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 jurisdiction.

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.

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:

1. The officer or employee has been authorized by the Board to conduct examinations or inspections on behalf of the Board;
2. 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
3. The officer’s or employee’s responsibilities for examining, inspecting and supervising the state member bank, bank holding company or foreign bank–
   1. Represent a substantial portion of the officer’s or employee’s assigned responsibilities; and
   2. 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.

At a minimum, Reserve Banks shall adopt the following procedures to ensure that the rule is properly implemented.

1. 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 examiner” for 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.
2. 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.
3. Monitoring of Senior Examiner Assignments.  Reserve Banks shall maintain electronic records of examiners covered by the rule. These records at a minimum shall include:
   1. the name of the “senior examiner”;
   2. the name of the state member bank, bank holding company, or foreign bank for which the examiner is considered a “senior examiner”;
   3. the duration of the examiner’s service as the “senior examiner” for the state member bank, bank holding company, or foreign bank; and
   4. 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.
4. 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).
5. 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.

Attachments:

• Notification Form (189 KB PDF)
• Interagency Preamble and Rules for Each of the Federal Bank Regulatory Agencies (189 KB PDF)