instance of highly unreasonable conduct that
results in a violation of applicable professional standards in
circumstances in which an accountant knows, or should know, that
heightened scrutiny is warranted; or engages in repeated instances of
unreasonable conduct, each resulting in a violation of applicable
standards, that indicate a lack of competence to perform annual audit
services.
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\11\ The FDIC's Guidelines and Interpretations concerning annual
independent audits and reporting requirements, see 12 CFR part 363
app. A, at para. 14, call for accountants who perform audit and
attestation services to comply with the American Institute of
Certified Public Accountants' Code of Professional Conduct and meet
the independence requirements and interpretations of the SEC and its
staff. Title II of the Sarbanes-Oxley Act amended the Securities and
Exchange Act of 1934 by adding new auditor indepdence provisions.
Title II also requires that the SEC promulgate regulations, within
180 days after enactment of the Act, or by January 23, 2003, to
implement these provisions. See Sarbanes-Oxley Act, section 208.
Most of the provisions, however, are not effective until after an
accountant is required to register with the Accounting Oversight
Board created by this legislation. This requirement will not be
effective until later in 2003. Therefore, accountants who perform
section 36 annual audits and attestation services for insured
depository institutions, regardless of whether the institution or
its holding company is an issuer directly subject to the Sarbanes-
Oxley Act, must comply with the SEC's upcoming regulations on
auditor independence, once those regulations become effective for
registered public accounts under the Sarbanes-Oxley Act.
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Good cause also includes knowingly or recklessly giving false or
misleading information to the Agencies with respect to any matter
before the Agency; knowingly or recklessly materially violating any
provision of the Federal banking or securities laws or regulations, or
any other law, including the Sarbanes-Oxley Act; and removal,
suspension, or debarment from practice before any Federal or state
agency regulating the banking, insurance, or securities industries on
grounds relevant to the provision of audit services, other than those
actions that result in automatic removal, suspension, and debarment
under the proposed rules.
Conduct giving rise to good cause under the proposed rules does not
have to occur in connection with the provision of audit services or in
connection with services provided to depository institutions. Any
actions or failures to act by an independent public accountant or
accounting firm that meet the criteria for good cause set forth in the
regulation, whether or not related to the banking industry, could
constitute good cause for Agency action. The standards in the proposed
rules for removal, suspension, and debarment are drawn principally from
the Agencies' existing practice rules and from the practice rules of
the SEC.\12\ The proposal thus promotes consistency with respect to
professional standards for accountants.
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\12\ See 17 CFR 201.102(e) (SEC's rules on suspension and
debarment of those who practice before the Commission, including
accountants). Congress recently codified the SEC's suspension and
debarment rules in section 602 of the Sarbanes-Oxley Act.
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3. Removal, Suspension, or Debarment of Accounting Firms or Offices of
Firms
The proposed rules provide for the removal, suspension, or
debarment of accounting firms as a whole and identify factors the
Agencies may consider in determining the appropriate remedy. Under
current regulations governing practice before the Agencies, the
Agencies generally can remove, suspend, or debar a firm by naming each
member of the firm or office in the order of suspension or debarment.
The proposal retains this flexibility and provides guidance on conduct
that may result in a firm-wide sanction.
The proposed rules provide that, in considering whether to take
action against a firm and the severity of the sanction against a firm,
the Agencies may assess the gravity, scope, or repetition of the act or
failure to act; the adequacy of and adherence to applicable policies,
practices, or procedures for the firm's conduct of its business and the
performance of audit services; the selection, training, supervision,
and conduct of members or employees of the firm involved in the
performance of audit services; the extent to which managing partners or
senior officers of the firm participated, directly or indirectly
through oversight or review, in the act or failure to act; and the
extent to which the firm has, since the occurrence of the act or
failure to act, implemented corrective internal controls to prevent its
recurrence. This is not an exclusive list of factors the Agencies may
consider, and circumstances may present other facts that the Agencies
will take into account in determining whether to take an action against
a firm.
The Agencies anticipate that there may be circumstances in which it
will not be appropriate to remove, suspend, or debar an entire firm,
but that action should be taken against a particular office or offices
of a firm. The proposed rules permit that more limited action.
4. Removal, Suspension, and Debarment Procedures
Under the proposed rules, the Agencies would hold hearings on
removals, suspensions, and debarments under rules that are consistent
with the Agencies' Uniform Rules of Practice and Procedure (Uniform
Rules).\13\ The Uniform Rules provide, among other things, for written
notice to the respondent of the intended Agency action and the
opportunity for a public hearing before an administrative law judge.
The administrative law judge would refer a recommended decision to the
Agency, which would issue a final decision and order. Each Agency would
have the discretion to limit an order of removal, suspension, or
debarment from providing audit services to a limited number of insured
depository institutions, rather than to all insured depository
institutions supervised by the issuing Agency. This is referred to in
the proposed regulations as a ``limited scope order.'' \14\
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\13\ See 12 CFR part 19, subpart A (OCC); 12 CFR part 263,
subpart A (Board); 12 CFR part 308, subpart A (FDIC); 12 CFR 509,
supart A (OTS).
\14\ The Agencies will also have the discretion to issue
suspension orders where the duration of the suspension would be
dependent on the satisfactory completion of remedial action.
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The Agencies do not intend the proposed rules to create any new or
different procedural mechanisms for Agency removal, suspension, or
debarment of accountants. Rather, the Agencies generally intend to
apply to these proceedings established rules and practices.
5. Immediate Suspensions
Section 36 of the FDIA provides that the appropriate Federal
banking agency may ``remove, suspend, or bar'' an independent public
accountant from performing audit services.\15\ The proposed rules would
implement the authority to suspend by providing that an Agency may
issue a notice of immediate suspension when an Agency has a reasonable
basis to believe that an accountant or accounting firm is engaged in
conduct that would constitute grounds for an order of removal,
suspension, or debarment and if immediate suspension is necessary for
the protection of an insured depository institution, its depositors, or
the depository system as a whole. The discretion to impose immediate
suspensions can be critical to the safety and soundness of one or more
insured depository institutions. For example, once misconduct is
identified, immediate suspensions would prevent additional or
escalating instances of misconduct.
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\15\ 12 U.S.C. 1831m(g)(4)(A).
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Under the proposed rules, a notice of immediate suspension would
remain in effect until the Agency dismisses the charges in the notice
or issues a final order of removal, suspension, or debarment. The
proposals establish a system for expedited review of a notice of
immediate suspension. The accountant or accounting firm has the right
to petition for a stay of a notice of immediate suspension within 10
calendar days after receiving service of
[[Page 1119]]
the notice. A presiding officer appointed by the Agency would hold a
hearing on the stay petition not more than 30 days after receipt of the
petition. The presiding officer would be required to issue a decision
within 30 days of the hearing. The presiding officer could grant a stay
of an immediate suspension upon a demonstration that a substantial
likelihood exists of the accountant's or firm's success on the issues
raised by the notice and that, absent such relief, the accountant or
firm would suffer immediate and irreparable injury, loss, or damage.
Any party may appeal the presiding officer's decision to the Agency.
The Agencies modeled the procedures set out in the proposed rules
for imposing an immediate suspension of an accountant or accounting
firm pending completion of a formal removal, suspension, or debarment
administrative hearing after the procedures that apply to other types
of temporary suspensions by regulatory agencies. In particular, the
proposed immediate suspension procedures are substantially the same as
those in section 8(g) of the FDIA governing the suspension by a Federal
banking agency of an institution-affiliated party who has been charged
with a felony.\16\ The courts have upheld the procedures established in
section 8(g) as meeting constitutional due process requirements.\17\
Nevertheless, the Agencies invite comment on whether additional
procedures should be provided to ensure that parties have adequate due
process protections when they are suspended prior to a hearing on the
charges made by an Agency.
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\16\ Id. 1818(g).
\17\ See FDIC v. Mallen, 486 U.S. 230 (1988).
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6. Automatic Removal, Suspension, and Debarment
Under the proposed rules, an accountant or accounting firm that is
subject to a final order of removal, suspension, or debarment issued by
one Agency would be automatically precluded from performing audit
services for insured depository institutions regulated by the other
Agencies. In addition, automatic removal, suspension, or debarment
would result from a final order of suspension or denial of the
privilege of appearing or practicing before the Securities and Exchange
Commission, a currently effective disciplinary sanction by the
Accounting Oversight Board under sections 105(c)(4)(A) or (B) of the
Sarbanes-Oxley Act,\18\ or a suspension or debarment from practice for
cause by a state, possession, commonwealth, or District of Columbia
licensing authority.
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\18\ Section 105(c)(4)(A) of the Sarbanes-Oxley Act allows the
Accounting Oversight Board to revoke the registration of an
accounting firm for violation of the Act or other laws or
regulations cited. Section 105(c)(4)(B) gives the Accounting
Oversight Board authority to suspend or bar a person from further
association with any registered public accounting firm.
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Each Agency would have the discretion to waive the automatic
suspension on a case-by-case basis with respect to an institution it
supervises by issuing written permission to the accountant or
accounting firm. The Agencies intend that neither a limited scope order
nor a notice of immediate suspension would bar an accountant or
accounting firm from performing audit services for insured depository
institutions outside the scope of that order or notice.
