Federal Register Vol. 83, No.221,

The terms of Board employment are established by the Federal Reserve Act and rules established by the Board. 12 U.S.C. 244 (Section 244 provides that the “employment, compensation, leave, and expenses” of Board employees “shall be governed solely by the provisions of this chapter and rules and regulations of the Board not inconsistent therewith.”) Although the Board has broad discretion to establish the terms of Board employment and can establish terms that deviate from the rights afforded to other government employees, the Board, as a matter of policy, has long aligned its employment practices with federal laws that provide for equal employment opportunity. Pursuant to this policy, Part 268 was issued by the Board to provide equal opportunity in employment in compliance with the spirit of Title VII of the Civil Rights Act of 1964 (Title VII), the Equal Pay Act, the Age Discrimination in Employment Act, and the Rehabilitation Act. Part 268 has not been updated in several years, and the Board is now proposing to amend it in order to better align its practices with those of the Equal Employment Opportunity Commission's (EEOC's) rules. The proposed revisions to Part 268 would:

1. Amend section 268.101 to prohibit discrimination on the basis of genetic information to ensure compliance with the Genetic Information Nondiscrimination Act of 2008 (GINA) and to make conforming changes throughout to reflect this proposed change.

2. Amend section 268.102(b)(3) to clarify that the Board follows Commission guidance and management directives relating to advice for ensuring compliance with Title VII, the Equal Pay Act, the Age Discrimination in Employment Act, GINA, and the Rehabilitation Act.

3. Amend section 268.1 to remove references to hiring and granting information access since those rules will be incorporated into internal Board policies;

4. Amend section 268.106(a)(5) to adopt the EEOC's rule requiring dismissal of complaints that allege discrimination on the basis of proposed personnel actions or other preliminary steps unless the complainant has alleged that the proposal or preliminary step is retaliatory;

5. Amend section 268.107(e) to require Board staff, EEO investigators, and complainants to comply with the Board's program for the security of Federal Open Market Committee (FOMC) information when investigating and processing complaints that require access to FOMC information;

6. Amend section 268.107(g) to adopt the EEOC's rule on investigating complaints which requires agencies that have not completed an investigation within EEOC's time limits to send a notice to the complainant indicating the investigation is not complete, providing the date by which it will be completed, and explaining that the complainant has the right to request a hearing or file a lawsuit;

7. Amend section 268.201 to reflect updated address information for the EEOC;

8. Amend section 268.203 to more closely reflect the EEOC's approach to designing an affirmative action plan for individuals with disabilities;

9. Amend section 268.204 and section 268.401 to reflect the EEOC's rules for processing class complaints;

10. Remove section 268.205 since its subject is not related to equal employment opportunity rules and since rules for hiring and granting access to information will be incorporated into the Board's internal policies;

11. Remove section 268.302 to eliminate procedures for handling mixed case complaints since mixed case complaints cannot be brought against the Board;

12. Amend section 268.403 to update address information and to incorporate the EEOC's rule that agencies submit appellate records and complaint files to the EEOC in a digital format that is acceptable to the EEOC;

13. Add a new section 268.405(b) to adopt the EEOC's procedures for class complaints which provide that an administrative judge's decision on the merits of a class complaint is a final decision which the Board can fully implement or appeal in its final action and to provide for expedited processing of appeals of decisions to accept or dismiss class complaints;

14. Amend section 268.502(c) to adopt the EEOC's rule which permits agencies up to 120 days to provide the particular relief the EEOC ordered; and

15. Amend section 268.710 to make changes to headings and titles to conform to the EEOC's rules and to the Board's functional titles.

Except as described below, the above changes are necessary to align the Board's employment practices and complaint processing with the EEOC's rules. The proposed revisions to Part 268 are designed to align the Board's practices with changes the EEOC has made to its rules on Federal Sector Equal Employment Opportunity found at 29 CFR part 1614. In addition, the amendment to section 268.102(b)(3) is proposed in order to clarify that the Board follows Commission guidance and management directives relating to advice for ensuring compliance with Title VII, the Equal Pay Act, the Age Discrimination in Employment Act, GINA, and the Rehabilitation Act.

Currently part 268 requires Board staff, EEO investigators, and complainants to protect confidential information of the Board but does not expressly address confidential FOMC information. Because it is conceivable that a complaint could require access to FOMC information, and because FOMC information is not solely Board information, the Board proposes amending section 268.107(e)(2) to expressly require those seeking access to FOMC information to agree to abide by the Program for Security of FOMC Information before being granted access to such information. This will ensure that FOMC information is protected in the same manner as other confidential Board information.

The revisions also eliminate section 268.205, which discusses the Board's rules for hiring non-citizens and for allowing access to confidential supervisory information (CSI) and FOMC information. The subject matter of this section is not relevant to the Board's equal employment opportunity rules. Thus, the proposed revisions would remove this section from the Board's equal employment opportunity regulation. Going forward, rules relating to the hiring of non-citizens and governing access to CSI and FOMC information will be incorporated in the Board's internal management policies.

The revisions would eliminate section 268.302, which addresses procedures that apply to “mixed case complaints.” A mixed case complaint is an employment complaint which raises violations of both EEO laws (over which the EEOC retains jurisdiction) and merit system principles, created by certain civil service laws over which the Merit Systems Protection Board (MSPB) retains jurisdiction. The Board is not subject to the MSPB's jurisdiction in light of its employment authorities under the Federal Reserve Act. Thus, the revisions would remove this provision of the regulation.

The revisions proposed to Subpart H reflect changes to the Board's organizational structure since the last time the Board updated its EEO Regulation. Subpart H prohibits discrimination on the basis of disability in programs or activities conducted by the Board and describes how to file complaints alleging such discrimination. The complaint process described in Subpart H incorporates references to position titles that are no longer in use at the Board. For example, Subpart H refers to the Equal Employment Opportunity Office, which has since been replaced by the Office of Diversity and Inclusion; to an EEO Program Director, which has since been replaced by the Office of Diversity and Inclusion Program Director; and to a Staff Director for Management, which has been replaced by the Chief Operating Officer. The amendments to Subpart H replace the out-of-date titles with up-to-date information each place the rule refers to such titles.

Certain provisions of the proposed rule contain “collection of information” requirements within the meaning of the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In accordance with the requirements of the PRA, the Board 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 OMB control number for the Board is 7100-0313. The Board will address the information collection requirements associated with this proposed rule under a separate Federal Register notice.

The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., requires a regulatory flexibility analysis only for rules that will have a significant impact on a substantial number of small entities. Because this rulemaking applies exclusively to Board employees and applicants for employment, the Regulatory Flexibility Act does not apply.

Section 722 of the Gramm-Leach-Bliley Act requires each federal banking agency to use plain language in all rules published after January 1, 2000. In light of this requirement, the Board believes this rule is presented in a simple and straightforward manner and is consistent with this “plain language” directive.

For the reasons set forth in the preamble, the Board proposes to amend 12 CFR part 268 as set forth below:

The additions and redesignation read as follows.

The addition and revisions read as follows:

The revisions read as follows:

I. Context for Public Comment A. The Reasons for Faster Payments

Broad trends in society based on technological advancements have changed the ways that people interact with others, conduct commerce, and access information. While many industries have adapted, the same is not equally true for the nation's payment and settlement system that foundationally supports commerce and the economy. For example, a business in Florida can immediately deliver an invoice by email to a customer in Oregon. The receipt of the corresponding payment from its customer, however, may take days to receive, even if initiated quickly. This lack of speed has economic implications and societal costs borne by individuals, households, and businesses.

Traditional payment methods, such as checks, automated clearinghouse (ACH) payments, and debit and credit cards, form a retail payment infrastructure that is safe, reliable, and ubiquitous, albeit not necessarily quick.1 These traditional payment methods have served our economy well over decades (and for checks, over most of the country's history).2 The ubiquitous nature of these payment methods generally allows any two individuals or businesses (that is, end users) with accounts at banks to exchange value supporting an underlying economic transaction.3 As a result, regardless of where they hold their accounts, individuals can receive payroll deposits from their employers, households can pay their utilities, mortgage, rent, and other bills, and businesses can exchange commercial payments. For payments to most merchants for goods and services, individuals can similarly use debit cards to make payments from their bank accounts.4

Over the past two decades, however, a gap has emerged between the capabilities of traditional payment methods and end-user expectations for enhanced payment speed, convenience, and accessibility. A new method of faster payment has emerged to address this gap, with several nonbank payment service providers entering the payment market alongside—and sometimes in lieu of—banks. Faster payments allow end users to initiate and receive payments at any time of the day, any day of the year, and to complete those payments in near-real time (from the end users' perspective), such that, within seconds, the recipient has access to final funds that can be used to make other payments.

The term “faster payments” is broadly used in the payment industry to indicate simply that increased speed, convenience, and accessibility are essential features for the future of the payment and settlement system. However, faster payments provide more to individuals and businesses than just the ability to make payments quickly from a mobile device. For example, when funds move in and out of end-user bank accounts in real time, end users have more flexibility in managing their money. Faster payments eliminate the need to schedule bill or vendor payments well in advance and, more broadly, allow end users to make time-sensitive payments whenever needed. By increasing flexibility and accessibility, end users may also have greater scope to avoid penalties such as late fees.

The development of payment and settlement services that are essentially real time and always available is a worldwide phenomenon. Both advanced and emerging economies have undertaken efforts to develop faster payment services, and those services are now broadly accessible to the general public in an increasing number of countries.5

Efforts to implement faster payments in other countries often reflect a collaborative, strategic endeavor that involves the payment industry, central banks, and other authorities. The deployment of accessible faster payment services generally requires extensive upgrades to a country's or region's payment and settlement infrastructure, involving significant coordination among all stakeholders. As part of these upgrades, central banks in various jurisdictions have implemented or planned changes to their settlement services in support of faster payments, reflecting the foundational role that central banks play worldwide in the settlement of obligations between financial institutions. The ability to reliably settle interbank obligations using balances at the central bank (also referred to as central bank money) is vital not only to the smooth functioning of the payment system but also to financial stability more broadly.

As the U.S. central bank, the Federal Reserve initiated a broadly collaborative effort with the payment industry and other stakeholders in 2013, to support development of ubiquitous, nationwide access to safe and efficient faster payments in the United States. While the private sector has to date implemented certain faster payment services for the public, there are still challenges related to achieving these broader goals. As part of its central mission, the Federal Reserve has a fundamental responsibility to ensure that there is a flexible and robust infrastructure supporting the U.S. payment system on which the private sector can develop innovative payment services that serve the broadest public interests.6 The settlement infrastructure concepts outlined in this notice are intended to advance the development of faster payments and to help support the modernization of the financial services sector's provision of payment services.7

A safe and efficient payment and settlement system that works in the interest of the public is vital to the U.S. economy, and the Federal Reserve plays important roles in helping maintain the integrity of that system. 8 Fundamentally, the payment and settlement system facilitates financial transactions, purchases of goods and services, and the associated movement of funds on behalf of individuals, households, businesses, and other parties (such as government entities and nonprofit organizations). The importance of the payment and settlement system in daily lives and, more broadly, for all financial transactions underscores the significance of its safe and proper functioning for the U.S. economy.

One of the Federal Reserve's most significant roles in that system involves providing mechanisms for the settlement of payment obligations between and among banks. Banks process payments on their own behalf as well as on behalf of their end-user customers, including individuals, households, businesses, and other parties. Banks—small, medium, and large—settle payments at the Federal Reserve through their accounts and balances at the Federal Reserve Banks (Reserve Banks).9 This core central banking function stems from the Federal Reserve's unique ability to transfer balances that are free of counterparty credit risk and provide certainty that payments between banks are complete.10 In addition to providing settlement, the Reserve Banks provide payment services to clear and settle check, ACH, and wire transfer payments between banks. The Reserve Banks also process these payments on behalf of the U.S. Treasury in their capacity as fiscal agents.11

Through the services that it provides to the banking industry and the U.S. government, the Federal Reserve seeks to foster the safety and efficiency of the payment and settlement system. In doing so, the Federal Reserve provides payment and settlement services on an equitable basis and maintains a fundamental commitment to competitive fairness, which is essential to fostering end-user choice and innovation across the financial services sector as a whole.

When evaluating the potential introduction of a new payment service or major enhancements to an existing service, the Federal Reserve looks to its statutory obligations as well as long-standing principles and criteria.12 These include expectations that (i) the Federal Reserve will achieve full cost recovery over the long run, (ii) the service will yield a clear public benefit, and (iii) the service is one that other providers alone cannot be expected to provide with reasonable effectiveness, scope, and equity.13 The Board also conducts a competitive-impact analysis for any new service or major enhancement that would have a direct and material adverse effect on the ability of other service providers to compete effectively with the Federal Reserve in providing similar services.14 Recently, at the request of Congress, the Government Accountability Office (GAO) conducted a review of the Federal Reserve's role in providing payment services and the effect of the Federal Reserve on competition in the market for payments. The GAO found that the activities of the Federal Reserve in the payment system generally have been beneficial, with benefits that include lowered cost of processing payments for end users.15

In addition to providing payment and settlement services, the Federal Reserve plays other roles, including serving as a convener of industry stakeholders, in support of its mission to foster safety and efficiency of the payment and settlement system. The next section discusses the broad initiative that the Federal Reserve launched five years ago to collaborate with the payment industry to foster payment system improvements.

