30190 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Proposed Rules

1 61 FR 1162 (January 17, 1996). 2Pub. L. 93–533, 88 Stat. 1724, Dec. 22, 1974.

unacceptable risk of the introduction of

disease into the United States.

We have considered all of the

comments we received on the proposal

and have determined that the expressed

concerns have merit. Therefore, we are

withdrawing the proposed rule of

February 25, 1994, referenced above.

Authority: 21 U.S.C. 111, 136, and 136a; 31

U.S.C. 9701; 7 CFR 2.22, 2.80, and 371.2(d).

Done in Washington, DC, this 7th day of

June 1996.

Terry L. Medley,

Acting Administrator, Animal and Plant

Health Inspection Service.

[FR Doc. 96–15173 Filed 6–13–96; 8:45 am]

BILLING CODE 3410–34–P

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 545, 556, 560, 563, and

571

[No. 96–48]

RIN 1550–AA89

Conflicts of Interest, Corporate

Opportunity and Hazard Insurance

AGENCY: Office of Thrift Supervision,

Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Office of Thrift

Supervision (OTS or agency) is

proposing to update and substantially

streamline its regulations and policy

statements concerning conflicts of

interest, usurpation of corporate

opportunity and hazard insurance. This

notice of proposed rulemaking is based

on a detailed staff review of each

pertinent regulation and policy

statement to determine whether they are

necessary, impose the least possible

burden consistent with safety and

soundness and statutory requirements

and are written in a clear,

straightforward manner. Today’s

proposal is being made pursuant to the

Regulatory Reinvention Initiative of the

Vice President’s National Performance

Review and section 303 of the

Community Development and

Regulatory Improvement Act of 1994.

DATES: Comments must be received on

or before August 13, 1996.

ADDRESSES: Send comments to Manager,

Dissemination Branch, Records

Management and Information Policy,

Office of Thrift Supervision, 1700 G

Street, NW., Washington, DC 20552,

Attention Docket No. 96–48. These

submissions may be hand-delivered to

1700 G Street, NW., from 9:00 a.m. to

5:00 p.m. on business days; they may be

sent by facsimile transmission to FAX

Number (202) 906–7755. Comments will

be available for inspection at 1700 G

Street, NW., from 9:00 a.m. until 4:00

p.m. on business days.

FOR FURTHER INFORMATION CONTACT:

Robyn Dennis, Program Manager, (202)

906–5751; or Francis Raue, Policy

Analyst, (202) 906–5750, Supervision

Policy; or Dorene Rosenthal, Counsel

(Banking and Finance), (202) 906–7268,

Regulations and Legislation Division,

Chief Counsel’s Office.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background of the Proposal

II. Objectives III. Description of the Proposal

A. Conflicts of Interest

B. Corporate Opportunity

C. Hazard Insurance

IV. Proposed Disposition of Conflicts of

Interest, Corporate Opportunity and

Hazard Insurance Regulations and Policy

Statements

V. Executive Order 12866

VI. Unfunded Mandates Act of 1995

VII. Regulatory Flexibility Act Analysis

I. Background of the Proposal

In a comprehensive review of the

agency’s regulations in the spring of

1995, OTS identified numerous obsolete

or redundant regulations that could be

quickly repealed. OTS also identified

several key regulatory areas for a more

intensive, systematic regulatory burden

review. These areas—lending and

investment authority, subsidiaries and

equity investments, corporate

governance, conflicts of interest,

corporate opportunity and hazard

insurance—were selected because they

have a significant impact on thrift

operations, and have not been

developed on an interagency basis or

been comprehensively reviewed for

many years. Today’s proposal presents

the results of an intensive review of

OTS’s regulations and policy statements

on conflicts of interest, corporate

opportunity and hazard insurance.

Since commencing its reinvention

initiative in the spring of 1995, OTS has

already repealed eight percent of its

regulations. In addition, in January of

1996, OTS issued a comprehensive

proposal on its lending and investment

regulations.1 Burden reduction

proposals regarding corporate

governance and subsidiaries and equity

investments will be issued in the near

future.

Today’s proposal regarding conflicts

of interest, corporate opportunity and

hazard insurance will also result in

significant regulatory burden reduction.

The proposal affects the following

regulatory sections:

Section 545.126—Referral of insurance

business

Section 556.16—Insurance agencies—

usurpation of corporate opportunity

Section 563.35—Restrictions involving

loan services

Section 563.40—Restrictions on loan

procurement fees, kickbacks and

unearned fees

Section 563.44—Loans involving

mortgage insurance

Section 571.4—Hazard insurance

Section 571.7—Conflicts of interest

Section 571.9—Corporate opportunity

in savings associations

OTS is proposing to repeal five of

these provisions in their entirety. The

remaining three provisions—loan

procurement fees, conflicts of interest,

and corporate opportunity—will be

retained in the form of regulations, but

streamlined and clarified. The proposed

changes will, if adopted in final form,

reduce the amount of CFR text devoted

to conflicts, corporate opportunity and

hazard insurance from six pages to half

a page.

In developing this proposal, we have

consulted with those who use the

regulations on a daily basis, including

OTS regional staff and representatives of

the thrift industry. A focus group of five

thrift institutions and an industry trade

association discussed staff’s initial

recommendations. We have also

reviewed the other federal banking

agencies’ regulations and policy

statements concerning conflicts,

corporate opportunity and hazard

insurance.

II. Objectives

The overarching goal of OTS’s

reinvention initiative is to reduce

regulatory burden on savings

associations to the greatest extent

possible consistent with statutory

requirements and safety and soundness.

In the context of conflicts, corporate

opportunity and hazard insurance, we

believe maximum burden reduction can

be achieved by pursuing three specific

objectives.

First, we are attempting to eliminate

duplication and overlap. The conflicts,

corporate opportunity and hazard

insurance regulations have existed

essentially unchanged for over 20 years.

During this time, there have been

significant statutory and regulatory

advances, including enactment of the

Real Estate Settlement Procedures Act of

1974 (RESPA),2 amendments to the

Home Owners’ Loan Act of 1933
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Proposed Rules 30191

3 12 U.S.C. 1461, et seq.

4 57 FR 62890 (December 31, 1992).

5FHLBB Memorandum to The Management of

Each Insured Institution from Chairman Martin

(November 19, 1970).

6 40 FR 43832, 43842 (September 23, 1975).

