Full text of Press Releases of the Board of Governors of the Federal Reserve System : Interagency rules on disciplinary actions against accountants and accounting firms : Attachment 1

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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 19
[Docket No. 03-19]
RIN 1557-AC10
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
12 CFR Part 263
[Docket No. R-1139]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 308
RIN 3064-AC57
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 513
[No. 2003-33]
RIN 1550-AB53
Removal, Suspension, and Debarment of
Accountants From Performing Audit Services

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

importance of maintaining high quality in the audits of the financial position and attestations of
management assessments of insured depository institutions. The final rules enhance the
Agencies' ability to address misconduct by accountants who perform annual audit and attestation
services.
EFFECTIVE DATE: OCTOBER 1, 2003
FOR FURTHER INFORMATION CONTACT:
OCC: Mitchell Plave, Counsel, Legislative and Regulatory Activities Division, (202)
874-5090; Richard Shack, Senior Accountant, Office of the Chief Accountant, (202) 874-4911;
and Karen Besser, National Bank Examiner, Special Supervision/Fraud, (202) 874-4464.
Board: Richard Ashton, Associate General Counsel, Legal Division, (202) 452-3750;
Nina Nichols, Counsel, (202) 452-2961; Arthur Lindo, Project Manager, (202) 452-2695; and
Salome Tinker, Senior Financial Analyst, (202) 452-3034, Division of Banking Supervision and
Regulation; for users of Telecommunication Devices for the Deaf (TDD) only, contact (202)
263-4869.
FDIC: Richard Bogue, Counsel, Enforcement Unit, (202) 898-3726; Harrison E. Greene,
Jr., Senior Policy Analyst, Accounting and Securities Disclosure Section, Division of
Supervision and Consumer Protection, (202) 898-8905.
OTS: Christine A. Smith, Project Manager, (202) 906-5740, Supervision Policy; Teresa
A. Scott, Counsel (Banking & Finance), (202) 906-6478, Regulations and Legislation Division.
SUPPLEMENTARY INFORMATION:
I. Background
Section 36 of the FDIA (12 U.S.C. 1831m), as implemented by FDIC regulations,
requires every large insured depository institution to submit an annual report containing its
financial statements and certain management assessments to the FDIC, the appropriate Federal
banking agency, and any appropriate state bank supervisor.1 Section 36 of the FDIA also
requires that an independent public accountant audit the insured depository institution’s annual
financial statements to determine whether those statements are presented fairly in accordance
with generally accepted accounting principles (GAAP) and with the accounting objectives,
standards, and requirements described in section 37 of the FDIA. Under section 37, the
accounting principles applicable to financial statements required to be filed with the Agencies
must be uniform and consistent with GAAP.2 In addition, the accountant must attest to and

1

12 U.S.C. 1831m, 1831m(j)(2); see also 12 CFR part 363 (describing the requirements for independent audits and
reporting for all insured depository institutions). The statute gives the FDIC Board of Directors the discretion to
establish the threshold asset size at which a section 36 annual report is required. That amount is currently set at
$500 million. See 12 CFR 363.1(a). While a section 36 audit is not required of financial institutions with less than
$500 million in total assets, the Agencies encourage every insured depository institution, regardless of its size or
character, to have an annual audit of its financial statements performed by an independent public accountant. See 12
CFR 363 App. A (Introduction).
2

12 U.S.C. 1831m(d), 1831n.

2

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 Agencies’ authority
to remove, suspend, or debar from practice before an Agency parties, such as accountants, who
represent others.7
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.
II. Proposed Rule and Comments Received
On January 8, 2003, the Agencies proposed amending their rules of practice by adding
provisions for the removal, suspension, or debarment of accountants or accounting firms from
performing the audit services required by section 36 of the FDIA.9 The proposed rules defined
"good cause" for such actions and established procedures for removal, suspension, or debarment
of accountants. The proposals also contained conforming amendments to the existing practice
rules of the OCC, Board, and FDIC.
The Agencies received six comments. One comment was from a major trade association
for community banks; another was from four large accounting firms and a major professional
association for the accounting industry; a third was from three accounting firms that provide
audit services to publicly held and non-publicly held banks in one state; the fourth and fifth
comments were from certified public accountants; and the final comment was from a banking,
management, and economic consultant. The commenters generally stated their support for the
underlying goals of section 36 and the proposal -- to bolster the quality of audit services.
One commenter expressed concern about immediate suspensions. The commenter asked
how an insured depository institution can meet the deadline for submitting section 36 audits if
the institution’s accountant is subject to an order of immediate suspension and requested
3

Id. 1831m(c); see also 12 CFR part 363 (independent audit and reporting requirements).
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.
8
12 U.S.C. 1831m(g)(4)(B).
9
68 Fed. Reg. 1116 (January 8, 2003); see also 68 Fed. Reg. 4967, 5075 (January 31, 2003) (technical corrections).
4

3

guidance on the Agencies’ expectations under these circumstances. Another commenter
questioned why the Agencies are pursuing this rulemaking, given the role of the newly
constituted Public Company Accounting Oversight Board (PCAOB) as a regulator of
accountants. The commenter’s more specific concern was with the level of due process
associated with immediate and automatic suspensions. A third commenter questioned whether
the Agencies have authority to use a negligence standard of any kind, given the higher standards
elsewhere in the FDIA for IAPs who are independent contractors. The commenter also
questioned the authority of the Agencies to extend sanctions to accounting firms and offices.
In response to the comments, the Agencies have revised the proposal, as discussed in
detail below.
III. Final Rule
Below is a more detailed discussion of the issues raised in response to the proposal and
the Agencies’ responses thereto. Because each Agency is codifying the final rules using
different section numbers, this discussion will follow the order of the proposal, using captions
instead of section numbers for reference.
Definitions
The proposal defined “accounting firm,” “audit services,” and “independent public
accountant.” Under the proposal, “accounting firm” means a corporation, proprietorship,
partnership, or other business firm providing audit services. “Audit services” means any service
required to be performed by an independent public accountant by section 36 of the FDIA and 12
CFR part 363, including attestation services. “Independent public accountant” means any
individual who performs or participates in providing audit services.
The Agencies did not receive any comments on the definitions. The final rule adopts the
definitions as proposed.
Removal, Suspension, or Debarment
Good Cause for Removal, Suspension, or Debarment. The proposed rules defined “good
cause” for removal, suspension, or debarment of accountants from providing audit services
required by section 36. Under the proposal, the Agencies would have “good cause” if the
accountant does not possess the requisite qualifications to perform audit services; engages in
knowing or reckless conduct that results in a violation of applicable professional standards,
including those standards and conflicts of interest provisions applicable to accountants through
the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act) 10 and developed by the PCAOB and the
Securities and Exchange Commission (SEC), as such standards and provisions become effective;
engages in a single instance of highly unreasonable conduct that results in a violation of
applicable professional standards in circumstances in which an accountant knows, or should
10

Pub. L. 107-204, 116 Stat 745 (2002). For further guidance on the obligations of insured depository institutions
under the Sarbanes-Oxley Act, see OCC Bulletin No. 2003-21, Application of Recent Corporate Governance
Initiatives to Non-Public Banking Organizations (containing the Statement on Application of Recent Corporate
Governance Initiatives to Non-Public Banking Organizations by the Board, OCC, and OTS (May 6, 2003)); Federal
Reserve Board SR Letter 03-8, Statement on Application of Recent Corporate Governance Initiatives to Non-Public
Banking Organizations (May 5, 2003). See also FDIC Financial Institution Letter 17-2003 (Corporate Governance,
Audits, and Reporting Requirements) (March 5, 2003).

4

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.
Under the proposal, good cause also included knowingly or recklessly giving false or
misleading information to the Agencies with respect to any matter before the Agency; knowingly
or recklessly violating any provision of the Federal banking or securities laws or regulations, or
any other law, including the Sarbanes-Oxley Act; and removal, suspension, or debarment from
practice before any Federal or state agency regulating the banking, insurance, or
securities industry on grounds relevant to the provision of audit services, other than those actions
that result in automatic removal, suspension, and debarment under the proposed rules.
Conduct giving rise to good cause under the proposed rules does not have to occur in
connection with the provision of audit services or in connection with services provided to
depository institutions. Any actions or failures to act by an independent public accountant or
accounting firm that meet the criteria for good cause set forth in the regulation, whether or not
related to the banking industry, could constitute good cause for Agency action.
One commenter expressed a variety of reservations about the good cause standard. The
commenter’s broadest suggestion was that the Agencies should refer all section 36 actions
against accountants to the PCAOB and SEC, given the entities’ new roles as regulators of
accountants under the Sarbanes-Oxley Act.
This comment does not reflect the jurisdictional differences among the Agencies,
PCAOB, and SEC. The Agencies have enforcement jurisdiction that is separate and distinct
from the PCAOB’s and the SEC’s enforcement jurisdictions. Congress gave the Agencies
discretion to suspend or debar accountants from performing annual audit services for good cause
under section 36 of the FDIA. While an enforcement action by the PCAOB or the SEC could
provide good cause for section 36 actions, neither the PCAOB nor the SEC has statutory
authority under the FDIA to suspend or debar an accountant from performing annual audit
services. Even if the PCAOB or the SEC could accomplish this outcome indirectly, by barring
an accountant from associating with an accounting firm, neither the PCAOB nor the SEC has
authority to take action against an accountant who performs services for an institution that is not
publicly held. Accordingly, the Agencies are not adopting the commenter’s suggestion that all
section 36 cases be referred to the PCAOB or the SEC.
The commenter further asserted that there might be potential inconsistencies between the
good cause standards in the proposed rules and those the PCAOB may establish in the future. To
address these potential problems, the commenter suggested that the Agencies should, as stated
above, defer to the PCAOB and the SEC, or at a minimum coordinate with them before taking
suspension or debarment actions against accountants.
The Agencies intend to coordinate with the PCAOB and the SEC in section 36 cases
under appropriate circumstances. However, the Agencies do not believe that the proposed rule
creates a conflict in professional or substantive standards for accountants among the Agencies,
the PCAOB, and the SEC. The proposed rule did not suggest new standards for accountants.