Beginning in 2013, the Federal Reserve established a new initiative—Strategies for Improving the U.S. Payment System (SIPS)—with the objective of engaging with the payment industry and other stakeholders to upgrade and enhance the nation's payment system. The collaborative work began with a consultation paper that requested public views on gaps, opportunities, and desired outcomes related to the goal of improving the speed and efficiency of the U.S. payment and settlement system from end-to-end while maintaining a high level of safety and efficiency.16 The consultation paper prompted responses from a wide variety of payment industry stakeholders, including banks, processors and other nonbank providers of payment services, technology firms, and business end users.17

Based on responses to the initial consultation paper, the Federal Reserve published in 2015 a set of strategies that it would pursue in collaborative engagement with payment industry stakeholders to improve the safety and efficiency of the U.S. payment and settlement system.18 For faster payments, the specific strategy was to “identify effective approach(es) for implementing a safe, ubiquitous, faster payments capability in the United States.” This 2015 paper identified a number of tactics for each strategy, including the establishment of an industry task force to pursue the strategy related to faster payments.19

In 2015, the Federal Reserve also convened the Faster Payments Task Force (FPTF), a 320-member group comprised of banks of varying sizes, nonbank providers of payment services, business and government end users, consumer interest organizations, governmental organizations, and other industry participants.20 In order to evaluate possible faster payment services, the task force developed a set of effectiveness criteria.21 These criteria addressed various features of a faster payment service, including ubiquity, efficiency, safety and security, and speed.22

The FPTF's effectiveness criteria provide important benchmarks for both end-user capabilities of faster payments and interbank settlement arrangements. With respect to service availability and payment speed for end users, the FPTF viewed service availability on any day, at any time of the day (that is, 24x7x365 service availability), and final funds provided to the recipient within one minute as characteristics of a “very effective” faster payment service.23 With respect to interbank settlement, the FPTF considered a faster payment service to be “very effective” if, among other things, (i) interbank settlement occurs within 30 minutes of the completion of a faster payment for end users, (ii) the service manages credit and liquidity risks arising from any time lag between payment completion for end users and interbank settlement, particularly if the service is available to end users on a 24x7x365 basis but interbank settlement is not, and (iii) interbank credit exposures related to settlement can be fully covered.24 As subsequent sections of this notice will explain, these criteria reflect the importance of the speed of interbank settlement given the speed of faster payments for end users and the risk, specifically credit risk, that results when interbank settlement is slower. The Board recognizes that interbank settlement for faster payments using existing settlement services offered by the Reserve Banks would be unable to meet fully the FPTF's criteria.

In its final report, released in 2017, the FPTF published a set of consensus recommendations for achieving its vision of ubiquitous, safe, and efficient faster payment capabilities for the United States.25 As part of its recommendations, the task force asked the Federal Reserve (i) to develop a 24x7x365 settlement service to support faster payments and (ii) to explore and assess the need for other Federal Reserve operational role(s) in faster payments. Following that report, the Federal Reserve stated its intention to pursue these recommendations.26

The Board has worked with the Reserve Banks to identify the potential actions described in this notice. The Board believes it is important to present these conceptual approaches for supporting interbank settlement of faster payments to the public and to gather initial public comments while faster payment services are still in the early stages of their development. The Board is not committing to any further actions at this time or in the future, but is committed to transparent communication with the public after analyzing the responses to this notice and determining further steps, should any be taken. As outlined earlier, any new services or service enhancements proposed by the Board would be expected to meet longstanding principles and criteria established under Federal Reserve policy as part of meeting its statutory requirements and would also be subject to request for public comment.27

First, the Board is seeking comment on whether the Reserve Banks should consider developing a service for real-time gross settlement (RTGS) of faster payments that is available to conduct settlement on a 24x7x365 basis (24x7x365 RTGS settlement service). Such a service would involve interbank settlement of faster payments using banks' balances in accounts at the Reserve Banks. Reflecting the characteristics of faster payments, the service would provide payment-by-payment interbank settlement in real time and at any time, on any day, including weekends and holidays. A 24x7x365 RTGS settlement service could be similar, in certain respects, to the Fedwire® Funds Service, the RTGS service that the Reserve Banks currently provide for banks to clear and settle payments on behalf of their customers and for their own purposes.28

Second, the Board is seeking comment on whether the Reserve Banks should consider developing a liquidity management tool that would operate on a 24x7x365 basis in support of services for real-time interbank settlement of faster payments, whether those services are provided by the private sector or the Reserve Banks (liquidity management tool). Such a tool would enable movement of funds during hours when traditional settlement systems are not open (nonstandard business hours) between banks' master accounts at the Reserve Banks and an account (or accounts) at the Reserve Banks used to conduct or support 24x7x365 real-time settlement of faster payments.29 A liquidity management tool could involve simultaneous liquidity transfers among multiple accounts that are coordinated by an authorized agent in the settlement process and could be based on the existing National Settlement Service (NSS) or a similar service.30 Alternatively, the tool could involve individual bank-initiated transfers between specific sets of accounts and could function similarly to the existing Fedwire Funds Service or a similar service. Regardless of its structure, such a tool would enable transfers to support liquidity (or funding) needs associated with real-time settlement of faster payments during nonstandard business hours, such as weekends and holidays.

Later sections of this notice expand on these possible actions to support interbank settlement of faster payments, as well as the general concepts that underlie them. The Board is seeking input on the proposition that RTGS is the appropriate strategic foundation for interbank settlement of faster payments. The Board is also seeking input on whether the provision of a 24x7x365 RTGS settlement service and a liquidity management tool, separately or in combination, would help achieve the goals of ubiquitous, nationwide access to safe and efficient faster payments in the long run. The Board is further interested in receiving comment about whether other approaches, not explicitly considered in this notice, might help achieve those goals.

Payments are essential to the conduct of economic activity. When a good is purchased, a service is rendered, or a debt is repaid, a payment is typically involved. For example, an individual's purchase of a product from a business involves the business providing something of value, namely the product itself, to the buyer. As compensation for the product, the business needs to receive something of financial value from the buyer in return. This act of transferring financial value from the buyer to the seller, or, more generally, from one party in a transaction to another, constitutes a payment.

In the United States, as in other modern economies, the value transferred in a payment typically involves monetary assets. Individuals, households, businesses, and other parties in the economy (for example, governments and nonprofit organizations) hold these monetary assets in various forms. For example, some monetary assets may be held as currency and coin. Other monetary assets may involve funds held with specialized financial institutions. In the United States, deposits in accounts with banks comprise the monetary asset that is most widely held by the general public to conduct payments.31

In broad terms, the function of the payment and settlement system is to enable the transfer of these monetary assets between their holders for the purposes of exchanging value to pay for goods and services, remitting funds to pay bills and meet other obligations, managing business balance sheets, and conducting other activities. This transfer can occur in various ways. For example, in a face-to-face payment, the handover of currency serves to transfer a monetary asset from the individual to the business and, hence, to complete a payment between them. When the monetary asset used for payment is deposits held in accounts with banks or other institutions, transfers require adjustments to the amount of funds in the respective accounts of each party in a payment. Thus, the balance in the individual's account with their bank must be decreased by the amount of the purchase, and the balance in the business's account with its bank must be increased by the same amount.

To make these adjustments, the banks involved in a payment must have a way to receive and exchange payment messages. A payment message typically contains information related to the payment, such as the identities of the parties involved, relevant account information, and the payment amount. Without a payment message and a method to exchange it, the banks involved in a payment would not know the details of a payment or even be aware of an end user's need to conduct it.

The payment between end users and associated payment message generates an obligation between the respective banks. The banks must have a mechanism to conduct a transfer of assets between one another to settle the payment. Without a mechanism to settle the interbank obligation, the banks would not have transferred the underlying funds to complete the payment.

These activities, which are known as clearing and interbank settlement, involve processes, infrastructure, rules, agreements, and law that ultimately allow end users, such as an individual and a business, to conduct payments using accounts held with banks or other institutions.

To complete a payment between two bank accounts, three key levels of the payment process are necessary: End-user services, clearing services, and interbank settlement services.32 Together, these three levels comprise a “payment service” or, as will subsequently be discussed, a “faster payment service” in the case of a payment service focused on faster payments.33 In other words, a payment service encompasses everything that goes into providing an individual, a business, or another end user with the ability to conduct a payment. Figure 1 depicts the levels of the payment process when the sender initiates a payment through their bank.

An end-user service includes the tools that an individual or business uses to conduct a payment. For example, an individual wishing to pay a bill to a utility company or send money to a friend may be able to do so through a mobile phone application. Similarly, a business may be able to initiate a payment to a vendor through a bank's website. Such services allow an end user to communicate with their bank about the need to make a payment and the details of that payment. In other words, end-user services support the exchange of payment messages and other information between a bank and its end-user customers. End-user services also include other critical aspects of the overall payment experience for an individual or business, such as error resolution procedures and security measures to mitigate fraud.

Clearing services and interbank settlement services constitute the infrastructure underlying payment services involving bank accounts. These services and the activities they perform may not be apparent to end users, but they are crucial to the transfer of information and value between banks, so that the sender of a payment can satisfy their obligation to the recipient of a payment.

In clearing services, the sending and receiving banks interact, possibly through an intermediary such as a clearing house, based on the payment information received from end users and the protocols associated with a payment service. A key element of this interaction is the exchange of the payment message between the sending and receiving banks.34 The payment messages that are exchanged contain the necessary information for banks to make appropriate debits and credits to the accounts of their end-user customers and to notify their customers of those adjustments to account balances.

Finally, in interbank settlement services, the sending and receiving banks transfer assets to each other to satisfy the interbank obligations that arise from end-user payments. Settlement takes place by adjusting the balances in banks' settlement accounts on the books of a settlement institution. For example, interbank settlement can be performed by directly adjusting balances in accounts that banks hold with the central bank or a commercial bank.

In a faster payment, the three levels of the payment process are structured so that senders can immediately initiate, and recipients can immediately receive, payments at any time.35 At the end-user service level, the sender of a payment must have an interface that allows real-time communication at any time to initiate a payment. This need for instant and always-available communication capabilities for end users explains why faster payments are often associated with payments initiated through computers or mobile devices.

At the clearing level, certain activities must similarly happen in real time and at any time. In particular, the messaging between banks must occur in real time on a 24x7x365 basis, so that, at any time of the day, the banks involved in a payment are able to send and receive payment messages immediately, such that they can debit and credit their customers' accounts. By contrast, in certain traditional payments, the payment message exchange can occur sometime after an end user initiates a payment. As will be discussed in more detail in the next section, however, the interbank settlement level of a faster payment service may or may not exhibit the same speed and availability as end-user and clearing services.

Although the previous discussion focused on activities related to faster payment services involving banks, several established services in the United States that allow end users to conduct faster payments are provided by nonbank entities. These nonbank payment services usually combine all three levels of the payment process. These services often focus on enabling impromptu payments between individuals, such as friends or family members, although some also handle a wider array of payment situations, such as payments between individuals and businesses. Such a service typically provides an online portal or mobile application that allows parties who have signed up with the service to send payments to each other. The service executes payments through adjustments to balances of the sender's and recipient's service-specific accounts, which are located on the service's internal books.36 Because end users can quickly communicate with the service, which can then rapidly make internal adjustments to end-user balances, such a service allows registered end users to conduct immediate payments at any time. However, such capabilities are only possible when both the sender and receiver of a payment have signed up with a specific service. In addition, the balances are only immediately usable within that specific service. Transfers of funds out of a nonbank service into bank accounts that are held for general use typically involve transactions through traditional payment systems that can take more than a day to complete.37

Recently, other faster payment services have emerged in the United States that are based on transfers between bank accounts. These include services that allow end users to send or receive faster payments using the debit card infrastructure of certain payment card networks and services that allow faster payments over newer proprietary payment networks owned by groups of banks. The end-user service can involve a service-specific website or mobile application or may be integrated into a participating bank's website or mobile application, similar to many existing online bill payment services. For business customers, the end-user service may be integrated into a bank's back-end payment processing infrastructure. To use these services, end users must typically sign up with a specific service through their banks or, in some cases, may sign up directly with the service itself. Because the sending and receiving end users may hold their accounts at different banks, their banks must exchange payment messages as part of clearing. These interbank clearing activities can occur through existing payment card networks or proprietary communication networks of the bank-owned services. To enable their customers to make payments through a specific faster payment service, banks must participate in the service or otherwise be capable of receiving payment messages initiated through the service. Interbank settlement must also occur, allowing the banks to transfer assets reflecting their customers' faster payments. At present, interbank settlement for these services is largely conducted through existing services provided by the Reserve Banks and, in one case, is performed using a private sector-owned settlement ledger that is backed by funds in a “joint account.” A joint account is a recently announced type of account held at a Reserve Bank that holds balances for the joint benefit of settling banks in a private-sector settlement service.

The interbank settlement models discussed in this notice specifically focus on faster payment services that involve transfers between bank accounts and do not directly address services provided by nonbank entities. At the same time, many nonbank faster payment services ultimately use deposit accounts at banks to hold funds associated with their customers' balances and further rely on established interbank payment systems for the movement of money between their customers' bank accounts and service-specific accounts. Nonbank faster payment services may also have access to Reserve Bank services when acting as agents on behalf of banks that participate in their services. As a result, interbank clearing and settlement capabilities may have implications for both bank and nonbank faster payment services.