7. Notice
The proposed rules would require the Agencies to make public any
final order of removal, suspension, or debarment against an accountant
or accounting firm and notify the other Agencies of such orders. This
is consistent with the presumption in favor of public notice for
enforcement actions in the FDIA.\19\
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\19\ 12 U.S.C. 1818(u)(1).
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The rules also contain notification provisions for accountants and
firms. The proposal would require that an accountant or accounting firm
that performs section 36 audit services for any insured depository
institution provide the Agencies with written notice of any currently
effective disciplinary sanction against the accountant or firm issued
by the Accounting Oversight Board under sections 105(c)(4)(A) or (B) of
the Sarbanes-Oxley Act, relating to revocation of registration and
association with a public accounting firm or issuer; any current
suspension or denial of the privilege of appearing or practicing before
the SEC; or any suspensions or debarments for cause from practice as an
accountant by any duly constituted licensing authority of any state,
possession, commonwealth, or the District of Columbia. Written notice
is also required respecting any removal, suspension, or debarment from
practice before any Federal or state agency regulating the banking,
insurance, or securities industries on grounds relevant to the
provision of audit services; and any action by the Accounting Oversight
Board under sections 105(c)(4)(C) or (G) of the Sarbanes-Oxley Act,
relating to limitations on the activities of accountants and accounting
firms and any other appropriate sanction provided in the rules of the
Accounting Oversight Board. Written notice must be given no later than
15 calendar days following the effective date of an order or action, or
15 calendar days before an accountant or accounting firm accepts an
engagement to provide audit services, whichever date is earlier.
8. Reinstatement
The Agencies would have the discretion to grant an accountant's or
accounting firm's request for reinstatement. Under the proposals, a
removed, suspended, or debarred individual or firm would be able to
request reinstatement by the Agency that issued the order. The
individual or firm would be able to request reinstatement at any time
more than one year after the effective date of the order and,
thereafter, at any time more than one year after the most recent
request for reinstatement.
B. Conforming and Technical Changes to the Rules of the Agencies
1. OCC
The OCC proposes to add ``recklessness'' to its description of
``disreputable conduct'' that may lead to removal, suspension, or
debarment of parties or their representatives who practice or appear
before the OCC.\20\ This change would conform the OCC's general rules
of practice with the standards in the proposal for removal, suspension,
or debarment of accountants from performance of section 36-required
audit services, which in turn reflects the addition of the recklessness
standard to the SEC's rules of practice by the Sarbanes-Oxley Act. The
purpose of adding the recklessness standard is to clarify that conduct
more culpable than incompetence, but less culpable than willful or
knowing action, may form the basis for a suspension or debarment.
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\20\ See 12 CFR 19.196 (describing disreputable conduct).
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The OCC also proposes to broaden the scope of ``disreputable
conduct'' to allow the OCC to consider suspensions or debarments of
accountants--for any reason--by the other Agencies, the SEC, the
Commodity Futures Trading Commission, or any other Federal agency. This
change would remove the requirement in the current section 19.196(g)
that suspensions by other agencies concern ``matters relating to the
supervisory responsibilities of the OCC.'' This change takes into
account the possibility that a suspension of an accountant by another
agency, relating to the professional conduct of an accountant, could be
grounds for
[[Page 1120]]
removal, suspension, or debarment by the OCC, even if the suspension by
the other agency did not relate to a banking matter.
Unlike the other amendments in the proposal, which would address an
accountant's or firm's ability to perform section 36-required audits,
this part of the proposal concerns who may practice before the OCC in
other capacities, such as in adjudications, or through preparation of
documents for submission to the OCC.
The OCC would also revise a number of sections within part 19 to
make conforming and technical changes to implement section 36 of the
FDIA and bring procedural aspects of part 19 up to date.
2. Board
The Board proposes to amend its Rules of Practice Before the Board
(12 CFR part 263, subpart F) to expand the type of conduct for which an
individual may be censured, debarred, or suspended from practice before
the Agency. In particular, the Board proposes to revise the description
of the conduct that would warrant sanctions to include reckless
violations, or reckless aiding and abetting violations, of specified
laws and the reckless provision of false or misleading information, or
reckless participation in the provision of false or misleading
information, to the Board. The regulation currently provides for
sanctions only for willful misconduct. The purpose of this proposed
amendment is to clarify that conduct more culpable than incompetence,
but less culpable than willful or knowing action, may form the basis
for a suspension or debarment from practice before the Agency. This
change also reflects the modification made to the SEC's rules of
practice by the Sarbanes-Oxley Act.
3. FDIC
The FDIC proposes to make a clarifying and conforming amendment to
12 CFR 308.109, which deals with the suspension and disbarment of the
right of any counsel to appear or practice before the FDIC, to specify
that an application for reinstatement must comply with the general
filing procedures established by part 303. The amendment would add a
new sentence before the current last sentence of section 308.109(b)(3)
to read as follows: ``The application shall comply with the
requirements of 12 CFR 303.3.''
C. Comment Solicitation
The Agencies ask for comment on all aspects of the proposed rules.
Section 722 of the Gramm-Leach-Bliley Act, Pub. L. 106-102, sec. 722,
113 Stat. 1338, 1471 (Nov. 12. 1999), requires the Federal banking
agencies to use plain language in all proposed and final rules
published after January 1, 2000. We invite your comments on how to make
this proposal easier to understand. For example:
[sbull] Have we organized the material to suit your needs? If not,
how could this material be better organized?
[sbull] Are the requirements in the proposed regulation clearly
stated? If not, how could the regulation be more clearly stated?
[sbull] Does the proposed regulation contain language or jargon
that is not clear? If so, which language requires clarification?
[sbull] Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand? If so, what changes to the format would make the regulation
easier to understand?
[sbull] What else could we do to make the regulation easier to
understand?
D. Community Bank Comment Request
The Agencies invite comment on the impact of this proposal on
community banks. The Agencies recognize that community banks operate
with more limited resources than larger institutions and may present a
different risk profile. Thus, we specifically request comments on the
impact of this proposal on community banks' current resources and
available personnel with the requisite expertise, and whether the goals
of the proposed regulation could be achieved, for community banks,
through an alternative approach.
E. Regulatory Flexibility Act
OCC: Under section 605(b) of the Regulatory Flexibility Act, 5
U.S.C. 601 et seq. (RFA), the appropriate Federal banking agencies must
either provide an Initial Regulatory Flexibility Analysis (IRFA) with a
proposed rule or certify that the rule would not have a significant
economic impact on a substantial number of small entities. For purposes
of this Regulatory Flexibility Analysis and proposed regulation, the
OCC defines ``small entities'' to be those national banks with less
than $150 million in total assets. For other entities that could be
affected by this rule, such as accountants and accounting firms, a
small entity is defined as an accounting office with $7 million or less
in annual receipts.
We have reviewed the impact this proposed rule will have on small
banks. Based on that review, we certify that the proposed rule will not
have a significant economic impact on a substantial number of small
entities. The basis for the certification is that the requirement for
audits does not apply to national banks with less than $500 million in
total assets. In addition, only a limited number of small accounting
firms provide section 36 audit services to national banks. For these
reasons, the OCC does not anticipate that the proposal will affect a
substantial number of small entities.
Board: Pursuant to section 605(b) of the Regulatory Flexibility Act
(5 U.S.C. 605(b)), the Board certifies that the suspension and
debarment amendments proposed in this rulemaking will not have a
significant adverse economic impact on a substantial number of small
entities. For purposes of this Regulatory Flexibility Analysis, the
Board defines ``small entity'' as (1) any insured state member bank
with less than $150 million in total assets, or (2) any bank holding
company with a subsidiary insured state member bank with less than $150
million in total assets. For other entities that could be affected by
this rule, such as accountants and accounting firms, a small entity is
defined as an accounting office with $7 million or less in annual
receipts. The basis for the Board's certification is that the rule will
not apply to state member banks that have less than $500 million in
total assets. In addition, only a limited number of small accounting
firms provide section 36 audit services to institutions that are
regulated by the Federal Reserve.
FDIC: The rule proposes and requests comment on amendments to the
FDIC's rules of practice (12 CFR part 308). These amendments would add
rules of practice and standards of conduct with regard to accountants
and accounting firms engaged by State nonmember banks. The FDIC hereby
certifies, pursuant to section 605(b) of the RFA, 5 U.S.C. 605(b), that
the proposed suspension and debarment amendments will not, if
promulgated through a final rule, have a significant economic impact on
a substantial number of small entities. The basis for the certification
is that the rule will not apply to insured depository institutions that
have less than $150 million in total assets. Furthermore, only a
limited number of small accounting firms provide section 36 audit
services to insured depository institutions for which the FDIC is the
appropriate Federal banking agency.
OTS: Under the RFA, OTS must either provide an IRFA with this
proposed rule, or certify that the rule would not have a significant
economic impact on a substantial number of small entities. For purposes
of this RFA analysis and
[[Page 1121]]
proposed regulation, the OTS defines ``small banks'' to be those
savings associations with less than $150 million in total assets.
Pursuant to section 605(b) of the RFA, OTS certifies that this
proposed rule would not have a significant economic impact on a
substantial number of small entities. The basis of this certification
is that this rule does not apply to savings associations with less than
$500 million in assets.