7Pub. L. 97–320, 96 Stat. 1469, Oct. 15, 1982.

8The terms ‘‘director,’’ ‘‘officer’’ and ‘‘affiliated

person’’ are defined below under the description of

the Conflicts of interest Proposed Rule.

(HOLA) 3 and promulgation of the

Interagency Real Estate Lending

Guidelines.4 As a result, much of OTS’s

conflicts of interest, corporate

opportunity and hazard insurance

regulations and policy statements have

become outdated or obsolete. For

example, the policy statement regarding

hazard insurance (§ 571.4) has been

largely superseded by the Interagency

Real Estate Lending Guidelines.

Similarly, the regulatory provisions

prohibiting a savings association from

conditioning the extension of credit on

the borrower obtaining certain other

services from the institution (tying

arrangements) (§ 563.35) have been

superseded by tying prohibitions in

HOLA section 5(q). Additionally, the

regulatory provisions governing kickbacks and unearned fees for loans

(§ 563.40) are largely duplicative of

RESPA. Redundant regulatory coverage

causes confusion and wastes both

industry and government resources.

Today’s proposal eliminates duplication

wherever possible.

Second, as part of its reinvention

effort, OTS is seeking to move away

from regulations that micromanage thrift

operations. Our goal is to focus the

regulations on issues that are truly vital

to safe and sound operations, leaving

other matters for handbook guidance.

For example, the regulations currently

include three detailed provisions, which

occupy three pages of CFR text,

governing when federal thrifts can refer

customers to affiliates that sell

insurance. Although insurance referrals

were thought to be an important issue

20 years ago when thrift service

corporations were first authorized to sell

insurance, insurance referrals clearly do

not lie at the heart of safety and

soundness today. Nor do they present

issues distinct from the general

questions that arise whenever a thrift

refers many other types of business to

affiliates. Accordingly, OTS is

proposing to repeal the insurance

referral provisions in their entirety,

leaving insurance referrals to be

handled in the same way as other

corporate opportunity issues. (See

discussion of corporate opportunity

below.)

Third, in its reinvention effort, OTS is

seeking to enhance the conciseness and

clarity of its regulations. Accordingly,

the three provisions slated for retention

in today’s proposal are being revised to

remove ambiguous and imprecise

language. For example, the current 306-

word policy statement on conflicts of

interest (§ 571.7) is being converted to a

53-word regulation. The oblique

reference to actions that may create the

‘‘appearance of a conflict of interest’’ is

being removed. Instead, there will be a

simple statement of a fiduciary’s

common law duty ‘‘not [to] advance [his

or her] personal interests, or those of

others, at the expense of [his or her]

institution.’’

Similarly, the corporate opportunity

policy statement (§ 571.9) is being

converted to a regulation containing a

simple statement of a fiduciary’s

common law duty not to ‘‘take

advantage of corporate opportunities

belonging to [his or her] savings

association.’’ A second sentence

describes when an opportunity will be

deemed to ‘‘belong’’ to a savings

association. The new regulation will be

about one-third the length of the current

policy statement.

Each of the provisions being retained

have been redrafted using plain

language techniques pioneered by the

Department of Interior and promoted by

the Vice President’s Regulatory

Reinvention Initiative. Plain language

drafting emphasizes the use of

informative headings, short sentences,

paragraphs and sections, non-technical

language (including the use of ‘‘you’’),

and sentences in the active voice. The

goal of plain language drafting is to

enhance clarity, thereby decreasing

industry frustration, inadvertent

violations, the need to seek clarification

in correspondence and phone calls, and

the amount of time institutions must

devote to understanding the regulations.

OTS is hopeful that the foregoing

reforms will result in a significant

decrease in regulatory burden in the

areas of conflicts, corporate opportunity

and hazard insurance.

III. Description of the Proposal

For each area covered by today’s

proposal—conflicts of interest,

corporate opportunity and hazard

insurance—this section provides

historical background, an analysis of the

disposition of the current rules and a

description of the proposed rules.

A. Conflicts of Interest

1. Historical Background

The Federal Home Loan Bank Board

(FHLBB), the predecessor to OTS,

adopted the conflicts of interest policy

statement (§ 571.7) in 1970. The FHLBB

stated that the principles enunciated

there are basic to the continued viability

and public acceptance of the thrift

industry in contemporary society.5 The

policy statement, which prohibits

insiders from engaging in conflicts of

interest that adversely affect savings

associations, has remained unchanged

for over 25 years.

In 1974, Congress enacted RESPA to

effect certain changes in settlement

procedures for residential real estate

loans. It was designed, among other

things, to eliminate kickbacks or referral

fees that tend to increase unnecessarily

the costs of certain settlement services.

Such kickbacks and fees also can create

a conflict between an officer or

director’s personal interests and those of

his or her association.

The following year, in response to

abuses involving certain loan practices,

the FHLBB issued another rulemaking

intended ‘‘to delineate, and prohibit or

control, transactions which are, or are

likely to be, conflicts of interest’’ and

‘‘to prohibit financial, lending or

managerial policies or practices of

insured institutions which are

detrimental to, or inconsistent with,

sound and economic home-financing.’’ 6

The FHLBB revised the regulations

prohibiting the tying of loans and

certain related services (§ 563.35) and

promulgated a new regulation

prohibiting loan procurement fees,

kickbacks and unearned fees (§ 563.40).

This regulation reiterated and expanded

upon the RESPA prohibitions on

kickbacks and fees. A separate

regulation was promulgated to limit the

potential for abuse and risk as a result

of self-dealing business practices

relating to mortgage insurance

(§ 563.44). Basically, this regulation

prohibits a savings association from

insuring any loan with an affiliated

mortgage insurance company.

The Garn-St Germain Depository

Institutions Act of 1982 7 also addressed

concerns about self-dealing practices

related to lending. This Act added a

new HOLA section 5(q) prohibiting

certain tying arrangements.

Thus, the statutes, regulations and

policy guidance concerning conflicts of

interest have evolved in a manner that

results in a significant amount of

duplication and overlap.

2. Disposition of Current Rules

a. Section 571.7 Conflicts of interest.

This policy statement says, in essence,

that directors, officers and other

affiliated persons 8 have a fundamental

duty to avoid placing themselves in a

position which creates, or which leads
30192 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Proposed Rules

9We are aware that none of the other federal

banking agencies has specific regulations regarding

fiduciary duties, except the Office of the

Comptroller of the Currency (OCC), which has a

regulation on conflicts of interest. 12 CFR 2.5.

