AGENCY:

Federal Deposit Insurance Corporation.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

The Federal Deposit Insurance Corporation (“FDIC”) proposes to revise the existing regulations requiring persons convicted of certain criminal offenses to obtain prior written consent before participating in the conduct of the affairs of any depository institution to incorporate the FDIC's existing Statement of Policy, and to amend the regulations setting forth the FDIC's procedures and standards applicable to an application to obtain the FDIC's prior written consent. Following the issuance of final regulations, the FDIC's existing Statement of Policy would be rescinded. The proposed incorporation of the Statement of Policy into the FDIC's regulations would provide for greater transparency as to its application, provide greater certainty as to the FDIC's application process and help both insured depository institutions and affected individuals to understand its impact and to potentially seek relief from its provisions.

DATES:

Comments must be received on or before February 14, 2020.

ADDRESSES:

You may submit comments, identified by RIN 3064-AF19, by any of the following methods:

• Agency Website: https://www.fdic.gov/​regulations/​laws/​federal/​propose.html. Follow instructions for submitting comments on the Agency website.
• Email: Comments@fdic.gov. Include RIN 3064-AF19 on the subject line of the message.
• Mail: Robert E. Feldman, Executive Secretary, Attention: Comments, 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 7:00 a.m. and 5:00 p.m.

Public Inspection: All comments received will be posted without change to https://www.fdic.gov/​regulations/​laws/​federal/​propose.html, including any personal information provided. Paper copies of public comments may be ordered from the FDIC Public Information Center, 3501 North Fairfax Drive, Room E-1002, Arlington, VA 22226 by telephone at (877) 275-3342 or (703) 562-2200.

FOR FURTHER INFORMATION CONTACT:

Brian Zeller, Review Examiner (319) 395-7394 x4125, or Larisa Collado, Section Chief (202) 898-8509, in the Division of Risk Management Supervision; or Michael Condon, Counsel, (202) 898-6536, John Dorsey, Acting Supervisory Counsel, (202) 898-3807, or Andrea Winkler, Acting Assistant General Counsel, (202) 898-3727 in the Legal Division.

SUPPLEMENTARY INFORMATION:

I. Policy Objectives

The policy objective of the proposed rule is to clarify the FDIC's application of section 19 of the FDI Act (section 19), clarify the application process for insured depository institutions and individuals who seek relief from the provisions of section 19, and seek public comment on additional proposals that could expand the scope of relief available for minor offenses. The FDIC has issued a Statement of Policy for Section 19 of the Federal Deposit Insurance Act (SOP), which provides the public with guidance relating to section 19 and the FDIC's application thereof. The current version of the SOP, with some modifications over time, has been a published resource for the public for over twenty years; however, some uncertainty may exist because the terms and procedures outlined in the SOP have not been adopted as regulations by the FDIC. To remove potential ambiguities about the FDIC's application of section 19 or the application process, the proposed rule will incorporate the current content of the SOP into its rules and procedures, thereby further clarifying its existing practices enforcing section 19. Additionally, the FDIC seeks comment from members of the public, including but not limited to, insured depository institutions, other financial institutions and companies, individual depositors and consumers, employees and prospective employees of insured depository institutions or other financial services institutions that have applied for or been granted relief from the provisions of section 19, and civil rights organizations, consumer groups, trade associations, and other members of the financial services industry regarding the scope of section 19, possible amendments to the relief process, the scope of the de minimis offense exemption, and the treatment of expunged criminal records.

II. Background

The FDIC seeks to incorporate its SOP, which is issued pursuant to section 19 of the Federal Deposit Insurance Act,^[1] into its existing Procedures and Rules of Practice. Section 19 prohibits, without the prior written consent of the FDIC, any person from participating in banking who has been convicted of a crime of dishonesty or breach of trust or money laundering, or who has entered a pretrial diversion or similar program in connection with the prosecution for such an offense. Further, 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. It also imposes a ten-year ban against the FDIC's consent for a person convicted of certain crimes enumerated in Title 18 of the United States Code, absent a motion by the FDIC and approval by the sentencing court.