F. Executive Order 12866
The OCC and OTS have determined that this proposal is not a
significant regulatory action under Executive Order 12866.
G. Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.
104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency
prepare a budgetary impact statement before promulgating any rule
likely to result in a Federal mandate that may result in the
expenditure by state, local, and tribal governments, in the aggregate,
or by the private sector of $100 million or more in any one year. If a
budgetary impact statement is required, section 205 of the Unfunded
Mandates Act also requires an agency to identify and consider a
reasonable number of regulatory alternatives before promulgating a
rule. The OCC and OTS have determined that the proposed rule will not
result in expenditures by state, local, and tribal governments, or by
the private sector, of $100 million or more in any one year.
Accordingly, this rulemaking requires no further analysis under the
Unfunded Mandates Act.
H. Paperwork Reduction Act
The Agencies have determined that this proposed rule does not
involve a collection of information pursuant to the provisions of the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501, et seq.).
List of Subjects
12 CFR Part 19
Administrative practice and procedure, Crime, Equal access to
justice, Investigations, National banks, Penalties, Securities.
12 CFR Part 263
Administrative practice and procedure, Claims, Crime, Equal access
to justice, Federal Reserve System, Lawyers, Penalties.
12 CFR Part 308
Administrative practice and procedure, Bank deposit insurance,
Banks, banking, Claims, Crime, Equal access to justice, investigations,
Lawyers, Penalties, State nonmember banks.
12 CFR Part 513
Accountants, Administrative practice and procedure, Lawyers.
Deparment of the Treasury
Office of the Comptroller of the Currency
12 CFR Chapter I
Authority and Issuance
For reasons set out in the joint preamble, the OCC proposes to
amend part 19 of chapter I of title 12 of the Code of Federal
Regulations to read as follows:
PART 19--RULES OF PRACTICE AND PROCEDURE
1. The authority citation for part 19 is amended to read as
follows:
Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 93(b), 93a, 164,
505, 1817, 1818, 1820, 1831m, 1831o, 1972, 3102, 3108(a), 3909 and
4717; 15 U.S.C. 78(h) and (i), 78o-4(c), 78o-5, 78q-1, 78s, 78u,
78u-2, 78u-3, and 78w; 28 U.S.C. 2461 note; 31 U.S.C. 330, 5321; and
42 U.S.C. 4012a.
2. Section 19.100 of subpart B is revised to read as follows:
Sec. 19.100 Filing documents.
All materials required to be filed with or referred to the
Comptroller or the administrative law judge in any proceeding under
this part must be filed with the Hearing Clerk, Office of the
Comptroller of the Currency, 250 E Street, SW, Washington, DC 20219.
Filings to be made with the Hearing Clerk include the notice and
answer; motions and responses to motions; briefs; the record filed by
the administrative law judge after the issuance of a recommended
decision; the recommended decision filed by the administrative law
judge following a motion for summary disposition (except that in
removal and prohibition cases instituted pursuant to 12 U.S.C. 1818,
the administrative law judge will file the record and the recommended
decision with the Board of Governors of the Federal Reserve System);
referrals by the administrative law judge of motions for interlocutory
review; exceptions and requests for oral argument; and any other papers
required to be filed with the Comptroller or the administrative law
judge under this part.
3. In Sec. 19.111 of subpart C, the section heading and the fourth
and fifth sentences are revised to read as follows:
Sec. 19.111 Suspension, removal, or prohibition.
* * * The written request must be sent by certified mail to, or
served personally with a signed receipt on, the District Deputy
Comptroller in the OCC district in which the bank, accountant, or
accounting firm in question is located, or, if the bank is supervised
by the Large Bank Supervision Department, to the appropriate Deputy
Comptroller for Large Bank Supervision for the Office of the
Comptroller of the Currency, or if the bank is supervised by the Mid-
Size/Community Banks Department, to the Deputy Comptroller for Mid-
Size/Community Banks for Office of the Comptroller of the Currency,
Washington, DC 20219. The request must state specifically the relief
desired and the grounds on which that relief is based.
4. In Sec. 19.196 of subpart K, the introductory text and
paragraphs (a), (b), and (g) are revised to read as follows:
Sec. 19.196 Disreputable conduct.
Disreputable conduct for which an individual may be censured,
debarred, or suspended from practice before the OCC includes:
(a) Willfully or recklessly violating or willfully or recklessly
aiding and abetting the violation of any provision of the Federal
banking or applicable securities laws or the rules and regulations
thereunder or conviction of any offense involving dishonesty or breach
of trust;
(b) Knowingly or recklessly giving false or misleading information,
or participating in any way in the giving of false information to the
OCC or any officer or employee thereof, or to any tribunal authorized
to pass upon matters administered by the OCC in connection with any
matter pending or likely to be pending before it. The term
``information'' includes facts or other statements contained in
testimony, financial statements, applications for enrollment,
affidavits, declarations, or any other document or written or oral
statement;
* * * * *
(g) Suspension, debarment or removal from practice before the Board
of Governors, the FDIC, the OTS, the Securities and Exchange
Commission, the Commodity Futures Trading Commission, or any other
Federal or state agency; and
* * * * *
5. A new subpart P is added to read as follows:
[[Page 1122]]
Subpart P--Removal, Suspension, and Debarment of Accountants From
Performing Audit Services
Sec.
19.241 Scope.
19.242 Definitions.
19.243 Removal, suspension, or debarment.
19.244 Automatic removal, suspension, or debarment.
19.245 Notice of removal, suspension, or debarment.
19.246 Petition for reinstatement.
Subpart P--Removal, Suspension, and Debarment of Accountants From
Performing Audit Services
Sec. 19.241 Scope.
This subpart, which implements section 36(g)(4) of the Federal
Deposit Insurance Act (FDIA) (12 U.S.C. 1831m(g)(4)), provides rules
and procedures for the removal, suspension, or debarment of independent
public accountants and their accounting firms from performing
independent audit and attestation services required by section 36 of
the FDIA (12 U.S.C. 1831m) for insured national banks, District of
Columbia banks, and Federal branches and agencies of foreign banks.
Sec. 19.242 Definitions.
As used in this subpart, the following terms shall have the meaning
given below unless the context requires otherwise:
(a) Accounting firm means a corporation, proprietorship,
partnership, or other business firm providing audit services.
(b) Audit services means any service required to be performed by an
independent public accountant by section 36 of the FDIA and 12 CFR part
363, including attestation services.
(c) Independent public accountant (accountant) means any individual
who performs or participates in providing audit services.
Sec. 19.243 Removal, suspension, or debarment.
(a) Good cause for removal, suspension, or debarment--(1)
Individuals. The Comptroller may remove, suspend, or debar an
independent public accountant from performing audit services for
insured national banks that are subject to section 36 of the FDIA if,
after service of a notice of intention and opportunity for hearing in
the matter, the Comptroller finds that the accountant:
(i) Lacks the requisite qualifications to perform audit services;
(ii) Has knowingly or recklessly engaged in conduct that results in
a violation of applicable professional standards, including those
standards and conflicts of interest provisions applicable to
accountants through the Sarbanes-Oxley Act of 2002, Pub. L. 107-204,
116 Stat. 745 (2002) (Sarbanes-Oxley Act), and developed by the Public
Company Accounting Oversight Board and the Securities and Exchange
Commission;
(iii) Has engaged in negligent conduct in the form of:
(A) A single instance of highly unreasonable conduct that results
in a violation of applicable professional standards in circumstances in
which an accountant knows, or should know, that heightened scrutiny is
warranted; or
(B) Repeated instances of unreasonable conduct, each resulting in a
violation of applicable professional standards, that indicate a lack of
competence to perform audit services;
(iv) Has knowingly or recklessly given false or misleading
information, or knowingly or recklessly participated in any way in the
giving of false or misleading information, to the OCC or any officer or
employee of the OCC;
(v) Has engaged in, or aided and abetted, a material and knowing or
reckless violation of any provision of the Federal banking or
securities laws or the rules and regulations thereunder, or any other
law;
(vi) Has been removed, suspended, or debarred from practice before
any Federal or state agency regulating the banking, insurance, or
securities industries, other than by an action listed in Sec. 19.244,
on grounds relevant to the provision of audit services.
(2) Accounting firms. If the Comptroller determines that there is
good cause for the removal, suspension, or debarment of a member or
employee of an accounting firm under paragraph (a)(1) of this section,
the Comptroller also may remove, suspend, or debar such firm or one or
more offices of such firm. In considering whether to remove, suspend,
or debar a firm or an office thereof, and the term of any sanction
against a firm under this section, the Comptroller may consider, for
example:
(i) The gravity, scope, or repetition of the act or failure to act
that constitutes good cause for the removal, suspension, or debarment;
(ii) The adequacy of, and adherence to, applicable policies,
practices, or procedures for the accounting firm's conduct of its
business and the performance of audit services;
(iii) The selection, training, supervision, and conduct of members
or employees of the accounting firm involved in the performance of
audit services;
(iv) The extent to which managing partners or senior officers of
the accounting firm have participated, directly, or indirectly through
oversight or review, in the act or failure to act; and
(v) The extent to which the accounting firm has, since the
occurrence of the act or failure to act, implemented corrective
internal controls to prevent its recurrence.
