Fair Hiring in Banking Act

AGENCY:

Federal Deposit Insurance Corporation.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

The Federal Deposit Insurance Corporation (FDIC) proposes to revise its regulations to conform with the Fair Hiring in Banking Act (FHBA)—which was enacted on and immediately effective as of December 23, 2022. Among other provisions, the FHBA excluded or exempted categories of otherwise-covered offenses from the scope of statutory prohibitions on participation in banking. These categories pertain to certain older offenses, offenses committed by individuals 21 or younger, and “certain lesser offenses.” The FHBA also clarified several definitions in section 19 and provided application-processing procedures. The FDIC considers most of the proposed revisions to its regulations to be required by the FHBA. Other proposed revisions reflect the FDIC's interpretation of statutory prohibitions in light of the FHBA.

DATES:

Comments must be received on or before January 16, 2024.

ADDRESSES:

You may submit comments, identified by RIN 3064–AF92, by any of the following methods:

• FDIC Website: https://www.fdic.gov/resources/regulations/federal-register-publications/. Follow instructions for submitting comments on the agency website.

• Email: comments@fdic.gov. Include RIN 3064–AF92 on the subject line of the message.

• Mail: James P. Sheesley, Assistant Executive Secretary, Attention: Comments RIN 3064–AF92, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429.

• Hand Delivery to FDIC: Comments may be hand-delivered to the guard station at the rear of the 550 17th Street NW building (located on F Street NW) on business days between 7 a.m. and 5 p.m.

Please include your name, affiliation, address, email address, and telephone number(s) in your comment. All statements received, including attachments and other supporting materials, are part of the public record and are subject to public disclosure.

• Public Inspection: Comments received, including any personal information provided, may be posted without change to https://www.fdic.gov/resources/regulations/federal-register-publications/. Commenters should submit only information that the commenter wishes to make available publicly. The FDIC may review, redact, or refrain from posting all or any portion of any comment that it may deem to be inappropriate for publication, such as irrelevant or obscene material. The FDIC may post only a single representative example of identical or substantially identical comments, and in such cases will generally identify the number of identical or substantially identical comments represented by the posted example. All comments that have been redacted, as well as those that have not been posted, that contain comments on the merits of this document will be retained in the public comment file and will be considered as required under all applicable laws. All comments may be accessible under the Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT:

Timothy Schuett, Senior Review Examiner, 763–614–9473, tschuett@fdic.gov; Brian Zeller, Review Examiner, 571–345–8170, bzeller@fdic.gov, Division of Risk Management Supervision; or Graham Rehrig, Counsel, 703–314–3401, grehrig@fdic.gov, Legal Division.

SUPPLEMENTARY INFORMATION:

I. Background

Section 19 of the Federal Deposit Insurance Act (section 19) prohibits, without the prior written consent of the FDIC (the FDIC refers to applications for such consent as “consent applications”), the participation in banking by any person who has been convicted of a crime involving dishonesty or breach of trust or money laundering or who has agreed to enter into a pretrial diversion or similar program in connection with the prosecution for such an offense (collectively, covered offenses). Further, this law forbids an insured depository institution (IDI) from permitting such a person to engage in any conduct or to continue any relationship prohibited by section 19. Section 19 also imposes a separate ten-year ban for a person convicted of certain crimes enumerated in Title 18 of the United States Code, which can be removed only upon a motion by the FDIC and approval by the sentencing court.

From 1998 until 2020, the FDIC had a Statement of Policy that was issued related to section 19, occasionally revised, and published in the Federal Register . The purpose of the Statement of Policy, as amended through the years, was “to provide the public with guidance relating to section 19 and the FDIC's application thereof.” In 2020, following notice and comment, the FDIC revised and codified the Statement of Policy into the FDIC's Filing Procedures under 12 CFR part 303, subpart L, and Rules of Practice and Procedure under part 308, subpart M (2020 Final Rule).

On December 23, 2022, the President signed into law the Fair Hiring in Banking Act FHBA, which significantly revised section 19 and was effective immediately. The FHBA created several categories of exceptions or exemptions to the prohibition on participating in banking, including the following:

• Certain older offenses: (1) if it has been 7 years or more since the offense occurred; (2) if the individual was incarcerated with respect to the offense and it has been 5 years or more since the individual was released from incarceration; or (3) for individuals who committed an offense when they were 21 years of age or younger, if it has been more than 30 months since the sentencing occurred.