As defined above, faster payment services involving transfers between bank accounts must conduct certain activities in real time on a 24x7x365 basis. In particular, such services must accept payment messages from end users, exchange payment messages between banks, and make final funds available to recipients in real time and at any time. However, interbank settlement can be performed in two ways: On a deferred basis or in real time. These two models have important distinguishing features with risk, liquidity management, and other implications.

In a deferred settlement arrangement for faster payments, final funds are made available to the end-user recipient before interbank settlement occurs. In such an arrangement, individual payment messages are exchanged in real time between the sender's bank and the recipient's bank. The banks adjust their customer balances to reflect the outflow of funds for the sender and the inflow of funds for the receiver, and the recipient's bank immediately makes final funds available to its customer. The interbank settlement information resulting from the individual payments is collected and stored by a centralized entity (for example, a clearinghouse) for a period, such as a certain number of hours or until the next business day, before interbank settlement occurs. In some cases, settlement may be deferred for several days over weekends or holidays, depending on whether the system used for settlement is available then. Around the world, most existing implementations of deferred settlement for faster payments involve netting of interbank obligations prior to settlement, yielding what is termed deferred net settlement (DNS).38 In a DNS arrangement, the centralized entity that collects and stores interbank settlement information offsets payment obligations owed by a bank with payment obligations due to that bank. After collecting and netting settlement information related to groups of payments, the centralized entity submits information on net obligations to an interbank settlement system, which then adjusts the account balances of all participating banks on the settlement institution's books. Alternatively, rather than relying on a centralized entity, participating banks may initiate a series of funds movements to settle the net obligations. The process of collecting, netting, and then settling a group of payments is known as a settlement cycle.

The Board understands that, at present, most faster payment services in the United States that involve transfers between bank accounts are based on a DNS model for interbank settlement. In these services, interbank settlement of net obligations is conducted using traditional payment and settlement systems, namely the Fedwire Funds Service or the ACH system, with the timing and frequency of settlement depending on, among other things, the operating hours of those systems.39

A number of factors may contribute to the current prevalence of DNS-based arrangements for faster payment services in the United States. First, traditional payment and settlement systems, which can be leveraged for settlement of faster payments, already have widespread participation by banks. In addition, by using the Fedwire Funds Service or the ACH system, banks can treat settlement payments for faster payment services much like other interbank payments, without the need to implement new faster payment settlement capabilities and operational procedures. As a result, it may be easier for banks to become participants in these faster payment services. Finally, DNS-based faster payment services can be attractive from a liquidity management perspective because netting reduces balances that banks need to set aside to settle obligations related to faster payments.

At the same time, DNS arrangements for faster payments involve inherent risks that need to be managed. Because the recipient's bank makes final funds available to the recipient before interbank settlement occurs, DNS arrangements for faster payments inherently generate interbank credit risk for the recipient's bank. If a sending bank in the arrangement fails to pay a net obligation, receiving banks are at risk of losing the full value of funds that they have already made available to recipients.40 In addition, this scenario could generate liquidity risks for receiving banks if, subsequent to a sending bank's failure to pay, settlement amounts are recalculated and banks may receive less or have to pay more than expected. Such credit and liquidity risks may become particularly pronounced if, as the 24x7x365 nature of faster payments would allow, rapid withdrawals from a troubled bank were to occur outside standard business hours, increasing credit exposures and liquidity needs for receiving banks. During a period of financial stress, these risks could also further aggravate financial stability concerns.

The interbank settlement risks created in a DNS-based faster payment service may be mitigated with appropriate risk management tools. Potential tools include (i) transaction limits on individual payments or frequent settlement cycles to help prevent the emergence of large net interbank exposures, (ii) loss-sharing agreements among participants in a system to help spread the risk of a settlement failure, (iii) limits on the net negative position of each participating bank to prevent interbank exposures from becoming too large, and (iv) collateralization to back settlement activity if one or more participants were not able to meet their obligations. Credit and liquidity risk exposures can be fully mitigated by requiring participants in a DNS-based faster payment service to prefund potential exposures fully with cash held at a custodial institution, with an enforceable limit on payment transactions to prevent interbank settlement exposures from exceeding the covering funds or, potentially, a mechanism to augment prefunded cash collateral when needed. Under this risk-management structure, if a participant in a DNS system is unable to fund its settlement obligations, the obligations could be covered with prefunded cash, allowing the settlement payments to be completed and avoiding the need to recalculate settlement obligations.

In other countries, every faster payment service based on a DNS model employs measures to mitigate the resulting interbank settlement risk.41 Most recent international examples of DNS-based faster payments typically use full cash prefunding, a risk-management approach that is reflected in the FPTF's effectiveness criterion related to full coverage of interbank credit exposures. A prominent example of full risk mitigation occurs in the United Kingdom, where faster payment participants settle their positions three times per business day using accounts at the Bank of England. Each participant in the system sets its own “net sender cap” that limits the participant's negative position between settlement cycles. Since 2015, these caps have been fully backed by cash collateral held in segregated accounts at the Bank of England to mitigate the overnight interbank credit risk generated by the system. In the event that a participant were unable to meet its obligation in a settlement cycle, the participant's cash collateral at the Bank of England would be immediately accessed to conduct settlement.

In addition to risk management, DNS-based faster payment services may have liquidity management implications. On the one hand, liquidity management may be simplified for banks in a DNS arrangement because netting reduces the funds that banks need to have available for settlement obligations related to faster payments. In addition, because settlement is conducted periodically, often at pre-defined times, banks in a DNS arrangement do not need to provide sufficient funds on a real-time basis to settle faster payments that are otherwise taking place in real time. On the other hand, if a DNS-based service were to use frequent settlement cycles to manage credit risk exposures, banks would need to ensure that they have adequate liquidity whenever a settlement cycle occurs. For example, if it were possible to conduct the 30-minute settlement cycles that would be applied in a DNS arrangement satisfying the FPTF's effectiveness criterion related to settlement speed, that settlement frequency would require banks to monitor and manage their liquidity over the weekend and on holidays.

Furthermore, collateral management may have implications for banks participating in a DNS-based faster payment service that employs collateral to mitigate interbank credit risk. The availability of adequate collateral to cover a bank's net obligation would need to be verified in real time for each individual faster payment, with payments being rejected when collateral is inadequate. As a result, cash or collateral to back settlement activity in a DNS arrangement would need to be monitored, maintained, and potentially adjusted on a real-time basis, including during nonstandard business hours, to avoid rejected payments.42 Alternatively, banks could elect to maintain higher cash or collateral balances to hedge against unexpected payment volumes; however, this choice would have other implications for banks and their ability to use cash or collateral for other purposes.

Another consideration for DNS-based faster payment services is that interoperability between services that use different risk and liquidity management arrangements may be challenging, which can be a barrier to faster payment ubiquity if end users are not able to send payments across services. For faster payment services to be interoperable, each service should have the ability to receive transactions originated from the other service and to manage the associated cross-service settlement risks.43 Interoperability would likely be harder to achieve if two services and their chosen settlement features generate different levels of interbank settlement risk or if they use different tools to mitigate such risk.

In an RTGS arrangement for faster payments, final funds are made available to the recipient only after interbank settlement has occurred between the banks that are party to the transaction. To ensure this outcome, RTGS-based faster payments involve both completion of end-user payments and settlement of interbank obligations on a payment-by-payment basis in real time and at any time. RTGS for faster payments thus aligns the speed and 24x7x365 availability of interbank settlement with the speed and 24x7x365 availability of faster payments for end users. In such an arrangement, because the speed and timing of interbank messaging activities needed to support faster payments for end users coincide with the speed and timing of interbank settlement activities, it can be possible to avoid duplicative activities by combining interbank messaging and settlement.44 As a result, a single payment message may be sent from the sender's bank to the recipient's bank through the settlement service with that message containing both the information needed by the banks to adjust their customers' balances and the bank information necessary to conduct interbank settlement.

RTGS arrangements inherently avoid interbank settlement risk because funds are made available to the recipient only after interbank settlement has occurred. This key feature enhances the safety of faster payment services based on the RTGS model, both for individual banks and in the aggregate, particularly during times of financial stress. The lack of inherent interbank settlement risk eliminates the need for measures to mitigate such risk, as would be needed in a DNS arrangement. In addition, by aligning interbank settlement with interbank messaging, the RTGS model can avoid activities, such as storing, netting, and submitting groups of payments for settlement, that are not generally relevant for the provision of faster payments to end users, but would be necessary in DNS-based faster payment services because of the timing mismatch between settlement and the underlying payments. In the process, the RTGS model also avoids the unanticipated liquidity effects that can occur in the event of a settlement failure when interbank settlement positions have been netted by a centralized entity. Finally, when considering interoperability between RTGS-based faster payment services, the lack of interbank settlement risk in such services may facilitate interoperability by avoiding the need to reconcile measures to mitigate cross-system settlement risk, in particular, as may be necessary with DNS-based faster payment services.

At the same time, real-time settlement for faster payments may have liquidity management implications. Because RTGS-based faster payment services process and settle each payment separately, with continuous updates to settlement accounts on a 24x7x365 basis, participants in an RTGS-based service may need to monitor and manage their settlement accounts outside standard business hours to ensure that balances are available to settle each payment. Further, even for retail payment systems, gross settlement may be more liquidity intensive than net settlement.

Based on the design, liquidity management may require tools to reallocate liquidity to support settlement of faster payments. For example, if settlement for an RTGS-based service is conducted in an account that is separate from a bank's primary settlement account (that is, a Federal Reserve master account), a liquidity management tool could allow for banks or an agent acting on their behalf, such as the provider of an RTGS service, to move liquidity to the faster payment settlement account when needed. Alternatively, liquidity management could involve automatic replenishment of the faster payment settlement account from the primary account, based on certain parameters or at certain times of the day. Liquidity management tools are discussed later in the notice.

Another consideration for RTGS-based faster payments is that faster payment services to end users are dependent on uninterrupted availability of the RTGS service to conduct faster payments. Although faster payments based on deferred settlement would require certain clearing activities to occur in real time and at any time, necessitating a high level of resiliency for those activities, end-user payments could still be completed even if the interbank settlement service is temporarily unavailable. In contrast, an RTGS service supporting faster payments would require advanced throughput capabilities and high resiliency of both the settlement service and messaging activities. In addition, to avoid failed end-user payments, enhanced contingency arrangements may be necessary to deal with situations when a primary RTGS processing service is temporarily unavailable to process transactions.

One example of an RTGS service for faster payments is the system being developed by the European Central Bank (ECB) to support “instant payments” in the European Union. Like faster payments in the United States, instant payments in the European Union are expected to involve services for real-time payments between end users that can be conducted on a 24x7x365 basis. To facilitate ubiquity of instant payment services across national jurisdictions, the ECB system will offer final settlement for instant payments using balances held at the ECB (that is, central bank money) to banks and other eligible institutions across Europe. In line with 24x7x365 instant payment services for end users, the ECB's system will enable settlement on a 24x7x365 basis. The ECB has announced that it will implement its instant payments RTGS system using separate, dedicated cash settlement accounts for each participating institution. The ECB plans to launch its instant payments RTGS system in November 2018.45

Another example, albeit with a different approach, of an RTGS service for faster payments involves a system launched domestically in the United States in late 2017. This system, operated by a private-sector entity, performs immediate, round-the-clock settlement of payments on its private ledger, rather than using central bank money. Each participant in this arrangement relies on the presence of balances stored in a single joint account at a Reserve Bank that is held for the benefit of the joint account-holding banks as a method of backing the private-sector service.46

Although both DNS and RTGS arrangements have benefits and drawbacks for settling faster payments, on balance, the Board views RTGS as offering clear benefits from a risk and efficiency perspective, making it the preferable basis for interbank settlement of faster payments over the long term in the United States. Given the round-the-clock availability of end-user faster payment services, real-time interbank settlement should likewise be possible at any time and on any day. While DNS-based faster payment services with measures to mitigate risk may be appropriate for a nascent faster payment market in the short term, the Board believes that, as the volume and value of faster payments grow in the future, an RTGS infrastructure would provide the safest and most efficient foundation for interbank settlement for the next generation of payment services. Through this notice, the Board is seeking views regarding this perspective on interbank settlement.

In addition, the Board is requesting comment about potential actions that the Federal Reserve could take to support a ubiquitous, nationwide infrastructure for 24x7x365 real-time settlement of faster payments. These actions, which could be taken separately or in combination, include the Reserve Banks' developing (i) a 24x7x365 RTGS settlement service and (ii) a liquidity management tool. In addition to seeking comment on whether the Reserve Banks should consider developing either or both of these services, the Board is interested in receiving comment about whether other approaches would help achieve the long run goals of ubiquitous, nationwide access to safe and efficient settlement services for faster payments.

As one potential action, the Reserve Banks could provide a 24x7x365 RTGS settlement service for banks that would carry out the interbank settlement of individual payments immediately, on any day, and at any time of the day. Such a service would reflect the real-time speed and 24x7x365 nature of faster payments. The service would settle interbank obligations through debits and credits to balances in banks' accounts at the Reserve Banks, constituting settlement in central bank money.47 As it does with some of its existing services, the Federal Reserve could allow agents to submit settlement instructions to a 24x7x365 RTGS settlement service on behalf of participating banks that hold accounts at the Reserve Banks.