(3) Limited scope orders. An order of removal, suspension
(including an immediate suspension), or debarment may, at the
discretion of the Comptroller, be made applicable to a particular
national bank or class of national banks.
(4) Remedies not exclusive. The remedies provided in this subpart
are in addition to any other remedies the OCC may have under any other
applicable provisions of law, rule, or regulation.
(b) Proceedings to remove, suspend, or debar--(1) Initiation of
formal removal, suspension, or debarment proceedings. The Comptroller
may initiate a proceeding to remove, suspend, or debar an accountant or
accounting firm from performing audit services by issuing a written
notice of intention to take such action that names the individual or
firm as a respondent and describes the nature of the conduct that
constitutes good cause for such action.
(2) Hearings under paragraph (b) of this section. An accountant or
firm named as a respondent in the notice issued under paragraph (b)(1)
of this section may request a hearing on the allegations in the notice.
Hearings conducted under this paragraph shall be conducted in the same
manner as other hearings under the Uniform Rules of Practice and
Procedure (12 CFR part 19, subpart A.)
(c) Immediate suspension from performing audit services--(1) In
general. If the Comptroller serves a written notice of intention to
remove, suspend, or debar an accountant or accounting firm from
performing audit services, the Comptroller may, with due regard for the
public interest and without a preliminary hearing, immediately suspend
such accountant or firm from performing audit services for insured
national banks, if the Comptroller:
(i) Has a reasonable basis to believe that the accountant or firm
has engaged in conduct (specified in the notice served on the
accountant or firm under paragraph (b) of this section) that would
constitute grounds for removal, suspension, or debarment under
paragraph (a) of this section;
(ii) Determines that immediate suspension is necessary for the
protection of an insured depository
[[Page 1123]]
institution or its depositors or for the protection of the depository
system as a whole; and
(iii) Serves such respondent with written notice of the immediate
suspension.
(2) Procedures. An immediate suspension notice issued under this
paragraph will become effective upon service. Such suspension will
remain in effect until the date the Comptroller dismisses the charges
contained in the notice of intention, or the effective date of a final
order of removal, suspension, or debarment issued by the Comptroller to
the respondent.
(3) Petition for stay. Any accountant or firm immediately suspended
from performing audit services in accordance with paragraph (c)(1) of
this section may, within 10 calendar days after service of the notice
of immediate suspension, file with the Office of the Comptroller of the
Currency, Washington, DC 20219 for a stay of such immediate suspension.
If no petition is filed within 10 calendar days, the immediate
suspension shall remain in effect.
(4) Hearing on petition. Upon receipt of a stay petition, the
Comptroller will designate a presiding officer who shall fix a place
and time (not more than 30 calendar days after receipt of the petition,
unless extended at the request of petitioner) at which the immediately
suspended party may appear, personally or through counsel, to submit
written materials and oral argument. In the sole discretion of the
presiding officer, upon a specific showing of compelling need, oral
testimony of witnesses may also be presented. In hearings held pursuant
to this paragraph there shall be no discovery and the provisions of
Sec. Sec. 19.6 through 19.12, 19.16, and 19.21 of this part shall
apply.
(5) Decision on petition. Within 30 calendar days after the
hearing, the presiding officer shall issue a decision. The presiding
officer will grant a stay upon a demonstration that a substantial
likelihood exists of the respondent's success on the issues raised by
the notice of intention and that, absent such relief, the respondent
will suffer immediate and irreparable injury, loss, or damage. In the
absence of such a demonstration, the presiding officer will notify the
parties that the immediate suspension will be continued pending the
completion of the administrative proceedings pursuant to the notice.
(6) Review of presiding officer's decision. The parties may seek
review of the presiding officer's decision by filing a petition for
review with the presiding officer within 10 calendar days after service
of the decision. Replies must be filed within 10 calendar days after
the petition filing date. Upon receipt of a petition for review and any
reply, the presiding officer shall promptly certify the entire record
to the Comptroller. Within 60 calendar days of the presiding officer's
certification, the Comptroller shall issue an order notifying the
affected party whether or not the immediate suspension should be
continued or reinstated. The order shall state the basis of the
Comptroller's decision.
Sec. 19.244 Automatic removal, suspension, and debarment.
(a) An independent public accountant or accounting firm may not
perform audit services for insured national banks if the accountant or
firm:
(1) Is subject to a final order of removal, suspension, or
debarment (other than a limited scope order) issued by the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, or the Office of Thrift Supervision under section 36 of
the FDIA.
(2) Is subject to a temporary suspension or permanent revocation of
registration or a temporary or permanent suspension or bar from further
association with any registered public accounting firm issued by the
Public Company Accounting Oversight Board under sections 105(c)(4)(A)
or (B) of the Sarbanes-Oxley Act (15 U.S.C. 7215(c)(4)(A) or (B));
(3) Is subject to an order of suspension or denial of the privilege
of appearing or practicing before the Securities and Exchange
Commission; or
(4) Is suspended or debarred for cause from practice as an
accountant by any duly constituted licensing authority of any state,
possession, commonwealth, or the District of Columbia.
(b) Upon written request, the Comptroller, for good cause shown,
may grant written permission to such accountant or firm to perform
audit services for national banks. The request shall contain a concise
statement of the action requested. The Comptroller may require the
applicant to submit additional information.
Sec. 19.245 Notice of removal, suspension or debarment.
(a) Notice to the public. Upon the issuance of a final order for
removal, suspension, or debarment of an independent public accountant
or accounting firm from providing audit services, the Comptroller shall
make the order publicly available and provide notice of the order to
the other Federal banking agencies.
(b) Notice to the Comptroller by accountants and firms. An
accountant or accounting firm that provides audit services to a
national bank must provide the Comptroller with written notice of:
(1) Any currently effective order or other action described in
Sec. 19.243(a)(1)(vi) or Sec. Sec. 19.244(a)(2) through (a)(4); or
(2) Any currently effective action by the Public Company Accounting
Oversight Board under sections 105(c)(4)(C) or (G) of the Sarbanes-
Oxley Act) (15 U.S.C. 7215(c)(4)(C) or (G)).
(c) Timing of notice. Written notice required by this paragraph
shall be given no later than 15 calendar days following the effective
date of an order or action, or 15 calendar days before an accountant or
firm accepts an engagement to provide audit services, whichever date is
earlier.
Sec. 19.246 Petition for reinstatement.
(a) Form of petition. Unless otherwise ordered by the Comptroller,
a petition for reinstatement by an independent public accountant or
accounting firm removed, suspended, or debarred under Sec. 19.243 may
be made in writing at any time one year after the effective date of the
order of removal, suspension, or debarment and, thereafter, at any time
more than one year after the accountant's or firm's most recent
petition for reinstatement. The request shall contain a concise
statement of the action requested. The Comptroller may require the
applicant to submit additional information.
(b) Procedure. A petitioner for reinstatement under this section
may, in the sole discretion of the Comptroller, be afforded a hearing.
The accountant or firm shall bear the burden of going forward with a
petition and proving the grounds asserted in support of the petition.
In reinstatement proceedings, the person seeking reinstatement shall
bear the burden of going forward with an application and proving the
grounds asserted in support of the application. The Comptroller may, in
his sole discretion, direct that any reinstatement proceeding be
limited to written submissions. The removal, suspension, or debarment
shall continue until the Comptroller, for good cause shown, has
reinstated the petitioner or until the suspension period has expired.
The filing of a petition for reinstatement shall not stay the
effectiveness of the removal, suspension, or debarment of an accountant
or firm.
[[Page 1124]]
Dated: November 27, 2002.
John D. Hawke, Jr.,
Comptroller of the Currency.
Federal Reserve System
12 CFR Chapter II
Authority and Issuance
For the reasons set out in the joint preamble, the Board proposes
to amend part 263, chapter II, title 12 of the Code of Federal
Regulations as follows:
PART 263--RULES OF PRACTICE FOR HEARINGS
1. The authority citation for part 263 is revised to read as
follows:
Authority: 5 U.S.C. 504; 12 U.S.C. 248, 324, 504, 506, 1817(j),
1818, 1828(c), 1831m, 1831o, 1831p-1, 1847(b), 1847(d), 1884(b),
1972(2)(F), 3105, 3107, 3108, 3907, 3909; 15 U.S.C. 21, 78o-4, 78o-
5, 78u-2, 6801, 6805; and 28 U.S.C. 2461 note.
2. In Sec. 263.94, paragraphs (a) and (b) are revised to read as
follows:
Sec. 263.94 Conduct warranting sanctions.
* * * * *
(a) Willfully or recklessly violating or willfully or recklessly
aiding and abetting the violation of any provision of the Federal
banking or applicable securities laws or the rules and regulations
thereunder or conviction of any offense involving dishonesty or breach
of trust;
(b) Knowingly or recklessly giving false or misleading information,
or participating in any way in the giving of false information to the
Board or to any Board officer or employee, or to any tribunal
authorized to pass upon matters administered by the Board in connection
with any matter pending or likely to be pending before it. The term
``information'' includes facts or other statements contained in
testimony, financial statements, applications, affidavits,
declarations, or any other document or written or oral statement;
* * * * *
3. A new subpart J is added as follows:
Subpart J--Removal, Suspension, and Debarment of Accountants From
Performing Audit Services
Sec.