• Offenses for which an order of expungement, sealing, or dismissal has been issued in regard to the conviction in connection with such offense and it is intended by the language in the order itself, or in the legislative provisions under which the order was issued, that the conviction shall be destroyed or sealed from the individual's State, Tribal, or Federal record even if exceptions allow the record to be considered for certain character and fitness evaluation purposes.

• “ Designated lesser offenses,” including the use of fake identification, shoplifting, trespass, fare evasion, driving with an expired license or tag (and such other low-risk offenses as the FDIC may designate), if 1 year or more has passed since the applicable conviction or program entry.

• Misdemeanor criminal offenses involving dishonesty, if the offense was committed more than one year before the date on which an individual files a consent application, excluding any period of incarceration.

• A criminal offense involving dishonesty that also “involv[es] the possession of controlled substances. ”

The FHBA clarifies several terms in section 19, including “criminal offense involving dishonesty” and “pretrial diversion or similar program.” It also provides conditions regarding de minimis offenses, to the extent the FDIC provides de minimis exemptions by rule.

The FHBA codifies procedures for consent applications filed with the FDIC. It requires the FDIC to make all forms and instructions related to consent applications available to the public, including on the FDIC's website. It requires the FDIC to primarily rely on the criminal history record of the Federal Bureau of Investigation when evaluating consent applications and to provide such records to the applicant to review for accuracy. Further, it requires the FDIC to assess evidence of an individual's rehabilitation including: the applicant's age at the time of the conviction or program entry; the time that has elapsed since conviction or program entry; and the relationship of an individual's offense to the responsibilities of the applicable position. Other information, including an individual's employment history, letters of recommendation, certificates documenting participation in substance abuse programs, successful participation in job preparation and educational programs, other relevant evidence, and any additional information the FDIC determines necessary for safety and soundness shall also be considered.

II. Discussion of Proposed Amendments

The proposed amendments to the FDIC's section 19 regulations are primarily intended to align the regulations with the FHBA's provisions. The proposed amendments address, among other topics, the types of offenses covered by section 19, the effect of the completion of sentencing or pretrial-diversion program requirements in the context of section 19, and the FDIC's procedures for reviewing applications filed under section 19. Furthermore, in developing these proposed amendments, the FDIC has consulted and coordinated with the National Credit Union Administration, the Board of Governors of the Federal Reserve System (FRB), and the Office of the Comptroller of the Currency “to promote consistent implementation [of the FHBA] where appropriate.”

Significant proposed revisions include the following:

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

1. Section 303.220 What is section 19 of the Federal Deposit Insurance Act?

The FDIC proposes revising paragraph (b) of this section to clarify that IDIs must make a reasonable, documented inquiry to verify an applicant's history to ensure that a person who has a covered offense on the person's record is not hired or permitted to participate in its affairs without the written consent of the FDIC.

2. Section 303.221 Who is covered by section 19?

The FDIC proposes to revise paragraph (d) of this section to more closely align its restrictions with the analogous FRB regulations under 12 CFR 225.41 and 238.31 and the FDIC's regulations under 12 CFR part 303, subpart E, concerning Change in Bank Control applications. A person will be deemed to exercise “control” if that person: (1) has the ability to direct the management or policies of an IDI; (2) has the power to vote 25 percent or more of the voting shares of an IDI; or (3) has the power to vote 10 percent of the voting shares of an IDI if: (a) no other person owns, controls, or has the power to vote more shares; or (b) the institution has registered securities under section 12 of the Securities Exchange Act of 1934. Under the same standards, a person will be deemed to “own” an IDI if that person owns: (1) 25 percent or more of the institution's voting stock; or (2) 10 percent of the voting shares if: (a) no other person owns more; or (b) the institution has registered securities under section 12 of the Securities Exchange Act of 1934. Paragraph (d) retains language concerning individuals acting in concert with others so as to have such ownership or control.

3. Section 303.222 Which offenses qualify as “Covered Offenses” under section 19?

The proposed revisions to paragraph (a) of this section would reflect the new statutory definition of “criminal offense involving dishonesty.” The FHBA excludes from the scope of such offenses “an offense involving the possession of controlled substances.” The FDIC interprets this phrase concerning controlled substances to exclude, at a minimum, criminal offenses involving the simple possession of controlled substances and possession with intent to distribute a controlled substance. This exclusion may also apply to other drug-related offenses depending on the statutory elements of the offenses or from court determinations that the statutory provisions of the offenses do not involve dishonesty, breach of trust, or money laundering. Potential applicants may contact their appropriate FDIC Regional Office if they have questions about whether their offenses are covered under section 19.

