[Federal Register Volume 76, Number 93 (Friday, May 13, 2011)]
[Notices]
[Pages 28031-28034]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-11790]
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FEDERAL DEPOSIT INSURANCE CORPORATION
Clarification of Statement of Policy
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Clarification of Statement of Policy for Section 19 of the
Federal Deposit Insurance Act.
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SUMMARY: The FDIC originally promulgated the Statement of Policy for
Section 19 of the Federal Deposit Insurance Act (SOP) in December 1998.
The FDIC, in 2007, issued a clarification to the SOP based on the 2006
amendment to Section 19 of the Federal Deposit Insurance Act which
addressed institution-affiliated parties (IAPs) participating in the
affairs of Bank Holding Companies, or Savings and Loan Holding
Companies. The FDIC is restating that previous change to the SOP in a
slightly modified form, and addressing certain other issues that have
arisen in the FDIC's interpretation of the policy since its original
publication. The FDIC is clarifying what the FDIC views as a complete
expungement of a conviction, and the definition of de minimis offenses.
DATES: The change to the policy statement is effective May 13, 2011.
FOR FURTHER INFORMATION CONTACT: Martin P. Thompson, Review Examiner
(202) 898-6767, in the Division of Risk Management Supervision; or
Michael P. Condon, Counsel, (202) 898-6536, in the Legal Division.
SUPPLEMENTARY INFORMATION:
I. Background
Section 19 of the Federal Deposit Insurance Act, 12 U.S.C. 1829,
(FDI Act) prohibits, without the prior written consent of the FDIC, a
person convicted of any criminal offense involving dishonesty or breach
of trust or money laundering (covered offenses), or who has agreed to
enter into a pretrial diversion or similar program in connection with a
prosecution for such offense, from becoming or continuing as an
institution-affiliated party (IAP), owning or controlling, directly or
indirectly an insured depository institution (insured institution), or
[[Page 28032]]
otherwise participating, directly or indirectly, in the conduct of the
affairs of the insured institution. In addition, the law forbids an
insured institution from permitting such a person to engage in any
conduct or to continue any relationship prohibited by Section 19. The
FDIC's SOP was published in December 1998 (63 FR 66177) to provide the
public with guidance relating to Section 19, and the application
thereof.
The Financial Services Regulatory Relief Act of 2006, Public Law
109-351, Sec. 710, modified Section 19 to include coverage of IAPs of
Bank Holding Companies, and Savings and Loan Holding Companies. In
response to this amendment of the statute, the FDIC amended the SOP by
including a footnote which noted the authority of the Board of
Governors of the Federal Reserve System (FRS) and the Office of Thrift
Supervision (OTS) in regard to bank and savings and loan holding
companies under Section 19. (72 FR 73823, December 28, 2007 with
correction issued at 73 FR 5270, January 29, 2008). The FDIC is now
eliminating the previous footnote, incorporating the change directly
into the text of the SOP, and noting the coming transfer of authority
under the Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-202, Sec. 312 (2010) (Dodd-Frank) of savings and loan
holding company jurisdiction to the Board of Governors of the Federal
Reserve System. In addition, the FDIC is making certain clarifying
changes regarding when an application for the FDIC's consent must be
filed.
The SOP, as revised herein, will be on the FDIC's Web site at
http://www.fdic.gov.
II. Clarifying Changes to the Statement of Policy
The SOP will be clarified in the following areas:
A. Scope of Section 19
Section 19 covers IAPs, as defined by 12 U.S.C. 1813(u), and others
who are participants in the conduct of the affairs of an insured
institution. However, because of changes to Section 19, the FDIC has
identified the possibility that any persons covered by Section 19,
because they are participating in the affairs of an insured depository
institution, may also be participating in the affairs of a bank or
savings and loan holding company and, therefore, fall within the scope
of the changes to Section 19 related to the supervision of individuals
participating in bank and savings and loan holding companies. This
potential requirement was noted in the previous amendment to the SOP.
This change eliminates the previous footnote and places the discussion
in the text of the SOP. Although jurisdiction under Section 19 for the
purpose of granting consent for an individual to participate in the
affairs of a bank or savings and loan holding company is currently
vested in the FRS or OTS, respectively, the policy statement is
clarified to note the authority to grant consent to participate in the
affairs of a savings and loan holding company will change effective on
the Transfer Date as that term is used in Sec. 311 of Dodd-Frank.
B. Standards for Determining Whether an Application Is Required
(1) Convictions
This subsection has been changed to address the interpretation of
what is a complete expungement, as that term is used in the SOP.
Historically, it has been the FDIC's position that unless the
expungement is complete, a section 19 application would be required.
The FDIC is amending the SOP to explain that an expungement is
complete, and thus an application will not be required, only if the
records of conviction are not accessible by any party, including law
enforcement, even by court order. In all other circumstances an
application will be required.