263.400 Scope.
263.401 Definitions.
263.402 Removal, suspension, or debarment.
263.403 Automatic removal, suspension, and debarment
263.404 Notice of removal, suspension, or debarment.
263.405 Petition for reinstatement.
Subpart J--Removal, Suspension, and Debarment of Accountants From
Performing Audit Services
Sec. 263.400 Scope.
This subpart, which implements section 36(g)(4) of the Federal
Deposit Insurance Act (FDIA) (12 U.S.C. 1831m(g)(4)), provides rules
and procedures for the removal, suspension, or debarment of independent
public accountants and their accounting firms from performing
independent audit and attestation services for insured state member
banks and for bank holding companies required by section 36 of the FDIA
(12 U.S.C. 1831m).
Sec. 263.401 Definitions.
As used in this subpart, the following terms shall have the meaning
given below unless the context requires otherwise:
(a) Accounting firm means a corporation, proprietorship,
partnership, or other business firm providing audit services.
(b) Audit services means any service required to be performed by an
independent public accountant by section 36 of the FDIA and 12 CFR part
363, including attestation services. Audit services include any service
performed with respect to the holding company of an insured bank that
is used to satisfy requirements imposed by section 36 or part 363 on
that bank.
(c) Banking organization means an insured state member bank or a
bank holding company that obtains audit services that are used to
satisfy requirements imposed by section 36 or part 363 on an insured
subsidiary bank of that holding company.
(d) Independent public accountant (accountant) means any individual
who performs or participates in providing audit services.
Sec. 263.402 Removal, suspension, or debarment.
(a) Good cause for removal, suspension, or debarment--
(1) Individuals. The Board may remove, suspend, or debar an
independent public accountant from performing audit services for
banking organizations that are subject to section 36 of the FDIA, if,
after notice of and opportunity for hearing in the matter, the Board
finds that the accountant:
(i) Lacks the requisite qualifications to perform audit services;
(ii) Has knowingly or recklessly engaged in conduct that results in
a violation of applicable professional standards, including those
standards and conflict of interest provisions applicable to accountants
through the Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat.
745 (2002) (Sarbanes-Oxley Act), and developed by the Public Company
Accounting Oversight Board and the Securities and Exchange Commission;
(iii) Has engaged in negligent conduct in the form of:
(A) A single instance of highly unreasonable conduct that results
in a violation of applicable professional standards in circumstances in
which an accountant knows, or should know, that heightened scrutiny is
warranted; or
(B) Repeated instances of unreasonable conduct, each resulting in a
violation of applicable professional standards, that indicate a lack of
competence to perform audit services;
(iv) Has knowingly or recklessly given false or misleading
information, or knowingly or recklessly participated in any way in the
giving of false or misleading information, to the Board or any officer
or employee of the Board;
(v) Has engaged in, or aided and abetted, a material and knowing or
reckless violation of any provision of the Federal banking or
securities laws or the rules and regulations thereunder, or any other
law; or
(vi) Has been removed, suspended, or debarred from practice before
any Federal or state agency regulating the banking, insurance, or
securities industries, other than by an action listed in Sec. 263.403,
on grounds relevant to the provision of audit services.
(2) Accounting firms. If the Board determines that there is good
cause for the removal, suspension, or debarment of a member or employee
of an accounting firm under paragraph (a)(1) of this section, the Board
also may remove, suspend, or debar such firm or one or more offices of
such firm. In considering whether to remove, suspend or debar a firm or
an office thereof, and the term of any sanction against a firm under
this section, the Board may consider, for example:
(i) The gravity, scope, or repetition of the act or failure to act
that constitutes good cause for removal, suspension, or debarment;
(ii) The adequacy of, and adherence to, applicable policies,
practices, or procedures for the accounting firm's conduct of its
business and the performance of audit services;
(iii) The selection, training, supervision, and conduct of members
or employees of the accounting firm involved in the performance of
audit services;
(iv) The extent to which managing partners or senior officers of
the accounting firm have participated, directly, or indirectly through
oversight
[[Page 1125]]
or review, in the act or failure to act; and
(v) The extent to which the accounting firm has, since the
occurrence of the act or failure to act, implemented corrective
internal controls to prevent its recurrence.
(3) Limited scope orders. An order of removal, suspension
(including an immediate suspension), or debarment may, at the
discretion of the Board, be made applicable to a particular banking
organization or class of banking organizations.
(4) Remedies not exclusive. The remedies provided in this subpart
are in addition to any other remedies the Board may have under any
other applicable provisions of law, rule, or regulation.
(b) Proceedings to remove, suspend, or debar--(1) Initiation of
formal removal, suspension, or debarment proceedings. The Board may
initiate a proceeding to remove, suspend, or debar an accountant or
accounting firm from performing audit services by issuing a written
notice of intention to take such action that names the individual or
firm as a respondent and describes the nature of the conduct that
constitutes good cause for such action.
(2) Hearing under paragraph (b) of this section. An accountant or
firm named as a respondent in the notice issued under paragraph (b)(2)
of this section may request a hearing on the allegations in the notice.
Hearings conducted under this paragraph shall be conducted in the same
manner as other hearings under the Uniform Rules of Practice and
Procedure (12 CFR part 263, subpart A).
(c) Immediate suspension from performing audit services--(1) In
general. If the Board serves a written notice of intention to remove,
suspend, or debar an accountant or accounting firm from performing
audit services, the Board may, with due regard for the public interest
and without a preliminary hearing, immediately suspend such accountant
or firm from performing audit services for banking organizations, if
the Board:
(i) Has a reasonable basis to believe that the accountant or firm
has engaged in conduct (specified in the notice served on the
accountant or firm under paragraph (b) of this section) that would
constitute grounds for removal, suspension, or debarment under
paragraph (a) of this section;
(ii) Determines that immediate suspension is necessary for the
protection of an insured depository institution or its depositors or
for the protection of the depository system as a whole; and
(iii) Serves such respondent with written notice of the immediate
suspension.
(2) Procedures. An immediate suspension notice issued under this
paragraph will become effective upon service. Such suspension will
remain in effect until the date the Board dismisses the charges
contained in the notice of intention, or the effective date of a final
order of removal, suspension, or debarment issued by the Board to the
respondent.
(3) Petition to stay. Any accountant or firm immediately suspended
from performing audit services in accordance with paragraph (c)(1) of
this section may, within 10 calendar days after service of the notice
of immediate suspension, file with the Secretary, Board of Governors of
the Federal Reserve System, Washington, DC 20551 for a stay of such
immediate suspension. If no petition is filed within 10 calendar days,
the immediate suspension shall remain in effect.
(4) Hearing on petition. Upon receipt of a stay petition, the
Secretary will designate a presiding officer who shall fix a place and
time (not more than 30 calendar days after receipt of the petition,
unless extended at the request of petitioner) at which the immediately
suspended party may appear, personally or through counsel, to submit
written materials and oral argument. In the sole discretion of the
presiding officer, upon a specific showing of compelling need, oral
testimony of witnesses may also be presented. In hearings held pursuant
to this paragraph there shall be no discovery and the provisions of
Sec. Sec. 263.6 through 263.12, 263.16, and 263.21 of this part shall
apply.
(5) Decision on petition. Within 30 calendar days after the
hearing, the presiding officer shall issue a decision. The presiding
officer will grant a stay upon a demonstration that a substantial
likelihood exists of the respondent's success on the issues raised by
the notice of intention and that, absent such relief, the respondent
will suffer immediate and irreparable injury, loss, or damage. In the
absence of such a demonstration, the presiding officer will notify the
parties that the immediate suspension will be continued pending the
completion of the administrative proceedings pursuant to the notice.
(6) Review of presiding officer's decision. The parties may seek
review of the presiding officer's decision by filing a petition for
review with the presiding officer within 10 calendar days after service
of the decision. Replies must be filed within 10 calendar days after
the petition filing date. Upon receipt of a petition for review and any
reply, the presiding officer shall promptly certify the entire record
to the Board. Within 60 calendar days of the presiding officer's
certification, the Board shall issue an order notifying the affected
party whether or not the immediate suspension should be continued or
reinstated. The order shall state the basis of the Board's decision.
Sec. 263.403 Automatic removal, suspension, and debarment.
(a) An independent public accountant or accounting firm may not
perform audit services for banking organizations if the accountant or
firm:
(1) Is subject to a final order of removal, suspension, or
debarment (other than a limited scope order) issued by the Federal
Deposit Insurance Corporation, the Office of the Comptroller of the
Currency, or the Office of Thrift Supervision under section 36 of the
FDIA;
(2) Is subject to a temporary suspension or permanent revocation of
registration or a temporary or permanent suspension or bar from further
association with any registered public accounting firm issued by the
Public Company Accounting Oversight Board under sections 105(c)(4)(A)
or (B) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7215(c)(4)(A) or
(B));
(3) Is subject to an order of suspension or denial of the privilege
of appearing or practicing before the Securities and Exchange
Commission; or
(4) Is suspended or debarred for cause from practice as an
accountant by any duly constituted licensing authority of any state,
possession, commonwealth, or the District of Columbia.