This revised regulatory language would mark a shift from the FDIC's current section 19 regulations, which require an application for all convictions and pretrial diversions concerning the illegal manufacture, sale, distribution of, or trafficking in controlled substances. The FDIC believes that this proposed revision would be consistent with the text and purposes of the FHBA, would align the FDIC's interpretation of section 19 as to offenses involving controlled substances more closely with other Federal banking regulators, and continue to recognize that a drug-related offense could potentially involve dishonesty, breach of trust, or money laundering. The FDIC also notes that this proposed revision to its section 19 regulations would not affect the FDIC's ability to consider drug-related offenses, as they pertain to the suitability of an individual, under other statutory provisions, including the Change in Bank Control Act and section 32 of the FDI Act.

The FHBA also states that the term “criminal offense involving dishonesty” does not include “a misdemeanor criminal offense committed more than one year before the date on which an individual files a consent application, excluding any period of incarceration.” The FDIC interprets the term “offense committed” to mean the “last date of the underlying misconduct,” based on the plain text of the statute. In instances with multiple offenses, “offense committed” means the last date of any of the underlying offenses.

Revised paragraph (c) would include new language reflecting the statute's exception of certain older offenses from the scope of section 19. Among other exceptions, the FHBA states that section 19's restrictions will not apply to an offense if “it has been 7 years or more since the offense occurred.” The FDIC considers the phrases “offense committed”—noted above—and “offense occurred” to be substantially similar. Accordingly, the FDIC interprets the term “offense occurred” to mean the “last date of the underlying misconduct.” In instances with multiple offenses, “offense occurred” means the last date of any of the underlying offenses. Revised paragraph (c) contains another FHBA exception: section 19's restrictions would not apply to an offense if “the individual was incarcerated with respect to the offense and it has been 5 years or more since the individual was released from incarceration.” While the language of the statute is clear, the FDIC notes that there could be situations in which an individual who was incarcerated with respect to an offense would be permitted to work at a bank before a similarly situated individual who was not incarcerated in connection with an offense. Revised paragraph (c) also tracks the FHBA's language concerning offenses committed by individuals 21 years of age or younger. The FHBA states that, for individuals who committed an offense when the individual was 21 years of age or younger, section 19 shall not apply to the offense if it has been more than 30 months since the sentencing occurred. The FDIC interprets “sentencing occurred” to mean the date on which a court imposed the sentence, not the date on which all conditions of sentencing were completed. Moreover, revised paragraph (c) notes that its exclusions—which are derived from the FHBA—do not apply to the enumerated offenses described under 12 U.S.C. 1829(a)(2).

Revised paragraph (d) excludes “designated lesser offenses” (for example, using fake identification), as specified in 12 U.S.C. 1829(c)(3)(D), if one year or more has passed since the applicable conviction or program entry.

Revised paragraph (e) adds language to codify the FDIC's long-held position that individuals who are convicted of or enter into a pretrial diversion program for a criminal offense involving dishonesty, breach of trust, or money laundering in foreign jurisdictions are subject to section 19, unless the offense is otherwise excluded by 12 CFR part 303, subpart L. For example, if an IDI has operations outside the United States, the IDI could conduct a reasonable, documented inquiry to verify an applicant's history, in accordance with 12 CFR 303.220, by inquiring about potential covered offenses that may have occurred in that foreign country (or countries) in which the IDI conducts operations, as well as in the United States. As another example of such an inquiry, if an IDI plans to hire someone in the United States who is from a foreign country, the IDI could inquire about potential covered offenses that may have occurred in the United States and in that foreign country.

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

Paragraph (c) of this section has been revised to reflect statutory language related to the treatment of orders of expungement, sealing, or dismissal of criminal records. The FHBA provides a two-pronged test to determine whether a covered offense should be considered expunged, dismissed, or sealed and therefore excluded from the scope of section 19. First, there must be an “order of expungement, sealing, or dismissal that has been issued in regard to the conviction in connection with such offense”; second, it must be “intended by the language in the order itself, or in the legislative provisions under which the order was issued, that the conviction shall be destroyed or sealed from the individual's State, Tribal, or Federal record, even if exceptions allow the record to be considered for certain character and fitness evaluation purposes.” The statute does not address expungements, sealings, or dismissals by operation of law, and the FDIC has sought to harmonize its current regulations concerning expunged and sealed records with the statutory language to provide a more comprehensive framework as to such records. The FDIC has also added language to the second (intent) prong of the expungement framework to encompass the language in the expungement order itself, the legislative provisions under which the order was issued, and other legislative provisions. This proposed revision also seeks to harmonize the FDIC's current regulations concerning expungements with the FHBA's provisions. The FDIC believes that all of the additional language is consistent with the purposes of the statute.