A 24x7x365 RTGS settlement service could involve messaging functionality, which traditionally is considered part of the clearing level, and may function much like the Fedwire Funds Service. As with the Fedwire Funds Service, a 24x7x365 RTGS settlement service could receive and deliver the entire payment message, including bank routing information needed for interbank settlement and customer information needed by receiving banks to update their customers' accounts.48 Under this design, the service would receive settlement instructions from and deliver settlement notifications to the banks (or their agents) pursuant to the information in the payment message. As a result, the RTGS functionality could provide a straight-through processing method to conduct interbank clearing and settlement of faster payments.

The proposed 24x7x365 RTGS settlement service could make use of the existing electronic access connections and payment services network that the Reserve Banks provide to banks to enable secure payment processing for transactions involving Reserve Bank payment services. In addition, interbank settlement of faster payments could occur in Federal Reserve master accounts, similar to the way that settlement for other types of Reserve Bank payment services occurs, and could use the same account-monitoring regime that is in place for other payment services provided by the Reserve Banks. Alternatively, interbank settlement of faster payments could occur in separate, dedicated faster payment settlement accounts for each participating bank with balances that could be treated as reserves, earning interest and satisfying reserve balance requirements. With separate accounts, an approach would be needed for moving funds between a bank's master account and its faster payment settlement account during standard business hours and potentially outside those hours. In either account structure, the service would record end-of-day balances in the account and provide balance reports for each calendar day of the week (that is, a seven-day accounting regime). The Board is requesting comment on the advantages and disadvantages of these design options and features.

Additionally, a 24x7x365 RTGS settlement service might need to incorporate some auxiliary services or other service options in order to support an effective nationwide system. One example of an auxiliary service is a proxy database or directory that allows banks to route end-user payments using the recipient's alias, such as an email address or phone number, rather than their bank routing and account information. Another example of auxiliary services is enhanced fraud-monitoring capabilities, which may involve a shared database of known fraudulent accounts or automated fraud detection tools. Other service options to consider include transaction limits to manage risk or payment-by-payment offsetting functionality to economize on the use of liquidity. The Board is requesting comment on whether such auxiliary services or other service options are necessary for broad adoption of faster payments and what entity(s) should provide them.

A 24x7x365 RTGS settlement service provided by the Reserve Banks would rely on banks and other parties, such as processors and other providers of payment services, to develop end-user services and, ideally, the full suite of auxiliary services, such as a proxy database or directory, that build upon the basic functionality of the settlement service.

The Federal Reserve's longstanding public policy objectives for the payment system are that payment systems are safe, efficient, and accessible to all eligible banks on an equitable basis and, through them, to the public nationwide.49 Based on its analysis, the Board believes the Reserve Banks' development of a 24x7x365 RTGS settlement service could yield societal benefit by advancing these objectives and serve as an important part of the foundation for the nation's future payment system. The Board is requesting comment on whether the Federal Reserve's provision of a 24x7x365 RTGS settlement service will indeed offer these potential benefits.

A 24x7x365 RTGS settlement service provided by the Reserve Banks could significantly improve the long-term prospect of all banks having access to a real-time interbank settlement infrastructure for faster payments. Today, the Reserve Banks provide payment services to more than 11,000 banks—the vast majority of banks in the United States. By capitalizing on its electronic access network and customer relationships, the Reserve Banks are in a position to offer equitable access to real-time interbank settlement to all eligible banks in the country, regardless of type or size.

It may be difficult for the private sector to create an infrastructure that, on its own, could provide equitable access to enough banks to achieve ubiquity. Practically, a private-sector RTGS service that does not have existing relationships with a large number of banks may have difficulties establishing those relationships for a new service. Likewise, banks without an existing relationship to the provider of a private-sector RTGS service may find it cumbersome and time-consuming to establish connections with a new provider of settlement services. However, accessibility could be greatly enhanced if existing and potential future private-sector RTGS services were able to interoperate with a Reserve Bank service, such that end-user customers of any bank could send faster payments to end-user customers of any other bank, regardless of the faster payment RTGS service used by the banks. In such a scenario, private-sector and Reserve Bank RTGS services would work in tandem to provide ubiquitous, nationwide access to real-time interbank settlement for faster payments.

As noted above, real-time settlement for faster payments avoids interbank settlement risk by aligning the speed of interbank settlement with the speed of the underlying payments. If a 24x7x365 RTGS settlement service developed by the Reserve Banks were to significantly improve the prospect that banks nationwide would use real-time settlement for faster payments, the overall safety of the faster payment market in the United States could be enhanced. In addition, a service provided by the Federal Reserve, with its focus on the stability of the overall payment system, could also contribute to the real and perceived resiliency of faster payment settlement. This would be especially true if a 24x7x365 RTGS settlement service provided by the Reserve Banks were available alongside private-sector RTGS services, giving banks an option to connect to multiple operators for resiliency, as they often do with traditional payment systems. Finally, a 24x7x365 RTGS settlement service could further support the Federal Reserve's ability to provide payment system stability in moments of financial crisis or natural disaster, as it has done in the past with its cash, check, ACH, and wire transfer services.

Payment system efficiency has multiple facets, including resource costs, the value of broad networks, and competition between and innovation by faster payment services. While a 24x7x365 RTGS settlement service provided by the Reserve Banks would consume societal resources and could duplicate certain costs that may already have been incurred to set up other settlement arrangements for faster payments, its net effect on the efficiency of the faster payment environment would depend on the extent to which it generates societal benefits by improving bank participation in a real-time interbank settlement infrastructure and, ultimately, public access to safe and secure faster payment services. Specifically, the value of a payment system increases as more banks join the system because all participants and end users can send payments to more recipients. As a result, incremental societal benefits realized through nationwide bank participation in a real-time interbank settlement infrastructure could outweigh the societal costs of the Reserve Banks developing a 24x7x365 RTGS settlement service.

Additional efficiency benefits could be realized through enhanced competition between and innovation by faster payment services. The development of a nationwide real-time interbank settlement infrastructure could play a strategic role in persuading more banks to develop faster payment services, creating more competition among bank-provided services and with existing nonbank services. Bank and nonbank providers of faster payment services may also be able to develop new or enhance existing services by capitalizing on the underlying interbank infrastructure. The resulting competition and innovation could ultimately benefit end users because competition typically generates lower costs and innovation advances feature-rich services.

The Board recognizes the possibility that introduction of a Reserve Bank-provided 24x7x365 RTGS settlement service could have the opposite effect and disrupt the existing faster payment market. Industry stakeholders have already made certain initial investments in faster payment services and would need to assess how, or if, to connect to a new settlement service.50 Therefore, it is possible that Reserve Bank entry could add to market fragmentation and lower the prospects for ubiquitous faster payments in the United States, especially in the short run.

The Board also recognizes that the cost of investing in new technology for the banking industry, its customers, and service providers could be significant, and it could take many years to achieve full participation across the banking system. Operational and technical challenges are inherent in the creation of any new service, and the fact that the envisioned RTGS settlement service would operate 24x7x365 may compound these challenges. The Board expects that moving to a 24x7x365 settlement environment may take a number of years of technical and operational adjustment for all stakeholders. In addition, issues with technical and operational adjustments may be exacerbated if there is more than one provider of real-time settlement. At the same time, some disruption and a period of adjustment could be acceptable, and often accompany foundational changes in infrastructure. The Board is seeking comment on whether the industry believes the costs of adjustment and potential disruption are outweighed by the benefits of the proposed interbank settlement infrastructure.

RTGS for faster payments can raise liquidity management issues for banks, particularly given the 24x7x365 nature of faster payments. RTGS-based faster payments require banks to have sufficient liquidity to perform interbank settlement of individual payments. Absent sufficient liquidity, banks, and by extension their customers, would experience failed faster payments because interbank settlement, which must occur prior to the provision of final funds to the recipient in an RTGS arrangement, could not take place. Moreover, because faster payments can occur on a 24x7x365 basis, RTGS for faster payments requires banks to have sufficient liquidity to settle individual payments at any time of the day, any day of the year.

The risk of failed payments caused by insufficient liquidity in an RTGS-based faster payment service implies a general need for banks to manage their liquidity related to settlement. The nature of this liquidity management will depend on the design of a particular RTGS arrangement for faster payments. For example, a private-sector RTGS arrangement for faster payments may rely on a joint account at a Reserve Bank that backs settlement conducted on a private ledger maintained by the arrangement's operator. In such an arrangement, banks would need to ensure sufficient liquidity by making contributions to the joint account that are adequate to cover obligations recorded in the operator's ledger. In another example, depending on the design of a 24x7x365 RTGS settlement service provided by the Reserve Banks, participating banks may have individual accounts at the Reserve Banks, separate from their master accounts, that are dedicated to the interbank settlement of faster payments.51 In this case, banks would need to manage their liquidity on a 24x7x365 basis across their master accounts and their dedicated faster payment settlement accounts at the Reserve Banks.52

In either of these examples, liquidity management by banks requires methods to transfer liquidity between accounts at the Reserve Banks. Because RTGS arrangements for faster payments require liquidity management outside standard business hours, these methods for liquidity transfers may need to be available during nonstandard business hours.

At present, the Reserve Banks do not offer a service that would allow banks to move liquidity as needed to support 24x7x365 real-time settlement of faster payments. Various Reserve Bank services enable transfer of funds between accounts at the Reserve Banks, including the Fedwire Funds Service and the National Settlement Service; however, none of them fulfill the around-the-clock requirement. Over time, the Reserve Banks have extended operating hours for these services.53 However, current operating hours limit liquidity management based on these services, particularly during weekends and holidays.

As a result of the potential need for liquidity management outside standard business hours in certain RTGS-based systems for faster payments, and the limitations of existing Federal Reserve services to support such liquidity management, the Board is requesting comment on whether the Reserve Banks should consider providing a liquidity management tool that would enable movement of funds during nonstandard business hours between banks' master accounts at the Reserve Banks and an account (or accounts) at the Reserve Banks used to conduct or support 24x7x365 real-time settlement of faster payments.54 To provide such a tool for liquidity transfers during nonstandard business hours, the Federal Reserve could enhance an existing service by extending that service's operating hours, potentially up to 24x7x365, or providing special operating windows outside current operating hours. Alternatively, the Reserve Banks could develop a new service. Regardless of whether the Reserve Banks enhance an existing service or develop a new service, the Board envisions such a service being used, at least initially, only for the purpose of liquidity management related to RTGS-based faster payment services. The Board recognizes, however, that depending on its design, a liquidity management tool could have functionality that would be useful for other purposes. In particular, the ability to move funds outside standard business hours could be used to manage cash collateral in a DNS arrangement for faster payments that uses full cash collateral at the Reserve Banks to mitigate credit risk associated with deferred settlement.

To determine how the Reserve Banks could best provide a liquidity management tool that meets industry needs, the Board is further seeking input on the characteristics and capabilities that such a tool might have. A key area of interest to the Board is the level of involvement that individual banks would wish to have in establishing the timing of liquidity transfers and in initiating specific transfers. For example, a tool could allow a designated agent to coordinate liquidity transfers simultaneously across a large number of participants in a settlement arrangement, thereby removing the need for those participants to continuously monitor liquidity and initiate corresponding liquidity transfers. Such a tool could also support automated liquidity transfers, particularly during nonstandard business hours, based on thresholds established by a bank working with a designated agent. Such capabilities could be possible through NSS (or a similarly designed service) for the multilateral movement of funds between accounts at the Reserve Banks. Alternatively, if banks prefer to have more direct involvement in the timing and tailoring of their liquidity transfers, a tool could involve individual liquidity transfers initiated by individual banks. Such a structure for liquidity management could be provided through the Fedwire Funds Service (or a similarly designed service). In either case, expanded operating hours for such a service would support liquidity management outside standard business hours, possibly up to 24x7x365.

The Board believes a liquidity management tool could improve the level of participation by banks in real-time settlement infrastructure for faster payments. Such a tool could be an efficient and economical way to close potential gaps in account funding times for existing and potential future private-sector 24x7x365 real-time interbank settlement systems. Thus, the tool might make private-sector systems more attractive to a broader range of banks and boost the prospect of more banks joining private-sector systems. It could similarly increase participation in a 24x7x365 RTGS settlement service provided by the Reserve Banks. The end result might be a combination of RTGS arrangements for faster payments, enabling broader access to real-time interbank settlement infrastructure in the long term with similar safety, resiliency, and efficiency benefits discussed in relation to a Reserve Bank-provided RTGS settlement service. In addition, the liquidity management functionality itself would mitigate liquidity risk that can arise for banks in 24x7x365 real-time settlement of faster payments and the concomitant possibility that end users will experience individually rejected payments and broader scale payment interruptions.

The Board is seeking feedback on all aspects of the discussion presented in this notice and the specific questions posed below. The Board will use this feedback to assess what steps, if any, it should take related to the actions discussed or alternative approaches offered by the payment industry or other stakeholders. As previously mentioned, these actions are subject to the longstanding principles and criteria on new services or major service enhancements as part of the Federal Reserve's statutory requirements. As part of assessing these actions, the Board would continue its due diligence related to those requirements.

