To: All Member Banks and Others Concerned in the Third Federal Reserve District

Attention: Chief Executive Officer and Chief Financial Officer

Subject: Final Rules on Disciplinary Action Against Accountants and Accounting Firms Performing Audit Services

Summary:

The federal bank and thrift regulatory agencies recently issued final rules governing their authority to take disciplinary action against independent public accountants and accounting firms that perform audit and attestation services required by section 36 of the Federal Deposit Insurance Act. Proposed rules were published for comment in the Federal Register in January, 2003.

The final rules, which take effect on October 1, 2003, establish procedures under which the agencies can, for good cause, remove, suspend, or bar an accountant or firm from performing audit and attestation services for insured depository institutions with assets of $500 million or more. The rules permit immediate suspensions in limited circumstances.

The rules provide that certain violations of law, negligent conduct, reckless violations of professional standards or lack of qualifications to perform auditing services may be considered good cause to remove, suspend or bar an accountant or firm from providing audit services for banking organizations subject to section 36. Also, the rules prohibit an accountant or accounting firm from performing audit services if the accountant or firm has been removed, suspended, or debarred by one of the agencies, or if the U.S. Securities and Exchange Commission or the Public Company Accounting Oversight Board has taken certain disciplinary action against the accountant or firm.

The rules are being issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Office of Thrift Supervision. The rules amend each agency’s rules of practice separately, but are substantively identical.

A copy of the final rules, which were published in the Federal Register for August 13, 2003, is attached (488 KB, 42 pages).

For Further Information: Richard Ashton, Associate General Counsel, Legal Division, (202) 452-3750; Nina Nichols, Counsel, (202) 452-2961; Arthur Lindo, Project Manager, (202) 452-2695; and Salome Tinker, Senior Financial Analyst, (202) 452-3034, Division of Banking Supervision and Regulation; for users of Telecommunication Devices for the Deaf (TDD) only, contact (202) 263-4869.