Revised paragraph (d) clarifies that it encompasses the terms “youthful offender” and “juvenile delinquent” and similar terms, since a court does not have to specifically use these terms in an adjudication in order for paragraph (d)'s provisions to apply.

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

This section has been revised to reflect the statutory definition of “pretrial diversion or similar program.”

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

This section has been revised to reflect the updated statutory filing procedures. The statute removes the FDIC's former policy that an institution sponsor a consent application or that an individual seek a waiver of the institution filing requirement. Moreover, the statute enables a depository institution holding company to file an application on behalf of an individual (previously, only IDIs could file such sponsored applications). In order to avoid duplication of applications filed with the FRB and the FDIC, revised paragraph (a) states that the FDIC will accept applications from: an individual; an IDI applying on behalf of an individual; a depository institution holding company applying on behalf of an individual with respect to a depository institution subsidiary of the holding company; and a depository institution holding company applying on behalf of an individual who will work at the holding company but also participate in the affairs of the IDI or who would be in a position to influence or control the management or affairs of the IDI, in accordance with 12 CFR 303.221(a).

Revised paragraph (b), consistent with the FHBA, states that an individual or an institution may file applications at separate times. Under either approach, the application(s) must be filed with the appropriate FDIC Regional Office.

7. Section 303.226 When may an application be filed?

This revised section notes that, before an application may be filed, “all of the sentencing requirements associated with a conviction, or conditions imposed by the program entry, including but not limited to, imprisonment, fines, condition of rehabilitation, and probation requirements, must be completed, and the case must be considered final by the procedures of the applicable jurisdiction.” The FDIC proposes to include this revised language to accord with several of the FHBA's exclusions from section 19 that are not tied to the completion of sentencing requirements.

Furthermore, the FHBA requires the FDIC to “make all forms and instructions related to consent applications available to the public, including on the website of the Corporation.” These forms and instructions “shall provide a sample cover letter and a comprehensive list of items that may accompany the application, including clear guidance on evidence that may support a finding of rehabilitation.” While the FDIC has not explicitly mentioned these requirements in its regulations, the agency will comply with them.

8. Section 303.227 De minimis Offenses

The FDIC proposes to retitle this section to avoid confusion between “designated lesser offenses” and “ de minimis offenses.” This section's current title is, “When is an application not required for a covered offense or program entry ( De minimis offenses)?” The FHBA includes “designated lesser offenses,” which offenses are excluded from the scope of section 19 (that is, they are not considered de minimis offenses—which offenses are considered covered offenses for which no application is required because the application is deemed automatically granted). The FDIC believes that the current title would cause confusion for a reader and therefore proposes retitling this section.

The FHBA removed the use of fake identification from the scope of section 19, and revised paragraphs (a)(1) and (b)(4) reflect this exclusion. Revised paragraph (a)(2) would reflect the FHBA's confinement criteria as to the FDIC's determination of de minimis offenses.

The FDIC proposes to revise the de minimis requirement related to the aggregate total face value of all “bad” or insufficient funds checks in paragraph (b)(2)(i) from $1,000 to $2,000 to conform with the statute.

9. Section 303.228 How To File an Application

This revised section would eliminate the institution filing requirement and waiver process and indicate that an “institution”—an IDI or a depository institution holding company—could file an application on behalf of an individual, rather than just an IDI. Both of these proposed revisions are due to the updated statutory language. This revised section would also clarify that the appropriate FDIC Regional Office for an institution-sponsored application would be the office covering the state where the institution's home office is located and that the appropriate FDIC Regional Office for an individual application would be the office covering the state where the person resides.

10. Section 303.229 How an Application Is Evaluated

Revised paragraph (a) would reflect new statutory requirements related to the FDIC's review process, including the requirement that the FDIC primarily rely on the criminal history record of the Federal Bureau of Investigation in the FDIC's review and provide such record to the applicant to review for accuracy. The FDIC interprets the term “criminal history record” to mean “identity history summary checks,” which are commonly known as “rap sheets.” Under revised paragraph (a)—and in accordance with the FHBA—the FDIC, in reviewing a consent application, would provide a copy of the rap sheet to an applicant to review for accuracy.