The FDIC issued originally, after notice and comment, the current SOP in December 1998 ^[2] to provide the public with guidance relating to section 19 and the FDIC's application thereof. The 1998 SOP, among other things, instituted a set of criteria to provide for blanket approval of certain low-risk crimes, and for persons convicted of such de minimis crimes to forgo filing an application.

A clarification to the SOP was issued in 2007, based on the 2006 amendment to Section 19 of the FDI Act by section 710 of the Financial Services Regulatory Relief Act of 2006,^[3] which modified section 19 to include coverage of institution-affiliated parties (IAPs) participating in the affairs of bank holding companies, or savings and loan holding companies, and gave supervisory authority over such entities to the Board of Governors of the Federal Reserve System (Federal Reserve Board) and the Office of Thrift Supervision (OTS), respectively.^[4] The FDIC, in 2011, further clarified the SOP as to: (i) The applicability of section 19 to IAPs of bank and savings and loan holding companies; (ii) the meaning of the term “complete expungement;” and (iii) the factors for considering which convictions are considered de minimis.^[5] In December of 2012, the FDIC modified the de minimis exception to filing by changing the amount of the maximum potential fine to qualify for de minimis treatment from $1,000 to $2,500. The modification also changed the limit on the amount of jail time needed to qualify for the de minimis exception from no jail time served to a maximum number of three days spent in jail.^[6]

The current version of the SOP was last revised by the Board of Directors in August of 2018,^[7] after notice and comment. The 2018 revisions made a number of substantive changes in addition to some grammatical and format changes. The FDIC provided that institutions it supervised could make conditional offers of employment to individuals provided they were not hired until the institution had determined that they were not barred by section 19. The FDIC clarified when section 19 applied to certain persons who are not employees, officers, directors or shareholders of an insured depository institution. The FDIC also deleted language referencing the change that expanded section 19's application to bank and savings and loan holding companies and simply noted that if a person also seeks to participate in the affairs of a bank or savings and loan holding company, they may be required to comply with any requirements of the Federal Reserve Board under 12 U.S.C. 1829(d) and (e).

In regard to considering applications, the FDIC included language addressing when an application will be considered by the FDIC, which states that the FDIC will not consider an application unless all of the sentencing requirements associated with the conviction, or the conditions imposed by a pretrial diversion or similar program, are completed, and the court's decision must be considered final under the procedures of the applicable jurisdiction.

The FDIC also added additional language to address questions regarding complete expungements and made clear that, if the expungement is intended to be complete under the law of the jurisdiction that issues the expungement, and the jurisdiction intends that no governmental body or court can use the prior conviction or program entry for any subsequent purpose, then the fact that the records have not been timely destroyed, or that there exist copies of the records that are not covered by the order sealing or destroying them, will not prevent the expungement from being considered complete for the purposes of section 19.

The FDIC also added language that treats certain convictions that have been set aside or reversed after the sentencing requirements have been completed in the same manner as pretrial diversion or similar programs are treated, unless the reason that the conviction was set aside or reversed is based on a finding on the merits that the conviction was wrongful. In addressing pretrial diversions or similar programs, the FDIC clarified how such programs would be identified by stating that whether a program constitutes a pretrial diversion or similar program is determined by relevant Federal, state or local law, and if that program is not so designated under applicable law, then the determination will be made by the FDIC on a case-by-case basis.

The FDIC also expanded the application of provisions for de minimis offenses where an application would not be required and it would be deemed approved. The general provisions for the application of de minimis were changed in two ways. The definition of jail time was clarified and the previous de minimis category for bad or insufficient fund checks was expanded and set out as a separate basis for applying the de minimis exception to filing. The FDIC created new exceptions to the filing requirement. First, a person with a covered conviction or program entry where the acts leading to the conviction or program entry occurred when the person was 21 or younger who also meets the general de minimis exception to filing and who has completed all sentencing or program requirements, will qualify for this de minimis exception to filing if at least 30 months have passed prior to the date an application would otherwise be required. Second, an exception to filing would apply when the conviction or program entry is based on a small dollar theft of goods, services, and/or currency (or other monetary instrument) and the aggregate value of the goods, services and/or currency was $500 or less at the time of the conviction or program entry. Additionally, the individual must have only one conviction or program entry under section 19, and five years must have passed since the conviction or program entry.