(b) Upon written request, the Board, for good cause shown, may
grant written permission to such accountant or firm to perform audit
services for banking organizations. The request shall contain a concise
statement of the action requested. The Board may require the applicant
to submit additional information.
Sec. 263.404. Notice of removal, suspension, or debarment.
(a) Notice to the public. Upon the issuance of a final order for
removal, suspension, or debarment of an independent public accountant
or accounting firm from providing audit services, the Board shall make
the order publicly available and provide notice of the order to the
other Federal banking agencies.
(b) Notice to the Board by accountants and firms. An accountant or
accounting firm that provides audit services to a banking organization
must provide the Board with written notice of:
[[Page 1126]]
(1) Any currently effective order or other action described in
Sec. 263.402(a)(1)(vi) or Sec. Sec. 263.403(a)(2) through (a)(4); or
(2) Any currently effective action by the Public Company Accounting
Oversight Board under sections 105(c)(4)(C) or (G) of the Sarbanes-
Oxley Act of 2002 (15 U.S.C. 7215(c)(4)(C) or (G)).
(c) Timing of notice. Written notice required by this paragraph
shall be given no later than 15 calendar days following the effective
date of an order or action, or 15 calendar days before an accountant or
firm accepts an engagement to provide audit services, whichever date is
earlier.
Sec. 263.405 Petition for reinstatement.
(a) Form of petition. Unless otherwise ordered by the Board, a
petition for reinstatement by an independent public accountant or
accounting firm removed, suspended, or debarred under Sec. 263.402 may
be made in writing at any time one year after the effective date of the
order of removal, suspension, or debarment and, thereafter, at any time
more than one year after the accountant's or firm's most recent
petition for reinstatement. The request shall contain a concise
statement of the action requested. The Board may require the petitioner
to submit additional information.
(b) Procedure. A petitioner for reinstatement under this section
may, in the sole discretion of the Board, be afforded a hearing. The
accountant or firm shall bear the burden of going forward with a
petition and proving the grounds asserted in support of the petition.
The Board may, in its sole discretion, direct that any reinstatement
proceeding be limited to written submissions. The removal, suspension,
or debarment shall continue until the Board, for good cause shown, has
reinstated the petitioner or until the suspension period has expired.
The filing of a petition for reinstatement shall not stay the
effectiveness of the removal, suspension, or debarment of an accountant
or firm.
By order of the Board of Governors of the Federal Reserve
System, December 17, 2002.
Jennifer J. Johnson,
Secretary of the Board.
Federal Deposit Insurance Corporation
PART 308--RULES OF PRACTICE AND PROCEDURE
1.The authority citation for part 308 is revised to read as
follows:
Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 93(b), 164, 505,
1815(e), 1817, 1818, 1820, 1828, 1829, 1829b, 1831i, 1831m(g)(4),
1831o, 1831p-1, 1832(c), 1884(b), 1972, 3102, 3108(a), 3349, 3909,
4717; 15 U.S.C. 78(h) and (i), 78o-4(c), 78o-5, 78q-1, 78s, 78u,
78u-2, 78u-3 and 78w, 6801(b), 6805(b)(1); 28 U.S.C. 2461 note; 31
U.S.C. 330, 5321; 42 U.S.C. 4012a; Sec. 3100(s), Pub. L. 104-134,
110 Stat. 1321-358.
2. Section 308.109(b)(3) is amended to add a new sentence before
the last sentence to read as follows:
Sec. 308.109 Suspension and disbarment
* * * * *
(b) * * *
(3) * * * The application must comply with the requirements of
Sec. 303.3 of this chapter. * * *
* * * * *
3. A new Subpart U is added to read as follows:
Subpart U--Removal, Suspension, and Debarment of Accountants From
Performing Audit Service
Sec.
308.600 Scope.
308.601 Definitions.
308.602 Removal, suspension, or debarment.
308.603 Automatic removal, suspension, and debarment.
308.604 Notice of removal, suspension, or debarment.
308.605 Application for reinstatement.
Subpart U--Removal, Suspension, and Debarment of Accountants From
Performing Audit Service
Sec. 308.600 Scope.
This subpart, which implements section 36(g)(4) of the FDIA (12
U.S.C. 1831m(g)(4)), provides rules and procedures for the removal,
suspension, or debarment of independent public accountants and
accounting firms from performing independent audit and attestation
services required by section 36 of the FDIA (12 U.S.C. 1831m) for
insured depository institutions for which the FDIC is the appropriate
Federal banking agency.
Sec. 308.601 Definitions.
As used in this subpart, the following terms shall have the meaning
given below unless the context requires otherwise:
(a) Accounting firm means a corporation, proprietorship,
partnership, or other business firm providing audit services.
(b) Audit services means any service required to be performed by an
independent public accountant by section 36 of the FDIA and 12 CFR part
363, including attestation services.
(c) Independent public accountant (accountant) means any individual
who performs or participates in providing audit services.
Sec. 308.602 Removal, suspension, or debarment.
(a) Good cause for removal, suspension, or debarment--(1)
Individuals. The Board of Directors may remove, suspend, or debar an
independent public accountant from performing audit services for
insured depository institutions for which the FDIC is the appropriate
Federal banking agency under section 36 of the FDIA if, after service
of a notice of intention and opportunity for hearing in the matter, the
Board of Directors finds that the accountant:
(i) Lacks the requisite qualifications to perform audit services;
(ii) Has knowingly or recklessly engaged in conduct that results in
a violation of applicable professional standards, including those
standards and conflicts of interest provisions applicable to
accountants through the Sarbanes-Oxley Act of 2002 (Pub. L. 107-204,
116 Stat. 745 (2002)) (Sarbanes-Oxley Act) and developed by the Public
Company Accounting Oversight Board and the Securities and Exchange
Commission;
(iii) Has engaged in negligent conduct in the form of:
(A) A single instance of highly unreasonable conduct that results
in a violation of applicable professional standards in circumstances in
which an accountant knows, or should know, that heightened scrutiny is
warranted; or
(B) Repeated instances of unreasonable conduct, each resulting in a
violation of applicable professional standards, that indicate a lack of
competence to perform audit services;
(iv) Has knowingly or recklessly given false or misleading
information, or knowingly or recklessly participated in any way in the
giving of false or misleading information, to the FDIC or any officer
or employee of the FDIC;
(v) Has engaged in, or aided and abetted, a material and knowing or
reckless violation of any provision of the Federal banking or
securities laws or the rules and regulations thereunder, or any other
law; or
(vi) Has been removed, suspended, or debarred from practice before
any Federal or state agency regulating the banking, insurance, or
securities industries, other than by an action listed in Sec. 308.603,
on grounds relevant to the provision of audit services.
(2) Accounting firms. If the Board of Directors determines that
there is good cause for the removal, suspension, or debarment of a
member or employee of an accounting firm under paragraph
[[Page 1127]]
(a)(1) of this section, the Board of Directors also may remove,
suspend, or debar such firm or one or more offices of such firm. In
considering whether to remove, suspend, or debar an accounting firm or
an office thereof, and the term of any sanction against an accounting
firm under this section, the Board of Directors may consider, for
example:
(i) The gravity, scope, or repetition of the act or failure to act
that constitutes good cause for the removal, suspension, or debarment;
(ii) The adequacy of, and adherence to, applicable policies,
practices, or procedures for the accounting firm's conduct of its
business and the performance of audit services;
(iii) The selection, training, supervision, and conduct of members
or employees of the accounting firm involved in the performance of
audit services;
(iv) The extent to which managing partners or senior officers of
the accounting firm have participated, directly, or indirectly through
oversight or review, in the act or failure to act; and
(v) The extent to which the accounting firm has, since the
occurrence of the act or failure to act, implemented corrective
internal controls to prevent its recurrence.
(3) Limited scope orders. An order of removal, suspension
(including an immediate suspension), or debarment may, at the
discretion of the Board of Directors, be made applicable to a limited
number of insured depository institutions for which the FDIC is the
appropriate Federal banking agency.
(4) Remedies not exclusive. The remedies provided in this subpart
are in addition to any other remedies the FDIC may have under any other
applicable provision of law, rule, or regulation.
(b) Proceedings to remove, suspend or debar-- (1) Initiation of
formal removal, suspension, or debarment proceedings. The Board of
Directors may initiate a proceeding to remove, suspend, or debar an
accountant or accounting firm from performing audit services by issuing
a written notice of intention to take such action that names the
individual or firm as a respondent and describes the nature of the
conduct that constitutes good cause for such action.
(2) Hearings under paragraph (b) of this section. An accountant or
firm named as a respondent in the notice issued under paragraph (b)(1)
of this section may request a hearing on the allegations contained in
the notice. Hearings conducted under this paragraph shall be conducted
in the same manner as other hearings under the Uniform Rules of
Practice and Procedure (12 CFR part 308, subpart A) (Uniform Rules).