Revised paragraph (b) would state that the FDIC will not require an applicant to provide certified copies of criminal history records unless the FDIC determines that there is a clear and compelling justification to require additional information to verify the accuracy of the criminal history record of the Federal Bureau of Investigation (that is, the rap sheet).

Revised paragraph (d) would clarify how the FDIC will evaluate evidence of rehabilitation and other evidence, as required by the FHBA.

Revised paragraph (g) would eliminate references to the former application-waiver requirement.

Finally, revised paragraph (h) would incorporate statutory language explaining when a new institution-sponsored application would be necessary due to changes in the scope of an applicant's employment.

11. Section 303.231 Waiting Time for a Subsequent Application if An Application Is Denied

This section, as currently written and among other provisions, requires a one-year waiting period to file a consent application, following the issuance of a decision denying such an application. The proposed rule would retain the existing regulatory text as paragraph (a) and create a new paragraph (b)—which would note that an institution-sponsored application is not subject to the one-year waiting period if the application (1) follows the denial of an individual application, or (2) follows the denial of an institution-sponsored application and the subsequent application is sponsored by a different institution or is for a different position.

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

The proposed rule would make several technical amendments to §§ 308.156 and 308.158 to encompass applications that are sponsored by depository institution holding companies, clarify two sentences concerning hearing procedures, and use more consistent terminology.

III. Expected Effects

As previously discussed, the proposed rule would align the FDIC's regulations with the FHBA's provisions, make additional changes to further clarify the FDIC's regulations related to section 19, more closely align the FDIC's section 19 regulations with those of other Federal financial regulators, and make a number of non-substantive, technical edits. As of the quarter ending June 30, 2023, there were 4,654 FDIC-insured depository institutions, all of which are covered by the rule and therefore could be affected. Additionally, the rule will apply to persons covered by the provisions of section 19, including those who are or wish to become employees, officers, directors, or controlling shareholders of an IDI or who otherwise are or wish to become an institution-affiliated party (IAP) of an IDI.

To estimate the number of institutions and individuals affected by the rule, the FDIC counted the number of section 19 applications it has received between 2020 and 2022. Over this period, the FDIC received 27 bank-sponsored section 19 applications, an average of 9 per year. Additionally, the FDIC received 202 individual section 19 applications during the same period, an average of approximately 67 per year. Therefore, the FDIC estimates that the proposed rule could affect at least 9 FDIC-insured depository institutions and 67 individuals per year. Assuming that each application involves a different institution, approximately 2 percent of insured institutions, or 76, could be affected per year on average.

As previously described, the proposed rule would align the FDIC's regulations with the FHBA's provisions. In particular, the FHBA created several categories of exceptions or exemptions to the prohibition on participating in banking. The proposed rule would incorporate these categories of exemptions and exceptions. The FDIC believes that the additional categories for exceptions or exemptions to the prohibition on participating in banking established by the FHBA could benefit certain individuals and IDIs by reducing the number of applications they would otherwise be required to file under section 19. Additionally, the categories of exceptions or exemptions to the prohibition on participating in banking established by the FHBA could benefit IDIs by marginally expanding the supply of labor available. However, these changes were created by the FHBA and were effective immediately upon passage, and the proposed rule aligns the FDIC's regulations with these elements of the FHBA; therefore, the associated changes in the proposed rule will have no direct effect on individuals or IDIs.

The proposed rule would amend the FDIC's existing section 19 application-procedure regulations to incorporate the FHBA's provisions. The FDIC's current section 19 regulations contain references to existing application procedures that are similar in substance to those established by FHBA. However, the FHBA, among other requirements, compels the FDIC to primarily rely on the criminal history record of the Federal Bureau of Investigation when reviewing consent applications. It is the current practice of the FDIC to consider all relevant information when evaluating a section 19 application. However, the establishment of a common source of criminal history, together with only requiring certified copies of criminal history records if there exists clear and compelling justification for doing so, could benefit certain individuals and IDIs by marginally reducing the volume of information they need to supply to the FDIC. The FDIC believes that, while these proposed changes to the application procedures will directly affect certain individuals and institutions that file section 19 applications, they may not have a substantial effect on potential applicants. Finally, these changes were created by the FHBA and were effective immediately upon passage, and the proposed rule aligns the FDIC's regulations with these elements of the FHBA; therefore, the associated changes in the proposed rule will have no direct effect on individuals or IDIs.