The Board intends to publish the results of this request for comment and, as appropriate, to seek further comment on any specific actions that the Board determines that the Federal Reserve might pursue. The Board recognizes that a decision to undertake these actions, in particular the development of a 24x7x365 RTGS settlement service, will require close partnership and collaboration with industry stakeholders. The Federal Reserve would work with stakeholders to implement new infrastructure within a sensible timeline that provides stakeholders enough advance information to calibrate resource planning and operational readiness. The Board also seeks feedback on specific areas, such as liquidity management, interoperability, accounting processes, or payment routing, that stakeholders believe may require joint Federal Reserve and industry teams to identify approaches for implementation in a 24x7x365 RTGS settlement service.

1. Is RTGS the appropriate strategic foundation for interbank settlement of faster payments? Why or why not?

2. Should the Reserve Banks develop a 24x7x365 RTGS settlement service? Why or why not?

3. If the Reserve Banks develop a 24x7x365 RTGS settlement service,

a. Will there be sufficient demand for faster payments in the United States in the next ten years to support the development of a 24x7x365 RTGS settlement service? What will be the sources of demand? What types of transactions are most likely to generate demand for faster payments?

b. What adjustments would the financial services industry and its customers be required to make to operate in a 24x7x365 settlement environment? Are these adjustments incremental or substantial? What would be the time frame required to make these adjustments? Are the costs of adjustment and potential disruption outweighed by the benefits of creating a 24x7x365 RTGS settlement service? Why or why not?

c. What is the ideal timeline for implementing a 24x7x365 RTGS settlement service? Would any potential timeline be too late from an industry adoption perspective? Would Federal Reserve action in faster payment settlement hasten or inhibit financial services industry adoption of faster payment services? Please explain.

d. What adjustments (for example, accounting, operations, and agreements) would banks and bank customers be required to make under a seven-day accounting regime where Reserve Banks record and report end-of-day balances for each calendar day during which payment activity occurs, including weekends and holidays? What time frame would be required to these changes? Would banks want the option to defer receipt of such information for nonbusiness days to the next business day? If necessary changes by banks represent a significant constraint to timely adoption of seven-day accounting for a 24x7x365 RTGS settlement service, are there alternative accounting or operational solutions that banks could implement?

e. What incremental operational burden would banks face if a 24x7x365 RTGS settlement service were designed using accounts separate from banks' master accounts? How would the treatment of balances in separate accounts (for example, ability to earn interest and satisfy reserve balance requirements) affect demand for faster payment settlement?

f. Regarding auxiliary services or other service options,

i. Is a proxy database or directory that allows faster payment services to route end-user payments using the recipient's alias, such as email address or phone number, rather than their bank routing and account information, needed for a 24x7x365 RTGS settlement service? How should such a database be provided to best facilitate nationwide adoption? Who should provide this service?

ii. Are fraud prevention services that provide tools to detect fraudulent transfers needed for a 24x7x365 RTGS settlement service? How should such tools be provided? Who should provide them?

iii. How important are these auxiliary services for adoption of faster payment settlement services by the financial services industry? How important are other service options such as transaction limits for risk management and offsetting mechanisms to conserve liquidity? Are there other auxiliary services or service options that are needed for the settlement service to be adopted?

g. How critical is interoperability between RTGS services for faster payments to achieving ubiquity?

h. Could a 24x7x365 RTGS settlement service be used for purposes other than interbank settlement of retail faster payments? If so, for what other purposes could the service be used? Should its use be restricted and, if so, how?

i. Are there specific areas, such as liquidity management, interoperability, accounting processes, or payment routing, for which stakeholders believe the Board should establish joint Federal Reserve and industry teams to identify approaches for implementation of a 24x7x365 RTGS settlement service?

4. Should the Federal Reserve develop a liquidity management tool that would enable transfers between Federal Reserve accounts on a 24x7x365 basis to support services for real-time interbank settlement of faster payments, whether those services are provided by the private sector or the Reserve Banks? Why or why not?

5. If the Reserve Banks develop a liquidity management tool,

a. What type of tool would be preferable and why?

i. A tool that requires a bank to originate a transfer from one account to another

ii. A tool that allows an agent to originate a transfer on behalf of one or more banks

iii. A tool that allows an automatic transfer of balances (or “sweep”) based on pre-established thresholds and limits

iv. A combination of the above

v. An alternative approach

b. Would a liquidity management tool need to be available 24x7x365, or alternatively, during certain defined hours on weekends and holidays? During what hours should a liquidity management tool be available?

c. Could a liquidity management tool be used for purposes other than to support real-time settlement of retail faster payments? If so, for what other purposes could the tool be used? Should its use be restricted and, if so, how?

6. Should a 24x7x365 RTGS settlement service and liquidity management tool be developed in tandem or should the Federal Reserve pursue only one, or neither, of these initiatives? Why?

7. If the Federal Reserve pursues one or both of these actions, do they help achieve ubiquitous, nationwide access to safe and efficient faster payments in the long run? If so, which of the potential actions, or both, and in what ways?

8. What other approaches, not explicitly considered in this notice, might help achieve the broader goals of ubiquitous, nationwide access to faster payments in the United States?

9. Beyond the provision of payment and settlement services, are there other actions, under its existing authority, the Federal Reserve should consider that might help its broader goals with respect to the U.S. payment system?

Comments Invited

We invite you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2018-0643; Product Identifier 2018-NM-084-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this SNPRM. We will consider all comments received by the closing date and may amend this SNPRM based on those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this SNPRM.

We issued an NPRM to amend 14 CFR part 39 by adding an AD that would apply to certain Dassault Aviation Model FALCON 7X airplanes. The NPRM published in the Federal Register on August 10, 2018 (83 FR 39630). The NPRM was prompted by a determination that more restrictive maintenance requirements and airworthiness limitations are necessary. The NPRM proposed to require revising the existing maintenance or inspection program, as applicable, to incorporate new and more restrictive maintenance requirements and airworthiness limitations for airplane structures and systems.

Since we issued the NPRM, additional airworthiness limitations have been issued, and we have determined that it is necessary to revise the existing maintenance or inspection program to incorporate the new and more restrictive requirements in the revised service information. We have changed paragraph (g) of this proposed AD to require revising the existing maintenance or inspection program to incorporate the information specified in Chapter 5-40-00, Airworthiness Limitations, DGT 107838, Revision 7, dated August 24, 2018, of the Dassault Falcon 7X Maintenance Manual (MM).

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union, has issued EASA AD 2018-0101, dated May 3, 2018 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for certain Dassault Aviation Model FALCON 7X airplanes. The MCAI states:

You may examine the MCAI in the AD docket on the internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2018-0643.

Dassault Aviation has issued Chapter 5-40-00, Airworthiness Limitations, DGT 107838, Revision 7, dated August 24, 2018, of the Dassault Falcon 7X MM. This service information introduces new and more restrictive maintenance requirements and airworthiness limitations for airplane structures and systems. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

We gave the public the opportunity to participate in developing this proposed AD. We received no comments on the NPRM or on the determination of the cost to the public.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all pertinent information and determined an unsafe condition exists and is likely to exist or develop on other products of the same type design.

Certain changes described above expand the scope of the NPRM. As a result, we have determined that it is necessary to reopen the comment period to provide additional opportunity for the public to comment on this SNPRM.

We estimate that this proposed AD affects 67 airplanes of U.S. registry. We estimate the following costs to comply with this proposed AD:

We have determined that revising the existing maintenance or inspection program takes an average of 90 work-hours per operator, although we recognize that this number may vary from operator to operator. In the past, we have estimated that this action takes 1 work-hour per airplane. Since operators incorporate maintenance or inspection program changes for their affected fleet(s), we have determined that a per-operator estimate is more accurate than a per-airplane estimate. Therefore, we estimate the total cost per operator to be $7,650 (90 work-hours × $85 per work-hour).

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This proposed AD is issued in accordance with authority delegated by the Executive Director, Aircraft Certification Service, as authorized by FAA Order 8000.51C. In accordance with that order, issuance of ADs is normally a function of the Compliance and Airworthiness Division, but during this transition period, the Executive Director has delegated the authority to issue ADs applicable to transport category airplanes and associated appliances to the Director of the System Oversight Division.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this proposed regulation:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);

3. Will not affect intrastate aviation in Alaska; and

4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

In accordance with the Privacy Act (5 U.S.C. 552a) we are issuing public notice of our intent to establish a new system of records entitled, Security and Suitability Files (60-0377).

We are establishing the Security and Suitability Files to govern the information we generate in conducting personnel security and suitability background investigations. With limited exceptions, persons appointed to, and under consideration for, Federal service or contract employment are required to submit to a suitability background investigation. The Deputy Commissioner for Human Resources, Office of Personnel, Center for Suitability and Personnel Security (CSPS) oversees and is responsible for adjudicating these investigations. Information collected as part of the agency's suitability and background investigations process that is sent to the Office of Personnel Management (OPM) is covered by OPM/Central-9, Personnel Investigations Records. The Security and Suitability Files we are creating covers any additional security and suitability related information generated by SSA that is not sent to OPM. We will use the information we collect to conduct background investigations to establish that individuals employed by SSA, working for SSA under contract, or otherwise granted access to agency facilities and records are suitable for such employment or access.

Due to the investigatory nature of information that will be maintained in this system of records, this rule would add the Security and Suitability Files to the list of SSA systems that are exempt from specific provisions of the Privacy Act pursuant to 5 U.S.C. 552a(k)(5).

All comments received on or before the close of business on the comment closing date indicated above will be considered and will be available for examination in the docket at the above address. Comments received after the comment closing date will be filed in the docket and will be considered to the extent practicable. A final rule may be published at any time after close of the comment period.

Executive Order 12866, as supplemented by Executive Order 13563, requires each agency to write all rules in plain language. In addition to your substantive comments on this interim final rule, we invite your comments on how to make the rule easier to understand.

For example:

• Would more, but shorter, sections be better?

• Are the requirements in the rule clearly stated?

• Have we organized the material to suit your needs?

• Could we improve clarity by adding tables, lists, or diagrams?

• What else could we do to make the rule easier to understand?

• Does the rule contain technical language or jargon that is not clear?

• Would a different format make the rule easier to understand, e.g. grouping and order of sections, use of headings, paragraphing?

SSA will publish a final rule responding to any comments received and, if appropriate, will amend provisions of the rule.

We consulted with the Office of Management and Budget (OMB) and determined that this proposed rule does not meet the criteria for a significant regulatory action under Executive Order 12866, as supplemented by Executive Order 13563.

We also determined that this proposed rule meets the plain language requirement of Executive Order 12866.

This proposed rule was analyzed in accordance with the principles and criteria established by Executive Order 13132, and SSA determined that the proposed rule will not have sufficient Federalism implications to warrant the preparation of a Federalism assessment. SSA also determined that this proposed rule will not preempt any State law or State regulation or affect the States' abilities to discharge traditional State governmental functions.

The regulations effectuating Executive Order 12372 regarding intergovernmental consultation on Federal programs and activities apply to this proposed rule.

We certify that this proposed rule will not have a significant economic impact on a substantial number of small entities because it affects individuals only. Therefore, the Regulatory Flexibility Act, as amended, does not require us to prepare a regulatory flexibility analysis.

These rules do not create any new or affect any existing collections and, therefore, do not require Office of Management and Budget approval under the Paperwork Reduction Act.

For the reasons stated in the preamble, we propose to amend part 401 of title 20 of the Code of Federal Regulations as set forth below:

When we determine whether you are disabled under the old-age, survivors, and disability insurance program under title II of the Social Security Act (Act) or the Supplemental Security Income (SSI) program under title XVI of the Act, we follow an administrative review process that usually consists of the following steps: 1 An initial determination, a reconsideration,2 a hearing before an ALJ, and Appeals Council review. If you are dissatisfied with the initial determination of your disability claim(s), you may request reconsideration. In most cases, the reconsideration step of the administrative review process, which is technically the first level of appeal in the administrative review process for Social Security disability claims in most States,3 consists of a case review by Disability Determination Services (DDS) personnel who were not involved in the initial determination. If you are dissatisfied with your reconsidered determination, you may request a hearing, which is held by an ALJ.4 If you are dissatisfied with an ALJ's decision, you may ask the Appeals Council to review that decision. After you have completed these steps of the administrative review process, you may request judicial review of our final decision by filing a civil action in a Federal district court.

Once you are receiving benefits under title II or XVI of the Act, we are required to conduct CDRs periodically to determine whether your disability continues.5 When we make a medical cessation determination that you are no longer disabled because your medical impairment(s) has ceased, did not exist, or is no longer disabling, you may appeal that determination. The steps in the CDR administrative review process parallel those in the initial disability determination administrative appeals cycle in that both contain some type of: An initial determination, a reconsideration, a hearing before an ALJ, and Appeals Council review. In the CDR administrative review process, however, an evidentiary hearing before a DHO is held at the reconsideration step for a CDR. Specifically, when we make an initial CDR determination and you want to contest our determination that you are no longer disabled, you may request an evidentiary hearing before a DHO 6 on reconsideration; if you are dissatisfied with your reconsidered determination, you may request a hearing before an ALJ; and if you are dissatisfied with the ALJ's decision, you may ask the Appeals Council to review that decision. When you have completed the administrative review process, you may request judicial review of our final decision by filing a civil action in a Federal district court.