(c) Immediate suspension from performing audit service-- (1) In
general. If the Board of Directors serves a written notice of intention
to remove, suspend, or debar an accountant or accounting firm from
performing audit services, the Board of Directors may, with due regard
for the public interest and without a preliminary hearing, immediately
suspend such accountant or firm from performing audit services for
insured depository institutions for which the FDIC is the appropriate
Federal banking agency if the Board of Directors:
(i) Has a reasonable basis to believe that the accountant or
accounting firm has engaged in conduct (specified in the notice served
upon the accountant or accounting firm under paragraph (b)(1) of this
section) that would constitute grounds for removal, suspension, or
debarment under paragraph (a) of this section;
(ii) Determines that immediate suspension is necessary for the
protection of an insured depository institution or its depositors or
for the protection of the depository system as a whole; and
(iii) Serves such respondent with written notice of the immediate
suspension.
(2) Procedures. An immediate suspension notice issued under this
paragraph will become effective upon service. Such suspension will
remain in effect until the date the Board of Directors dismisses the
charges contained in the notice of intention, or the effective date of
a final order of removal, suspension, or debarment issued by the Board
of Directors to the respondent.
(3) Petition to stay. Any accountant or accounting firm immediately
suspended from performing audit services in accordance with paragraph
(c)(1) of this section may, within 10 calendar days after service of
the notice of immediate suspension, file a petition with the Executive
Secretary for a stay of such immediate suspension. If no petition is
filed within 10 calendar days, the immediate suspension will remain in
effect.
(4) Hearing on petition. Upon receipt of a stay petition, the
Executive Secretary will designate a presiding officer who will fix a
place and time (not more than 30 calendar days after receipt of the
petition, unless extended at the request of petitioner) at which the
immediately suspended party may appear, personally or through counsel,
to submit written materials and oral argument. In the sole discretion
of the presiding officer, upon a specific showing of compelling need,
oral testimony of witnesses also may be presented. Enforcement counsel
may represent the agency at the hearing. In hearings held pursuant to
this paragraph there shall be no discovery, and the provisions of
Sec. Sec. 308.6 through 308.12, Sec. 308.16, and Sec. 308.21 of the
Uniform Rules will apply.
(5) Decision on petition. Within 30 calendar days after the
hearing, the presiding officer will issue a decision. The presiding
officer will grant a stay upon a demonstration that a substantial
likelihood exists of the respondent's success on the issues raised by
the notice of intention and that, absent such relief, the respondent
will suffer immediate and irreparable injury, loss, or damage. In the
absence of such a demonstration, the presiding officer will notify the
parties that the immediate suspension will be continued pending the
completion of the administrative proceedings pursuant to the notice of
intention. The presiding officer will serve a copy of the decision on,
and simultaneously certify the record to, the Executive Secretary.
(6) Review of presiding officer's decision. The parties may seek
review of the presiding officer's decision by filing a petition for
review with the Executive Secretary within 10 calendar days after
service of the decision. Replies must be filed within 10 calendar days
after the petition filing date. Upon receipt of a petition for review
and any reply, the Executive Secretary will promptly certify the entire
record to the Board of Directors. Within 60 calendar days of the
Executive Secretary's certification, the Board of Directors will issue
an order notifying the affected party whether or not the immediate
suspension should be continued or reinstated. The order will state the
basis of the Board's decision.
Sec. 308.603 Automatic removal, suspension, and debarment.
(a) An independent public accountant or accounting firm may not
perform audit services for insured depository institutions for which
the FDIC is the appropriate Federal banking agency if the accountant or
firm:
(1) Is subject to a final order of removal, suspension, or
debarment (other than a limited scope order) issued by the Board of
Governors of the Federal Reserve System, the Office of the Comptroller
of the Currency, or the Office of Thrift Supervision under section 36
of the FDIA;
(2) Is subject to a temporary suspension or permanent revocation of
[[Page 1128]]
registration or a temporary or permanent suspension or bar from further
association with any registered public accounting firm issued by the
Public Company Accounting Oversight Board under sections 105(c)(4)(A)
or (B) of the Sarbanes-Oxley Act (15 U.S.C. 7215(c)(4)(A) or (B));
(3) Is subject to an order of suspension or denial of the privilege
of appearing or practicing before the Securities and Exchange
Commission; or
(4) Is suspended or debarred for cause from practice as an
accountant by any duly constituted licensing authority of any state,
possession, commonwealth, or the District of Columbia.
(b) Upon written request, the FDIC, for good cause shown, may grant
written permission to such accountant or firm to perform audit services
for insured depository institutions for which the FDIC is the
appropriate Federal banking agency. The written request must comply
with the requirements of Sec. 303.3 of this chapter.
Sec. 308.604 Notice of removal, suspension, or debarment.
(a) Notice to the public. Upon the issuance of a final order for
removal, suspension, or debarment of an independent public accountant
or accounting firm from providing audit services, the FDIC will make
the order publicly available and provide notice of the order to the
other Federal banking agencies.
(b) Notice to the FDIC by accountants and firms. An accountant or
accounting firm that provides audit services to any insured depository
institution for which the FDIC is the appropriate Federal banking
agency must provide the FDIC with written notice of:
(1) any currently effective order or other action described in
Sec. 308.602(a)(1)(vi) or Sec. Sec. 308.603(b) through (d); or
(2) any currently effective action by the Public Company Accounting
Oversight Board under sections 105(c)(4)(C) or (G) of the Sarbanes-
Oxley Act (15 U.S.C. 7215(c)(4)(C) or (G)).
(c) Timing of Notice. Written notice required by this paragraph
shall be given no later than 15 calendar days following the effective
date of an order or action, or 15 calendar days before an accountant or
accounting firm accepts an engagement to provide audit services,
whichever date is earlier.
Sec. 308.605 Application for reinstatement.
(a) Form of petition. Unless otherwise ordered by the Board of
Directors, an application for reinstatement by an independent public
accountant or accounting firm removed, suspended, or debarred under
Sec. 308.602 may be made in writing at any time more than one year
after the effective date of the removal, suspension, or debarment and,
thereafter, at any time more than one year after the accountant's or
accounting firm's most recent application for reinstatement. The
application must comply with the requirements of Sec. 303.3 of this
chapter.
(b) Procedure. An applicant for reinstatement under this section
may, in the sole discretion of the Board of Directors, be afforded a
hearing. In reinstatement proceedings, the person seeking reinstatement
shall bear the burden of going forward with an application and proving
the grounds asserted in support of the application, and the Board of
Directors may, in its sole discretion, direct that any reinstatement
proceeding be limited to written submissions. The removal, suspension,
or debarment shall continue until the Board of Directors, for good
cause shown, has reinstated the applicant or until the suspension
period has expired. The filing of an application for reinstatement will
not stay the effectiveness of the removal, suspension, or debarment of
an accountant or firm.
Dated: December 17, 2002.
By order of the Board of Directors of the Federal Deposit
Insurance Corporation.
Robert Feldman,
Executive Secretary.
Office of Thrift Supervision
12 CFR Chapter V
Authority and Issuance
For the reasons set out in the preamble, the Office of Thrift
Supervision proposes to amend part 513 of chapter V of title 12 of the
Code of Federal Regulations as follows:
1. The authority citation for part 513 is revised to read as
follows:
Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1813, 1831m, and
15 U.S.C. 78.
2. Add Sec. 513.8 to read as follows:
Sec. 513.8 Removal, suspension, or debarment of independent public
accountants and accounting firms performing audit services.
(a) Scope. This subpart, which implements section 36(g)(4) of the
Federal Deposit Insurance Act (FDIA) (12 U.S.C. 1831m(g)(4)), provides
rules and procedures for the removal, suspension, or debarment of
independent public accountants and their accounting firms from
performing independent audit and attestation services required by
section 36 of the FDIA (12 U.S.C. 1831m) for insured savings
associations and savings and loan holding.
(b) Definitions. As used in this section, the following terms have
the meaning given below unless the context requires otherwise:
(1) Accounting firm. The term accounting firm means a corporation,
proprietorship, partnership, or other business firm providing audit
services.
(2) Audit services. The term audit services means any service
required to be performed by an independent public accountant by section
36 of the FDIA Act and 12 CFR part 363, including attestation services.
Audit services include any service performed with respect to a savings
and loan holding company of a savings association that is used to
satisfy requirements imposed by section 36 or part 363 on that savings
association.
(3) Independent public accountant. The term independent public
accountant means any individual who performs or participates in
providing audit services.
(c) Removal, suspension, or debarment of independent public
accountants. The Office may remove, suspend, or debar an independent
public accountant from performing audit services for savings
associations that are subject to section 36 of the FDIA if, after
service of a notice of intention and opportunity for hearing in the
matter, the Office finds that the independent public accountant:
(1) Lacks the requisite qualifications to perform audit services;
(2) Has knowingly or recklessly engaged in conduct that results in
a violation of applicable professional standards, including those
standards and conflicts of interest provisions applicable to
independent public accountants through the Sarbanes-Oxley Act of 2002,
Pub. L. 107-204, 116 Stat. 745 (2002) (Sarbanes-Oxley Act), and
developed by the Public Company Oversight Board and the Securities and
Exchange Commission;
(3) Has engaged in negligent conduct in the form of:
(i) A single instance of highly unreasonable conduct that results
in a violation of applicable professional standards in circumstances in
which an independent public accountant knows, or should know, that
heightened scrutiny is warranted; or
(ii) Repeated instances of unreasonable conduct, each resulting in
a violation of applicable professional standards, that indicate a lack
of competence to perform audit services;
(4) Has knowingly or recklessly given false or misleading
information or knowingly or recklessly participated in
[[Page 1129]]
any way in the giving of false or misleading information to the Office
or any officer or employee of the Office;
(5) Has engaged in, or aided and abetted, a material and knowing or
reckless violation of any provision of the Federal banking or
securities laws or the rules and regulations thereunder, or any other
law; or
(6) Has been removed, suspended, or debarred from practice before
any federal or state agency regulating the banking, insurance, or
securities industries, other than by action listed in paragraph (j) of
this section, on grounds relevant to the provision of audit services.
