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###### Department of the Treasury

###### Office of the Comptroller of the Currency 

          - 12 CFR Part 8 
          - [Docket No. 00-29] 
          - RIN 1557-AB90 

# AGENCY:

Office of the Comptroller of the Currency, Treasury. 

# ACTION:

Notice of proposed rulemaking. 

# SUMMARY:

The Office of the Comptroller of the Currency (OCC) proposes to amend its assessment regulation to clarify that the OCC has authority to charge a national bank when the OCC conducts a special examination of a third party that provides services to the bank. The proposal applies in the same way to a District of Columbia bank and to a Federal branch or agency. 

# DATES:

Comments must be received by January 2, 2001. 

# ADDRESSES:

                        Please direct your comments to: Communications Division, Office of the Comptroller of the Currency, 250 E Street, SW., Third Floor, Washington, DC 20219, Attention: Docket No. 00-29; Fax number (202) 874-5274 or Internet address:                         *regs.comments@occ.treas.gov.*                         Comments may be inspected and photocopied at the OCC's Public Reference Room, 250 E Street, SW., Washington, DC, between 9 a.m. and 5 p.m. on business days. You can make an appointment to inspect comments by calling (202) 874-5043.                     

# FOR FURTHER INFORMATION CONTACT:

                        Mitchell E. Plave, Senior Attorney, Legislative and Regulatory Activities Division, (202) 874-5090.                               ( print page 75197)    

# SUPPLEMENTARY INFORMATION:

## I. Background and Discussion of Proposal 

The OCC charters, regulates, and supervises more than 2,300 national banks and 58 Federal branches and agencies of foreign banks in the United States, accounting for nearly 60 percent of the nation's banking assets. Its mission is to ensure a safe, sound, and competitive national banking system that supports the citizens, communities, and economy of the United States. 

                    The OCC funds the activities it undertakes to carry out this mission through assessments and fees charged to the banks it supervises. The National Bank Act authorizes the OCC to collect “assessments, fees, or other charges as necessary or appropriate to carry out the responsibilities of the office of the Comptroller.” 12 U.S.C. 482 (Supp. 1999). The statute requires that our charges “be set to meet the Comptroller's expenses in carrying out authorized activities.”                     *Id.*                     Under part 8, the OCC currently assesses national banks, District of Columbia banks, and Federal branches and agencies according to a formula based on factors that include a bank's size, condition, and whether it is the “lead” bank or “non-lead” bank among national banks in a holding company.[1]                                          The OCC also has the authority to assess a fee for special examinations and investigations of these banks. 12 CFR 8.6(a).                 

                    In its current form, section 8.6(a) refers only to fees for a special examination of a national bank, a District of Columbia bank, or an affiliate of either.[2]                                          It does not reflect the OCC's authority to assess a national bank in connection with special examinations of any of the bank's service providers. The Bank Service Company Act provides that entities that perform services for national banks (or for other entities supervised by the OCC, including subsidiaries subject to examination by the OCC) “shall be subject to regulation and examination by [the OCC] to the same extent as if such services were being performed by the bank itself on its own premises.” [3] 

                    While banks historically have used third parties to perform certain activities—payment processing, for example—some banks are entering new lines of business or introducing novel and potentially high-risk new products, relying substantially on third party service providers to enable the bank to participate in or to conduct those activities. These include, for instance, certain types of credit card programs, sub-prime lending, check cashing, and other specialized types of lending. In many instances, the interest of the service provider in transactions it originates is significantly greater than that of the bank. This increased reliance on service providers will result in an increased need for the OCC to examine or investigate third party service providers in order to evaluate the effect that third-party activities and relationships have on the safety and soundness of the bank.[4] 

                    The OCC would charge a special examination or investigation fee when examination or investigation of the activities of a third party service provider is warranted by the high risk or unusual or novel nature of the activities conducted by the service provider for the bank, or when the OCC believes that the bank has insufficient systems, controls, or personnel to adequately monitor, measure, and control the risks associated with the activity. Thus, for example, the OCC would not impose the fee in the case of examinations of service providers that provide servicing and processing for a bank's ongoing transactions with its customers. The OCC also would plan to inform the bank, when commencing a special examination or investigation or expanding another examination, when we expect to charge a special examination or investigation fee. [5] 

                    Accordingly, we propose to amend our regulation to make explicit our authority to assess a national bank (or other entity supervised by the OCC) for an examination or investigation of any of its service providers.[6]                                          The assessment authority extends to District of Columbia banks and to Federal branches and agencies as well as to national banks. In addition, the proposal permits the OCC to impose the assessment if we examine or investigate third party providers of services to subsidiaries subject to examination by the OCC. The proposal amends section 8.6(a) to state that the OCC may assess a national bank, a District of Columbia bank, or a Federal branch or agency, a fee for the examination or investigation of an entity that performs services for the institution or its subsidiary that is subject to OCC examination and regulation pursuant to the Bank Service Company Act (12 U.S.C. 1867(c)). The fees for special exams and investigations would be based on an hourly rate, with the hourly rate provided each year by the OCC in its Notice of Comptroller of the Currency Fees (Notice of Fees). [7] 

                    We also propose to amend section 8.6(a) to clarify that fees may be charged for conducting special examinations and investigations of Federal branches and agencies of foreign banks or their affiliates. Federal branches and agencies are subject to the same “duties, restrictions, penalties, liabilities, conditions, and limitations” that apply to national banks, except as otherwise specifically provided by statute. [8]                                          Current section 8.6 does not address the assessment of a fee for the special examination or investigation of Federal branches and agencies or their affiliates. Proposed section 8.6 makes our authority to assess such a fee explicit. The amount of these fees would be provided in the Notice of Fees.                 