Finally, in seeking to align its section 19 regulations with the provisions of the FHBA, the FDIC used its discretion to marginally increase the scope of certain terms so as to better reflect the purposes of the FHBA. In particular, the FDIC has provided broader language as to the scope of expunged, sealed, or dismissed offenses. This aspect of the proposed rule could potentially benefit persons covered by the provisions of section 19, including individuals who are or wish to become employees, officers, directors, or controlling shareholders of an IDI, or who otherwise are or wish to become an IAP of an IDI. However, given that most of the proposed amendments are focused on aligning the FDIC's regulations with the FHBA, the marginal effect of this aspect of the proposed rule is likely to be small.

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?

IV. Alternatives

As discussed above, almost all of the proposed substantive changes stem from the FHBA's revisions to section 19. The FDIC does not have discretion in considering alternatives to those statutory revisions. The FDIC has, however, proposed several clarifications and interpretations to its section 19 regulations. For example, the FDIC has provided broader language as to the scope of expunged, sealed, or dismissed offenses. The FDIC considered whether to simply provide the statutory definition for such offenses. The FDIC chose to propose the inclusion of more expansive language, in the interest of harmonizing the FDIC's existing regulations with the revisions to section 19, and under the belief that this language would be consistent with the purposes of the FHBA. The FDIC invites comments on its consideration of alternatives. In particular, are there other alternatives that the FDIC should consider?

V. Request for Comments

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

2. Offense date. As revised, section 19 provides for an exception for an offense if “it has been 7 years or more since the offense occurred.” There is a similar provision that removes from the definition of “criminal offense involving dishonesty” “a misdemeanor criminal offense committed more than one year before the date on which an individual files a consent application, excluding any period of incarceration[.]” Historically, the FDIC's position has been that actions do not amount to a covered “offense,” for section 19 purposes, until there has been either a conviction via a guilty plea, finding of guilt, or an entry into a pretrial-diversion program. This is because culpability and responsibility for the actions do not attach until one of those events occurs. However, for purposes of evaluating whether the seven-year or one-year exception applies, the FDIC must evaluate if it has been seven years or more since the “offense occurred” or whether the “offense [was] committed more than one year before the date on which an individual files a consent application, excluding any period of incarceration.” The FDIC proposes to interpret the phrases “offense occurred” and “offenses committed” as the “last date of the underlying misconduct” given the text of the statute. (In instances with multiple offenses, “offense occurred” or “offense committed” would mean the last date of any of the underlying offenses.) However, the FDIC acknowledges that there may be other, supportable interpretations of this phrase. For example, the FDIC is aware of legislative history indicating that the timeframes established by the FHBA were chosen because of their relation to an individual's likelihood of rehabilitation and that an individual's rehabilitation likely only begins with conviction or program entry, rather than the date of their misconduct. As such, the FDIC seeks public comment on the following topic: Is the FDIC's interpretation of the phrases “offense occurred” and “offense committed” as the “last date of underlying misconduct” appropriate or are there other interpretations the FDIC should consider? What support do commenters have for other interpretations given the language of the statute?

3. “ Sentencing occurred. ” The FHBA exempts offenses committed by individuals 21 years of age or younger if it has been more than 30 months since the sentencing occurred. However, the statute does not define the phrase “sentencing occurred.” The FDIC proposes to interpret “sentencing occurred” to mean the date on which a court imposed the sentence, not the date on which all conditions of sentencing were completed. The FDIC seeks public comment on the following topic: Is the FDIC's proposed interpretation of the phrase “sentencing occurred” appropriate?

4. Foreign convictions and pretrial diversions. Section 19 applies to “any person who has been convicted of any criminal offense involving dishonesty or a breach of trust or money laundering, or has agreed to enter into a pretrial diversion or similar program in connection with a prosecution for such offense.” The phrase “criminal offense involving dishonesty” is defined in the statute but is silent as to whether it includes convictions and pretrial diversions for criminal offenses prosecuted by foreign authorities (foreign convictions). The statute does not define “offense involving . . . breach of trust or money laundering.” The FDIC's position has been that foreign convictions and pretrial diversions are included within the scope of section 19. There are strong public policy rationales for prohibiting persons who have been convicted of certain foreign criminal offenses (or entered into a pre-trial diversion program in connection with such an offense) from becoming or continuing as an IAP or owning, controlling, or otherwise participating in the affairs of an insured depository institution. However, the FDIC acknowledges that there may be caselaw, statutory construction, and other arguments that support a reading of section 19 that would exclude foreign convictions and pretrial diversions from the scope of section 19. As such, the FDIC seeks public comment on the following topic: Does section 19 encompass foreign convictions and pretrial diversions? What support do commenters have for their position?