Recently, the OCC proposed repeal of this

provision, 60 FR 47498, 47500 (September 13,

1995), on grounds that it merely restates common

law and a provision in the National Bank Act

requiring national bank directors to take an oath to

perform their duties diligently, honestly, and

lawfully (12 U.S.C. 73). Savings associations do not

operate under a statutory provision equivalent to 12

U.S.C. 73. For the reasons stated above, OTS

believes that a brief regulation on conflicts is

important.

10See FHLBB Letter of Tumler, Congressional

Affairs (Sept. 18, 1978).

11 In addition, RESPA also protects an

institution’s interest in selecting its own settlement

attorney. The law provides that an arrangement

requiring a borrower to pay the services of an

attorney chosen by the lender to represent the

lender’s interest in a real estate transaction is not

a violation of the general prohibition against

requiring the use of any particular provider of

settlement services (12 U.S.C. 2607(c)).

12Before RESPA was enacted, the FHLBB had

proposed a regulation that would have imposed

restrictions with respect to initial loan charges on

all real estate loans. 39 FR 42382 (December 5,

1974). These restrictions were different than

RESPA’s restrictions with respect to federally

related mortgage loans. The FHLBB decided not to

adopt its proposed restrictions and instead applied

RESPA’s restrictions to all loans. 40 FR 43832,

43839 (September 23, 1975).

13The rationale for this provision was to ensure

that a mortgage company was not forced to

maintain an account at the association as a

condition for the placement or renewal of mortgage

insurance with the company. 41 FR 7497, 7498

(February 19, 1976).

to or could lead to, a conflict of interest

or appearance of a conflict of interest

between their personal financial

interests and the interests of their

association, where the interests of the

association are adversely affected.

OTS proposes to codify this policy

statement as a regulation, after making

modifications to clarify and simplify the

language. OTS believes this statement

serves as an important reminder to thrift

insiders of their fiduciary duties to

avoid conflicts of interest. (See

description of the Proposed Rule

below.)

As noted above in the discussion of

objectives, OTS believes that its

regulations should focus on issues vital

to safety and soundness. Fiduciary

duties lie at the heart of safety and

soundness. The thrift crisis of the 1980s

provided numerous examples of how

fiduciary breaches can undermine the

stability of an institution. Thus, we

believe it is appropriate for the

regulations to contain a brief statement

regarding the importance of avoiding

conflicts of interest.9 To eliminate any

mention of conflicts of interest from the

CFR would not accurately reflect

current OTS policy.

b. Section 563.35 Restrictions

involving loan services. Paragraph (a)

enumerates specific services typically

involved in real estate lending that

cannot be ‘‘tied’’ to the granting of a

loan: insurance services (except

insurance or a guarantee provided by a

government agency or private mortgage

insurance); building materials or

construction services; borrower legal

services; real estate or brokerage

services; and real estate property

management services.

OTS proposes to delete this paragraph

because it is redundant of HOLA section

5(q), which prohibits a savings

association from conditioning the

extension of credit on the borrower

obtaining certain other services from the

institution. To the extent the regulatory

language provides useful illustrations of

the type of conduct HOLA prohibits,

OTS will include this guidance in the

Thrift Activities Handbook.

Paragraphs (b) and (c) relate to hazard

insurance. These paragraphs and their

proposed disposition will be discussed

below in Part III.C., ‘‘Hazard insurance.’’

Paragraph (d) provides that a savings

association must give residential

borrowers a written itemization of fees

in excess of $100 to be paid by the

borrower for the lender’s attorney. This

requirement was promulgated to protect

the borrower from hidden subsidization

of legal services provided to the lender

that are unrelated to the borrower’s

particular loan.10

OTS proposes to delete this provision

because borrowers’ interests are

adequately protected by RESPA, which

prohibits kickbacks and unearned fees

(12 U.S.C. 2607).11

c. Section 563.40 Restrictions on loan

procurement fees, kickbacks and

unearned fees. Paragraph (a) provides

that no affiliated person of a savings

association may receive, either directly

or indirectly, from the association (or

any other source) any fee in connection

with the procurement of a loan from the

association or a subsidiary of the

association.

Under this provision, loan

procurement fees (i.e., fees for finding

loan applicants) are prohibited,

regardless of whether they are earned or

unearned. The term ‘‘loan procurement

fee’’ does not include payments for loan

origination services (such as title

examination, appraisals, credit reports,

drawing up of papers, loan closings, and

other services necessary and incident to

loan origination).

OTS believes that loan procurement

fees pose the risk that insiders may

approve bad loans in order to obtain

fees. Thus, we propose to retain this

provision but to make clarifying

amendments to more precisely tailor the

scope of the regulation to the practices

we wish to prohibit. (See description of

Proposed Rule below.)

Paragraph (b) prohibits the payment

of unearned fees for loan origination

and settlement services, but this does

not prohibit savings associations and

third parties from paying fees for loan

origination services actually rendered.

This paragraph extends the RESPA

prohibition on kickbacks and unearned

fees in connection with ‘‘federally

related mortgage loans’’ (i.e., loans

secured by a 1–4 family home) to any

loan on real property. This rule was

promulgated by the FHLBB to

standardize the initial loan charges

restrictions applicable to all types of

real property loans.12

OTS proposes to delete this paragraph

because the regulation extends the

RESPA consumer protection provisions

to commercial real estate loans. We do

not believe this protection is necessary

for commercial borrowers. None of the

other banking agencies imposes a

similar restriction on banks. Thus,

removing this provision will establish

parity with banks. To the extent

paragraph (b) protects thrifts from

insiders engaging in prohibited conflicts

of interest, these conflicts would be

covered by the new conflicts of interest

regulation.

d. Section 563.44 Mortgage insurance.

Paragraph (a) contains definitions used

in this section. Paragraph (b) prohibits

a savings association (or service

corporation affiliate) from insuring any

loan with a mortgage insurance

company if certain affiliations are

present. The affiliations deemed to give

rise to harmful conflicts of interest are:

the mortgage insurance company

maintains a deposit account at the

association;13 there is an

interrelationship of insiders or

employees; the association, affiliate or

insiders have an ownership interest in

the mortgage company above specified

limits; or the mortgage insurance

company pays a fee or commission to

the association, an affiliate or insiders.

Paragraph (c) provides an exception to

grandfather investments made by

savings associations in the Pennsylvania

Mortgage Insurance Company prior to

promulgation of § 563.44. See 43 FR

60571, 60572 (December 28, 1978).

OTS proposes to repeal § 563.44 since

prohibited tying of products is now

covered by the statutory anti-tying

provisions in HOLA section 5(q). In

addition, RESPA requires a lender to

make disclosure to a borrower when it

has an interest in a mortgage insurance

company and to inform the borrower

that services need not be obtained from
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Proposed Rules 30193

14The term ‘‘director’’ is defined in OTS

regulations as: any director, trustee or person

performing similar functions with respect to an

organization. (§ 561.18.)

15The term ‘‘officer’’ is defined in OTS

regulations as: the president, vice-president (but not

an assistant vice-president or second vice-president,

or other vice-president with similar authority to an

assistant or second vice-president), the secretary,

the treasurer, the comptroller, any person

performing similar functions with respect to any

organization, and the chairman of the board of

directors if the chairman participates in the

management of the organization. (§ 561.35.) The

term ‘‘officer’’ would include ‘‘senior executive

officer,’’ defined in OTS regulations as: chief

executive officer, chief operating officer, chief

financial officer, chief lending officer, chief

investment officer and any other individual who

exercises significant influence over, or participates

in major policy decisions of the savings association

or a savings and loan holding company.

(§ 574.9(a)(2).)

16This statement reiterates the current common

law fiduciary duty these individuals and entities

owe to their institutions. See, e.g., E. Brodsky &

M.P. Adamski, Law of Corporate Officers and

Directors: Rights, Duties and Liabilities, ch. 3 and

4 (1984 and Supp. 1995) (directors and officers have

fiduciary duties to avoid conflicts of interest and

corporate usurpation); and H. Henn & J. Alexander,

Laws of Corporations, §§ 235–238 (3d ed. 1983)

(controlling shareholders may owe fiduciary duties

to corporations).

17CEO Letter from Director Ryan (November 18,

1992).

18FDIC Financial Institutions Letter 87–92

(December 17, 1992).

19The term ‘‘affiliated person’’ is defined in OTS

regulations to include: officers, directors,

controlling persons of savings associations;

immediate family members of officers, directors and

controlling persons; and corporations and trusts

with common ownership or control with the

association. (§ 561.5.)

20See 12 U.S.C. 1817(j) and 1467a.

21The proposed rule, like the current rule, would

not apply to loan officers and branch managers who

do not make significant policy decisions for the

institution. However, any loan procurement bonus

or incentive system for employees who are not

senior executive officers must be consistent with

the safe and sound operation of the savings

association. For illustrative examples of what

compensation provisions OTS may consider unsafe

and unsound, see OTS Regulatory Bulletin 27a,

‘‘Executive Compensation.’’ This bulletin does not

specifically apply to incentive programs for

employees who are not senior executive officers,

but it does provide general guidance in this area.

22 12 U.S.C. 371c–1.

that particular company. Common law

fiduciary duties, the statutory rules

governing transactions with affiliates,

and OTS’s new conflicts of interest

regulation will cover conflicts of interest

related to mortgage insurance

companies. Thus, § 563.44 adds an

unnecessary additional layer of

regulation.

3. Proposed Rules

a. Conflicts of interest. As indicated

above, OTS proposes to convert its

general policy statement on conflicts of

interest (§ 571.7) to a regulation

(proposed § 563.200). Proposed

§ 563.200 prohibits directors,14

officers,15 employees, persons having

the power to control the management or

policies of savings associations, and

other persons who owe fiduciary duties

to savings associations from advancing

their own personal or business interests,

or those of others, at the expense of the

institutions they serve.16

The proposed rule differs from the

current OTS policy statement on

conflicts of interest (§ 571.7) in several

respects. First, today’s proposal removes

an ‘‘appearance of a conflict of interest’’

from the scope of the rule. The OTS

continues to urge fiduciaries to avoid

even the appearance of a conflict of

interest as a matter of good business

practice. However, OTS intends to focus

its supervisory efforts on actual

conflicts.

Second, the proposal simplifies the

language used to describe prohibited

conflicts. This should make it easier for

persons covered by the rule to

understand what conduct is prohibited.

The language of the proposed rule tracks

the language of OTS’s 1992 ‘‘Statement

Concerning Responsibilities of Officers

and Directors,’’ which clarified OTS

policy and reiterated general common

law standards on the duty of loyalty and

the duty of care that directors and

officers owe their institutions.17 This

statement is much shorter and clearer

than the current policy statement and is

the same standard employed by the

Federal Deposit Insurance Corporation

(FDIC).18

Third, the current policy statement

covers ‘‘affiliated persons.’’ 19 The term

affiliated person does not precisely

match the scope of persons who at

common law owe fiduciary duties to

institutions. For example, immediate

family members are included within the

definition of affiliated person but they

generally do not owe fiduciary duties

under the common law.

The proposed regulation refers

specifically to directors, officers,

employees, persons having the power to

control the management or policies of

savings associations and other persons

who owe fiduciary duties to savings

associations. No reference is made to

affiliated persons.

As indicated above, ‘‘directors’’ and

‘‘officers’’ are defined in OTS

regulations. ‘‘Employee’’ is not defined,

but this term is intended to have its

common meaning. OTS believes that

coverage of employees is important

because there have been instances

where employees’ conflicts of interest

have harmed savings associations.

Persons having the power to control

the management or policies of savings

associations would include both natural

persons and companies. Generally, a

shareholder of a savings association

controls the management or policies of

a savings association if the shareholder

owns twenty-five percent or more of the

voting stock of the institution.20 Any

other shareholder or other person who

makes significant policy decisions for

the institution would also be covered by

the proposed regulation.

OTS does not attempt to define in this

regulation who else (besides directors,

officers, employees and persons who

control management) owes fiduciary

duties to savings associations. If a

person owes a fiduciary duty under

common law to a savings association,

then that person must not advance his

or her own interests at the expense of

the institutions he or she serves.

b. Prohibition on loan procurement

fees. OTS is moving the prohibition on

loan procurement fees (§ 563.40(a)) to a

new section (§ 560.130) in its proposed

Part 560 on Lending and Investment and

is narrowing the scope of the rule.

The current rule covers ‘‘affiliated

persons.’’ Today’s proposal will apply

only to directors, officers 21 and natural

persons having the power to control the

management or policies of savings

associations. OTS continues to believe

that loan procurement fees paid to these

persons pose a threat to the safety and

soundness of savings associations. Such

fees provide incentives to these

individuals to bring loans into the

association and to press for their

approval, without giving proper

consideration to whether they are a

good investment for the institution. This

is a classic example of a conflict of

interest: the person’s interest in

financial gain from a loan procurement

fee would be adverse to the institution’s

interest in making only high quality

loans.

However, by eliminating the reference

to ‘‘affiliated person,’’ the rule will no

longer apply to holding companies and

holding company affiliates of savings

associations. OTS believes that loan

procurement fees paid to corporate

affiliates pose less risk for several

reasons. First, these fees, unlike fees

paid to officers and directors, are subject

to section 23B of the Federal Reserve

Act (FRA).22 Under section 23B, all

payments to corporate affiliates must be

on arms-length terms for services

actually rendered. Second, as a practical

matter, an individual officer or director

generally would have greater ability to

directly or indirectly influence a loan

approval than a corporate affiliate

because of direct reporting

relationships.

With the proposed change, affiliates

of thrifts that are mortgage brokers will
30194 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Proposed Rules

23 37 FR 6696 (February 22, 1974).

24 Id.

be able to receive an arms-length fee

when acting as agent soliciting loans for

affiliated thrifts.

B. Corporate Opportunity

1. Historical Background

In 1974, the FHLBB adopted a general

corporate opportunity policy statement

to apprise savings association officers,

directors and controlling persons of

their fiduciary duty not to appropriate

business opportunities that belong to

the association.23 The policy statement

was not intended to impose new legal

duties, but simply to codify existing

common law fiduciary principles.24

The following year, the FHLBB

promulgated §§ 545.126, 556.16, and

571.9(b). Taken together, these

provisions describe in elaborate detail

when federal thrifts can refer insurance

business to insurance agencies that

affiliated persons control without

raising concerns about usurpation of

corporate opportunity. As structured,

these provisions impose a general ban

on referral of insurance business to

affiliated persons, but then carve out

numerous exceptions (e.g. when the

thrift is located in a state that prohibits

insurance sales by thrifts).

The FHLBB developed these rules to

apply general corporate opportunity law

to the operation of insurance agencies

by management of federal associations,

and to avoid case-by-case

determinations. The rules focused on

the insurance business because

insurance brokerage had recently been

added to the list of preapproved

activities for savings association service

corporations. These rules were designed

to eliminate opportunities for insider

abuse and to protect insurance business

opportunities for savings associations

and their subsidiaries.

2. Disposition of Current Rules

a. Section 545.126 Referral of

Insurance Business. This section

prohibits a federal savings association

from referring any insurance business to

an agency owned by officers or directors

of the association, or by individuals

having the power to direct its

management, subject to certain

exceptions. The exceptions are: (i) a

state statute or regulation prohibits a

federal savings association’s service

corporation (or wholly owned

subsidiary thereof) from engaging in the

insurance business; (ii) the state

regulator has denied the association’s

application to engage in the insurance

business; (iii) the state regulator has an

established and well-known policy of

denying such applications; (iv) the

referral takes place within a reasonable

time after a change in state law,

regulation or policy; and (v) an

application to establish or acquire an

insurance business is pending with OTS

or the appropriate state agency.

OTS proposes to delete this provision.

This regulation was enacted over 20

years ago to control the perceived risks

of usurpation of corporate opportunity

related to the insurance agency

business. In the agency’s experience,

insurance referrals have not presented

risks that differ either in degree or kind

from the risks presented by referrals of

other types of business. Accordingly,

insurance referrals, like other referrals,

will be reviewed under the proposed

general corporate opportunity

regulation. (See description of the

Proposed Rule below.)

b. Section 556.16 Insurance

agencies—usurpation of corporate

opportunities. This section, which

substantially duplicates § 545.126,

provides that a federal savings

association’s corporate opportunity to

engage in the insurance business is

usurped if it refers any insurance

business to an agency owned by officers

or directors of the association, or by

individuals having the power to direct

its management, subject to certain

exceptions. The policy statement

contains a number of exceptions to this

general rule. Exceptions apply if the

referral takes place: (i) while an

application to establish or acquire an

insurance business is pending with OTS

or the appropriate state agency; (ii)

while a state statute or regulation

prohibits a federal savings association’s

service corporation (or wholly owned

subsidiary thereof) from engaging in the

insurance business; (iii) while the state

licensing authority or regulator has an

established and well-known policy of

refusing to accept or process

applications by federal savings

associations to engage in the insurance

business; or (iv) within a reasonable

time after a change in state law,

regulation or policy. Additional

exceptions apply for referrals where (i)

the referral took place before May 20,

1971; (ii) the association’s application to

obtain necessary state approval to

engage in the insurance business was

denied; (iii) a disinterested majority of

the association’s board of directors votes

for sound business reasons to reject the

opportunity; or (iv) there is no economic

justification for the association to

engage in the insurance business. This

section also provides that if a corporate

opportunity is usurped, the association

is entitled to the benefit of the

transaction.

Section 556.16 was published in 1975

at the same time the FHLBB

promulgated § 545.126. It appears that

the FHLBB may have intended for

§ 556.16 to state the standards

applicable to insurance referrals that

had already occurred and for § 545.126

to state the standards applicable to all

subsequent insurance referrals.

However, § 556.16 is not worded in a

manner that limits it to retrospective

application. Thus, OTS has traditionally

read both sections together.

OTS proposes repealing § 556.16 for

the reasons discussed above under

§ 545.126.

c. Section 571.9 Corporate

opportunity in savings associations.

Paragraph (a) of this policy statement

states that it is a breach of fiduciary

duty for a director, officer or person

having the power to direct the

management of an institution to take

advantage of a business opportunity for

his or her own or another person’s

personal profit or benefit when the

opportunity is within the corporate

powers of the association or its service

corporation and when the opportunity

is of present or potential practical

advantage to the association. Any of

these persons who usurps a corporate

opportunity is liable to the association

or its service corporation for the benefit

of the transaction or business.

This paragraph further provides that

in determining whether an opportunity

is of present or potential practical

advantage to the association, OTS will

consider, among other things, the

financial, managerial and technical

resources of the association and its

service corporation, and the reasonable

ability of the association directly or

through a service corporation to acquire

such resources.

OTS proposes to codify this policy

statement as a regulation, with

modifications to shorten and simplify

the regulatory language. (See

description of the Proposed Rule

below.) A general regulation concerning

usurpation of corporate opportunity will

serve as an important reminder to thrift

insiders of their fundamental duty to

protect the interests of their institution.

OTS believes that avoiding corporate

usurpation is as essential to safety and

soundness as avoiding conflicts of

interest. Thus, the OTS believes it is

appropriate for the regulations to

contain a brief statement regarding

corporate usurpation.

Paragraph (b) provides that a

usurpation of corporate opportunity to

engage in the insurance business is an

unsafe and unsound practice. For the

reasons set forth above under § 545.126,

OTS proposes deleting this paragraph.
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Proposed Rules 30195

25Employees are specifically mentioned in the

proposed conflicts regulation, but not in the

proposed corporate opportunity regulation. OTS

has encountered a number of instances in which

employee conflicts have been problematic. Similar

problems have not arisen in the usurpation area. In

those rare instances where an employee breaches a

common law duty regarding usurpation of corporate

opportunity, the employee will be covered by the

general reference in the corporate opportunity

regulation to ‘‘other persons who owe fiduciary

duties to savings associations.’’

26 12 U.S.C. 371c and 371c–1.

27 31 FR 9539 (July 14, 1966). In 1959 the FHLBB

published a policy statement requiring federally

chartered associations to maintain hazard insurance

on the property securing loans (§ 556.4). As part of

Phase I of OTS’s Regulatory Review, this provision

was deleted because it imposed duplicative

requirements to those set forth in § 571.4. 61 FR

66866, 66869 (December 27, 1995). 28Pub. L. 102–242, 105 Stat. 2236, Dec. 19, 1991.

Insurance referrals will be treated the

same as other types of referrals. They

will be subject to the general standards

in the proposed corporate opportunity

regulation.

3. Proposed Rule

Paragraph (a) of OTS’s proposed

corporate opportunity regulation

prohibits directors or officers of savings

associations, persons having the power

to control the management or policies of

savings associations and other persons

who owe a fiduciary duty to savings

associations from taking advantage of

corporate opportunities belonging to

their savings association or its

subsidiaries. Paragraph (b) of the

proposed rule, like the current policy

statement on corporate opportunity,

indicates that a corporate opportunity

will be deemed to belong to the savings

association if: (a) It is within the

corporate powers of the savings

association or its subsidiary; and (b) the

opportunity is of present or potential

practical advantage to the savings

association, directly or through its

subsidiary.

OTS intends for common law

standards governing usurpation of

corporate opportunity to be applied in

determining when an opportunity

would be of present or potential

practical advantage to an institution.

Examples of the types of issues that

fiduciaries should consider under this

standard include, without limitation, an

institution’s financial condition and

management resources, the level of risk

presented by the business, and potential

profit from the business weighed against

any profits that might arise from transfer

of the business. Prior OTS

interpretations have indicated that a

usurpation of corporate opportunity

does not occur when an institution

receives fair market value consideration

for transfer of a line of business. By

definition, an institution that receives

fair market value receives as much as it

conveys.

The scope of the proposed regulation

on corporate opportunity differs from

the scope of the current policy

statement in one small respect. The

current policy statement refers to

directors, officers and other persons

having power to direct management of

savings associations which includes

both natural persons and companies. To

this OTS proposes to add a reference to

‘‘other persons who owe fiduciary

duties to savings associations.’’ 25 This

will ensure that the scope of the

regulation equates to the scope of

common law fiduciary duties.

In the past questions have arisen

regarding the extent to which the

corporate opportunity doctrine applies

to dealings between savings associations

and their holding companies. The

reference in the proposed regulation to

persons having power to direct

management or policies of savings

associations includes holding

companies. Thus, under the proposed

regulation, the dealings of holding

companies with their subsidiary thrifts

will be subject to the doctrine of

usurpation of corporate opportunity to

the same extent as provided by common

law.

OTS realizes, however, that there is

not a great deal of common law

guidance regarding the nature of a

controlling shareholder’s duties to the

depositors of a wholly-owned thrift or

bank, especially with respect to the

usurpation doctrine. OTS also believes

that the transactions with affiliates

provisions of sections 23A and 23B of

the FRA,26 as well as general principles

of safety and soundness, generally

provide an adequate basis for regulating

dealings between thrifts and their

holding companies. Thus, barring

egregious circumstances or instances

where a thrift is undercapitalized or

unprofitable, OTS supervisors and

examiners will generally defer to

holding company decisions regarding

where to allocate lines of business

within a holding company structure,

provided there is no violation of FRA

sections 23A and 23B or general

principles of safety and soundness.

C. Hazard Insurance

1. Historical Background

The FHLBB published a 1966 policy

statement providing for the maintenance

of hazard insurance policies on real

property securing loans made or

purchased by savings associations

(§ 571.4).27 The FHLBB’s regulation on

restrictions involving loan services

(§ 563.35), published in 1975, contains

additional hazard insurance

requirements.

Over the past several years, the safety

and soundness restrictions on thrifts’

lending have been substantially revised.

The Federal Deposit Insurance

Corporation Improvement Act of 1991 28

required the federal banking agencies to

develop uniform real estate lending

standards. In 1992, OTS, Board of

Governors of the Federal Reserve

System, FDIC and OCC adopted a

uniform rule on real estate lending and

developed Interagency Guidelines for

Real Estate Lending Policies. These

rules and guidelines generally require

that institutions adopt real estate

lending policies consistent with safety

and soundness and that such policies

include prudent underwriting

standards. Among other things, prudent

underwriting standards include

guidelines regarding insurance coverage

of security property.

2. Disposition of Current Rules

a. Section 571.4 Hazard insurance.

Paragraph (a) of this policy statement

provides that all savings associations

should include in their loan contracts

provisions requiring borrowers to

maintain hazard insurance in a

sufficient amount to protect the savings

association from loss in the event of

damage to or destruction of the real

estate securing the savings association’s

loans.

Paragraph (b) requires the insurance

policy to name and protect the savings

association as mortgagee in an amount

at least equal to its insurable interest in

the security. The policy also must cover

perils commonly included in ‘‘Standard

Fire and Extended Coverage,’’ as well as

other perils commonly required by

institutional lenders operating in the

same area.

Paragraph (c) stipulates that

examiners will review loan files for

evidence that appropriate hazard

insurance is in force.

Details regarding hazard insurance are

unnecessary in light of the general

safety and soundness requirements set

forth in the Interagency Real Estate

Lending Guidelines and standard

business practices in the mortgage

lending industry. OTS proposes to

delete this section. As noted in the

objectives section, OTS does not believe

its regulations should micromanage

thrift operations. OTS examiners will

review the sufficiency of thrifts’ lending

standards and practices during

examinations.
30196 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Proposed Rules

b. Section 563.35 Restrictions

involving loan services. Paragraphs (b)

and (c) contain additional hazard

insurance requirements. Paragraph (b)

requires a savings association to inform

borrowers of their right to freely select

providers of insurance services.

Paragraph (c) says a savings association

may refuse to make a loan if the

borrower’s choice of insurance services

would provide insufficient coverage.

OTS proposes to repeal § 563.35 (b)

and (c). Savings associations have

authority to refuse to make loans in the

absence of adequate insurance coverage

with or without paragraph (c). As for

paragraph (b), OTS believes that RESPA

provides an adequate safety net

regarding loan origination practices.

Eliminating paragraphs (b) and (c) will

establish parity with banks.

IV. Proposed Disposition of Conflicts of

Interest, Corporate Opportunity and

Hazard Insurance Regulations and

Policy Statements

The following chart displays the

proposed disposition of OTS’s existing

conflicts of interest, corporate

opportunity and hazard insurance

regulations and policy statements. OTS

intends to review all the regulations and

policy statements that it is proposing to

repeal to determine which are

appropriate to convert into guidance in

the Thrift Activities Handbook.

Original provisionNew provision Comment

§ 545.126 ................ Removed.

§ 556.16 ................ Removed.

§ 563.35 ................ Removed.

§ 563.40(a) § 560.130 Modified.

§ 563.40(b) ................ Removed.

§ 563.44 ................ Removed.

§ 571.4 ................ Removed.

§ 571.7 § 563.200 Modified.

§ 571.9(a) § 563.201 Modified.

§ 571.9(b) ................ Removed.

V. Executive Order 12866

The Director of OTS has determined

that this proposed rule does not

constitute a ‘‘significant regulatory

action’’ for the purposes of Executive

Order 12866.

VI. Unfunded Mandates Act of 1995

Section 202 of the Unfunded

Mandates Reform Act of 1995, Pub. L.

104–4 (Unfunded Mandates Act),

requires that an agency prepare a

budgetary impact statement before

promulgating a rule that includes a

federal mandate that may result in

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.

As discussed in the preamble, this

proposed rule reduces regulatory

burden and clarifies the fiduciary duties

that directors, officers and other

fiduciaries owe to savings associations.

OTS has determined that the proposed

rule will not result in expenditures by

state, local, or tribal governments or by

the private sector of $100 million or

more. Accordingly, this rulemaking is

not subject to section 202 of the

Unfunded Mandates Act.

VII. Regulatory Flexibility Act Analysis

Pursuant to section 605(b) of the

Regulatory Flexibility Act, OTS certifies

that this proposed rule will not have a

significant economic impact on a

substantial number of small entities.

List of Subjects

12 CFR Part 545

Accounting, Consumer protection,

Credit, Electronic funds transfers,

Investments, Manufactured homes,

Mortgages, Reporting and recordkeeping

requirements, Savings associations.

12 CFR Part 556

Savings associations.

12 CFR Part 560

Consumer protection, Investments,

Manufactured homes, Mortgages,

Reporting and recordkeeping

requirements, Savings associations,

Securities.

12 CFR Part 563

Accounting, Advertising, Crime,

Currency, Flood insurance, Investments,

Mortgages, Reporting and recordkeeping

requirements, Savings associations,

Securities, Surety bonds.

12 CFR Part 571

Hazard insurance, Conflict of

interests, Corporate opportunity.

Accordingly, the Office of Thrift

Supervision proposes to amend chapter

V, title 12, Code of Federal Regulations,

as set forth below.

PART 545—OPERATIONS

1. The authority citation for part 545

continues to read as follows:

Authority: 12 U.S.C. 1462a, 1463, 1464,

1828.

§ 545.126 [Removed]

2. Section 545.126 is removed.

PART 556—STATEMENTS OF POLICY

3. The authority citation for part 556

continues to read as follows:

Authority: 5 U.S.C. 552, 559; 12 U.S.C.

1464, 1701j–3; 15 U.S.C. 1693–1693r.

§ 556.16 [Removed]

4. Section 556.16 is removed.

PART 560—LENDING AND

INVESTMENT

5. Part 560 as proposed to be added

at 61 FR 1177 is amended as follows:

a. The authority citation for part 560

is revised to read as follows:

Authority: 12 U.S.C. 1462, 1462a, 1463,

1464, 1701j–3, 1828, 3803, 3806; 42 U.S.C.

4106

b. Section 560.130 is added to read as

follows:

§ 560.130 Prohibition on loan procurement

fees.

If you are a director, officer, or other

natural person having the power to

direct the management or policies of a

savings association, you must not

receive, either directly or indirectly, any

commission, fee, or other compensation

in connection with the procurement of

any loan made by the association or a

subsidiary of the association.

PART 563—OPERATIONS

6. The authority citation for part 563

continues to read as follows:

Authority: 12 U.S.C. 375b, 1462, 1462a,

1463, 1464, 1467a, 1468, 1817, 1828, 3806;

42 U.S.C. 4106.

§ 563.35 [Removed]

7. Section 563.35 is removed.

§ 563.40 [Removed]

8. Section 563.40 is removed.

§ 563.44 [Removed]

9. Section 563.44 is removed.

10. Section 563.200 is added to read

as follows:

§ 563.200 Conflicts of interest.

If you are a director, officer, or

employee of a savings association, or

have the power to direct its management

or policies, or otherwise owe a fiduciary

duty to a savings association, you must

not advance your own personal or

business interests, or those of others, at

the expense of the savings association.

11. Section 563.201 is added to read

as follows:

§ 563.201 Corporate opportunity.