Since Congress established Social Security in 1935, the size and scope of the programs we administer have grown tremendously. During the 1940s and 1950s, Congress extended coverage under title II to nearly the entire American workforce. In the 1950s, Congress revised the Act and created the disability insurance program, and in the 1970s, Congress created the Supplemental Security Income (SSI) program, both of which greatly expanded the size and scope of our programs. The aging of the baby boomers and the changing demographics of our nation have also significantly affected the size and scope of our workloads. The Supreme Court has aptly observed that we are “probably the largest adjudicative agency in the western world,” where “[t]he need for efficiency is self-evident.” 7

When we began our hearings process in 1940, we handled a comparatively small number of claims involving retirement and survivors insurance, and received only about 16,000 hearing requests in our first decade.8 At present, we continue to face an unprecedented service challenge with nearly 860,000 individuals waiting an average of 19 months for a hearing before an ALJ.9 We currently process several hundred thousand hearing requests before an ALJ each year through an extensive network of 164 hearing offices, 5 National Hearing Centers (NHCs) and several hundred remote sites. Due to factors inherent to managing a nationwide program, including differences in the number of hearing requests received and the availability of administrative resources in a hearing office service area, we have a significant disparity in wait times for a hearing across the nation. For example, in fiscal year (FY) 2018, the average wait time for a hearing before an ALJ was 595 days. However, 76% of our hearing offices had average wait times between 500 and 700 days, 10% of our offices had average wait times over 700 days, and 14% of our offices had wait times below 500 days.10

We face the same workload challenges with regard to the reconsideration disability hearings before a DHO for CDRs. According to our internal data sources, from 2007 to 2018 the number of requests for a disability hearing at the reconsideration level increased from 19,898 to 82,604.11 With this tremendous increase in the number of pending disability hearing requests, the length of time it takes us to conduct a disability hearing has increased as well. Our internal data shows that, nationally, the average processing time from the date we receive a request for disability hearing before a DHO to the date the DHO issues a reconsidered determination was 194 days.12 Additionally, nearly 10.5% of disability hearings at the reconsideration level have been pending for 240 to 359 days, and 14.9% have been pending for 360 or more days.13 Increased processing times for disability hearings at the reconsideration level correlate to increased overpayments due to the individual's right to continue to receive disability benefits under title II, or disability or blindness payments under title XVI, while their claims are pending at the reconsideration or ALJ hearing level.14

Our Office of the Inspector General (OIG) evaluated the financial impact of individuals continuing to receive benefit payments during CDR appeals. In 2006, OIG found that individuals waited an average of 648 days (in title II cases) and 694 days (in title XVI cases) from the time they requested reconsideration of an initial medical cessation determination and the time they received an ALJ decision.15 By May 2017, the average processing time for medical cessation appeals had increased to 766 days (title II) and 831 days (title XVI) for sampled recipients.16 To reduce or avoid overpayments resulting from continued benefit payments, OIG recommended that we enhance our business process to allow more timely determinations and decisions on medical cessation appeals.17

Efficiently managing these workloads while preserving the accuracy and fundamental fairness of our hearings has required, and continues to require, creative thinking and strategic planning. Since the mid-1990s, we have recognized that electronic service delivery, based on proven secure technology, can provide our customers with new ways to conduct business with us. These new ways of conducting business with us are both convenient for claimants and efficient for claimants and us. We have continuously explored expanding the service options available to our customers in new and innovative ways as technological advances allow.18

For about 20 years we have explored the use of VTC to conduct fair and accurate hearings more efficiently. In the late 1990s, we tested our capacity to conduct ALJ hearings by VTC in Iowa. We received positive feedback from participants, and test data showed that processing times for VTC hearings were substantially lower than the processing time for in-person hearings held by ALJs at remote locations during the same period.19 In 2003, we published rules that directed ALJs to schedule hearings by VTC in any case where VTC technology was available, it was more efficient to do so, and no circumstance in the case prevented the use of VTC technology.20 Under these rules, the claimant could opt out of a VTC hearing at any time, including the day of the hearing.21

As we gained experience with VTC for hearings before an ALJ, we and others have studied the efficacy of these hearings; those studies have found that the use of VTC provides us a number of benefits, including additional flexibility, especially with respect to aged and backlogged hearing requests, improved case processing times, and reduced ALJ travel.22 For example, in 2011, our OIG found that the most important capability provided by the use of VTC hearings is the ease with which pending cases can be reassigned from heavily backlogged offices to virtually any video-equipped ALJ anywhere in the country who has excess hearing capacity.23 OIG identified several concrete instances in which VTC improved the functioning of our hearings process. We have also observed that VTC technologies offer expanded service options for parties, especially for geographically and otherwise isolated claimants.

The Administrative Conference of the United States (ACUS), an independent, nonpartisan Federal agency that studies and recommends improvements to administrative process and procedures, also has noted a number of advantages to the use of VTC hearings before an ALJ.24 In 2011, ACUS adopted its Recommendation 2011-4,25 which noted that agencies with high volume caseloads were likely to receive the most benefit or cost savings (or both) from the use of VTC. ACUS therefore encouraged all agencies (including those with lower volume caseloads) to consider whether the use of VTC would be beneficial as a way to improve efficiency and reduce costs, while also preserving the fairness and participant satisfaction. In 2015, ACUS also published a Handbook on Best Practices for Using Video Teleconferencing in Adjudicatory Hearings. This handbook provides many recommendations regarding physical space, lighting, and technology. We will consult ACUS's recommendations as we continue to modernize our infrastructure, and ensure we are up to date on the latest technology available.26

As we continue to seek ways to improve the efficiency of our hearings process, we also are mindful of recommendations from our Inspector General. For example, in 2012, our OIG studied the operation of our National Hearing Centers (NHC), which primarily use VTC to conduct hearings, and raised concerns that claimants were opting out of VTC hearings after they had already been scheduled, sometimes even on the day of the hearing, and that representatives were opting out to avoid appearing before certain ALJs.27 In response, we revised our regulations in 2014 to provide that claimants, or their representatives, must object to appearing by VTC within 30 days after receiving a notice acknowledging receipt of their hearing request, unless they had good cause for failing to meet that deadline.28 While this regulatory change allowed us to forestall last-minute cancellation of VTC hearings, the percentage of claimants who choose an in person hearing over the VTC option remains high. In FY 2015, approximately 30% of claimants who requested an ALJ hearing that year objected to appearing by VTC 29 . In FY 2017, approximately 32% of claimants who requested an ALJ hearing that year objected to appearing by VTC.30

At the reconsideration level at CDR, our rules state we will set the time and place of a disability hearing,31 but do not specifically set out the manner in which parties and witnesses will appear. We currently conduct disability hearings at the reconsideration level before a DHO in person, by VTC, and, in limited circumstances, by telephone.32 Similar to the ALJ hearing level, we have used VTC to conduct disability hearings at the reconsideration level for approximately 20 years. However, before a DHO may conduct a disability hearing by VTC, we currently require a beneficiary or recipient sign and return a statement to the DHO stating that he or she voluntarily elects to appear by VTC.33 This policy causes delays in scheduling disability hearings and results in increased case processing times.

When an individual objects to appearing by VTC at an ALJ hearing or does not elect to appear by VTC at a reconsideration hearing before a DHO at CDR, the efficiency of our hearings process is set back without any corresponding increase in the fairness of the process, and the individual may wait longer for an in person hearing. At the ALJ hearing level, the number of ALJs available to conduct an in person hearing is generally limited to those ALJs stationed at, or geographically close to, the assigned hearing office or within travel distance to one of our permanent remote sites. Requiring an ALJ to travel to a remote hearing site for an in person hearing reduces the amount of time the ALJ can devote to holding other hearings and issuing decisions from his or her assigned hearing office. We expect the ten-year savings due to decreased reimbursements for all ALJ hearings participants, including ALJs, representatives, claimants, and contractors, to be $67.2M. At the reconsideration level for CDRs, scheduling an in person hearing may require significant travel by the DHO and the beneficiary or recipient, along with the time and costs associated with such travel. An in person reconsideration hearing requires additional time for the DHO and reduces the time available for the DHO to hold other hearings and issue determinations.

We expect that expanding our use of VTC technology will help us in two ways. First, increased use of VTC technology will reduce these discrepancies in the wait time among the hearing offices. Second, increased use of VTC will allow us to decrease the total number of cases pending at the ALJ hearing level by allowing us to shift cases from overburdened hearing offices to hearing offices with fewer requests for hearing pending per ALJ. Balancing our workloads by using VTC has been key to addressing our oldest pending cases, and it has allowed us to act quickly as service needs arise from unanticipated emergencies, e.g., by transferring cases to another part of the country.

As documented in ACUS's studies and in feedback from multiple other sources, our use of VTC has been widely accepted as an important tool that increases our ability to hold hearings and improve public service. For example, in 2006, the Social Security Advisory Board (SSAB), a bipartisan, independent body that advises the President, Congress, and the Commissioner of Social Security on matters of policy and administration of the disability insurance and Supplemental Security Income programs,34 reported receiving overwhelmingly positive comments on the use of VTC hearings.35 In 2011, OIG received mostly positive comments about the role of VTC in the hearings process from representatives from the National Organization of Social Security Claimants' Representatives and the National Association of Disability Representatives.36 In 2012, in a report estimating the cost savings of VTC hearings in the Social Security context, OIG estimated annual cost savings of $5.2 to 10.9 million.37

Moreover, there is no evidence that the use of VTC technology adversely affects the outcome of the decision making process. An internal report prepared in FY 2017 by our Office of Quality Review (OQR) showed there was not a significant difference in outcome or policy compliance for VTC and in person hearings. OQR found a high degree of policy compliance and quality for both types of hearings. We included this report as part of the rulemaking docket, which is publicly available at www.regulations.gov, and we invite comments on it.

We also have made great strides in increasing our video capabilities in order to improve our business processes. Since 2016, we have refreshed all VTC equipment and infrastructure, which has resulted in better technological quality of video hearings. Additionally, the dramatic reduction in the number of cases that involve paper claims folders over the past ten years has allowed for smoother workload balancing, ensuring consistent service on a national level. With the infrastructure and equipment we have in place, the use of VTC technology ensures that we can deliver service in a modern, seamless, and flexible manner. All video hearings rooms are section 504 compliant based on the capacity for individuals attending a hearing, providing equal access to hearings for claimants with disabilities.

We expect that this proposed rule will ensure that as we expand our ability to conduct appearances by VTC, we are able to schedule hearings more fairly and efficiently. The preferred methods for conducting hearings are by VTC and in person. However, an ALJ or DHO may conduct a hearing by telephone under two circumstances: (1) When it is physically impossible to conduct the hearing by VTC or in person, such as incarceration in a facility without VTC ability; and (2) extraordinary circumstances, such as when a natural disaster occurs and our VTC facilities are unavailable.38 When using a telephone to conduct a hearing, the telephone technology used must allow for the beneficiary or recipient and his or her representative to hear and respond to all testimony presented at the hearing.39

To increase our ability to schedule hearings more fairly, flexibly, and efficiently and address the unprecedented service challenges we face at the reconsideration and ALJ hearing levels of our administrative review process, we propose the following changes to our rules:

• We propose to revise and unify some of the rules that govern how, where, and when individuals appear for hearings before an ALJ at the hearings level and before a DHO at the reconsideration level of our administrative review process.

• At the hearings level, we will determine the time and place of a hearing before an ALJ and determine how parties and witnesses will appear at the hearing.

• At the reconsideration level for CDRs, the State agency or the Associate Commissioner for Disability Determinations, or his or her delegate, will determine the time and place of a hearing before a DHO and determine how parties and witnesses will appear at the hearing. Under the proposed rules, while we will evaluate the specific circumstances of each claimant's or beneficiary's case to determine what is the most efficient and appropriate manner of hearing, we would not permit individuals to object to appearing by the manner of hearing we choose.

• At both the CDR reconsideration and ALJ levels of our administrative review process, when we schedule a hearing, we propose that we will determine the manner in which the parties to the hearing will appear: By VTC, in person, or, under the limited circumstances specified here, by telephone. In determining whether a party will appear by VTC or in person, we would consider whether VTC technology is available; whether it would be more efficient for an individual to appear by VTC or in person; and whether there are circumstances in the case that provide a good reason to schedule an individual to appear by VTC or in person. Under the proposed rules, we would not permit individuals to opt out of or objecting to appearing by the manner of hearing we chose.

• We also propose that we would determine the manner in which witnesses to a hearing will appear. In general, we would schedule witnesses to appear at hearings by VTC or telephone, unless VTC or telephone equipment are not available; we determine that it would be more efficient for a witness to appear in person; or there are circumstances in the case that provide a good reason to schedule a witness to appear in person.

• We also propose that an ALJ may continue to identify case-specific facts that affect which manner of appearance is most efficient. However, the agency will have the final responsibility to determine in which manner the individual must appear.

• At the Appeals Council level, if the Appeals Council grants an individual's request to appear to present oral argument, the individual will appear before the Appeals Council by VTC or in person, or, when the circumstances described in § 404.936(c)(2) exist, by telephone.