5. Expungements, sealings, and dismissals. The FHBA established a new statutory exemption for expunged, sealed, and dismissed convictions (collectively, “expungements”). The FDIC's current regulations contain more expansive language concerning expungements than the statutory text. Notably, the FDIC's expungement provisions encompass all convictions that had been expunged—whether by court order or otherwise by operation of law. The statutory language does not mention expungements “by operation of law”—as opposed to through a court order. The proposed rule incorporates the new statutory language but also maintains the FDIC's broad interpretation of “expungement” to encompass covered offenses that have been expunged by operation of law. The FDIC seeks public comment on the following topic: Given the new statutory exemption for expunged offenses, is the FDIC's more expansive proposed interpretation of expungement—which term includes records that have been expunged by application of law—appropriate?

6. Offenses involving controlled substances. The FHBA states that “offenses involving the possession of controlled substances” are not included within the definition of “criminal offense involving dishonesty” and, therefore, are not subject to section 19's prohibition. The proposed rule includes this definitional exclusion and notes that the FDIC interprets the phrase “offenses involving the possession of controlled substances” to include, at a minimum, the offenses of simple possession of controlled substances and possession with intent to distribute controlled substances. This interpretation would mark an expansion from the FDIC's current section 19 regulations, which only provide an exclusion for the simple possession of controlled substances. At the same time, this interpretation would track the statutory language of “offenses involving the possession of controlled substances” by encompassing the offense of possession with intent to distribute controlled substances. The FDIC seeks public comment on the following topic: Is the FDIC's interpretation of “offense[s] involving the possession of controlled substances” as applying, at a minimum, to simple possession and possession with intent to distribute appropriate?

7. De minimis offenses. The FHBA states that the FDIC may exempt by rule certain de minimis offenses from section 19's prohibition. The FDIC considers de minimis offenses to be covered offenses for which an application is not required because the FDIC deems the application automatically granted. The FDIC has previously promulgated rules that specified de minimis offenses under section 19. However, given this new statutory language, the FDIC is reevaluating its current approach to de minimis offenses. Accordingly, the FDIC seeks public comment on the following topic: Is the FDIC's current approach to de minimis offenses appropriate? Are there additional offenses that the FDIC should consider de minimis under section 19? Please provide support for such a designation.

8. Written comments must be received by the FDIC no later than January 16, 2024.

VI. Regulatory Analysis and Procedure

A. The Paperwork Reduction Act

In accordance with the requirements of the Paperwork Reduction Act (PRA), 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 FDIC is revising its section 19 application form to conform with the changes to section 19 under the FHBA. These changes will amend the FDIC's existing information collection associated with this proposed rule, entitled “Application Pursuant to Section 19 of the Federal Deposit Insurance Act” (3064–0018). For this reason, the information-collection requirements contained in this proposed rule will be submitted by the FDIC to OMB for review and approval under section 3507(d) of the PRA (44 U.S.C. 3507(d)) and § 1320.11 of the OMB's implementing regulations (5 CFR part 1320). Based on available data, the number of respondents and the estimated annual burden associated with the information collection will decrease. Comments are invited on:

(a) Whether the collection of information is necessary for the proper performance of the FDIC's functions, including whether the information has practical utility;

(b) The accuracy of the estimate of the burden of the information collection, including the validity of the methodology and assumptions used;

(c) Ways to enhance the quality, utility, and clarity of the information to be collected;

(d) Ways to minimize the burden of the information collection on respondents, including through the use of automated collection techniques or other forms of information technology; and

(e) Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

All comments will become a matter of public record. Comments on the collection of information should be sent to the address listed in the ADDRESSES section of this document. A copy of the comments may also be submitted to the OMB desk officer: By mail to U.S. Office of Management and Budget, 725 17th Street NW, #10235, Washington, DC 20503, or by facsimile to 202–395–6974; or email to oira_submission@omb.eop.gov, Attention, Federal Banking Agency Desk Officer.