(a) If you are a director or officer of

a savings association, or have the power

to direct its management or policies, or

otherwise owe a fiduciary duty to a
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Proposed Rules 30197

savings association, you must not take

advantage of corporate opportunities

belonging to the savings association.

(b) A corporate opportunity belongs to

a savings association if:

(1) The opportunity is within the

corporate powers of a savings

association or a subsidiary of the

savings association; and

(2) The opportunity is of present or

potential practical advantage to the

savings association, either directly or

through its subsidiary.

PART 571—STATEMENTS OF POLICY

12. The authority citation for part 571

continues to read as follows:

Authority: 5 U.S.C. 552, 559; 12 U.S.C.

1462a, 1463, 1464.

§§ 571.4, 571.7, 571.9 [Removed]

13. Sections 571.4, 571.7 and 571.9

are removed.

Dated: May 29, 1996.

By the Office of Thrift Supervision.

Jonathan L. Fiechter,

Acting Director.

[FR Doc. 96–14000 Filed 6–13–96; 8:45 am]

BILLING CODE 6720–01–P

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Food and Drug Administration

21 CFR Part 864

[Docket No. 94P–0341]

Medical Devices; Classification/

Reclassification of

Immunohistochemistry Reagents and

Kits

AGENCY: Food and Drug Administration,

HHS.

ACTION: Proposed rule.

SUMMARY: The Food and Drug

Administration (FDA) is proposing to

classify/reclassify

immunohistochemistry reagents and

kits (IHC’s) (in-vitro diagnostic devices)

into three classes depending on

intended use. These actions are being

taken under the Federal Food, Drug, and

Cosmetic Act (the act), as amended by

the Medical Device Amendments of

1976 (the 1976 amendments) and the

Safe Medical Devices Act of 1990 (the

SMDA). The intention of this proposal

is to regulate these pre- and post-1976

devices in a consistent fashion.

Therefore, FDA is proposing

classification or reclassification of these

products as applicable.

DATES: Submit written comments by

August 30, 1996.

ADDRESSES: Submit written comments

on the proposed rule to the Dockets

Management Branch (HFA–305), Food

and Drug Administration, 12420

Parklawn Dr., rm. 1–23, Rockville, MD

20857.

FOR FURTHER INFORMATION CONTACT: Max

Robinowitz, Center for Devices and

Radiological Health (HFZ–440), Food

and Drug Administration, 2098 Gaither

Rd., Rockville, MD, 20850–4011, 301–

594–1293, ext. 136, or FAX 301–594–

5941.

SUPPLEMENTARY INFORMATION:

I. Background

The act (21 U.S.C. 201 et seq.), as

amended by the 1976 amendments (Pub.

L. 94–295) and the SMDA (Pub. L. 101–

629), established a comprehensive

system for the regulation of medical

devices intended for human use.

Section 513 of the act (21 U.S.C. 360c)

established three categories (classes) of

devices, depending on the regulatory

controls needed to provide reasonable

assurance of their safety and

effectiveness. The three categories of

devices are: Class I (general controls),

class II (special controls), and class III

(premarket approval).

Under section 513 of the act (21

U.S.C. 360c), devices that were in

commercial distribution before May 28,

1976, the enactment date of the 1976

amendments, are classified after FDA

has: (1) Received a recommendation

from a device classification panel (an

FDA advisory committee); (2) published

the panel’s recommendations for

comment, along with a proposed

regulation classifying the device; and (3)

published a final regulation classifying

the device. A device that is first offered

in commercial distribution after May 28,

1976, and which FDA determines to be

substantially equivalent to a device

classified under this scheme, is

classified into the same class as the

device to which it is substantially

equivalent. The agency determines

whether new devices are substantially

equivalent to previously offered devices

by means of premarket notification

procedures in section 510(k) of the act

(21 U.S.C. 360 (k)) and part 807 of the

regulations (21 CFR 807). A device that

was not in commercial distribution

prior to May 28, 1976, and that has not

been found by FDA to be substantially

equivalent to a legally marketed device,

is classified automatically by statute

(section 513(f) of the act) into class III,

without any FDA rulemaking

proceeding.

The scope of products covered by this

proposal includes both pre-1976 devices

which have not been previously

classified as well as post-1976 devices

which are statutorily classified into

class III. The intention of this proposal

is to regulate these pre- and post-1976

devices in a consistent fashion.

Therefore, FDA is proposing

classification or reclassification of these

products, as applicable.

Fluorescent-labeled

immunohistochemistry in vitro

diagnostic devices (IHC’s) have been

used for patient diagnosis since the

early 1940’s and enzyme-linked IHC’s

have been used since the early 1970’s.

IHC’s, however, were not classified as a

part of the 1979 FDA classification

activities. In addition, new IHC’s have

been marketed for the first time since

the passage of the 1976 amendments.

When used in a standardized controlled

manner, IHC’s enhance the accuracy

and scope of surgical pathology, provide

objective data to histopathological

examination, and contribute to

improved patient care. IHC’s can

specifically and objectively demonstrate

the presence and distribution of

antigens that may be of use in narrowing

differential diagnoses. IHC results are

integrated by the user pathologist and

interpreted together with other types of

data used in pathological diagnostic

decisionmaking (Refs. 1 through 4).

Because pathologists, the principal

users of IHC’s, were concerned about

the regulation of IHC’s, the College of

American Pathologists, the American

Society of Clinical Pathologists, the

Association of Pathology Chairs, the

Biological Stain Commission, and the

Association of Directors of Anatomic

and Surgical Pathology requested a

review of the classification of IHC

reagents and submitted a Petition for

Classification of IHC’s as class II (special

controls) medical devices during the

summer of 1994. In response to this

petition, FDA convened the Panel to

consider classification/reclassification

of these devices.

II. Panel Recommendation

The Hematology and Pathology

Devices Panel (the Panel) met on

October 21, 1994, and made the

following recommendation regarding

the classification of five

Immunohistochemistry devices.

A. Identification

Immunohistochemistry test systems

(IHC’s) are in-vitro diagnostic devices

that consist of polyclonal or monoclonal

antibodies and ancillary reagents that

are used to identify, by immunological

techniques, antigens in specimens of

tissues or intact cells in cytologic

specimens. IHC’s are primary antibody

reagents that are labeled with

instructions for use and performance