B. (5) De minimis Offenses
The 1998 SOP created a category of covered offenses that it would
deem to be de minimis due to the minor nature of the offenses and the
low risk that the covered party would pose to an insured institution
based on the conviction. Based on its experience in the processing and
approving of numerous applications involving such minor crimes, the
FDIC has recognized a category of offenses to which it would grant
blanket approval under section 19 without the need to file an
application. The FDIC is clarifying in two ways which offenses fall
within the de minimis offenses exception of the SOP.
First is a change in the language in the SOP that addresses the
maximum sentence, in terms of jail time and/or fine, which a party
might face, based on the covered crime of which they are convicted, but
where the offense would still be considered de minimis. The current
language can be read not to allow the de minimis offense exception to
apply if the potential sentence for the covered crime is one year and/
or $1,000. The FDIC is clarifying this aspect of the SOP so that the de
minimis offenses provision will apply if the potential sentence could
be one year or less and/or $1,000 or less. The change will remove any
uncertainty in the existing language, and will add greater clarity to
the public and insured institutions in evaluating whether an
application is necessary.
A second clarification addresses when an offense involves an
insured depository institution or insured credit union. The current
language can be read not to allow the de minimis exception to apply
when the covered party was convicted of writing a check that was
returned for insufficient funds (i.e. a bad check), since the process
of writing a check which is dishonored for insufficient funds usually
involves depositing the check into the banking system at some point.
However, the FDIC has determined that a conviction for issuing a bad
check that does not cause loss to an insured depository institution or
insured credit union, may, in limited circumstances, be subject to the
de minimis offense exception. Therefore, subject to meeting the other
provisions of the de minimis offenses exception, the FDIC is clarifying
the language to allow, in certain limited circumstances, convictions
for insufficient funds checks (bad checks) to fit with the de minimis
rule. If there is one conviction for issuing an insufficient funds
check (bad check) based on one or more checks which have an aggregate
face value of $1,000 or less, and no insured financial institution or
insured credit union was a payee on any of the checks, the conviction
will qualify under the de minimis offense exception, and a section 19
application will not be required.
III. Paperwork Reduction Act
In accordance with section 3512 of the Paperwork Reduction Act of
1995 (``PRA''), 44 U.S.C. 3501 et seq., an agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless it displays a currently valid Office of Management
and Budget (``OMB'') control number. These Amendments to the Statement
of Policy for Section 19 of the FDI Act include clarification of
reporting requirements in an existing FDIC information collection,
entitled Application Pursuant to Section 19 of the Federal Deposit
Insurance Act (3064-0018) that should result in a decrease in the
number of applications filed. Specifically, the revised policy
statement clarifies that the following two offenses are deemed de
minimis due to the minor nature of the offenses and the low risk that
the covered party would pose to an insured institution based on the
conviction: Offenses that
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were punishable by imprisonment for a term of one year or less and/or a
fine of $1,000 or less, and for which the individual did not serve any
time in jail; and, in certain limited circumstances, conviction of a
crime based on the writing of a ``bad'' or insufficient funds check. By
clarifying these provisions, the FDIC believes that there will be a
reduction in the submission of applications in situations where blanket
approval has been granted by virtue of the de minimis offenses section
of the policy statement. This change in burden will be submitted to OMB
as a non-significant, nonmaterial change to an existing information
collection. The estimated new burden for the information collection is
as follows:
Title: ``Application Pursuant to Section 19 of the Federal Deposit
Insurance Act.''
Affected Public: Insured depository institutions and individuals.
OMB Number: 3064-0018.
Estimated Number of Respondents: 26.
Frequency of Response: On occasion.
Average Time per Response: 16 hours.
Estimated Annual Burden: 416 hours.
Comments are invited on:
(a) Whether this collection of information is necessary for the
proper performance of the FDIC's functions, including whether the
information has practical utility;
(b) The accuracy of the estimates of the burden of the information
collection, including the validity of the methodologies and assumptions
used;
(c) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) Ways to minimize the burden of the information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
All comments will become a matter of public record. Comments may be
submitted to the FDIC by any of the following methods:
http://www.FDIC.gov/regulations/laws/federal/propose.html.
E-mail: [email protected]. Include the name and number of
the collection in the subject line of the message.
Mail: Leneta Gregorie (202-898-3719), Counsel, Federal
Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC
20429.
Hand Delivery: Comments may be hand-delivered to the guard
station at the rear of the 550 17th Street Building (located on F
Street), on business days between 7 a.m. and 5 p.m.
A copy of the comment may also be submitted to the OMB Desk Officer
for the FDIC, Office of Information and Regulatory Affairs, Office of
Management and Budget, New Executive Office Building, Room 3208,
Washington, DC 20503. All comments should refer to the ``Application
Pursuant to Section 19 of the Federal Deposit Insurance Act,'' OMB No.
3064-0018.
IV. Changes to FDIC Statement of Policy for Section 19
For the reasons set forth above, the FDIC hereby revises the FDIC
Statement of Policy for Section 19 as follows:
1. Revise subsection A. Scope of Policy, first paragraph, and add a
new paragraph after the first paragraph, to read:
Section 19 covers institution-affiliated parties, as defined by 12
U.S.C. 1813(u), and others who are participants in the conduct of the
affairs of an insured institution. This Statement of Policy applies
only to insured institutions, their institution-affiliated parties, and
those participating in the affairs of an insured depository
institution. Therefore, all employees of an insured institution fall
within the scope of section 19. In addition, those deemed to be de
facto employees as determined by the FDIC based upon generally
applicable standards of employment law, will also be subject to section
19. Whether other persons who are not institution-affiliated parties
are covered depends upon their degree of influence or control over the
management or affairs of an insured institution. For example, section
19 would not apply to persons who are merely employees of an insured
institution's holding company, but would apply to its directors and
officers to the extent that they have the power to define and direct
the policies of the insured institution. Similarly, directors and
officers of affiliates, subsidiaries or joint ventures of an insured
institution or its holding company will be covered if they are in a
position to influence or control the management or affairs of the
insured institution. Those who exercise major policymaking functions of
an insured institution would be deemed participants in the affairs of
that institution and covered by section 19. Typically, an independent
contractor does not have a relationship with the insured institution
other than the activity for which the insured institution has
contracted. Under 12 U.S.C. 1813(u), independent contractors are
institution-affiliated parties if they knowingly or recklessly
participate in violations, unsafe or unsound practices or breaches of
fiduciary duty which are likely to cause significant loss to, or a
significant adverse effect on, an insured institution. In terms of
participation, an independent contractor who influences or controls the
management or affairs of the insured institution, would be covered by
section 19. Further, ``person'' for purposes of section 19 means an
individual, and does not include a corporation, firm or other business
entity.
Individuals who file an application with the FDIC under the
provisions of Section 19 who are participating in the affairs of a bank
or savings and loan holding company may also have to comply with any
filing requirements of the Board of the Governors of the Federal
Reserve System under 12 U.S.C. 1819(d) in the case of a bank holding
company, and the Office of Thrift Supervision under 12 U.S.C. 1819(e),
in the case of a savings and loan holding company until the Transfer
Date as that term is used in the Dodd-Frank Wall Street Reform Act
(Pub. L. 111-203, Sec. 311, July 21 2010). Upon the Transfer Date
applications related to savings and loan holding companies should be
filed with the Board of Governors of the Federal Reserve System.
* * * * *
2. Revise subsection B. Standards for Determining Whether an
Application Is Required to read:
* * * * *
(1) Convictions. There must be present a conviction of record.
Section 19 does not cover arrests, pending cases not brought to trial,
acquittals, or any conviction which has been reversed on appeal. A
conviction with regard to which an appeal is pending will require an
application until or unless reversed. A conviction for which a pardon
has been granted will require an application. A conviction which has
been completely expunged is not considered a conviction of record and
will not require an application. For an expungement to be considered
complete, no one, including law enforcement, can be permitted access to
the record even by court order under the state or federal law which was
the basis of the expungement.
* * * * *
(5) De minimis Offenses. Approval is automatically granted and an
application will not be required where the covered offense is
considered de minimis, because it meets all of the following criteria:
There is only one conviction or program entry of record
for a covered offense;
The offense was punishable by imprisonment for a term of
one year or
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less and/or a fine of $1,000 or less, and the individual did not serve
time in jail;
The conviction or program was entered at least five years
prior to the date an application would otherwise be required; and
The offense did not involve an insured depository
institution or insured credit union.
A conviction or program entry of record based on the writing of a
``bad'' or insufficient funds check(s) shall be considered a de minimis
offense under this provision even if it involved an insured depository
institution or insured credit union if the following applies:
All other requirements of the de minimis offense
provisions are met;
The aggregate total face value of the bad or insufficient
funds check(s) cited in the conviction was $1,000 or less; and
No insured depository institution or insured credit union
was a payee on any of the bad or insufficient funds checks that were
the basis of the conviction.
Any person who meets the foregoing criteria shall be covered by a
fidelity bond to the same extent as others in similar positions, and
shall disclose the presence of the conviction or program entry to all
insured institutions in the affairs of which he or she intends to
participate.
* * * * *
By Order of the Board of Directors.
Dated at Washington, DC, the 10th day of May, 2011.
Federal Deposit Insurance Corporation.
Robert Feldman,
Executive Secretary.
[FR Doc. 2011-11790 Filed 5-12-11; 8:45 am]
BILLING CODE 6714-01-P