Information Collection

Title: “Application Pursuant to Section 19 of the Federal Deposit Insurance Act”.

OMB Number: 3064–0018.

Affected Public: Insured depository institutions and individuals.

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 the proposed rule on small entities. However, an initial regulatory flexibility analysis is not required if the agency certifies that the proposed rule will not, if promulgated, 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 $850 million. Generally, the FDIC considers a significant economic impact to be a quantified effect in excess of 5 percent of total annual salaries and benefits or 2.5 percent of total noninterest expenses. The FDIC believes that effects in excess of one or more of these thresholds typically represent significant economic impacts for FDIC-supervised institutions.

As discussed further below, the FDIC certifies that the proposed rule, if adopted, will not have a significant economic impact on a substantial number of FDIC-supervised small entities.

As of the quarter ending June 30, 2023, the FDIC insured 4,654 depository institutions, of which 3,373 are defined as small banking organizations for the purposes of the RFA. In the period from 2020 through 2022, the FDIC received 9 bank-sponsored section 19 applications from small, FDIC-insured institutions, an average of 3 per year. Additionally, the FDIC received 202 section 19 applications from individuals during the same period, an average of about 67 per year. To determine the maximum number of small, FDIC-insured institutions that 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, 70 (2.1 percent of) small, FDIC-insured institutions, on average, annually, could be affected by the proposed rule. Section 19 applications from individuals are compelled by the applicant's intent to seek employment at FDIC-insured institutions, many of which are not small. Therefore, the FDIC believes that the number of small, FDIC-insured institutions affected by the proposed rule is likely to be less than 70.

As discussed in the SUPPLEMENTARY INFORMATION section, the proposed rule would align the FDIC's regulations with the FHBA's provisions, make additional changes to further clarify the FDIC's regulations related to section 19, more closely align the FDIC's section 19 regulations with those of other Federal financial regulators, and make a number of non-substantive, technical edits. Most of the proposed changes were precipitated by the FHBA—which was effective immediately upon passage—and the proposed rule aligns the FDIC's regulations with these elements of the FHBA; therefore, most of the associated changes in the proposed rule will have no direct effect on individuals or IDIs. Further, since the FDIC estimates that a maximum of 70 small, FDIC-insured institutions could be affected by the proposed rule, on average, annually, any direct affects realized as a result of the proposed rule are likely to be small and affect a relatively small number of entities.

In light of the foregoing, 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 RFA section. In particular, would this proposed rule have any significant effects on small entities that the FDIC has not identified?

C. Plain Language

Section 722 of the Gramm-Leach-Bliley Act requires each Federal banking agency (FBA) to use plain language in its proposed and final rules published after January 1, 2000. 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

Under section 302(a) of the Riegle Community Development and Regulatory Improvement Act (RCDRIA), in determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on IDIs, each FBA must 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, section 302(b) of the RCDRIA requires new regulations and amendments to regulations that impose additional reporting, disclosures, or other new requirements on IDIs generally to 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. The FDIC invites comments that further will inform its consideration of RCDRIA.

List of Subjects

12 CFR Part 303

• Administrative practice and procedure
• Bank deposit insurance
• Banks, banking
• Reporting and recordkeeping requirements
• Savings associations

12 CFR Part 308

• Administrative practice and procedure
• Bank deposit insurance
• Banks, banking
• Claims
• Crime
• Equal access to justice
• Fraud
• Investigations
• Lawyers
• Penalties
• Savings associations

Authority and Issuance

For the reasons stated in the preamble and under the authority of 12 U.S.C. 1819 (Seventh and Tenth), the FDIC proposes to amend 12 CFR parts 303 and 308 as follows:

PART 303—FILING PROCEDURES

1. The authority citation for part 303 is revised to read as follows:

Authority: 12 U.S.C. 378, 1464, 1813, 1815, 1817, 1818, 1819(a) (Seventh and Tenth), 1820, 1823, 1828, 1829, 1831a, 1831e, 1831 o, 1831p–1, 1831w, 1835a, 1843(l), 3104, 3105, 3108, 3207, 5414, 5415, and 15 U.S.C. 1601–1607.

2. Revise subpart L, consisting of §§ 303.220 through 303.231, to read 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

3. 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), 1831o, 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), 78o(c)(4), 78o–4(c), 78o–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.

4. Revise § 308.156 to read as follows:

5. Amend § 308.158 by revising paragraphs (b) and (d) through (f) to read as follows: