TO THE OFFICER IN CHARGE OF
AT EACH FEDERAL RESERVE BANK
SUBJECT: Special Post-Employment Restriction Set Forth in the Intelligence Reform and Terrorism Prevention Act of 2004
The federal bank regulatory agencies1 have
issued rules to implement the special post-employment restriction set forth
in the Intelligence Reform and Terrorism Prevention Act of 2004. The rules
become effective on December 17, 2005 and will apply to a covered examiner
who leaves the Federal Reserve’s service after that date.2 The
Federal Reserve Administrative Manual will be amended to incorporate the restriction.
The Federal Reserve’s rule is attached.3
The restriction prohibits an examiner who served as the “senior examiner” for
a depository institution or depository institution holding company for two
or more months during the examiner’s final twelve months of employment with
a Reserve Bank from knowingly accepting compensation as an employee, officer,
director, or consultant from that depository institution or holding company,
or from certain related entities. The rule is expected to affect a relatively
small number of Federal Reserve examiners, primarily central points of contact
or examiners in functionally equivalent positions for our largest and most
complex institutions. Table 1 summarizes how the restriction applies to “senior
examiners” of the different types of organizations within the Federal Reserve’s
The restriction applies to a covered individual for one year after the individual
terminates his or her employment with the Reserve Bank. If an examiner violates
the one-year restriction, the statute requires the appropriate federal bank
regulatory agency to seek an order of removal and industry-wide employment
prohibition for up to five years, a civil money penalty of up to $250,000,
or both. In special circumstances, the Chairman of the Board of Governors
may waive the restriction for a “senior examiner” of the Federal Reserve by
certifying in writing that granting the individual a waiver of the restriction
would not affect the integrity of the Federal Reserve’s supervisory program.
Summary of Prohibited Employment Based on Examination Responsibility
during two or more months of the last twelve months
of service, the examiner serves as the “senior examiner” for
||Then, for one year after
leaving the Reserve Bank, the “senior
examiner” may not knowingly accept compensation as an employee, officer,
director, or consultant from:
- The state member bank (including any subsidiary of the state member bank)
- Any company (including a bank holding company) that controls
the state member bank.
- The bank holding company or
- Any depository institution controlled by the bank holding
company (including any subsidiary of the depository institution).
- The foreign bank;
- Any U.S. branch or agency of the foreign bank; or
- Any U.S. depository institution controlled by the foreign
bank (including any subsidiary of the depository institution).
For purposes of this rule, an officer or employee of the Federal Reserve is considered to be the “senior examiner” for a particular state member bank, bank holding company or foreign bank if the individual meets all of the following criteria:
- The officer or employee has been authorized by the Board to conduct examinations
or inspections on behalf of the Board;
- The officer or employee has been assigned continuing, broad and lead responsibility
for examining or inspecting that state member bank, bank holding company
or foreign bank; and
- The officer’s or employee’s responsibilities for examining, inspecting
and supervising the state member bank, bank holding company or foreign bank
- Represent a substantial portion of the officer’s or employee’s assigned responsibilities; and
- Require the officer or employee to interact routinely with officers or employees of the state member bank, bank holding company or foreign bank or their respective affiliates.
The rule does not cover an examiner who performs only
periodic, short-term examinations of a depository institution or holding company
and who does not have ongoing, continuing responsibility for the institution
or holding company. The rule also does not cover an examiner who spends a
substantial portion of his or her time conducting or leading a targeted examination
(such as a review of an institution’s credit risk management, information
systems or internal audit functions) and who does not have broad and lead
responsibility for the overall examination program for the institution or
At a minimum, Reserve Banks shall adopt the following procedures to ensure
that the rule is properly implemented.
- Notification to Senior Examiners. Going forward, the Reserve
Banks shall routinely review examiners’ duties and promptly notify examiners
when a change in duties would cause an examiner to be considered the “senior
examiner” or cease to be considered the “senior examiner” with respect to
an institution or holding company for purposes of the rule. To help examiners
comply with the statute and the rule, each Reserve Bank shall establish
procedures to notify an examiner in writing if the Reserve Bank determines
that the examiner’s duties would cause the examiner to be considered the “senior
a particular institution or holding company. All Reserve Banks shall identify
and notify those current examiners covered by the rule no later than February 17, 2006.
Reserve Banks should consult with the Board staff identified below if questions
arise as to whether an examiner would be considered a “senior
examiner.” A suggested format for the notification letter is attached.
- Examiners’ Responsibility. Examiners are responsible for
becoming familiar with the rule and ensuring that they comply with the
rule. Examiners should direct any questions they may have regarding the rule
to the designated ethics officers in the Reserve Banks’ supervision departments.
Also, as a reminder, the Reserve Bank Code of Conduct prohibits an examiner
from working on matters involving an organization at which the examiner
is seeking employment.
- Monitoring of Senior Examiner Assignments. Reserve Banks
shall maintain electronic records of examiners covered by the rule. These
records at a minimum shall include:
- the name of the “senior examiner”;
- the name of the state member bank, bank holding company, or foreign bank
for which the examiner is considered a “senior examiner”;
- the duration of the examiner’s service as the “senior examiner” for the
state member bank, bank holding company, or foreign bank; and
- if the “senior examiner” terminates employment: the termination
date, the reason for termination, and the name of the organization with
which the examiner has accepted employment, if available.
- Workpaper Review. If any examiner, regardless of designation
as a “senior examiner,” accepts employment with a state member bank, bank
holding company, foreign bank or any affiliate that he or she examined in
the past twelve months, the Reserve Bank shall review the workpapers related
to his or her assignment supervising that institution. The workpaper review
should consider whether the examiner compromised examination findings or
supervisory proceedings because of pending employment with the relevant state
member bank, bank holding company, foreign bank or their affiliates (e.g.
failed to bring significant findings or concerns forward to examination management;
omitted important examination processes or elements of the examination scope).
- Disciplinary Procedures. If a Reserve Bank becomes
aware that a former examiner has violated the rule, the Reserve Bank shall
promptly notify the Board’s ethics officer.
Questions regarding this supervisory letter should be directed to Jinai Holmes,
Supervisory Financial Analyst, System Planning, Budgeting and Evaluation section,
at (202) 452-2834, or William Spaniel, Deputy Associate Director,
at (202) 452-3469.
Stephen M. Hoffman, Jr.
- The federal bank regulatory agencies are the
Board of Governors of the Federal Reserve System (“Board”), Office of
the Comptroller of the Currency, Federal Deposit Insurance Corporation,
and Office of Thrift Supervision. Return to text
- Because the statute has a one-year look-back
provision, an examiner’s responsibilities from as far back as December 17, 2004
may subject the examiner to the post-employment restriction. Return to text
- The interagency preamble and separate rules
for each of the federal bank regulatory agencies are attached. The Federal
Reserve’s rule, which is codified at 12 CFR Parts 263 and 264a,
starts on page 22. Return to text