Finally, the title of part 8 would be amended to more accurately reflect the scope of the regulation. While part 8 includes Federal branches and agencies within the scope of the rule, only national banks and District of Columbia banks are listed in the title. The proposal removes from the title references to the types of regulated entities covered by the regulation. 

## II. Regulatory Flexibility Act 

                    The Regulatory Flexibility Act (RFA) requires federal agencies either to certify that a proposed rule would not, if adopted in final form, have a significant impact on a substantial number of small entities or to prepare an initial regulatory flexibility analysis (IRFA) of the proposal and publish the analysis for comment.                     *See*5 U.S.C. 603, 605. On the basis of the information currently available, the OCC is of the opinion that this proposal, if it is adopted in final form, is unlikely to have a significant impact on a substantial number of small entities, within the meaning of those                           ( print page 75198)                        terms as used in the RFA. As previously noted, a national bank would be assessed a fee for the examination or investigation of its service provider only when the examination or investigation is warranted by the high risk or unusual or novel nature of the activities conducted by the service provider for the bank or when the OCC believes that the bank has insufficient systems, controls, or personnel to adequately monitor, measure, and control the risks associated with the activity. As a result, the OCC believes that the fees will not be imposed on a substantial number of small entities. Commenters are invited to provide the OCC with any information they may have about the likely quantitative effects of the proposal.                 

## III. Executive Order 12866

The OCC has determined that this proposal is not a significant regulatory action under Executive Order 12866. 

## IV. 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 has determined that the proposed rule will not result in expenditures by State, local, and tribal governments, or by the private sector, of $100 million or more in any one year. Accordingly, this rulemaking is not subject to section 202 of the Unfunded Mandates Act. 

# List of Subjects in 12 CFR Part 8

      - National banks

## Authority and Issuance 

For reasons set forth in the preamble, the OCC proposes to amend part 8 of Chapter I of title 12 of the Code of Federal Regulations as follows: 

# PART 8—ASSESSMENT OF FEES

1. The authority citation for part 8 is revised to read as follows: 

Authority:12 U.S.C. 93a, 481, 482, 1867, 3102, and 3108; 15 U.S.C. 78c and 78l; and 26 D.C. Code 102. 

2. The title of part 8 is revised to read as set forth above. 

3. Section 8.6 is amended by revising the section heading and paragraph (a) to read as follows: 

§ 8.6

                            (a)                             *Fees.*                             Pursuant to the authority contained in 12 U.S.C. 481 and 482, the Office of the Comptroller of the Currency assesses a fee for:                         

(1) Examining the fiduciary activities of national and District of Columbia banks and related entities; 

(2) Conducting special examinations and investigations of national banks, District of Columbia banks, and Federal branches or Federal agencies of foreign banks; 

(3) Conducting special examinations and investigations of any entity subject to regulation and examination by the OCC pursuant to the Bank Service Company Act (12 U.S.C. 1867(c)); 

(4) Conducting special examinations and investigations of affiliates of national banks, District of Columbia banks, and Federal branches or Federal agencies of foreign banks; and

(5) Conducting examinations and investigations made pursuant to 12 CFR Part 5, Rules, Policies, and Procedures for Corporate Activities. 

* * * * *

Dated: October 18, 2000. 

John D. Hawke, Jr., 

Comptroller of the Currency. 

# Footnotes

1.                             A “lead bank” is the largest national bank controlled by a company, based on a comparison of the total assets held by each national bank controlled by that company as reported in each bank's Call Report. 12 CFR 8.2(a)(6)(ii)(A).                     
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2.                             12 CFR 8.6(a) also permits the OCC to assess a fee for fiduciary examinations and examinations made pursuant to 12 CFR part 5.                     
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3.                             12 U.S.C. 1867(c).                    
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4.                             The OCC has recently noted the risks that may be associated with using service providers in a recent Advisory Letter and urged national banks to focus on conducting proper due diligence before entering into third party arrangements and on maintaining effective oversight and controls during the third party relationship.                         *See*                         OCC Advisory Letter No. 2000-9, “Third Party Risk,” August 29, 2000.                    
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5.                             In light of this proposal, national banks using third party service providers should consider including provisions in their contractual arrangements with such service providers obligating the providers to indemnify or reimburse the bank for any assessments levied on the bank in connection with an examination of the provider.                     
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6.                             The special investigations covered by § 8.6 includes investigations brought under 12 CFR part 19.                     
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7.                                                     *See*12 CFR 8.8.                    
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8.                             12 U.S.C. 3102(b).                    
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[FR Doc. 00-30600 Filed 11-30-00; 8:45 am] 

BILLING CODE 4810-33-P