(d) Removal, suspension or debarment of an accounting firm. If the
Office determines that there is good cause for the removal, suspension,
or debarment of a member or employee of an accounting firm under
paragraph (c) of this section, the Office also may remove, suspend, or
debar such firm or one or more offices of such firm. In considering
whether to remove, suspend, or debar an accounting firm or office
thereof, and the term of any sanction against an accounting firm under
this section, the Office may consider, for example:
(1) The gravity, scope, or repetition of the act or failure to act
that constitutes good cause for the removal, suspension, or debarment;
(2) The adequacy of, and adherence to, applicable policies,
practices, or procedures for the accounting firm's conduct of its
business and the performance of audit services;
(3) The selection, training, supervision, and conduct of members or
employees of the accounting firm involved in the performance of audit
services;
(4) The extent to which managing partners or senior officers of the
accounting firm have participated, directly or indirectly through
oversight or review, in the act or failure to act; and
(5) The extent to which the accounting firm has, since the
occurrence of the act or failure to act, implemented corrective
internal controls to prevent its recurrence.
(e) Remedies. The remedies provided in this section are in addition
to any other remedies the Office may have under any other applicable
provisions of law, rule, or regulation.
(f) Proceedings to remove, suspend, or debar. (1) The Office may
initiate a proceeding to remove, suspend, or debar an independent
public accountant or accounting firm from performing audit services by
issuing a written notice of intention to take such action that names
the individual or firm as a respondent and describes the nature of the
conduct that constitutes good cause for such action.
(2) An independent public accountant or accounting firm named as a
respondent in the notice issued under paragraph (f)(1) of this section
may request a hearing on the allegations in the notice. Hearings
conducted under this paragraph shall be conducted in the same manner as
other hearings under the Uniform Rules of Practice and Procedure (12
CFR part 509).
(g) Immediate suspension from performing audit services. (1) If the
Office serves written notice of intention to remove, suspend, or debar
an independent public accountant or accounting firm from performing
audit services, the Office may, with due regard for the public interest
and without preliminary hearing, immediately suspend an independent
public accountant or accounting firm from performing audit services for
savings associations, if the Office:
(i) Has a reasonable basis to believe that the independent public
accountant or accounting firm engaged in conduct (specified in the
notice served upon the independent public accountant or accounting firm
under paragraph (f) of this section) that would constitute grounds for
removal, suspension, or debarment under paragraph (c) or (d) of this
section;
(ii) Determines that immediate suspension is necessary for the
protection of an insured depository institution or its depositors or
for the protection of the depository system as a whole; and
(iii) Serves such independent public accountant or accounting firm
with written notice of the immediate suspension.
(2) An immediate suspension notice issued under this paragraph will
become effective upon service. Such suspension will remain in effect
until the date the Office dismisses the charges contained in the notice
of intention, or the effective date of a final order of removal,
suspension, or debarment issued by the Office to the independent public
accountant or accounting firm.
(h) Petition to stay. (1) Any independent public accountant or
accounting firm immediately suspended from performing audit services in
accordance with paragraph (g) of this section may, within 10 calendar
days after service of the notice of immediate suspension, file a
petition with the Office for a stay of such suspension. If no petition
is filed within 10 calendar days, the immediate suspension will remain
in effect.
(2) Upon receipt of a stay petition, the Office will designate a
presiding officer who shall fix a place and time (not more than 30
calendar days after receipt of such petition, unless extended at the
request of the petitioner), at which the immediately suspended party
may appear, personally or through counsel, to submit written materials
and oral argument. In the sole discretion of the presiding officer,
upon a specific showing of compelling need, oral testimony of witnesses
may also be presented. In hearings held pursuant to this paragraph,
there will be no discovery and the provisions of Sec. Sec. 509.6
through 509.12, 509.16, and 509.21 of the Uniform Rules will apply.
(3) Within 30 calendar days after the hearing, the presiding
officer shall issue a decision. The presiding officer will grant a stay
upon a demonstration that a substantial likelihood exists of the
respondent's success on the issues raised by the notice of intention
and that, absent such relief, the respondent will suffer immediate and
irreparable injury, loss, or damage. In the absence of such a
demonstration, the presiding officer will notify the parties that the
immediate suspension will be continued pending the completion of the
administrative proceedings pursuant to the notice.
(4) The parties may seek review of the presiding officer's decision
by filing a petition for review with the presiding officer within 10
calendar days after service of the decision. Replies must be filed
within 10 calendar days after the petition filing date. Upon receipt of
a petition for review and any reply, the presiding officer must
promptly certify the entire record to the Director. Within 60 calendar
days of the presiding officer's certification, the Director shall issue
an order notifying the affected party whether or not the immediate
suspension should be continued or reinstated. The order shall state the
basis of the Director's decision.
(i) Scope of any order of removal, suspension, or debarment. (1)
Except as provided in paragraph (i)(2), any independent public
accountant or accounting firm that has been removed, suspended
(including an immediate suspension), or debarred from performing audit
services by the Office may not, while such order is in effect, perform
audit services for any savings association.
(2) An order of removal, suspension (including an immediate
suspension), or debarment may, at the discretion of the Office, be made
applicable to a limited number of savings associations or savings and
loan holding companies (limited scope order).
[[Page 1130]]
(j) Automatic removal, suspension, and debarment. (1) An
independent public accountant or accounting firm may not perform audit
services for a savings association if the independent public accountant
or accounting firm:
(i) Is subject to a final order of removal, suspension, or
debarment (other than a limited scope order) issued by the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, or the Office of the Comptroller of the Currency under
section 36 of the FDIA;
(ii) Is subject to a temporary suspension or permanent revocation
of registration or a temporary or permanent suspension or bar from
further association with any registered public accounting firm issued
by the Public Company Accounting Oversight Board under sections
105(c)(4)(A) or (B) of the Sarbanes-Oxley Act (15 U.S.C. 7215(c)(4)(A)
or (B));
(iii) Is subject to an order of suspension or denial of the
privilege of appearing or practicing before the Securities and Exchange
Commission; and
(iv) Is suspended or debarred for cause from practice as an
accountant by any duly constituted licensing authority of any state,
possession, commonwealth, or the District of Columbia.
(2) Upon written request, the Office, for good cause shown, may
grant written permission to an independent public accountant or
accounting firm to perform audit services for savings associations. The
request must contain a concise statement of action requested. The
Office may require the applicant to submit additional information.
(k) Notice of removal, suspension, or debarment. (1) Upon issuance
of a final order for removal, suspension, or debarment of an
independent public accountant or accounting firm from providing audit
services, the Office shall make the order publicly available and
provide notice of the order to the other Federal banking agencies.
(2) An independent public accountant or accounting firm that
provides audit services to a savings association must provide the
Office with written notice of:
(i) Any currently effective order or other action described in
paragraph (c)(6) or paragraphs (j)(1)(ii) through (j)(1)(iv) of this
section; or
(ii) Any currently effective action by the Public Company
Accounting Oversight Board under sections 105(c)(4)(C) or (G) of the
Sarbanes-Oxley Act (15 U.S.C. 7215(c)(4)(C) or (G)).
(3) Written notice required by this paragraph shall be given no
later than 15 calendar days following the effective date of an order or
action or 15 calendar days before an independent public accountant or
accounting firm accepts an engagement to provide audit services,
whichever date is earlier.
(l) Application for reinstatement. (1) Unless otherwise ordered by
the Office, an independent public accountant or accounting firm
removed, suspended or debarred under this section may apply for
reinstatement in writing at any time one year after the effective date
of the order of removal, suspension, or debarment and, thereafter, at
any time more than one year after the independent public accountant's
or accounting firm's most recent application for reinstatement. The
request shall contain a concise statement of action requested. The
Office may require the applicant to submit additional information.
(2) An applicant for reinstatement under paragraph (l)(1) of this
section may, in the Office's sole discretion, be afforded a hearing.
The independent public accountant or accounting firm shall bear the
burden of going forward with an application and the burden of proving
the grounds supporting the application. The Office may, in its sole
discretion, direct that any reinstatement proceeding be limited to
written submissions. The removal, suspension, or debarment shall
continue until the Office, for good cause shown, has reinstated the
applicant or until, in the case of a suspension, the suspension period
has expired. The filing of a petition for reinstatement shall not stay
the effectiveness of the removal, suspension, or debarment of an
independent public accountant or accounting firm.
Dated: December 2, 2002.
By the Office of Thrift Supervision.
James Gilleran,
Director.
[FR Doc. 03-98 Filed 1-7-03; 8:45 am]
BILLING CODE 4810-33-P