5

Rather, it incorporated accountants’ existing responsibility to adhere to applicable professional
standards, such as generally accepted auditing standards and generally accepted standards for
attestation engagements, and existing SEC and Agency standards, into the definition of good
cause. The proposed rules were also consistent with the Sarbanes-Oxley Act and anticipated
future actions by the SEC and PCAOB to enforce standards set by those agencies. The proposed
rules were also drafted to accommodate the new standards that will be adopted by the SEC and
the PCAOB.
The commenter’s next point concerned the possibility that conduct at non-depository
institutions could provide the basis for an action against an accountant. The commenter
questioned whether the Agencies have the capability to evaluate the relevance of suspensions
and debarments of accountants in non-banking contexts, e.g., suspensions or debarments by
regulators of different types of businesses. The commenter opposed using suspensions by nonbanking agencies to serve as good cause for suspensions or debarments in the banking industry.
The proposal was consistent with the Agencies’ current authority under section
8(e)(1)(A)(ii) of the FDIA, which allows the Agencies to take into account unsafe business
practices in connection not only with any insured depository institution, but more broadly, any
business institution.11 The Agencies continue to believe that there may be cases in which
misconduct by accountants at non-depository institutions could raise serious questions about the
ability of the accountant to provide audit services for an insured depository institution. Under
the final rule, therefore, the Agencies can consider as “good cause” suspensions and debarments
of accountants in non-depository institution contexts that come to the attention of the Agencies.
Another commenter questioned whether the Agencies have the authority to use
negligence as a basis for a removal, suspension, or debarment of an accountant. The commenter
argued that the negligence standard is not consistent with remedies available now to the
Agencies against independent contractor IAPs under section 8 of the FDIA.12
In response, the Agencies note that section 36 of the FDIA broadly refers to “good cause”
as grounds for section 36 enforcement actions. There is no limitation in the statute on the use of
negligence as a basis for action, nor does section 36 tie “good cause” to existing section 8
standards. On the contrary, section 36 of the FDIA states that the good cause enforcement
remedies are in addition to those available under section 8.13 The commenter’s position would
essentially require this clause to be eliminated from section 36 of the statute. Also, the
negligence standard is one the SEC has used for many years in its suspension and debarment
actions against accountants. Congress recently codified this standard for the SEC in the
Sarbanes-Oxley Act.
For the foregoing reasons, the Agencies are adopting in the final rules the good cause
standard from the proposed rules.

11

12 U.S.C. 1818(e)(1)(A)(ii); see also Hendrickson v. FDIC, 113 F.3d 98 (7th Cir. 1997).
See 12 U.S.C. 1818, 1813(u)(4).
13
Id. 1831m(g)(4).
12

6

Removal, Suspension, or Debarment of Accounting Firms or Offices of Firms. The
proposed rules provided that if an Agency determines that there is good cause for the removal,
suspension, or debarment of a member or an employee of an accounting firm, the Agency “also
may remove, suspend, or debar such firm or one or more offices of such firm.” The proposed
rule listed five illustrative factors that the Agency may consider when deciding (a) whether to
remove, suspend, or debar a firm or one or more offices of such firm, and (b) the term of any
sanction imposed.
Some of the commenters questioned the authority of the Agencies to take action against
accounting firms or offices of firms. One commenter noted that section 36(g)(4) of the FDIA
specifically permits removal, suspension, or debarment of “an independent public accountant.”
The commenter then asserted “[t]here is no mention in the statute of the possible extension of
those sanctions to accounting firms or offices, or of extended or vicarious liability in any other
way or of any kind.” The commenter concluded that the Agencies lack authority to implement
this aspect of their proposal.
Another commenter did not specifically question the authority of the Agencies to propose
rules permitting the removal, suspension, or debarment of an accounting firm or office thereof.
Rather, the commenter quoted a portion of the legislative history of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Pub. L. 101-73, 103 Stat. 183
(1989), to the effect that enforcement actions should usually be limited to the individuals who
participated in the wrongful action to “prevent unintended consequences or economic harm to
innocent third parties.”14 The commenter argued that the rules should include an explicit
presumption against taking action against an entire firm, that this sanction should only be
available in the most egregious circumstances, specifically articulated in the rules, and that a
sanction against a firm should only be permissible after the affected firm has had the opportunity
for a meaningful hearing before an independent trier of fact.
The Agencies believe that the proposed rules, as they pertain to actions against
accounting firms and offices, are well within the Agencies’ statutory authority. As noted in the
preamble to the proposed rule, under the current practice regulations, the Agencies may “remove,
suspend, or debar a firm by naming each member of the firm or office in the order.…” Thus, the
proposal also employed this scope and provided guidance on when a firm sanction might be
appropriate. In addition, there is no indication that in using the term “independent public
accountant” Congress intended to restrict removals, suspensions, or debarments solely to natural
persons. The term “independent public accountant” is used throughout section 36 and its
implementing regulation, 12 CFR part 363, not just in the section 36(g)(4) provision relating to
removal, suspension, or debarment. Indeed, section 36 specifically provides that all required
audit services must be performed by an “independent public accountant” who has agreed to
provide requested work papers and has received an acceptable peer review. All required audit
and other reports are universally signed by accounting firms, not individual accountants,15 and
14

H.R. Rep. No. 54(I), 101st Cong., 1st Sess., at 467 (1989), reprinted in 1989 U.S.C.C.A.N. 86,263.
Section AU 508.08 of the AICPA’s Professional Standards describes the basic elements of the auditor’s standard
report on audited financial statements. These elements include “i. The manual or printed signature of the auditor’s
firm.” Similarly, Section AT 501.47 of these standards states that a practitioner’s examination report on the
effectiveness of an entity’s internal control over financial reporting should include “j. The manual or printed
signature of the practitioner’s firm.” In addition, Section AU 9339.06 of the Professional Standards presents an

15

7

peer reviews are performed at the firm level. Thus, the Agencies believe that enforcement action
at the firm level in appropriate circumstances is entirely consistent with the section 36 statutory
scheme.16
With respect to the legislative history quoted by the commenter, we note that the history
is from FIRREA, not the Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA),17 which added section 36 to the FDIA, so it is not directly relevant to our construction
of section 36. Even if this legislative history were applicable to section 36, the commenter
quoted only a portion of the relevant legislative history material -- the section not quoted
supports the view that, in extending Agency enforcement jurisdiction to independent contractors,
including “any attorney, appraiser, or accountant,”18 Congress intended such enforcement
jurisdiction to extend to business organizations under appropriate circumstances. In this regard,
the House Banking Committee’s Report on FIRREA, H.R. Rep. No. 54(I), at 466-67, states:
[T]he Committee strongly believes that the agencies should have the power to proceed
against such entities (corporation, firm or partnership) if most or many of the managing
partners or senior officers of the entity have participated in some way in the egregious
misconduct. For example, a removal and prohibition order might be justified against the
local office of a national accounting firm if it could be shown that a majority of the
managing partners or senior supervisory staff participated directly or indirectly in the
serious misconduct to an extent sufficient to give rise to an order. Such an order might
well be inappropriate if it was taken against the entire national firm or other geographic
units of the firm, unless the headquarters of these units were shown to have also
participated, even if only in a reviewing capacity.
Accordingly, the similar reference in section 36 to “independent public accountant” can
reasonably be read to reach firms as well.
The Agencies understand that severe economic consequences may result from action
barring an accounting firm from performing section 36 audit services. The Agencies are also
sensitive to the consequences that barring a firm might have on innocent third parties not directly
involved in the misconduct at issue. While the Agencies have had the authority since FIRREA
to pursue enforcement actions against entire firms of professionals, such authority has been used
only a handful of times and only in the most egregious circumstances. In addition, the Agencies

example of a letter that an auditor should consider submitting to a regulator prior to allowing the regulator access to
audit work papers. This letter ends with “Firm signature.”
16
The Agencies realize that the final rule includes definitions of both independent public accountant (individuals
who provide audit services) and accounting firm (business entities that provide auditing services). The dual
definitions are required because of the additional criteria, beyond those applicable to individual accountants, that the
Agencies may assess in determining whether to take action against a firm. The Agencies continue to believe that the
statutory term independent public accountant encompasses both regulatory definitions.
17
Pub. L. 102-242, 105 Stat. 2236 (1991).
18
12 U.S.C. 1813(u)(4).

8

believe that the five factors specified in the proposed rule appropriately focus the inquiry on
whether sufficient involvement of firm management is present to justify action against the entire
firm. Accordingly, the Agencies see no reason to amend the proposal to include an explicit
presumption against action at the firm or office level. The comment concerning the need for a
prior hearing before action at the firm or office level will be addressed in the sections discussing
automatic and immediate suspensions.
Proceedings to Remove, Suspend, or Debar. Under the proposed rules, the Agencies
would hold formal hearings on removals, suspensions, and debarments under rules that are
consistent with the Agencies’ Uniform Rules of Practice and Procedure (Uniform Rules).19 The
Uniform Rules provide, among other things, for written notice to the respondent of the intended
Agency action and the opportunity for a public hearing before an administrative law judge. The
administrative law judge would refer a recommended decision to the Agency, which would issue
a final decision and order. Each Agency would have the discretion to limit an order of removal,
suspension, or debarment so that it applied solely to audit services provided to specified insured
depository institutions, rather than to all insured depository institutions supervised by the issuing
Agency. This was referred to in the proposed rules as a “limited scope order.”20
The procedures in the proposed rules for removal, suspension, and debarment were drawn
principally from the Agencies' existing practice rules. The Agencies did not receive comment on
these procedures. Therefore, the Agencies are adopting the procedures as proposed.
Immediate Suspension from Performing Audit Services. The proposed rule implemented
the authority in section 36 to "suspend" an independent public accountant by providing that an
Agency may issue a notice immediately suspending an accountant or a firm subject to a notice of
intention to remove, suspend, or debar if the Agency determines that immediate suspension is
necessary for the protection of an insured depository institution, or its depositors, or for the
protection of the insured depository system as a whole. In making this proposal, the Agencies
stated that the authority to immediately suspend an accountant or firm could prevent seriously
harmful conduct relating to accounting matters at an insured depository institution from being
repeated or escalating while the administrative proceedings relating to a permanent removal,
suspension, or debarment order are pending.
One commenter asked for guidance to insured depository institutions on what to do if
their accountant were suspended immediately, more specifically, how to meet the deadlines for
filing annual audits. The commenter was concerned that there would not be sufficient time to
complete the audit, given the time it would take for a new accountant to become familiar with the
facts.
The Agencies understand that an immediate suspension may cause disruption to an
institution and make it difficult to meet the deadlines for submitting annual audits. The Agencies
expect that immediate suspensions would only be issued in compelling situations. In the case
19

See 12 CFR part 19, subpart A (OCC); 12 CFR part 263, subpart A (Board); 12 CFR part 308, subpart A (FDIC);
12 CFR part 509, subpart A (OTS).
20
The Agencies will also have the discretion to issue suspension orders where the duration of the suspension would
be dependent on the satisfactory completion of remedial action.

9

where an Agency head imposed an immediate suspension, the Agency will make appropriate
adjustments to the filing deadlines, if warranted, at the institution’s request.
Another commenter expressed a variety of objections to the proposed procedures for
contesting an immediate suspension. The commenter generally stated that the proposed
procedures do not comport with due process and suggested that the Agencies modify the
proposed procedures in a number of areas to follow more closely those procedures governing
issuance of temporary cease-and-desist orders by the SEC. Except for the modifications
explained below, the Agencies do not believe that the proposed procedures should be conformed
to the procedures applicable to temporary cease-and-desist orders issued under the securities
laws. With regard to the protection of the nation’s banking system, judicial decisions have
recognized that there is a compelling governmental interest that can justify regulatory action with
abbreviated procedures when necessary.21 The Agencies expect that the immediate suspension
remedy would be used only in circumstances where serious harm to a depository institution, its
depositors, or to the depository system as a whole would occur unless immediate enforcement
action is taken.
The commenter also had more specific suggestions for revisions to the proposal. First,
the commenter stated that the Agencies' proposed procedures should allow for a quicker agency
decisionmaking process. The commenter noted that, under the time frames contained in the
proposed rules, an accountant or a firm that petitions the Agency to stay a notice of immediate
suspension may not receive a decision with respect to the petition until 70 days after the
immediate suspension becomes effective. The commenter noted that, under the SEC Rules of
Practice, a final agency decision on a challenge to a temporary cease-and-desist order issued by
the SEC without a prior hearing is required within 20 days.22
The Agencies believe that the proposed maximum time period permitted for an Agency
decision on a stay petition is consistent with due process requirements. The Agencies note that
the Supreme Court has approved a procedural framework allowing up to 90 days for a final
decision by the Agencies on a challenge to an ex parte suspension order issued by the Agencies
against an IAP of a depository institution who has been indicted for certain types of crimes.
FDIC v. Mallen, 486 U.S. 230 (1988).
The maximum time limits in the proposed rules were designed by the Agencies to permit
a sufficient period for the creation of a meaningful record with regard to a stay petition and for
careful and deliberate review of that record by the Agency decision maker, consistent with the
recognized necessity for prompt administrative action on such a petition. As with the postdeprivation Agency hearing at issue in the Mallen decision, a stay petition could necessitate
resolution of factual disputes that would require at least some examination of relevant evidence.
The Agencies intend that an administrative decision on a stay petition under the rules
should be made at the earliest practicable time. Thus, the time limits imposed in the rules are
intended to establish only the maximum period allowable for issuing a decision and a decision is
expected to be made more promptly whenever feasible. Nevertheless, in order to further
21
22

See, e.g., Fahey v. Mallonee, 322 U.S. 245 (1947).
17 CFR 201.513(c).

10

minimize concerns about undue delay in the decision on a stay petition, the Agencies believe that
the date by which a hearing on a petition to stay is ordered can be shortened without unduly
impairing the administrative decisionmaking process. Accordingly, the final rules require that an
Agency must order a hearing on a petition to stay to be held 10 days after receipt of the petition,
rather than within 30 days as proposed.
As the commenter pointed out, the Supreme Court's approval of a 90-day agency
decisionmaking period in the Mallen decision depended in part on the fact that, under the
statutory framework at issue, the suspension of an IAP may be issued only after the individual
involved has been indicted by an independent entity, like a grand jury. According to the Court,
the indictment serves to reduce the likelihood that the banking agency suspension is unjustified.
Under the proposed rules, an immediate suspension notice may be issued by an Agency without
any similar action by a third party. In the Agencies' view, however, the lack of an independent
triggering event by a third party for accountant suspensions does not mean that the maximum
time limits in the final rules would result in the denial of a prompt and meaningful hearing before
the Agency on the propriety of the suspension. The Agencies intend that, under the final rules,
an immediate suspension could be issued only where there is probative evidence that substantial
harm to an insured depository institution, its depositors, or to the depository system as a whole is
likely to occur prior to completion of the proceedings on a permanent order of removal,
suspension, or debarment. In addition, under the final rules, the maximum time period permitted
for a decision on a stay petition (50 days) is only slightly longer than half the maximum time
limit approved in the Mallen case for an agency decision on an indictment-triggered suspension.
In the Agencies' judgment, the maximum time for decision in the final rules represents the
shortest realistic period necessary for adequate consideration of the suspended party's opposition
to the suspension.23 As the Supreme Court noted in Mallen, the public has a strong interest in
seeing that the ultimate agency decision with respect to a suspension is made in a "considered
and deliberate manner."24
The commenter’s second objection to the procedures was to the proposed provisions
under which the decision on a petition to stay an immediate suspension is made by a presiding
officer designated by the Agency. According to the commenter, the stay petition should be
decided by an administrative law judge, who by statute has some independence from the agency
whose cases the judge hears.
The Agencies do not believe that an administrative law judge must be designated as the
decisionmaking official with regard to a petition to stay the immediate suspension of an
accountant or firm. The Agencies note that under their existing rules of practice, a similar type

23

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

11

of decision on an interim order, namely the decision with respect to whether a suspension of an
IAP who has been indicted should be lifted pending completion of the criminal trial, is made by a
presiding officer, not by an administrative law judge.25 A court decision that prescribed the
minimum procedures required by due process for these suspensions did not suggest that the
agency decision on lifting the suspension had to be made by an administrative law judge in order
to meet constitutional requirements.26
The Agencies recognize, however, that it may be useful to clarify that the presiding
officer who decides a petition to stay an immediate suspension must be insulated from the
Agency staff responsible for prosecuting the charges against the suspended accountant or firm.
The provisions of the proposed rules relating to the hearing on a stay petition are therefore being
modified to add a new sentence, which follows the requirements of the Administrative Procedure
Act27 for formal agency adjudications. The final rules explicitly state that an Agency employee
engaged in investigative or prosecuting functions for the Agency in a particular action against an
accountant or a firm, or in a factually related action, may not serve as the presiding officer or
otherwise participate or advise in the decision with respect to a petition to stay the immediate
suspension.
The commenter’s third suggestion was that the proposed immediate suspension
provisions be modified to make clear that, except in unusual cases, an accountant or firm should
be suspended immediately only after prior notice and opportunity for the party involved to
contest the suspension. In the Agencies' judgment, the modification to the proposed procedures
advocated by the commenter is neither necessary nor appropriate. There is nothing in section 36

25

12 CFR 19.112(b) (OCC); 12 CFR 263.73(a) (Board); 12 CFR 308.164(b) (FDIC); and 12 CFR 508.6(a) (OTS).
Feinberg v. FDIC, 420 F. Supp. 109, 120 (D.D.C 1976).
27
5 U.S.C. 554.
26

12

that requires prior notice and opportunity for hearing before a suspension under that provision
may be issued. Moreover, the courts have long recognized that the strong governmental interest
in protecting depositors and preserving confidence in the financial system can justify immediate
action by the regulatory agencies prior to notice and the opportunity for hearing.28
Fourth, the commenter asserted that, like the SEC Rules of Practice, the Agencies' procedures should
require a showing that irreparable harm would result before authorizing an immediate suspension. Contrary to this
comment, there is no requirement in section 36 that the Agencies show “irreparable harm.” Nor are the agencies
aware of any authority that requires a finding by the Government of irreparable harm in order to satisfy minimum
constitutional standards of due process before immediate action can be taken. The Agencies further note that the
suspension procedures in the proposed rules and the finding that must be made by the Agencies to justify an
immediate suspension are very similar to those prescribed in section 8(e)(3) of the FDIA, which govern the
suspension of an IAP of an insured depository institution pending completion of administrative proceedings
concerning a proposed permanent order of removal or prohibition.29 Nevertheless, to better express the immediate
suspension standard, the rule has been revised to require “immediate harm” to an insured depository institution, its
depositors, or to the depository system as a whole.

The commenter’s fifth criticism of the proposed rule was that it did not establish a
procedure for judicial review of immediate suspensions imposed by the Agencies. However,
section 36 contains no specific provision for review by the courts of any action taken by the
Agencies under the authority of that provision. Administrative agencies have no authority to
create a right to judicial review of agency action.30 Any right to judicial review of an immediate
suspension must be based on some statutory authority.
The commenter’s sixth point concerned immediate suspensions of accounting firms. The
commenter stated that the Agencies' authority under the proposal to immediately suspend a firm
from providing audit services is too broad and subjective and any firm subject to an immediate
suspension should have greater procedural protections than what is provided in the proposed
rules.
The Agencies recognize that the immediate suspension of an entire firm could have a
serious effect on the firm as well as on the insured depository institutions that may be relying on
the firm for audit services. However, as explained above, the Agencies intend that the immediate
suspension sanction would be applied to a firm only when clearly necessary to protect a
depository institution or the depository system and when the factors specified in the rules for
applying disciplinary action to a firm support such a regulatory response. Because the Agencies
believe that these circumstances, though unusual, warrant disciplinary action against an entire
accounting firm should they occur, the Agencies have retained that authority in the final rule.
The procedural protections afforded an immediately suspended party in the final rules, whether
an individual or a firm, represent an appropriate balance between protecting the banking system
and protecting the rights of affected parties.
Automatic Removal, Suspension, and Debarment. The proposed rule provided that
accountants or firms subject to certain specified disciplinary actions would automatically be
prohibited from providing audit services. No further proceedings or hearings by the Agency
28

See, e.g., Fahey v. Mallonee, 332 U.S. at 253; Mallen, 486 U.S. at 240-41; Feinberg, 420 F. Supp. at 119.
12 U.S.C. 1818(e)(3).
30
Final agency action would, however, be reviewable by a court under the Administrative Procedures Act.
29