The provision related to bad or insufficient funds checks was also expanded to apply to all such convictions or program entries provided that there was no other program entry for an offense covered by section 19, the total amount of the checks did not exceed $1,000 and that no insured depository institution or credit union was a payee on any of the bad or insufficient funds checks. Lastly, the use of a fake or altered identification to purchase alcohol or to enter a premises where age appropriate identification was required would not require an application provided there was no other conviction or program entry for an offense covered by section 19.

The FDIC also clarified that no conviction for a violation of certain Title 18 provisions, as set out in 12 U.S.C. 1829(a)(2), can qualify under any of the de minimis exceptions to filing that are set out in the SOP and that drug convictions or program entries which currently require an application can fall within the de minimis exceptions to filing that are set out in the SOP.

The FDIC provided additional information directing individual applicants to file their application with the FDIC Regional Office covering the state where the person lives and also adjusted the language in the evaluations section of the SOP to more closely mirror the language in 12 CFR 308.157 as well as stated that, under the provision that allows the FDIC to consider other appropriate factors, the FDIC may contact the primary Federal and/or state regulator to aid in the evaluation of an application.

Lastly, the FDIC added clarifying language related to bank-sponsored applications that makes clear that changes in an individual's duties at the insured institution which filed a previously approved section 19 application on that individual's behalf will require a new application. There is also a clarification that a new application will be required if an individual, covered by a previously approved bank-sponsored application, desires to participate in the affairs of another insured depository institution.

III. The Proposal

The FDIC has determined that the current provisions of the SOP should be incorporated into its rules and procedures in order to provide for greater transparency as to its application, provide greater certainty as to the FDIC's application process and to aid both insured depository institutions and individuals who may be affected by section 19 of the FDI Act to understand its impact and potentially seek relief from its provisions. The FDIC will also rescind those sections of 12 CFR 308, subpart M, which would be duplicative of the changes needed to Part 303, subpart L, and will revise the remaining sections to insure conformity for any request for a hearing when an application under section 19 has been denied.

Currently, 12 CFR part 303, subpart L provides only very basic information as to the need to file an application with the FDIC in order to obtain the written permission of the FDIC required by section 19 so that the person may be employed by, or own or control, or participate in the affairs of an insured depository institution. Further, while some additional details about the filing process were set out in 12 CFR part 308, subpart M, the information was still not as complete as it could have been, and some parts of Part 308, subpart M were actually duplicative of what was in Part 303, subpart L. The better approach would be to describe the complete application process in Part 303, subpart L and amend Part 308, subpart M to address the procedures and rules that could be followed if an application is denied and a hearing is sought.

Therefore, consistent with the foregoing, the FDIC is proposing to rescind subpart L of 12 CFR part 303, and replace and rename it with a new subpart and to revise and amend, as well as rename, subpart M of Part 308. While much of the SOP has been incorporated into the proposed revised subpart L of part 303, some adjustments to the language have been made to add clarification, correct grammar and style consistent with a regulation and, occasionally, reformatted to fit the regulatory scheme.

A. Revised Provisions of 12 CFR Part 303, Subpart L

1. § 303.220 What is section 19 of the FDI Act?

This section combines portions of the scope section in the existing 12 CFR 303.220 and the introduction part of the SOP. Paragraph (a) is the scope provisions from the existing § 303.220. Paragraph (b) sets out the application of section 19 to insured depository institutions including the conditional offers of employment that FDIC supervised institutions may make as is in the existing SOP. Paragraph (c) comes from the SOP and addresses the need for an application.

2. § 303.221 Who is covered by section 19?

This section identifies who is covered by section 19 and comes mainly from the existing SOP. Paragraph (a) defines institution affiliated parties and others who may fall within the scope of section 19. Paragraph (b) defines the term “person” for the purposes of section 19 as an individual not a legal entity. Paragraph (c) addresses when a person is covered under 12 U.S.C. 1829(a) and must file an application with the FDIC even if the person is also covered under 12 U.S.C. 1829(d) and (e), which would require an application approved by the Board of Governors of the Federal Reserve System for an individual at the bank or saving and loan holding company. Paragraph (d) defines when “ownership” or “control” results in the application of section 19 to an individual or individuals who may be deemed in control of, or be deemed to be an owner of, an insured depository institution.

3. § 303.222 What offenses are covered under section 19?

This section comes mainly from the SOP and addresses what is a criminal offense under section 19. Paragraph (a) defines when a criminal offense constitutes a crime of dishonesty or breach of trust. Paragraph (b) requires that, to determine if the criminal offense is one of dishonesty, breach of trust, or money laundering, the FDIC will look to the statutory elements of the criminal offense or to court decisions in the relevant jurisdiction that have found the criminal offense to be one of dishonesty, breach of trust or money laundering. Paragraph (c) requires an application for all drug offenses, except for simple possession, unless the criminal offense meets the criteria in § 303.227 for not filing an application.

4. § 303.223 What constitutes a conviction under section 19?

This section comes mainly from the SOP. Paragraph (a) addresses that there must have been a conviction and that section 19 does not apply to arrests, pending cases not brought to trial, or any conviction reversed on appeal unless the person has entered a pretrial diversion or similar program as set out in § 303.224. Paragraph (b) addresses what constitutes a complete expungement for the purposes of section 19. Paragraph (c) excludes youthful offender adjudgments for minors from the scope of section 19.

5. § 303.224 What constitutes a pretrial diversion or similar program (a program entry) under section 19?

This section comes mainly from the SOP. Paragraph (a) defines what constitutes a pretrial diversion or similar program and excludes program entries that occurred prior to November 29, 1990. Paragraph (b) states that expungements of program entry records will be treated the same as expungements of convictions.

6. § 303.225 What are the types of applications that can be filed?

This section is a combination of the existing § 303.221, § 308.158 and the SOP. Paragraph (a) establishes the institution filing requirement. Paragraph (b) establishes the procedure to apply when an insured depository institution will not file an application for an individual.

7. § 303.226 When is an application to be filed?

This section comes mainly from the SOP. This section states when an application is to be filed excepting from its requirement those covered offenses which are considered de minimis under subpart L. An application will not be considered by the FDIC until all sentencing requirements associated with a conviction have been met or all requirements of the program entry have been completed.

8. § 303.227 When is an application not required for a covered conviction or program entry?

This section comes mainly from the SOP. Paragraph (a) establishes the general criteria for de minimis convictions or program entries for which, if the criteria are met, the person is deemed automatically approved and no application will be required. Paragraph (b) establishes certain other specific exceptions to the filing requirement which if met will be deemed automatically approved. Paragraph (b)(1) shortens the five- year waiting period under the general criteria to 30 months when all the elements of the offense occurred before the person is age 21 or younger and the person meets the criteria established by that exception to filing. Paragraph (b)(2) establishes the criteria, which if met, provides that certain convictions or program entries for bad or insufficient funds checks will not require an application. Paragraph (b)(3) establishes the criteria, which if met, provides that certain small dollar simple theft convictions or program entries of $500 or less will not require an application. Excluded from this exception to filing are convictions or program entries for burglary, forgery, identity theft, and fraud. Paragraph (b)(5) establishes the criteria which, if met, provides that the use of a fake or false identification by a person under the legal age to purchase alcohol or used to enter premises where alcohol is served but where age appropriate identification is required to enter the premises will not require an application. Paragraph (c) requires that, for any case where the person is able to avail themselves of the de minimis exception to filing, they must disclose the convictions or program entries to the insured depository institution and must qualify for a fidelity bond to the same extent as others in a similar position. Paragraph (d) states that any conviction or program entry for criminal offenses under Title 18 set out in 12 U.S.C. 1829(a)(2) cannot qualify for de minimis exception to filing an application.

9. § 303.228 How to file an application.

This section comes from the SOP. This section provides the requirement that an insured depository institution is to file an application on behalf of an individual under section 19 to participate in its affairs unless the FDIC grants the individual a waiver for good cause shown to file on their own behalf. Insured depository institutions should file with the FDIC's Regional Office where the institution's home office is located and any waiver and application on behalf of an individual should be filed with the FDIC's Regional Office where the person lives.

10. § 303.229 How an application is evaluated.

This section comes from a combination of § 308.157 and the SOP. Paragraph (a) sets out the ultimate determination the FDIC will make as to the level of risk the applicant poses to an insured depository institution and whether it will consent to allow the person to participate in an insured depository institution's affairs. In evaluating the risk posed by the person's participation the FDIC has established nine factors that it will look at, including other factors that might be relevant to a particular application. Paragraph (b) states that the question of whether a person was guilty of the offense for which the person was convicted, or had a program entry for, is not an issue for Part 303, subpart L or for part 308, subpart M. Paragraph (c) states that it will apply the factors and determination used in paragraph (a) when evaluating an application which is made to terminate the ten-year ban in 12 U.S.C. 1829(a)(2). Paragraph (d) provides that the person must be bonded the same as others in that position and the person must disclose the covered conviction or program entry to any insured depository institution in which they intend to participate. Paragraph (e) provides that for bank-sponsored applications the approval is to work a specific job at a specific bank and that the bank may be required to seek permission from the FDIC before there is a significant change in a person's duties and/or responsibilities and the Regional Director may request a new application. Approval to work at a specific insured depository institution is limited to that institution and a new application is required to work at another insured depository institution.

11. § 303.230 What will the FDIC do if the application is denied?

This section is a combination of the current §§ 303.223, 308.157 and 308.159. Paragraph (a) provides that the FDIC will provide a written denial which will summarize or cite the relevant factors from the proposed § 303.229. Paragraph (b) provides that the applicant can file a written request for a hearing pursuant to Part 308, subpart M within 60 days of the denial.

12. § 303.231 Waiting time for a subsequent application if an application is denied.

This section comes mainly from § 308.158 and was clarified so that an applicant will need to wait one year from the date of the denial or decision of the FDIC Board, or its designee.

B. Revised Provisions of 12 CFR Part 308, Subpart M

1. § 308.156 Scope.

This section has been revised to reflect its application to denials that are issued pursuant to 12 CFR part 303, subpart L

2. § 308.157 Relevant considerations.

This section will be rescinded.

3. § 308.158 Filing Papers and effective date.

This section will be rescinded.

4. § 308.159 Denial of Application.

This section has been revised to reflect the outcome of the application process in Part 303, subpart L and to clarify the procedure by which a hearing may be requested. It will be renumbered as § 308.157.

5. § 308.160 Hearings.

This section will remain as it currently exists but will be renumbered as § 308.158.

After renumbering, §§ 308.159 and 309.160 will be reserved.

IV. Expected Effects

The FDIC expects the proposed rule to have relatively small effects on the public and insured institutions. The FDIC currently insures 5,312 depository institutions which could be affected by the proposed rule.^[8] Additionally, as discussed previously, the proposed rule would apply to certain persons covered by the provisions of section 19 who are or wish to become employees, officers, directors or shareholders of an insured depository institution. In the period from 2014 through 2018, the FDIC received 21 bank-sponsored section 19 applications, an average of four per year. Additionally, the FDIC received 500 individual section 19 applications during the same period, an average 100 per year.^[9] Therefore, the FDIC estimates that the proposed rule would affect at least four FDIC-insured depository institutions, and 100 individuals per year.

As described previously, the proposed rule incorporates the current content of the SOP into the FDIC's regulations; therefore, it poses no substantive changes for potential applicants, either insured institutions or individuals. Additionally, although codifying the current content of the SOP into the FDIC's regulations could change enforcement of that content, in practice it is unlikely to pose any substantive effect on covered entities and individuals. The FDIC considers individuals who have been convicted of a crime of dishonesty, breach of trust, or money laundering, who participate in the affairs of an insured depository institution without the prior written consent of the FDIC, to be violations of section 19, and will continue to do so if the proposed rule is adopted in its current form. Therefore, the proposed rule is unlikely to pose any substantive change in the FDIC's enforcement of section 19. As such, removing the existing regulation 12 CFR part 303, subpart L and establishing a new subpart L, which incorporates the FDIC's existing SOP, as well as renaming, removing, and amending certain provisions of 12 CFR part 308, subpart M is unlikely to have any substantive effects on the current section 19 application process or the FDIC's enforcement of section 19.

To the extent that the current content of the FDIC's SOP conveys any ambiguity as to the FDIC's application of section 19 or the application process, the proposed rule would benefit covered entities and individuals by further clarifying this topic and process. However, the FDIC believes any such effects are likely to be relatively small because the FDIC has received bank-sponsored section 19 applications from less than 0.08 percent of FDIC-insured institutions, per year, on average,^[10] or section 19 applications from individuals who represent less than 0.004 percent of people employed in the credit intermediation sector of the U.S. economy.^[11]

The FDIC invites comments on all aspects of this analysis. In particular, would the proposed rule have any costs or benefits that the FDIC has not identified?

V. Alternatives

The FDIC considered one alternative to the proposed rule but believes that the proposed amendments represent the most appropriate option for covered entities and individuals. The FDIC considered the status quo alternative of retaining the existing section 19 SOP and regulations.^[12] However, the FDIC believes that the proposed rule further clarifies the FDIC's application of section 19 of the FDI Act and the application process for insured depository institutions and individuals who seek relief from its provisions, while posing no substantive costs, relative to the status quo alternative.

The FDIC invites comments on its consideration of alternatives. In particular, are there other alternatives that the FDIC should consider?

VI. Request for Comments

(1) The FDIC seeks comment on all aspects of its approach to section 19 and more specifically in the questions that follow.

(2) The FDIC has received previous inquiries and comments from the public regarding section 19's scope that catches a number of minor offenses in perpetuity. In response to these concerns, the FDIC has established de minimis criteria, which have been expanded in 2007, 2011, 2012, and 2018. The FDIC continues to process low-risk cases that, in our experience, present a high likelihood of approval. For this reason, the FDIC seeks comments regarding the de minimis criteria for offenses that represent low-risk to the Deposit Insurance Fund while maintaining a balanced approach of reducing regulatory burden to the industry and individuals while maintaining the integrity of section 19.

(3) One of the specific de minimis categories involves the use of a fake identification for a person under the age of 21 in an attempt to purchase alcohol. The FDIC seeks comments on whether the de minimis criteria should be expanded and what if any additional situations involving low risk convictions should be covered by this category.

(4) The FDIC seeks comment on whether the five-year post-conviction cooling off period should be modified for certain offenses, and whether additional timeframes should be considered for various offenses.

(5) The FDIC has received previous inquiries and comments from the public related to expungements of convictions. Expungements have been a source of confusion for the industry and individual applicants. The FDIC has attempted to address these concerns by clarifying the term “complete expungement” for section 19 purposes and has made changes to the SOP in 2011 and 2018. However, despite these changes, expungements continue to be a source of confusion. For this reason, the FDIC seeks comments regarding the applicability of section 19 to expungements.

Written comments must be received by the FDIC no later than February 14, 2020.

VII. Regulatory Analysis and Procedure

A. The Paperwork Reduction Act

In accordance with the requirements of the Paperwork Reduction Act (“PRA”),^[13] the FDIC may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (“OMB”) control number. The proposed rule will not create any new or revise any existing information collections pursuant to the PRA. Therefore, no information collection request will be submitted to the OMB for review.

B. The Regulatory Flexibility Act

The Regulatory Flexibility Act (“RFA”) generally requires an agency, in connection with a proposed rule, to prepare and make available for public comment an initial regulatory flexibility analysis that describes the impact of a rule on small entities.^[14] However, a regulatory flexibility analysis is not required if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. The Small Business Administration (“SBA”) has defined “small entities” to include banking organizations with total assets of less than or equal to $600 million that are independently owned and operated or owned by a holding company with less than or equal to $600 million in total assets.^[15] Generally, the FDIC considers a significant effect to be a quantified effect in excess of 5 percent of total annual salaries and benefits per institution, or 2.5 percent of total noninterest expenses. The FDIC believes that effects in excess of these thresholds typically represent significant effects for FDIC-supervised institutions. As discussed further below, the FDIC certifies that, if adopted, this proposed rule will not have a significant economic impact on a substantial number of FDIC-supervised small entities.

The FDIC insures 5,312 depository institutions, of which 3,947 are defined as small banking organizations according to the RFA.^[16] In the period from 2014 through 2018, the FDIC received 15 bank-sponsored section 19 applications from small, FDIC-insured institutions, an average of three per year. Additionally, the FDIC received 500 section 19 applications from individuals during the same period, an average 100 per year.^[17] To determine the maximum number of small, FDIC-supervised institutions who could be affected by the proposed rule this analysis assumes that each applicant is seeking employment at a different bank, and that each bank is a small, FDIC-insured institution. Based on these assumptions it follows that annual section 19 applications can affect at most 103 (2.6 percent) small, FDIC-insured institutions on average, annually.^[18] However, in the FDIC's experience, section 19 applications from individuals are compelled by the applicant's intent to seek employment at FDIC-insured institutions that are generally not small. Therefore, the FDIC believes that the number of small, FDIC-insured institutions affected by the proposed rule is likely to be smaller than 103. The FDIC estimates that the proposed rule would affect at least three, but no more than 103 small, FDIC-insured institutions, per year.

As described previously, the proposed rule incorporates the current content of the SOP into the FDIC's regulations; therefore, it poses no substantive changes for potential applicants. Additionally, although codifying the current content of the SOP into the FDIC's regulations could change enforcement of that content, in practice it is unlikely to pose any substantive effect on covered entities and individuals. The FDIC considers individuals who have been convicted of a crime of dishonesty, breach of trust, or money laundering, who participate in the affairs of an insured depository institution without the prior written consent of the FDIC, to be violations of section 19, and will continue to do so if the proposed rule is adopted in its current form. Therefore, the proposed rule is unlikely to pose any substantive change in the FDIC's enforcement of section 19. As such, removing the existing regulation at 12 CFR part 303, subpart L and establishing a new subpart L which incorporates the FDIC's existing SOP, as well as renaming, removing, and amending certain provisions of 12 CFR part 308, subpart M is unlikely to have any substantive effects on the current section 19 application process or the FDIC's enforcement of section 19 for small, FDIC-insured institutions.

To the extent that the current content of the SOP conveys any ambiguity as to the FDIC's application of section 19 or the application process, the proposed rule would benefit covered entities by further clarifying this topic and process. However, the FDIC believes any such effects are likely to be relatively small because section 19 applications received by the FDIC represent at most 2.6 percent of small, FDIC-insured institutions, per year, on average.

Based on the information above, the FDIC certifies that the proposed rule would not have a significant economic impact on a substantial number of small entities.

The FDIC invites comments on all aspects of the supporting information provided in this section, and in particular, whether the proposed rule would have any significant effects on small entities that the FDIC has not identified.

C. Plain Language

Section 722 of the Gramm-Leach-Bliley Act ^[19] requires each Federal banking agency to use plain language in all of its proposed and final rules published after January 1, 2000. As a Federal banking agency subject to the provisions of this section, the FDIC has sought to present the proposed rule in a simple and straightforward manner. The FDIC invites comments on whether the proposal is clearly stated and effectively organized, and how the FDIC might make the proposal easier to understand. For example:

• Has the FDIC organized the material to suit your needs? If not, how could it present the rule more clearly?
• Have we clearly stated the requirements of the rule? If not, how could the rule be more clearly stated?
• Does the rule contain technical jargon that is not clear? If so, which language requires clarification?
• Would a different format (grouping and order of sections, use of headings, paragraphing) make the regulation easier to understand? If so, what changes would make the regulation easier to understand?
• What else could we do to make the regulation easier to understand?

D. Riegle Community Development and Regulatory Improvement Act of 1994

The Riegle Community Development and Regulatory Improvement Act of 1994 (“RCDRIA”) requires that each Federal banking agency, in determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on insured depository institutions, consider, consistent with principles of safety and soundness and the public interest, any administrative burdens that such regulations would place on depository institutions, including small depository institutions, and customers of depository institutions, as well as the benefits of such regulations. In addition, new regulations and amendments to regulations that impose additional reporting, disclosure, or other new requirements on insured depository institutions generally must take effect on the first day of a calendar quarter that begins on or after the date on which the regulations are published in final form.^[20] The FDIC invites comments that further will inform its consideration of RCDRIA.

List of Subjects

12 CFR Part 303

• Administrative practice and procedure, section 19 of the FDI Act (consent to service of persons convicted of certain criminal offenses)

12 CFR Part 308

• Rules of practice and procedure, procedures and standards applicable to an application pursuant to section 19

For the reasons stated in the preamble and under the authority of 12 U.S.C. 1819 (Seventh and Tenth), the Federal Deposit Insurance Corporation proposes to amend parts 303 and 308 of title 12 of the Code of Federal Regulations as follows:

PART 303—FILING PROCEDURES

1. The authority citation for Part 303 continues to read as follows:

Authority: 12 U.S.C. 378, 1464, 1813, 1815, 1817, 1818, 1819(a) (Seventh and Tenth), 1820, 1823, 1828, 1831a, 1831e, 1831o, 1831p-1, 1831w, 1835a, 1843(l), 3104, 3105, 3108, 3207, 5414, 5415 and 15 U.S.C. 1601-1607.

2. Revise Part 303, Subpart L as follows:

Subpart L—Section 19 of the FDI Act (Consent to Service of Persons Convicted of, or Who Have Program Entries for, Certain Criminal Offenses)

PART 308 RULES OF PRACTICE AND PROCEDURE

1. The authority citation for Part 308 continues to read as follows:

Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 93(b), 164, 505, 1464, 1467(d), 1467a, 1468, 1815(e), 1817, 1818, 1819, 1820, 1828, 1829, 1829(b), 1831i, 1831m(g)(4), 1831 o, 1831p-1, 1832(c), 1884(b), 1972, 3102, 3108(a), 3349, 3909, 4717, 5412(b)(2)(C), 5414(b)(3); 15 U.S.C. 78(h) and (i), 78 o (c)(4), 78 o-4(c), 78 o-5, 78q-1, 78s, 78u, 78u-2, 78u-3, 78w, 6801(b), 6805(b)(1); 28 U.S.C. 2461 note; 31 U.S.C. 330, 5321; 42 U.S.C. 4012a; Pub. L. 104-134, sec. 31001(s), 110 Stat. 1321; Pub. L. 109-351, 120 Stat. 1966; Pub. L. 111-203, 124 Stat. 1376; Pub. L. 114-74, sec. 701, 129 Stat. 584.

2. Revise Part 308, Subpart M as follows:

Subpart M—Procedures Applicable to the Request for and Conduct of, a Hearing After a Denial of an Application Under Section 19 of the FDIA

Footnotes