13

would be required in these instances. Under each Agency’s proposed rule, the actions giving rise
to such an automatic bar include: (1) a final order of removal, suspension, or debarment under
section 36 (other than a limited scope order) issued by any of the other Agencies; (2) certain
actions by the PCAOB (specifically, a temporary suspension or permanent revocation of
registration or a temporary or permanent suspension or debarment from further association with
a registered public accounting firm); (3) certain actions by the SEC (specifically, an order of
suspension or a denial of the privilege of appearing or practicing before the SEC); and (4)
suspension or debarment for cause from practice as an accountant by the licensing authority of
any state, possession, commonwealth, or the District of Columbia.
Under the proposed rules, disciplinary actions not giving rise to an automatic bar could
still serve as grounds for an Agency to take action against an accountant or a firm. In this
respect, grounds for Agency action set forth in the proposal specifically include removal,
suspension, or debarment by any Federal or state agency regulating the banking, insurance, or
securities industries. If such an action were grounds for an Agency proceeding, however, the full
array of hearings and procedures in the proposed rules would be required.
One commenter objected to the proposed rules’ approach to the automatic bar,
contending that it was too broad in scope because the reasons for an action by the SEC, PCAOB,
or a state might be irrelevant to the provision of audit services under the rules. The commenter
argued that, to prevent an unwarranted automatic bar, an accountant or a firm should in all cases
have the opportunity for a hearing before an Agency considering removal, suspension, or
debarment, and that the Agency should be required to conduct an independent analysis. The
commenter also asserted that the SEC’s automatic suspension provisions are more limited and
generally require license revocation, criminal conviction, or prior action by the SEC. Finally, the
commenter urged the Agencies to include in the final rule an expedited review process for an
automatic removal, suspension, or debarment.
The Agencies believe that the automatic bar provisions are generally appropriate,
notwithstanding certain differences from the SEC’s practice, and that the protections granted in
the rule are adequate. In a case where another Agency has taken disciplinary action against an
accountant or a firm under section 36, the Agency has resolved issues that are relevant to the
provision of audit services throughout the banking system. If an accountant or a firm were
entitled to a separate hearing before each Agency, four separate hearings would be required to
prevent an accountant or firm from providing audit services under the rules, notwithstanding the
similarity of the issues. Such a requirement would essentially result in duplicative proceedings
to implement a single action, and the Agencies do not believe that the repetitive proceedings
would result in any significant additional protection for the accountant or firm. The Agencies
believe it is appropriate and within the statutory direction of section 36 for the joint rules to
provide that each Agency will defer to the proceedings of the other federal banking supervisors.
It should be noted that the automatic bar resulting from an action by another Agency does
not apply in a case where the other Agency has issued a limited scope order effective only with
respect to audit services provided to one or more specified institutions. If another Agency sought
to remove, suspend, or debar an accountant subject to a limited scope order, it would have to
provide the accountant with the hearings and procedures set forth in the rule. Moreover, in the

14

event that the particular facts and circumstances of a removal, suspension, or debarment justify
an exception from the automatic, industry-wide bar, each Agency’s proposed rule provided that
the Agency has discretion to override the automatic bar with respect to the institutions it
supervises. An accountant or firm would be entitled to make such a request in any case, and the
Agency could grant written permission.
One commenter suggested that the Agencies should include in the rule substantive
standards for when they will override the automatic bar. In response, we note that the general
standard for suspension or debarment under section 36 -- “good cause” -- would apply to the
decision of whether or not to override an automatic bar. It is impossible to predict all the
situations in which the facts will support an override of an automatic suspension or debarment.
A bright-line test could have the effect of limiting an Agency’s flexibility to give the relief
sought by the accountant or firm. Accordingly, the final rule retains the provision permitting the
accountant or firm to request that an Agency grant an exception from the automatic bar.
With regard to SEC and PCAOB actions as a predicate for the automatic bar, the
Agencies believe that the SEC’s and PCAOB’s expertise and jurisdiction in this area warrant
recognition by the Agencies of their actions against an accountant or firm. While there are
differences between insured depository institutions and institutions under the primary jurisdiction
of the SEC, the conduct giving rise to suspension or debarment by the SEC is likely to be of
equally significant concern to the banking regulators. In the rare case where an action by the
SEC or the PCAOB is based on conduct that is unrelated to the provision of audit services to an
insured institution, the Agencies retain override authority, and an accountant or firm would be
able to request Agency permission to provide audit services notwithstanding SEC or PCAOB
action.
The final trigger for an automatic bar in the proposed rule was suspension or debarment
for cause by a state licensing authority. The Agencies have further considered the potential
effects of this provision in light of the comments received and agree that there are likely to be
instances in which a state’s action is not relevant to the provision of audit services -- there may
be a wide range of “for cause” grounds for suspension or debarment under various state laws. In
addition, the procedural protections afforded to accountants in state proceedings may not be as
uniform and as broad as those provided by the Agencies, the SEC, and the PCAOB.
Accordingly, the Agencies have determined that suspension or debarment of an accountant for
cause by a state licensing authority should properly be treated as grounds for discretionary
Agency removal, suspension, or debarment, rather than as a trigger for the automatic prohibition
on the provision of audit services. The final rule amends both the automatic bar section and the
section on grounds for Agency action to reflect this change.
One commenter raised a concern about whether the automatic bar provision of the
proposed rule could violate an accountant’s or a firm’s right to due process by imposing a
penalty without allowing opportunity for a hearing. As set forth above, the automatic bar only
applies in instances where the accountant or a firm has already received due process protections
in proceedings before another Agency, the SEC, or the PCAOB. Moreover, an accountant or a
firm may petition an Agency to perform audit services for a bank or savings association. The

15

Agencies believe that these procedures will provide ample opportunity for an accountant or firm
to obtain a fair hearing that comports with due process protections of the Constitution.
Notice of Removal, Suspension, or Debarment. The proposed rules required the
Agencies to make public any final order of removal, suspension, or debarment against an
accountant or accounting firm and notify the other Agencies of such orders. This was consistent
with the presumption in favor of public notice for enforcement actions in the FDIA.31 The
proposed rules also contained notification provisions for accountants and firms.
The proposal required that an accountant or accounting firm performing section 36 audit
services for any insured depository institution must provide the Agencies with written notice of
any currently effective disciplinary sanction against the accountant or firm issued by the PCAOB
under sections 105(c)(4)(A) or (B) of the Sarbanes-Oxley Act, relating to revocation of
registration and association with a public accounting firm or issuer; any current suspension or
denial of the privilege of appearing or practicing before the SEC; or any suspensions or
debarments for cause from practice as an accountant by any duly constituted licensing authority
of any state, possession, commonwealth, or the District of Columbia. Written notice under the
proposed rules is also required of any removal, suspension, or debarment from practice before
any Federal or state (non-licensing) agency regulating the banking, insurance, or securities
industry on grounds relevant to the provision of audit services; and any action by the PCAOB
under sections 105(c)(4)(C) or (G) of the Sarbanes-Oxley Act, relating to limitations on the
activities of accountants and accounting firms and any other appropriate sanction provided in the
rules of the PCAOB. Written notice must be given no later than 15 calendar days following the
effective date of an order or action, or 15 calendar days before an accountant or accounting firm
accepts an engagement to provide audit services, whichever date is earlier.
The Agencies did not receive any comments on the notice provisions. The Agencies are
therefore adopting the provisions as proposed, although there are technical changes to
accommodate changes to the good cause and automatic suspension provisions described above.
Petition for Reinstatement. Under the proposal, a removed, suspended, or debarred
“independent public accountant or accounting firm” may request reinstatement by the Agency
that issued the order. The individual or firm would be able to request reinstatement at any time
more than one year after the effective date of the order and, thereafter, at any time more than one
year after the most recent request for reinstatement.
One commenter asked that the Agencies revise the proposal to permit a firm to petition
for reinstatement of individual offices that have been removed, suspended or debarred, in
addition to permitting petitions for reinstatement of individual accountants or the firm as a
whole. The Agencies did not intend in the proposed rule to prohibit offices of a firm that have
been removed, suspended, or debarred from petitioning for reinstatement. The proposed
reinstatement provision, therefore, has been revised in the final rule to clarify that a removed,
suspended, or debarred office of a firm may petition for reinstatement.

31

12 U.S.C. 1818(u)(1).

16

Another commenter urged the Agencies to state factors that the Agencies would consider
in evaluating a reinstatement request so that affected parties would know what type of
information the Agencies need to make a decision. The Agencies understand that petitioners will
wish to tailor their reinstatement requests in a manner that they believe will yield them success in
obtaining the relief they seek. In the past and in other contexts, the Agencies have looked at
various factors in reviewing reinstatement petitions. These factors included: (1) the nature,
extent, and duration of the conduct that led to the issuance of the order; (2) the period of time
that an order has been outstanding, as well as any prior requests made by the petitioner; (3)
activities of the petitioner since the order was issued, including evidence of rehabilitation; (4) the
nature of the position or proposed action the requestor is seeking, and the scope of relief sought;
(5) the likelihood of future misconduct giving good cause for removing, suspending, or debarring
the petitioner; and (6) the views and opinions of other Federal banking agencies, when
applicable. The Agencies will include these factors in their evaluations of petitions for
reinstatement.
Second, the commenter asserted that the Agencies failed to explain the necessity for a
one-year waiting period before a suspended, removed, or debarred party could seek
reinstatement. The commenter argued in favor of a case-by-case approach. In addition, the
commenter argued that the Agencies’ requirement of a one-year period is inconsistent with the
SEC’s rules, which permit a petitioner to file for reinstatement at any time.
The Agencies believe that the proposed rule made room for a case-by-case approach to
reinstatement by providing that, “unless otherwise ordered” by the appropriate agency decision
maker, the one-year waiting period would apply. Under the proposed rule, if a petitioner
believed that the circumstances merited review prior to the expiration of the one-year period, the
petitioner could seek an order from the Agency decision maker permitting the petitioner to seek
such earlier review. Given the Agencies’ intention, as reflected in the proposed rule, that the
one-year waiting period for reinstatement have some flexibility and considering the comments
received, the Agencies have amended the final rule to permit persons, firms, and offices to
petition for reinstatement at any time.
The proposal reflected the view of the Agencies that petitions for reinstatement filed
close in time, either to the Agency’s decision or the last petition for reinstatement, are unlikely to
present new issues or bases for reinstatement and would waste Agency resources. Thus,
although the final rule permits a petition for reinstatement at any time, it will be unusual for the
Agencies to grant such relief within one year of a removal, suspension or debarment order.32
IV. Conforming and Technical Changes to the Rules of the Agencies
OCC
The OCC proposed adding "recklessness" to its description of "disreputable conduct" that
may lead to removal, suspension, or debarment of parties or their representatives who practice or
appear before the OCC.33 This change would conform the OCC's general rules of practice with

32

Also, in the case of a suspension, it will be unusual for the Agencies to grant reinstatement prior to the expiration
of the suspension period.
33
See 12 CFR 19.196 (describing disreputable conduct).

17

the standards in the proposal for removal, suspension, or debarment of accountants from
performance of section 36-required audit services, which in turn reflects the addition of the
recklessness standard to the SEC’s rules of practice by the Sarbanes-Oxley Act. The purpose of
adding the recklessness standard was to clarify that conduct more culpable than incompetence,
but less culpable than willful or knowing action, may form the basis for a suspension or
debarment.
The OCC also proposed broadening the scope of “disreputable conduct” to allow the
OCC to consider suspensions or debarments of accountants -- for any reason -- by the other
Agencies, the SEC, the Commodity Futures Trading Commission, or any other Federal agency.
This change would remove the requirement in the current § 19.196(g) that suspensions by other
agencies concern “matters relating to the supervisory responsibilities of the OCC.” This change
takes into account the possibility that a suspension of an accountant by another agency, relating
to the professional conduct of an accountant, could be grounds for removal, suspension, or
debarment by the OCC, even if the suspension by the other agency did not relate to a banking
matter.
Unlike the other amendments in the proposal, which would address an accountant's or a
firm's ability to perform section 36-required audits, this part of the proposal concerned who may
practice before the OCC in other capacities, such as in adjudications, or through preparation of
documents for submission to the OCC. Under the proposed rule, the OCC also revised a number
of sections within part 19 to make conforming and technical changes to implement section 36 of
the FDIA and bring procedural aspects of part 19 up to date.
The OCC did not receive any comments on these proposed changes. Accordingly, the
conforming and technical changes are adopted in the final rule as proposed.
Board
The Board proposed to amend its Rules of Practice Before the Board (12 CFR 263,
subpart F) to expand the type of conduct for which an individual may be censured, debarred, or
suspended from practice before the Board. In particular, the Board proposed to revise the
description of the conduct that would warrant sanctions to include reckless violations, or reckless
aiding and abetting violations, of specified laws and the reckless provision of false or misleading
information, or reckless participation in the provision of false or misleading information, to the
Board. The regulation currently provides for sanctions only for willful misconduct. The purpose
of this proposed amendment was to clarify that conduct more culpable than incompetence, but
less culpable than willful or knowing action, may form the basis for a suspension or debarment
from practice before the Board. This change also reflected the modification made to the SEC’s
rules of practice by the Sarbanes-Oxley Act.
The Board did not receive any comments on these proposed changes. Accordingly, the
conforming and technical changes are adopted in the final rule as proposed.
FDIC

18

The FDIC proposed making a clarifying and conforming amendment to 12 CFR 308.109,
which deals with the suspension and disbarment of the right of any counsel to appear or practice
before the FDIC, to specify that an application for reinstatement must comply with the general
filing procedures established by part 303. The amendment would add a new sentence before the
current last sentence of section 308.109(b)(3) to read as follows: "The application shall comply
with the requirements of 12 CFR 303.3."
The FDIC did not receive any comments on these proposed changes. Accordingly, the
conforming and technical changes are adopted in the final rule as proposed.
V. Regulatory Analysis
A. Regulatory Flexibility Act
OCC: Under section 605(b) of the Regulatory Flexibility Act, 5 U.S.C. 605(b) (RFA),
the appropriate Federal banking agencies must either provide a Final Regulatory Flexibility
Analysis for a final rule or certify that the rule will not have a significant economic impact on a
substantial number of small entities. For purposes of this Regulatory Flexibility Analysis and
final regulation, the OCC defines “small entities” to be those national banks with less than $150
million in total assets. For other entities that could be affected by this rule, such as accountants
and accounting firms, a small entity is defined as an accounting office with $7 million or less in
annual receipts.
We have reviewed the impact this final rule will have on small banks. Based on that
review, we certify that the final rule will not have a significant economic impact on a substantial
number of small entities. The basis for the certification is that the requirement for audits does
not apply to national banks with less than $500 million in total assets. In addition, only a limited
number of small accounting firms provide section 36 audit services to national banks. For these
reasons, the OCC does not anticipate that the proposal will affect a substantial number of small
entities.
Board: Pursuant to section 605(b) of the RFA, 5 U.S.C. 605(b), the Board certifies that
the suspension and debarment amendments in this final rulemaking will not have a significant
adverse economic impact on a substantial number of small entities. For purposes of this
Regulatory Flexibility Analysis, the Board defines “small entity” as (1) any insured state member
bank with less than $150 million in total assets, or (2) any bank holding company with a
subsidiary insured state member bank with less than $150 million in total assets. For other
entities that could be affected by this rule, such as accountants and accounting firms, a small
entity is defined as an accounting office with $7 million or less in annual receipts.
The basis for the Board’s certification is that the final rule will not apply to state member banks
that have less than $500 million in total assets. In addition, only a limited number of small
accounting firms provide section 36 audit services to institutions that are regulated by the Federal
Reserve.
FDIC: The FDIC certifies, pursuant to section 605(b) of the RFA, 5 U.S.C. 605(b), that
the final suspension and debarment amendments will not have a significant economic impact on
a substantial number of small entities. The basis for the certification is that the rule will not
apply to insured depository institutions that have less than $150 million in total assets.

19

Furthermore, only a limited number of small accounting firms provide section 36 audit services
to insured depository institutions for which the FDIC is the appropriate Federal banking agency.
OTS: Under the RFA, OTS must either provide a Final Regulatory Flexibility Analysis,
or certify that the rule will not have a significant economic impact on a substantial number of
small entities. For purposes of this RFA analysis, the OTS defines “small banks” to be those
savings associations with less than $150 million in total assets.
Pursuant to section 605(b) of the RFA, 5 U.S.C. 605(b) certifies that this final rule will
not have a significant economic impact on a substantial number of small entities. The basis of
this certification is that this rule does not apply to savings associations with less than $500
million in assets.
B. Paperwork Reduction Act
The Agencies have determined that this proposed rule does not involve a collection of
information pursuant to the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501,
et seq.).
C. Executive Order 12866
The OCC and OTS have determined that this final rule is not a significant regulatory
action under Executive Order 12866.
D. Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 104-4 (2 U.S.C.
1532) (Unfunded Mandates Act), requires that an agency prepare a budgetary impact statement
before promulgating any rule likely to result in a Federal mandate that may result in the
expenditure by state, local, and tribal governments, in the aggregate, or by the private sector of
$100 million or more in any one year. If a budgetary impact statement is required, section 205 of
the Unfunded Mandates Act also requires an agency to identify and consider a reasonable
number of regulatory alternatives before promulgating a rule. The OCC and OTS have
determined that the final rule will not result in expenditures by state, local, and tribal
governments, or by the private sector, of $100 million or more in any one year. Accordingly,
this rulemaking requires no further analysis under the Unfunded Mandates Act.
List of Subjects
12 CFR Part 19
Administrative practice and procedure, Crime, Equal access to justice, Investigations,
National banks, Penalties, Securities.
12 CFR Part 263
Administrative practice and procedure, Claims, Crime, Equal access to justice, Federal
Reserve System, Lawyers, Penalties.
12 CFR Part 308
Administrative practice and procedure, Bank deposit insurance, Banks, banking, Claims,
Crime, Equal access to justice, Investigations, Lawyers, Penalties, State nonmember banks.

20

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, part 19 of chapter I of title 12 of the Code of
Federal Regulations is amended to read as follows:
PART 19--RULES OF PRACTICE AND PROCEDURE
1. The authority citation for part 19 is revised to read as follows:
Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 93(b), 93a, 164, 505, 1817, 1818, 1820,
1831m, 1831o, 1972, 3102, 3108(a), 3909 and 4717; 15 U.S.C. 78(h) and (i), 78o-4(c), 78o-5,
78q-1, 78s, 78u, 78u-2, 78u-3, and 78w; 28 U.S.C. 2461 note; 31 U.S.C. 330, 5321; and 42
U.S.C. 4012a.
Subpart B - [Amended]
2. Section 19.100 of subpart B is revised to read as follows:
§ 19.100 Filing documents.
All materials required to be filed with or referred to the Comptroller or the administrative
law judge in any proceeding under this part must be filed with the Hearing Clerk, Office of the
Comptroller of the Currency, 250 E Street, SW, Washington, DC 20219. Filings to be made
with the Hearing Clerk include the notice and answer; motions and responses to motions; briefs;
the record filed by the administrative law judge after the issuance of a recommended decision;
the recommended decision filed by the administrative law judge following a motion for summary
disposition (except that in removal and prohibition cases instituted pursuant to 12 U.S.C. 1818,
the administrative law judge will file the record and the recommended decision with the Board of
Governors of the Federal Reserve System); referrals by the administrative law judge of motions
for interlocutory review; exceptions and requests for oral argument; and any other papers
required to be filed with the Comptroller or the administrative law judge under this part.
Subpart C- [Amended]
3. In § 19.111 of subpart C, the section heading and the fourth and fifth sentences are
revised to read as follows:
§ 19.111 Suspension, removal, or prohibition.
*
*
* The written request must be sent by certified mail to, or served personally with a
signed receipt on, the District Deputy Comptroller in the OCC district in which the bank,
accountant, or accounting firm in question is located, or, if the bank is supervised by Large Bank
Supervision, to the appropriate Deputy Comptroller for Large Bank Supervision for the Office of
the Comptroller of the Currency, or if the bank is supervised by Mid-Size/Community Bank
Supervision, to the Senior Deputy Comptroller for Mid-Size/Community Bank Supervision for
the Office of the Comptroller of the Currency, Washington, DC 20219. The request must state
specifically the relief desired and the grounds on which that relief is based.

21

Subpart K - [Amended]
4. In § 19.196 of subpart K, the introductory text and paragraphs (a), (b), and (g) are
revised to read as follows:
§ 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:
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.
§ 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.
§ 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.

22

(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.
§ 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 §19.244, on grounds relevant to the provision of audit services; or
(vii) Is suspended or debarred for cause from practice as an accountant by any duly
constituted licensing authority of any state, possession, commonwealth, or the District of
Columbia.
(2) Accounting firms. If the Comptroller determines that there is good cause for the
removal, suspension, or debarment of a member or employee of an accounting firm under
paragraph (a)(1) of this section, the Comptroller also may remove, suspend, or debar such firm or
one or more offices of such firm. In considering whether to remove, suspend, or debar a firm or
an office thereof, and the term of any sanction against a firm under this section, the Comptroller
may consider, for example:
(i) The gravity, scope, or repetition of the act or failure to act that constitutes good cause
for the removal, suspension, or debarment;
(ii) The adequacy of, and adherence to, applicable policies, practices, or procedures for
the accounting firm’s conduct of its business and the performance of audit services;

23

(iii) The selection, training, supervision, and conduct of members or employees of the
accounting firm involved in the performance of audit services;
(iv) The extent to which managing partners or senior officers of the accounting firm have
participated, directly, or indirectly through oversight or review, in the act or failure to act; and
(v) The extent to which the accounting firm has, since the occurrence of the act or failure
to act, implemented corrective internal controls to prevent its recurrence.
(3) Limited scope orders. An order of removal, suspension (including an immediate
suspension), or debarment may, at the discretion of the Comptroller, be made applicable to a
particular national bank or class of national banks.
(4) Remedies not exclusive. The remedies provided in this subpart are in addition to any
other remedies the OCC may have under any other applicable provisions of law, rule, or
regulation.
(b) Proceedings to remove, suspend, or debar.
(1) Initiation of formal removal, suspension, or debarment proceedings. The Comptroller
may initiate a proceeding to remove, suspend, or debar an accountant or accounting firm from
performing audit services by issuing a written notice of intention to take such action that names
the individual or firm as a respondent and describes the nature of the conduct that constitutes
good cause for such action.
(2) Hearings under paragraph (b) of this section. An accountant or firm named as a
respondent in the notice issued under paragraph (b)(1) of this section may request a hearing on
the allegations in the notice. Hearings conducted under this paragraph shall be conducted in the
same manner as other hearings under the Uniform Rules of Practice and Procedure (12 CFR part
19, subpart A.)
(c) Immediate suspension from performing audit services.
(1) In general. If the Comptroller serves a written notice of intention to remove,
suspend, or debar an accountant or accounting firm from performing audit services, the
Comptroller may, with due regard for the public interest and without a preliminary hearing,
immediately suspend such accountant or firm from performing audit services for insured national
banks, if the Comptroller:
(i) Has a reasonable basis to believe that the accountant or firm has engaged in conduct
(specified in the notice served on the accountant or firm under paragraph (b) of this section) that
would constitute grounds for removal, suspension, or debarment under paragraph (a) of this
section;
(ii) Determines that immediate suspension is necessary to avoid immediate harm to an
insured depository institution or its depositors or to the depository system as a whole; and
(iii) Serves such respondent with written notice of the immediate suspension.
(2) Procedures. An immediate suspension notice issued under this paragraph will
become effective upon service. Such suspension will remain in effect until the date the
Comptroller dismisses the charges contained in the notice of intention, or the effective date of a
final order of removal, suspension, or debarment issued by the Comptroller to the respondent.
(3) Petition for stay. Any accountant or firm immediately suspended from performing
audit services in accordance with paragraph (c)(1) of this section may, within 10 calendar days
after service of the notice of immediate suspension, file with the Office of the Comptroller of the
Currency, Washington, D.C. 20219 for a stay of such immediate suspension. If no petition is
filed within 10 calendar days, the immediate suspension shall remain in effect.

24

(4) Hearing on petition. Upon receipt of a stay petition, the Comptroller will designate a
presiding officer who shall fix a place and time (not more than 10 calendar days after receipt of
the petition, unless extended at the request of petitioner) at which the immediately suspended
party may appear, personally or through counsel, to submit written materials and oral argument.
Any OCC employee engaged in investigative or prosecuting functions for the OCC in a case may
not, in that or a factually related case, serve as a presiding officer or participate or advise in the
decision of the presiding officer or of the OCC, except as witness or counsel in the proceeding.
In the sole discretion of the presiding officer, upon a specific showing of compelling need, oral
testimony of witnesses may also be presented. In hearings held pursuant to this paragraph there
shall be no discovery and the provisions of §§ 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.
§ 19.244 Automatic removal, suspension, and debarment.
(a) An independent public accountant or accounting firm may not perform audit services
for insured national banks if the accountant or firm:
(1) Is subject to a final order of removal, suspension, or debarment (other than a limited
scope order) issued by the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, or the Office of Thrift Supervision under section 36 of the FDIA.
(2) Is subject to a temporary suspension or permanent revocation of registration or a
temporary or permanent suspension or bar from further association with any registered public
accounting firm issued by the Public Company Accounting Oversight Board or the Securities
and Exchange Commission under sections 105(c)(4)(A) or (B) of the Sarbanes-Oxley Act (15
U.S.C. 7215(c)(4)(A) or (B)); or
(3) Is subject to an order of suspension or denial of the privilege of appearing or
practicing before the Securities and Exchange Commission.
(b) Upon written request, the Comptroller, for good cause shown, may grant written
permission to such accountant or firm to perform audit services for national banks. The request
shall contain a concise statement of the action requested. The Comptroller may require the
applicant to submit additional information.

25

§ 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 §§ 19.243(a)(1)(vi) through
(a)(1)(vii) or §§ 19.244(a)(2) through (a)(3); and
(2) Any currently effective action by the Public Company Accounting Oversight Board
under sections 105(c)(4)(C) or (G) of the Sarbanes-Oxley Act ) (15 U.S.C. 7215(c)(4)(C) or (G)).
(c) Timing of notice. Written notice required by this paragraph shall be given no later
than 15 calendar days following the effective date of an order or action, or 15 calendar days
before an accountant or firm accepts an engagement to provide audit services, whichever date is
earlier.
§ 19.246 Petition for reinstatement.
(a) Form of petition. Unless otherwise ordered by the Comptroller, a petition for
reinstatement by an independent public accountant, an accounting firm, or an office of a firm that
was removed, suspended, or debarred under § 19.243 may be made in writing at any time. The
request shall contain a concise statement of the action requested. The Comptroller may require
the applicant to submit additional information.
(b) Procedure. A petitioner for reinstatement under this section may, in the sole
discretion of the Comptroller, be afforded a hearing. The accountant or firm shall bear the
burden of going forward with a petition and proving the grounds asserted in support of the
petition. In reinstatement proceedings, the person seeking reinstatement shall bear the burden of
going forward with an application and proving the grounds asserted in support of the application.
The Comptroller may, in his sole discretion, direct that any reinstatement proceeding be limited
to written submissions. The removal, suspension, or debarment shall continue until the
Comptroller, for good cause shown, has reinstated the petitioner or until the suspension period
has expired. The filing of a petition for reinstatement shall not stay the effectiveness of the
removal, suspension, or debarment of an accountant or firm.
July 23, 2003
Dated: _________________
John D. Hawke, Jr. (signed)
_________________________________
John D. Hawke, Jr.
Comptroller of the Currency

26

FEDERAL RESERVE SYSTEM
12 CFR Chapter II
Authority and Issuance
For the reasons set out in the joint preamble, part 263, chapter II, title 12 of the Code of
Federal Regulations is amended as follows:
PART 263 -- RULES OF PRACTICE FOR HEARINGS
1. The authority citation for part 263 is revised to read as follows:
Authority: 5 U.S.C. 504; 12 U.S.C. 248, 324, 504, 506, 1817(j), 1818, 1828(c), 1831m,
1831o, 1831p-1, 1847(b), 1847(d), 1884(b), 1972(2)(F), 3105, 3107, 3108, 3907, 3909; 15
U.S.C. 21, 78o-4, 78o-5, 78u-2, 6801, 6805; and 28 U.S.C. 2461 note.
Subpart F - [Amended]
2. In § 263.94, paragraphs (a) and (b) are revised to read as follows:
§ 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
§ 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

27

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).
§ 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.
§ 263.402 Removal, suspension, or debarment.
(a) Good cause for removal, suspension, or debarment.
(1) Individuals. The Board may remove, suspend, or debar an independent public
accountant from performing audit services for banking organizations that are subject to section
36 of the FDIA, if, after notice of and opportunity for hearing in the matter, the Board finds that
the accountant:
(i) Lacks the requisite qualifications to perform audit services;
(ii) Has knowingly or recklessly engaged in conduct that results in a violation of
applicable professional standards, including those standards and conflict of interest provisions
applicable to accountants through the Sarbanes-Oxley Act of 2002, Pub. L. 107-204, 116 Stat.
745 (2002) (Sarbanes-Oxley Act), and developed by the Public Company Accounting Oversight
Board and the Securities and Exchange Commission;
(iii) Has engaged in negligent conduct in the form of:
(A) A single instance of highly unreasonable conduct that results in a violation of
applicable professional standards in circumstances in which an accountant knows, or should
know, that heightened scrutiny is warranted; or
(B) Repeated instances of unreasonable conduct, each resulting in a violation of
applicable professional standards, that indicate a lack of competence to perform audit services;
(iv) Has knowingly or recklessly given false or misleading information, or knowingly or
recklessly participated in any way in the giving of false or misleading information, to the Board
or any officer or employee of the Board;
(v) Has engaged in, or aided and abetted, a material and knowing or reckless violation of
any provision of the Federal banking or securities laws or the rules and regulations thereunder, or
any other law;
(vi) Has been removed, suspended, or debarred from practice before any Federal or state
agency regulating the banking, insurance, or securities industries, other than by an action listed
in § 263.403, on grounds relevant to the provision of audit services; or

28

(vii) Is suspended or debarred for cause from practice as an accountant by any duly
constituted licensing authority of any state, possession, commonwealth, or the District of
Columbia.
(2) Accounting firms. If the Board determines that there is good cause for the removal,
suspension, or debarment of a member or employee of an accounting firm under paragraph (a)(1)
of this section, the Board also may remove, suspend, or debar such firm or one or more offices of
such firm. In considering whether to remove, suspend, or debar a firm or an office thereof, and
the term of any sanction against a firm under this section, the Board may consider, for example:
(i) The gravity, scope, or repetition of the act or failure to act that constitutes good cause
for removal, suspension, or debarment;
(ii) The adequacy of, and adherence to, applicable policies, practices, or procedures for
the accounting firm’s conduct of its business and the performance of audit services;
(iii) The selection, training, supervision, and conduct of members or employees of the
accounting firm involved in the performance of audit services;
(iv) The extent to which managing partners or senior officers of the accounting firm have
participated, directly, or indirectly through oversight or review, in the act or failure to act; and
(v) The extent to which the accounting firm has, since the occurrence of the act or failure
to act, implemented corrective internal controls to prevent its recurrence.
(3) Limited scope orders. An order of removal, suspension (including an immediate
suspension), or debarment may, at the discretion of the Board, be made applicable to a particular
banking organization or class of banking organizations.
(4) Remedies not exclusive. The remedies provided in this subpart are in addition to any
other remedies the Board may have under any other applicable provisions of law, rule, or
regulation.
(b) Proceedings to remove, suspend, or debar.
(1) Initiation of formal removal, suspension, or debarment proceedings. The Board may
initiate a proceeding to remove, suspend, or debar an accountant or accounting firm from
performing audit services by issuing a written notice of intention to take such action that names
the individual or firm as a respondent and describes the nature of the conduct that constitutes
good cause for such action.
(2) Hearing under paragraph (b) of this section. An accountant or firm named as a
respondent in the notice issued under paragraph (b)(1) of this section may request a hearing on
the allegations in the notice. Hearings conducted under this paragraph shall be conducted in the
same manner as other hearings under the Uniform Rules of Practice and Procedure (12 CFR part
263, subpart A).
(c) Immediate suspension from performing audit services.
(1) In general. If the Board serves a written notice of intention to remove, suspend, or
debar an accountant or accounting firm from performing audit services, the Board may, with due
regard for the public interest and without a preliminary hearing, immediately suspend such
accountant or firm from performing audit services for banking organizations, if the Board:
(i) Has a reasonable basis to believe that the accountant or firm has engaged in conduct
(specified in the notice served on the accountant or firm under paragraph (b) of this section) that
would constitute grounds for removal, suspension, or debarment under paragraph (a) of this
section;
(ii) Determines that immediate suspension is necessary to avoid immediate harm to an
insured depository institution or its depositors or to the depository system as a whole; and

29

(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 10 calendar days after receipt of
the petition, unless extended at the request of petitioner) at which the immediately suspended
party may appear, personally or through counsel, to submit written materials and oral argument.
Any Board employee engaged in investigative or prosecuting functions for the Board in a case
may not, in that or a factually related case, serve as a presiding officer or participate or advise in
the decision of the presiding officer or of the Board, except as witness or counsel in the
proceeding. In the sole discretion of the presiding officer, upon a specific showing of
compelling need, oral testimony of witnesses may also be presented. In hearings held pursuant
to this paragraph there shall be no discovery and the provisions of §§ 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.
§ 263.403 Automatic removal, suspension, and debarment.
(a) An independent public accountant or accounting firm may not perform audit services
for banking organizations if the accountant or firm:
(1) Is subject to a final order of removal, suspension, or debarment (other than a limited
scope order) issued by the Federal Deposit Insurance Corporation, the Office of the Comptroller
of the Currency, or the Office of Thrift Supervision under section 36 of the FDIA;
(2) Is subject to a temporary suspension or permanent revocation of registration or a
temporary or permanent suspension or bar from further association with any registered public
accounting firm issued by the Public Company Accounting Oversight Board or the Securities

30

and Exchange Commission under sections 105(c)(4)(A) or (B) of the Sarbanes-Oxley Act of
2002 (15 U.S.C. 7215(c)(4)(A) or (B)); or
(3) Is subject to an order of suspension or denial of the privilege of appearing or
practicing before the Securities and Exchange Commission.
(b) Upon written request, the Board, for good cause shown, may grant written
permission to such accountant or firm to perform audit services for banking organizations. The
request shall contain a concise statement of the action requested. The Board may require the
applicant to submit additional information.
§ 263.404 Notice of removal, suspension, or debarment.
(a) Notice to the public. Upon the issuance of a final order for removal, suspension, or
debarment of an independent public accountant or accounting firm from providing audit services,
the Board shall make the order publicly available and provide notice of the order to the other
Federal banking agencies.
(b) Notice to the Board by accountants and firms. An accountant or accounting firm that
provides audit services to a banking organization must provide the Board with written notice of:
(1) Any currently effective order or other action described in §§ 263.402(a)(1)(vi)
through (a)(1)(vii) or §§ 263.403(a)(2) through (a)(3); and
(2) Any currently effective action by the Public Company Accounting Oversight Board
under sections 105(c)(4)(C) or (G) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7215(c)(4)(C)
or (G)).
(c) Timing of notice. Written notice required by this paragraph shall be given no later
than 15 calendar days following the effective date of an order or action, or 15 calendar days
before an accountant or firm accepts an engagement to provide audit services, whichever date is
earlier.
§ 263.405 Petition for reinstatement.
(a) Form of petition. Unless otherwise ordered by the Board, a petition for reinstatement
by an independent public accountant, an accounting firm, or an office of a firm that was
removed, suspended, or debarred under § 263.402 may be made in writing at any time. The
request shall contain a concise statement of the action requested. The Board may require the
petitioner to submit additional information.
(b) Procedure. A petitioner for reinstatement under this section may, in the sole
discretion of the Board, be afforded a hearing. The accountant or firm shall bear the burden of
going forward with a petition and proving the grounds asserted in support of the petition. The
Board may, in its sole discretion, direct that any reinstatement proceeding be limited to written
submissions. The removal, suspension, or debarment shall continue until the Board, for good
cause shown, has reinstated the petitioner or until the suspension period has expired. The filing
of a petition for reinstatement shall not stay the effectiveness of the removal, suspension, or
debarment of an accountant or firm.

31

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

32

FEDERAL DEPOSIT INSURANCE CORPORATION
PART 308 -- RULES OF PRACTICE AND PROCEDURE
Authority and Issuance
For the reasons set out in the joint preamble, part 308, chapter III, title 12 of the Code of
Federal Regulations is amended as follows:
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:
§ 308.109 Suspension and disbarment
*
*
*
*
*
(b)
*
*
*
(3)
*
*
*
The application must comply with the requirements of §
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 Services
Sec.
308.600 Scope.
308.601 Definitions.
308.602 Removal, suspension, or debarment.
308.603 Automatic removal, suspension, and debarment.
308.604 Notice of removal, suspension, or debarment.
308.605 Application for reinstatement.
§ 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.
§ 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.
33

(c) Independent public accountant (accountant) means any individual who
performs or participates in providing audit services.
§ 308.602 Removal, suspension, or debarment.
(a) Good cause for removal, suspension, or debarment.
(1) Individuals. The Board of Directors may remove, suspend, or debar an independent
public accountant under section 36 of the FDIA from performing audit services for insured
depository institutions for which the FDIC is the appropriate Federal banking agency if, after
service of a notice of intention and opportunity for hearing in the matter, the Board of Directors
finds that the accountant:
(i)
Lacks the requisite qualifications to perform audit services;
(ii)
Has knowingly or recklessly engaged in conduct that results in a violation
of applicable professional standards, including those standards and conflicts of interest
provisions applicable to accountants through the Sarbanes-Oxley Act of 2002 (Pub. L. 107-204,
116 Stat. 745 (2002)) (Sarbanes-Oxley Act) and developed by the Public Company Accounting
Oversight Board and the Securities and Exchange Commission;
(iii)
Has engaged in negligent conduct in the form of:
(A) A single instance of highly unreasonable conduct that results in a violation of
applicable professional standards in circumstances in which an accountant knows, or should
know, that heightened scrutiny is warranted; or
(B) Repeated instances of unreasonable conduct, each resulting in a violation of
applicable professional standards, that indicate a lack of competence to perform audit services;
(iv)
Has knowingly or recklessly given false or misleading information, or knowingly
or recklessly participated in any way in the giving of false or misleading information, to the
FDIC or any officer or employee of the FDIC;
(v)
Has engaged in, or aided and abetted, a material and knowing or reckless
violation of any provision of the Federal banking or securities laws or the rules and regulations
thereunder, or any other law;
(vi)
Has been removed, suspended, or debarred from practice before any
Federal or state agency regulating the banking, insurance, or securities industries, other than by
an action listed in § 308.603, on grounds relevant to the provision of audit services; or
(vii) Is suspended or debarred for cause from practice as an accountant by any duly
constituted licensing authority of any state, possession, commonwealth, or the District of
Columbia.
(2) Accounting firms. If the Board of Directors determines that there is good cause for
the removal, suspension, or debarment of a member or employee of an accounting firm under
paragraph (a)(1) of this section, the Board of Directors also may remove, suspend, or debar such
firm or one or more offices of such firm. In considering whether to remove, suspend, or debar an
accounting firm or an office thereof, and the term of any sanction against an accounting firm
under this section, the Board of Directors may consider, for example:
(i)
The gravity, scope, or repetition of the act or failure to act that constitutes
good cause for the removal, suspension, or debarment;
(ii)
The adequacy of, and adherence to, applicable policies, practices, or procedures
for the accounting firm’s conduct of its business and the performance of audit services;
(iii) The selection, training, supervision, and conduct of members or employees of the
accounting firm involved in the performance of audit services;

34

(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 services.
(1) In general. If the Board of Directors serves a written notice of intention to remove,
suspend, or debar an accountant or accounting firm from performing audit services, the Board of
Directors may, with due regard for the public interest and without a preliminary hearing,
immediately suspend such accountant or firm from performing audit services for insured
depository institutions for which the FDIC is the appropriate Federal banking agency if the
Board of Directors:
(i)
Has a reasonable basis to believe that the accountant or accounting firm
has engaged in conduct (specified in the notice served upon the accountant or accounting firm
under paragraph (b)(1) of this section) that would constitute grounds for removal, suspension, or
debarment under paragraph (a) of this section;
(ii) Determines that immediate suspension is necessary to avoid immediate harm to an
insured depository institution or its depositors or to the depository system as a whole; and
(iii) Serves such respondent with written notice of the immediate suspension.
(2) Procedures. An immediate suspension notice issued under this paragraph
will become effective upon service. Such suspension will remain in effect until the date the
Board of Directors dismisses the charges contained in the notice of intention, or the effective
date of a final order of removal, suspension, or debarment issued by the Board of Directors to the
respondent.
(3) Petition to stay. Any accountant or accounting firm immediately suspended
from performing audit services in accordance with paragraph (c)(1) of this section may,
within 10 calendar days after service of the notice of immediate suspension, file a petition with

35

the Executive Secretary for a stay of such immediate suspension. If no petition is filed within 10
calendar days, the immediate suspension shall remain in effect.
(4) Hearing on petition. Upon receipt of a stay petition, the Executive Secretary
will designate a presiding officer who will fix a place and time (not more than 10 calendar days
after receipt of the petition, unless extended at the request of petitioner) at which the immediately
suspended party may appear, personally or through counsel, to submit written materials and oral
argument. Any FDIC employee engaged in investigative or prosecuting functions for the FDIC
in a case may not, in that or a factually related case, serve as a presiding officer or participate or
advise in the decision of the presiding officer or of the FDIC, except as witness or counsel in the
proceeding. In the sole discretion of the presiding officer, upon a specific showing of
compelling need, oral testimony of witnesses also may be presented. Enforcement counsel may
represent the agency at the hearing. In hearings held pursuant to this paragraph there shall be no
discovery, and the provisions of §§ 308.6 through 308.12, § 308.16, and § 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.
§ 308.603 Automatic removal, suspension, and debarment.
(a) An independent public accountant or accounting firm may not perform audit services
for insured depository institutions for which the FDIC is the appropriate Federal banking agency
if the accountant or firm:
(1) Is subject to a final order of removal, suspension, or debarment (other than a
limited scope order) issued by the Board of Governors of the Federal Reserve System, the Office
of the Comptroller of the Currency, or the Office of Thrift Supervision under section 36 of the
FDIA;
(2) Is subject to a temporary suspension or permanent revocation of registration
or a temporary or permanent suspension or bar from further association with any registered
public accounting firm issued by the Public Company Accounting Oversight Board or the
Securities and Exchange Commission under sections 105(c)(4)(A) or (B) of the Sarbanes-Oxley
Act (15 U.S.C. 7215(c)(4)(A) or (B)); or
(3) Is subject to an order of suspension or denial of the privilege of appearing or
practicing before the Securities and Exchange Commission.

36

(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 § 303.3 of this chapter.
§ 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 §§ 308.602(a)(1)(vi)
through (a)(1)(vii) or §§ 308.603(a)(2) through (a)(3); and
(2) any currently effective action by the Public Company Accounting Oversight Board
under sections 105(c)(4)(C) or (G) of the Sarbanes-Oxley Act (15 U.S.C. 7215(c)(4)(C) or (G)).
(c) Timing of notice. Written notice required by this paragraph shall be given no later
than 15 calendar days following the effective date of an order or action, or 15 calendar days
before an accountant or accounting firm accepts an engagement to provide audit services,
whichever date is earlier.
§ 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, an accounting firm, or an office of a firm
that was removed, suspended, or debarred under § 308.602 may be made in writing at any time.
The application must comply with the requirements of § 303.3 of this chapter.
(b) Procedure. An applicant for reinstatement under this section may, in the sole
discretion of the Board of Directors, be afforded a hearing. In reinstatement proceedings, the
person seeking reinstatement shall bear the burden of going forward with an application and
proving the grounds asserted in support of the application, and the Board of Directors may, in its
sole discretion, direct that any reinstatement proceeding be limited to written submissions. The
removal, suspension, or debarment shall continue until the Board of Directors, for good cause
shown, has reinstated the applicant or until the suspension period has expired. The filing of an
application for reinstatement will not stay the effectiveness of the removal, suspension, or
debarment of an accountant or firm.
By order of the Board of Directors of the Federal Deposit Insurance Corporation.
August 4, 2003
Dated: _____________________
Valerie J. Best (signed)
________________________________
Valerie J. Best
Assistant Executive Secretary

37

OFFICE OF THRIFT SUPERVISION
12 C.F.R. Chapter V
Authority and Issuance
_____________________________.

For the reasons set out in the joint preamble, part 513 of chapter V of title 12 of the Code
of Federal Regulations is amended as follows:
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 § 513.8 to read as follows:
§ 513.8 Removal, suspension, or debarment of independent public accountants and
accounting firms performing audit services.
(a) Scope. This subpart, which implements section 36(g)(4) of the Federal Deposit
Insurance Act (FDIA) (12 U.S.C. 1831m(g)(4)), provides rules and procedures for the removal,
suspension, or debarment of independent public accountants and their accounting firms from
performing independent audit and attestation services required by section 36 of the FDIA (12
U.S.C. 1831m) for insured savings associations and savings and loan holding companies.
(b) Definitions. As used in this section, the following terms have the meaning given
below unless the context requires otherwise:
(1) Accounting firm. The term accounting firm means a corporation, proprietorship,
partnership, or other business firm providing audit services.
(2) Audit services. The term audit services means any service required to be performed
by an independent public accountant by section 36 of the FDIA Act and 12 CFR part 363,
including attestation services. Audit services include any service performed with respect to a
savings and loan holding company of a savings association that is used to satisfy requirements
imposed by section 36 or part 363 on that savings association.
(3) Independent public accountant. The term independent public accountant means any
individual who performs or participates in providing audit services.
(c) Removal, suspension, or debarment of independent public accountants. The Office
may remove, suspend, or debar an independent public accountant from performing audit services
for savings associations that are subject to section 36 of the FDIA if, after service of a notice of
intention and opportunity for hearing in the matter, the Office finds that the independent public
accountant:
(1) Lacks the requisite qualifications to perform audit services;
(2) Has knowingly or recklessly engaged in conduct that results in a violation of
applicable professional standards, including those standards and conflicts of interest provisions
applicable to independent public accountants through the Sarbanes-Oxley Act of 2002, Pub. L.
107-204, 116 Stat. 745 (2002) (Sarbanes-Oxley Act), and developed by the Public Company
Accounting Oversight Board and the Securities and Exchange Commission;
(3) Has engaged in negligent conduct in the form of: (i) A single instance of highly
unreasonable conduct that results in a violation of applicable professional standards in
circumstances in which an independent public accountant knows, or should know, that
heightened scrutiny is warranted; or

38

(ii) Repeated instances of unreasonable conduct, each resulting in a violation of
applicable professional standards, that indicate a lack of competence to perform audit services;
(4) Has knowingly or recklessly given false or misleading information or knowingly or
recklessly participated in any way in the giving of false or misleading information to the Office
or any officer or employee of the Office;
(5) Has engaged in, or aided and abetted, a material and knowing or reckless violation of
any provision of the Federal banking or securities laws or the rules and regulations thereunder, or
any other law;
(6) Has been removed, suspended, or debarred from practice before any federal or state
agency regulating the banking, insurance, or securities industries, other than by action listed in
paragraph (j) of this section, on grounds relevant to the provision of audit services; or
(7) Is suspended or debarred for cause from practice as an accountant by any duly
constituted licensing authority of any state, possession, commonwealth, or the District of
Columbia.
(d) Removal, suspension or debarment of an accounting firm. If the Office determines
that there is good cause for the removal, suspension, or debarment of a member or employee of
an accounting firm under paragraph (c) of this section, the Office also may remove, suspend, or
debar such firm or one or more offices of such firm. In considering whether to remove, suspend,
or debar an accounting firm or office thereof, and the term of any sanction against an accounting
firm under this section, the Office may consider, for example:
(1) The gravity, scope, or repetition of the act or failure to act that constitutes good cause
for the removal, suspension, or debarment;
(2) The adequacy of, and adherence to, applicable policies, practices, or procedures for
the accounting firm’s conduct of its business and the performance of audit services;
(3) The selection, training, supervision, and conduct of members or employees of the
accounting firm involved in the performance of audit services;
(4) The extent to which managing partners or senior officers of the accounting firm have
participated, directly or indirectly through oversight or review, in the act or failure to act; and
(5) The extent to which the accounting firm has, since the occurrence of the act or failure
to act, implemented corrective internal controls to prevent its recurrence.
(e) Remedies. The remedies provided in this section are in addition to any other remedies
the Office may have under any other applicable provisions of law, rule, or regulation.
(f) Proceedings to remove, suspend, or debar. (1) The Office may initiate a proceeding to
remove, suspend, or debar 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:

39

(i) Has a reasonable basis to believe that the independent public accountant or accounting
firm engaged in conduct (specified in the notice served upon the independent public accountant or
accounting firm under paragraph (f) of this section) that would constitute grounds for removal,
suspension, or debarment under paragraph (c) or (d) of this section;
(ii) Determines that immediate suspension is necessary to avoid immediate harm to an
insured depository institution or its depositors or to the depository system as a whole; and
(iii) Serves such independent public accountant or accounting firm with written notice of
the immediate suspension.
(2) An immediate suspension notice issued under this paragraph will become effective
upon service. Such suspension will remain in effect until the date the Office dismisses the
charges contained in the notice of intention, or the effective date of a final order of removal,
suspension, or debarment issued by the Office to the independent public accountant or
accounting firm.
(h) Petition to stay. (1) Any independent public accountant or accounting firm
immediately suspended from performing audit services in accordance with paragraph (g) of this
section may, within 10 calendar days after service of the notice of immediate suspension, file a
petition with the Office for a stay of such suspension. If no petition is filed within 10 calendar
days, the immediate suspension shall remain in effect.
(2) Upon receipt of a stay petition, the Office will designate a presiding officer who shall
fix a place and time (not more than 10 calendar days after receipt of such petition, unless
extended at the request of the petitioner), at which the immediately suspended party may appear,
personally or through counsel, to submit written materials and oral argument. Any OTS
employee engaged in investigative or prosecuting functions for the OTS in a case may not, in
that or a factually related case, serve as a presiding officer or participate or advise in the decision
of the presiding officer or of the OTS, except as witness or counsel in the proceeding. In the sole
discretion of the presiding officer, upon a specific showing of compelling need, oral testimony of
witnesses may also be presented. In hearings held pursuant to this paragraph, there will be no
discovery and the provisions of §§ 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

40

the Office may not, while such order is in effect, perform audit services for any savings
association.
(2) An order of removal, suspension (including an immediate suspension), or debarment
may, at the discretion of the Office, be made applicable to a limited number of savings
associations or savings and loan holding companies (limited scope order).
(j) Automatic removal, suspension, and debarment. (1) An independent public
accountant or accounting firm may not perform audit services for a savings association if the
independent public accountant or accounting firm:
(i) Is subject to a final order of removal, suspension, or debarment (other than a limited
scope order) issued by the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, or the Office of the Comptroller of the Currency under section
36 of the FDIA;
(ii) Is subject to a temporary suspension or permanent revocation of registration or a
temporary or permanent suspension or bar from further association with any registered public
accounting firm issued by the Public Company Accounting Oversight Board or the Securities
and Exchange Commission under sections 105(c)(4)(A) or (B) of the Sarbanes-Oxley Act (15
U.S.C. 7215(c)(4)(A) or (B)); or
(iii) Is subject to an order of suspension or denial of the privilege of appearing or
practicing before the Securities and Exchange Commission.
(2) Upon written request, the Office, for good cause shown, may grant written permission
to an independent public accountant or accounting firm to perform audit services for savings
associations. The request must contain a concise statement of action requested. The Office may
require the applicant to submit additional information.
(k) Notice of removal, suspension, or debarment. (1) Upon issuance of a final order for
removal, suspension, or debarment of an independent public accountant or accounting firm from
providing audit services, the Office shall make the order publicly available and provide notice of
the order to the other Federal banking agencies.
(2) An independent public accountant or accounting firm that provides audit services to a
savings association must provide the Office with written notice of:
(i) Any currently effective order or other action described in paragraphs (c)(6) through
(c)(7) or paragraphs (j)(1)(ii) through (j)(1)(iii) of this section; and
(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 USC 7215(c)(4)(C) or (G)).
(3) Written notice required by this paragraph shall be given no later than 15 calendar days
following the effective date of an order or action or 15 calendar days before an independent
public accountant or accounting firm accepts an engagement to provide audit services, whichever
date is earlier.
(l) Application for reinstatement. (1) Unless otherwise ordered by the Office, an
independent public accountant, accounting firm, or office of a firm that was removed, suspended
or debarred under this section may apply for reinstatement in writing at any time. The request
shall contain a concise statement of action requested. The Office may require the applicant to
submit additional information.
(2) An applicant for reinstatement under paragraph (l)(1) of this section may, in the
Office's sole discretion, be afforded a hearing. The independent public accountant or accounting
firm shall bear the burden of going forward with an application and the burden of proving the
grounds supporting the application. The Office may, in its sole discretion, direct that any

41

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.
By the Office of Thrift Supervision
Dated:

August 5, 2003
________________

James Gilleran (signed)
__________________________________
James Gilleran
Director

42