We believe that we can best serve individuals involved in our disability program by maximizing the case processing efficiencies and flexibility allowed by VTC hearings. Supporting this, OIG and ACUS have repeatedly recommended that we increase use of VTC hearings for greater efficiency. The SSAB has also recommended we eliminate the ability to object to appearing by VTC.40 The SSAB has stated that allowing a claimant to opt out of a VTC hearing reduces the hearing process's productivity and delays processing of not only that individual's case, but also others who are waiting for their opportunity for a hearing.41

The changes we propose will provide us with the flexibility we need to address the ongoing service challenges we face by balancing our hearing workloads in a way that we expect will reduce overall wait and processing times across the country and reduce the processing time disparities that exist from region to region.

In addition to the changes we propose for setting the manner for appearing at a hearing, we also propose to make one clarification to our rules regarding the notice of hearing at the ALJ hearings level. Under our current rules, we send a notice of hearing at least 75 days prior to the date of the scheduled hearing to all parties and their representatives, if any.42 In addition to setting the time and place of a hearing, the notice has additional information, including the issues to be decided, the right to representation, how to request a change in the time of the hearing, and who will be present at the hearing, such as any expert witnesses we call. We propose to clarify that when we send an amended notice of hearing updating any information, we will send the amended notice at least 20 days prior to the hearing.

If we need to change the date of a hearing, the date we choose will always be at least 75 days from the date we first sent the claimant a notice of hearing, unless the claimant has waived his or her right to advance notice. We believe sending an amended notice of hearing at least 20 days prior to the hearing would give the individual ample time to fully prepare for the hearing because the individual would have already received the initial notice of hearing, sent at least 75 days before the hearing. In many cases, sending an amended notice of hearing at least 75 days before the date of the hearing would require us to reschedule and unnecessarily delay the hearing, which would inhibit us from providing better public service by having a hearing as soon as we can do so. Therefore, we propose to send an amended notice of hearing at least 20 days prior to the hearing, which is the same amount of advance notice we used to provide most claimants before we implemented the 75-day notice period. Similarly, if we schedule a supplemental hearing, after the initial hearing was continued by the assigned ALJ, we will send a notice of hearing at least 20 days before the date of the hearing.

Executive Order 12866 as supplemented by Executive Order 13563 requires each agency to write all rules in plain language. In addition to your substantive comments on this NPRM, we invite your comments on how to make rules easier to understand.

For example:

• Would more, but shorter, sections be better?

• Are the requirements in the rule clearly stated?

• Have we organized the material to suit your needs?

• Could we improve clarity by adding tables, lists, or diagrams?

• What else could we do to make the rule easier to understand?

• Does the rule contain technical language or jargon that is not clear?

• Would a different format make the rule easier to understand, e.g., grouping and order of sections, use of headings, paragraphing?

We consulted with the Office of Management and Budget (OMB) and determined that these proposed rules meet the requirements for a significant regulatory action under Executive Order 12866 as supplemented by Executive Order 13563. Thus, OMB reviewed these proposed rules.

This proposed rule is not subject to the requirements of Executive Order 13771 because it is administrative in nature.

SSA's Office of the Chief Actuary estimates that the actuarial impact of the rule will be de minimis.

SSA's Office of Budget estimates that the proposal, if implemented, will result in administrative savings of $118 million over a 10-year period. These savings stem from reduced costs of claimant and representative travel, a reduced number of workyears needed, and fewer forms processed.

We certify that these proposed rules will not have a significant economic impact on a substantial number of small entities because they only affect individuals. Accordingly, a regulatory flexibility analysis as provided in the Regulatory Flexibility Act, as amended, is not required.

These proposed rules do not create any new or affect any existing collections and, therefore, do not require Office of Management and Budget approval under the Paperwork Reduction Act.

For the reasons set out in the preamble, we propose to amend 20 CFR chapter III, parts 404 and 416, as set forth below:

Table of Contents I. Executive Summary A. Purpose of the Proposed Rule B. Summary of the Major Provisions of the Proposed Rule C. Legal Authority D. Costs and Benefits II. Background and Description of the Proposed Regulation A. Background B. Description of the Proposed Regulation III. Proposed Effective Date IV. Legal Authority V. Economic Analysis of Impacts A. Benefits of the Proposed Rule B. Cost Savings of the Proposed Rule C. Costs of the Proposed Rule D. Executive Order 13771 VI. Analysis of Environmental Impact VII. Paperwork Reduction Act of 1995 VIII. Consultation and Coordination With Indian Tribal Governments IX. Federalism X. References I. Executive Summary A. Purpose of the Proposed Rule

The purpose of this proposed rule is to implement the statutory changes made to the Federal Food, Drug, and Cosmetic Act (FD&C Act) by section 3024 of the Cures Act (Pub. L. 114-255) to allow for a waiver or alteration of informed consent when a clinical investigation poses no more than minimal risk to the human subject and includes appropriate safeguards to protect the rights, safety, and welfare of human subjects. The proposed rule, if finalized, would permit an IRB to waive or alter certain informed consent elements or to waive the requirement to obtain informed consent, under limited conditions, for certain minimal risk clinical investigations.

The major provisions of the proposed rule would add § 50.22 to part 50 (21 CFR part 50) to allow IRBs responsible for the review, approval, and continuing review of clinical investigations to approve an informed consent procedure that waives or alters certain informed consent elements or that waives the requirement to obtain informed consent for certain minimal risk clinical investigations. In order for an IRB to approve a waiver or alteration of informed consent requirements for minimal risk clinical investigations, the proposed rule would require an IRB to find and document four criteria that are consistent with the “Federal Policy for the Protection of Human Subjects” (the Common Rule) (56 FR 28001, June 18, 1991). FDA believes proposed § 50.22 would provide appropriate safeguards to protect the rights, safety, and welfare of the human subjects participating in such clinical investigations. We are also proposing conforming amendments to FDA's regulations, including § 50.20, 21 CFR 312.60, and 21 CFR 812.2.

Sections 505(i)(4) and 520(g)(3) of the FD&C Act (21 U.S.C. 355(i)(4) and 360j(g)(3)), as amended by section 3024 of the Cures Act, in conjunction with FDA's general rulemaking authority in section 701(a) of the FD&C Act (21 U.S.C. 371(a)), serve as FDA's principal legal authority for this proposed rule.

We do not anticipate additional costs associated with this rulemaking. This proposed rule would help enable the conduct of certain minimal risk clinical investigations for which the requirement to obtain informed consent is waived or for which certain elements of informed consent are waived or altered. We expect benefits in the form of healthcare advances from such minimal risk clinical investigations and from harmonization of FDA's informed consent regulations with the Common Rule's provision for waiver of informed consent for certain minimal risk research. We cannot quantify all of these benefits because of the lack of relevant data available to FDA. The benefits that we are able to quantify are the cost savings to IRBs because the time burdens of reviewing certain minimal risk clinical investigations under differing requirements would be reduced. The estimated cost savings of the proposed rule are approximately $237.6 thousand, with a lower bound of $59.4 thousand and an upper bound of $950.5 thousand. The estimated annualized costs savings of the proposed rule are approximately $27 thousand, with a lower bound of approximately $6,762 and an upper bound of approximately $108.2 thousand, discounted at 3 percent over 10 years. The estimated annualized costs savings of the proposed rule are approximately $26 thousand, with a lower bound of approximately $6,509 and an upper bound of $104.1 thousand, discounted at 7 percent over 10 years.

On December 13, 2016, the Cures Act was signed into law, amending certain provisions of the FD&C Act. FDA is proposing to update its regulations to reflect some of those changes that are now in effect. Specifically, section 3024 of the Cures Act amended sections 520(g)(3) and 505(i)(4) of the FD&C Act to provide FDA with the authority to permit an exception from informed consent requirements when the proposed clinical testing poses no more than minimal risk to the human subject and includes appropriate safeguards to protect the rights, safety, and welfare of the human subject. This proposed rule, if finalized, would implement this statutory change.

Sections 505(i) and 520(g) of the FD&C Act require FDA to publish regulations governing the use in human subjects of drugs and devices in clinical investigations. In 1962, amendments to section 505(i) of the FD&C Act provided that FDA regulations must ensure that informed consent for investigational use of drugs (including biological products) in human beings is obtained except where it is not feasible or it is contrary to the best interests of such human beings. The Medical Device Amendments of 1976 subsequently added section 520(g) to the FD&C Act. Among other requirements, section 520(g)(3)(D) of the FD&C Act directed that FDA regulations governing investigational use of devices require that informed consent be obtained except where the investigator determines in writing that there exists a life-threatening situation involving the human subject of such testing that necessitates the use of such device and it is not feasible to get the consent of the subject and there is not sufficient time to obtain such consent from the subject's representative. Section 520(g)(3)(D) of the FD&C Act further provided that a licensed physician not involved in the research must also concur in this determination, unless immediate use is necessary to save the subject's life and there is not time to get concurrence.

In 1979, FDA proposed revisions to its regulations governing informed consent (44 FR 47713, August 14, 1979). The Agency recognized in the preamble to its proposed rule that the statutory language regarding exceptions from informed consent for investigational drugs differed from that regarding investigational devices. However, the Agency explained that its prior regulations implementing the statutory exception from informed consent for investigational drugs “carefully limited” the exception to certain situations that assume “the patient subject is seriously ill” and did not differ greatly from the new statutory exceptions from informed consent for devices (see 44 FR 47713 at 47718). When FDA issued final revisions to its informed consent regulations in 1981, it adopted a single set of requirements for informed consent for all FDA-regulated clinical investigations, which reflected the device standard in section 520(g)(3)(D) of the FD&C Act (see 46 FR 8942, January 27, 1981). FDA explained its intent to adopt a single standard that reflected the most current congressional thinking on informed consent (see 44 FR 47713 at 44718; 46 FR 8942 to 8944).

Currently, FDA's regulations governing the protection of human subjects (21 CFR parts 50 and 56) allow exception from the general requirements of informed consent only in life-threatening situations when certain conditions are met (§ 50.23) or when the requirements for emergency research are met (§ 50.24). In all other cases, FDA regulations require that a human subject provide informed consent before participating in a clinical investigation. At this time, FDA's regulations do not allow an exception from the general requirements of informed consent for minimal risk clinical investigations.

In contrast, the Common Rule has included waiver of informed consent provisions for minimal risk research since it was originally issued in 1991 (56 FR 28001). The Common Rule sets forth requirements for the protection of human subjects involved in research that is conducted or supported by the Department of Health and Human Services (HHS) (see 45 CFR 46, Subpart A) and 15 other Federal departments and agencies. The purpose of the Common Rule is to promote uniformity, understanding, and compliance with human subject protections as well as to create a uniform body of regulations across the Federal departments and agencies.1 The Common Rule standard has permitted an IRB to waive the requirements to obtain informed consent, or to allow changes to, or omission of, some or all elements of informed consent if the IRB finds and documents that: (1) The research involves no more than minimal risk to the subjects; (2) the waiver or alteration will not adversely affect the rights and welfare of the subjects; (3) the research could not practicably be carried out without the waiver or alteration; and (4) whenever appropriate, the subjects will be provided with additional pertinent information after participation (45 CFR 46.116(d); 56 FR 28001 at 28017).2

FDA amended its regulations in parts 50 and 56 to conform them to the Common Rule in 1991 (56 FR 28001 at 28025) but diverged from the Common Rule's provision for waiver or alteration of informed consent for minimal risk research at 45 CFR 46.116(d). In explaining the reason for this departure, FDA cited sections 505(i) and 520(g)(3)(D) of the FD&C Act 3 and stated that the FD&C Act “requires informed consent to be obtained from all subjects except in very limited circumstances” and that the Agency did “not have the authority under the act to waive this requirement” (53 FR 45671 at 45679, November 10, 1988).

The Common Rule provision recognizes that there may be proposed research that cannot practicably be conducted without a waiver or alteration of informed consent, but the research would contribute valuable medical or scientific knowledge and would present no more than minimal risk to subjects. FDA believes this is also true for some minimal risk FDA-regulated clinical investigations. On March 13, 2014, the Secretary's Advisory Committee on Human Research Protections (SACHRP) considered whether the Common Rule standard for waiver of informed consent for minimal risk research would be appropriate and helpful for FDA-regulated clinical investigations. SACHRP recommended to the Secretary of HHS that FDA adopt the provisions for waiver of informed consent that existed under the Common Rule at that time at 45 CFR 46.116(d). On October 26, 2016, SACHRP reiterated that recommendation to the Secretary.4

FDA believes that the Common Rule provision has provided appropriate safeguards to protect the rights, safety, and welfare of human subjects participating in certain minimal risk research for over 25 years. Consistent with SACHRP's recommendations, FDA also believes that this standard is appropriate for FDA-regulated clinical investigations posing no more than minimal risk to human subjects. The Cures Act statutory revision authorizes FDA to permit an exception from informed consent requirements when the proposed clinical testing poses no more than minimal risk to the human subject and includes appropriate safeguards to protect the rights, safety, and welfare of the human subject. This enables FDA to harmonize with the Common Rule's well-established waiver provision for certain minimal risk research, thereby facilitating investigators' ability to conduct minimal risk clinical investigations that could contribute substantially to the development of products to diagnose or treat diseases or other conditions, without compromising subjects' rights, safety, or welfare. Because some clinical research is subject to both FDA and HHS requirements, harmonization of this waiver provision should also reduce burden on the research community.

The Common Rule was recently revised (82 FR 7149, January 19, 2017), introducing new terminology and regulatory provisions. Although it retains the same criteria for IRB waiver or alteration of informed consent as were included in the 1991 version of the Common Rule, it adds a fifth criterion, i.e., “if the research involves using identifiable private information or identifiable biospecimens, the research could not practicably be carried out without using such information or biospecimens in an identifiable format” (new requirement at 45 CFR 46.116(f)(3)(iii)). We are proposing to adopt the four criteria from the 1991 version of the Common Rule. At this time, we are not proposing to adopt the new fifth criterion in the revised Common Rule, which has a general compliance date of January 21, 2019; however, we invite comments on this issue. Section 3023 of the Cures Act requires the Secretary of HHS, to the extent practicable and consistent with other statutory provisions, to harmonize the differences between the HHS human subject regulations and FDA's human subject regulations. FDA will be working with others in HHS to carry out this statutory directive with respect to new terminology and regulatory provisions in the revised Common Rule, such as this new fifth criterion.

Subsequent to the Cures Act amendment to the FD&C Act, FDA issued a guidance document for immediate implementation, entitled “Institutional Review Board Waiver or Alteration of Informed Consent for Clinical Investigations Involving No More Than Minimal Risk to Human Subjects” (82 FR 34535, July 25, 2017). This guidance informed sponsors, investigators, and IRBs that FDA does not intend to object to an IRB waiving or altering informed consent requirements, as described in the guidance, for certain minimal risk clinical investigations. In addition, the guidance informed sponsors, investigators, and IRBs that FDA does not intend to object to a sponsor initiating, or an investigator conducting, a minimal risk clinical investigation for which an IRB waives or alters the informed consent requirements as described in the guidance. FDA intends to withdraw the guidance after regulations to implement section 3024 of the Cures Act become effective.

Obtaining informed consent from those who volunteer to participate in research is a fundamentally important principle of human subject protection. FDA is issuing this proposed rule to permit IRB waiver or alteration of informed consent in limited circumstances, consistent with the Cures Act. Given the variety and complexity of clinical investigations being conducted in today's research environment, FDA is soliciting additional stakeholder input on the types of FDA-regulated minimal risk clinical investigations for which sponsors would anticipate requesting a waiver or alteration of informed consent from the IRB.

FDA proposes to add § 50.22, “Exception from informed consent requirements for minimal risk clinical investigations” to part 50. The proposed exception would allow the IRB responsible for the review, approval, and continuing review of the clinical investigation to approve an informed consent procedure that does not include or that alters some or all of the elements of informed consent in § 50.25(a) and (b) of FDA's current regulations, or that waives the requirement to obtain informed consent, provided that the IRB finds and documents that:

• The clinical investigation involves no more than minimal risk to the subjects;

• the waiver or alteration of informed consent will not adversely affect the rights and welfare of the subjects;

• the clinical investigation could not practicably be carried out without the waiver or alteration of informed consent; and

• whenever appropriate, the subjects will be provided with additional pertinent information after participation.

Consistent with the amendments made by section 3024 of the Cures Act, § 50.22(a) would limit the application of a waiver or alteration of informed consent under proposed § 50.22 to clinical investigations that involve no more than minimal risk. FDA regulations and the Common Rule have shared the same definition of “minimal risk” since 1991 (see 56 FR 28025, June 18, 1991; § 50.3(k); 45 CFR 46.102(i)).5

Proposed § 50.22 also provides for appropriate safeguards to protect the rights, safety, and welfare of human subjects. Proposed § 50.22(b) requires the reviewing IRB to find that the waiver or alteration will not adversely affect the rights and welfare of the subjects. To make this finding, IRBs may consider, for example, whether the waiver or alteration has the potential to negatively affect the subjects' well-being or whether the subject population in general would likely object to a waiver or alteration being granted for the research in question. It would not be necessary for an IRB to find that obtaining informed consent would be harmful or contrary to the best interests of subjects in order to satisfy this criterion.

Proposed § 50.22(c) requires the reviewing IRB to find that the clinical investigation could not practicably be carried out without the waiver or alteration. If scientifically sound research can be practicably carried out using only consenting subjects, FDA believes it should be carried out without involving nonconsenting subjects. By practicable, FDA means, for example: (1) That recruitment of consenting subjects does not bias the science and the science is no less rigorous as a result of restricting it to consenting subjects or (2) that the research is not unduly delayed by restricting it to consenting subjects. The emphasis is on situations where it is impracticable to carry out the clinical investigation, as designed, without the waiver or alteration, rather than on situations where it is not feasible to obtain informed consent from human subjects.

Finally, proposed § 50.22(d) requires the reviewing IRB to find that, whenever appropriate, the subjects will be provided with additional pertinent information after participation. For example, an IRB may determine that information that had been previously withheld about the clinical investigation to prevent bias must be provided to subjects following their participation.

If an IRB finds and documents the criteria set forth in proposed § 50.22(a) to (d), the proposed rule would provide for the IRB to approve an informed consent procedure that does not include or that alters some or all of the elements of informed consent in § 50.25(a) and (b), or that waives the requirement to obtain informed consent. This means that an IRB may waive entirely, under proposed § 50.22, the requirement to obtain informed consent, which would constitute a waiver of all elements under § 50.25(a), (b), and (c). However, regarding an alteration to the informed consent document, the proposed rule would not permit an IRB to approve an informed consent document with an omission or alteration of the specific informed consent element set forth in § 50.25(c), which requires that a statement regarding the inclusion of clinical trial information at https://www.ClinicalTrials.gov be provided in informed consent documents and processes for applicable clinical trials, as defined in section 402(j)(1)(A) of the Public Health Service Act, 42 U.S.C. 282(j)(1)(A).

FDA revised its informed consent regulations to add § 50.25(c) in response to section 801 of the Food and Drug Administration Amendments Act of 2007 (FDAAA) (Pub. L. 110-85, September 27, 2007). Section 801 of FDAAA amended section 505(i)(4) of the FD&C Act to direct the Secretary of HHS “to require inclusion in the informed consent documents and process a statement that clinical trial information for such clinical investigation has been or will be submitted for inclusion in the registry data bank pursuant to subsection (j) of section 402 of the Public Health Service Act.” Under proposed new § 50.22, if an IRB approved the use of a consent procedure that omitted or altered certain elements in § 50.25(a) and (b), the informed consent document and/or oral presentation provided to subjects would still need to include the statement at § 50.25(c) without alteration. As FDA has previously explained, requiring a uniform statement that cannot be altered helps to ensure that potential clinical trial participants receive a consistent and accurate message that is consistent with the intent of the statutory requirement and are directed to the specific website that contains the clinical trial databank (see 76 FR 256 at 261, January 4, 2011).

Proposed § 50.22 should not be confused with the provision of the current regulations that allows for a waiver of documentation of informed consent by an IRB in certain situations; the waiver for documentation of informed consent referenced in § 50.27 and found in § 56.109(c), remains unchanged.

We are also proposing three conforming amendments to §§ 50.20, 312.60, and 812.2 of our current regulations to reflect the proposed exception from informed consent for minimal risk clinical investigations. FDA is proposing to revise the introductory clause of § 50.20, General requirements of informed consent, to include reference to proposed § 50.22 as one of the limited exceptions to the general requirements for informed consent. Thus, the introductory clause to § 50.20 is proposed to read, “Except as provided in §§ 50.22, 50.23, and 50.24. . . .”

In addition, we are proposing a conforming amendment to the second sentence in § 312.60, General responsibilities of investigators, of our current regulations on investigational new drug applications to reference part 50 generally rather than list each specific exception to the informed consent requirements in part 50. This would simplify the regulatory text and make it clear that the investigator is responsible for obtaining the informed consent of each human subject to whom the drug is administered in accordance with part 50, which includes proposed § 50.22.

The remaining conforming amendment we are proposing in part 812, Investigational Device Exemptions (IDEs), § 812.2(b)(1)(iii), would make it clear that the investigator must obtain informed consent in accordance with part 50, which includes proposed § 50.22. To simplify the current regulatory text, we are proposing to remove the reference to documentation being waived under § 56.109(c), as the relevant section of the regulations in part 50 (i.e., § 50.27) refers investigators to § 56.109(c) and need not be repeated. Thus, the provision of the abbreviated requirements for IDEs in § 812.2(b)(1)(iii) would be simplified to read, “(iii) Ensures that each investigator participating in an investigation of the device obtains from each subject under the investigator's care, informed consent in accordance with part 50 of this chapter.”

FDA proposes that any final rule that may issue based on this proposal become effective 30 days after its date of publication in the Federal Register.

Title III, section 3024 of the Cures Act amended sections 520(g)(3) and 505(i)(4) of the FD&C Act to provide FDA with the authority to permit an exception from informed consent requirements when the proposed clinical testing poses no more than minimal risk to the human subject and includes appropriate safeguards to protect the rights, safety, and welfare of the human subject. This statutory amendment was signed into law and became effective on December 13, 2016. We are proposing these regulations to reflect these statutory changes to the FD&C Act, including appropriate human subject protection safeguards. Thus, sections 520(g)(3) and 505(i)(4) of the FD&C Act, as amended by section 3024 of the Cures Act, in conjunction with FDA's general rulemaking authority in section 701(a) of the FD&C Act, serve as our principal legal authority for this proposed rule.

We have examined the impacts of the proposed rule under Executive Order 12866, Executive Order 13563, Executive Order 13771, the Regulatory Flexibility Act (5 U.S.C. 601-612), and the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). Executive Orders 12866 and 13563 direct us to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). We believe that this proposed rule is not a significant regulatory action as defined by Executive Order 12866. Executive Order 13771 requires that the costs associated with significant new regulations “shall, to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations.” We believe that the proposed rule, if finalized, is an Executive Order 13771 deregulatory action and does not require us to identify cost offsets.

The Regulatory Flexibility Act requires us to analyze regulatory options that would minimize any significant impact of a rule on small entities. Because this proposed rule would not impose new requirements on any entity and therefore has no associated compliance costs, we propose to certify that the proposed rule will not have a significant economic impact on a substantial number of small entities.

The Unfunded Mandates Reform Act of 1995 (section 202(a)) requires us to prepare a written statement, which includes an assessment of anticipated costs and benefits, before proposing “any rule that includes any Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted annually for inflation) in any one year.” The current threshold after adjustment for inflation is $150 million, using the most current (2017) Implicit Price Deflator for the Gross Domestic Product. This proposed rule would not result in an expenditure in any year that meets or exceeds this amount.

The proposed rule would amend FDA's current informed consent regulations to harmonize with the 1991 version of the Common Rule's provision for waiver of the requirement to obtain informed consent for certain minimal risk research. We expect benefits in the form of healthcare advances stemming from additional minimal risk clinical investigations that would proceed using a waiver or alteration of informed consent, and from harmonization with the Common Rule's provision for waiver of the requirement to obtain informed consent for certain minimal risk research. The Common Rule provision is currently used by numerous other Federal departments and agencies. Some clinical research is subject to both FDA's regulations and the Common Rule, so harmonization of this specific waiver provision would benefit those entities that conduct, sponsor, or review certain minimal risk clinical investigations by reducing confusion and burden created by the need to comply with differing requirements.

The proposed rule would harmonize FDA's informed consent regulations with the 1991 version of the Common Rule's provision for waiver of the requirement to obtain informed consent for certain minimal risk clinical investigations. As in a previous economic analysis of the 2017 revisions to the Common Rule (Ref. 1), we attempt to quantify the effects of the proposed rule where possible. We conducted a search for active IRBs regulated by both FDA and the Office for Human Research Protections (OHRP) in HHS in the “Office for Human Research Protections (OHRP) Database for Registered IORGs & IRBs, Approved FWAs, and Documents Received in the Last 60 Days” (Ref. 2). Using this data, we are able to determine whether an IRB is active or inactive, and whether it is regulated by FDA, OHRP, or both. We multiply the number of active IRBs by the percentage of IRBs regulated by both FDA and OHRP to yield an estimate of 2,442 active IRBs that are regulated by both FDA and OHRP (= 3,507 × 0.696). We expect that some of these IRBs would be affected by the proposed rule, and would experience a reduction in the time burden of determining whether to approve a waiver of the requirement to obtain informed consent for a minimal risk clinical investigation by reviewing it under a harmonized standard.6 We estimate that 50 percent of affected IRBs would incur time savings from the proposed rule, with a lower bound of 25 percent of affected IRBs and an upper bound of 100 percent of affected IRBs. We estimate that for affected IRBs, cost savings would be incurred in the form of time savings to IRB administrators, IRB chairs, IRB voting members, and IRB administrative staff from evaluating a minimal risk clinical investigation under FDA's and the Common Rule's harmonized regulations for waiving the requirement to obtain informed consent. Based on discussion with FDA subject matter experts (Ref. 3), we estimate that the reduced time burden of the proposed rule is 30 minutes (0.5 hours), with a lower bound of 15 minutes (0.25 hours) and an upper bound of 60 minutes (1 hour).

We draw from Bureau of Labor Statistics data to estimate hourly wage rates for IRB chairs, IRB voting members, and IRB administrative staff in 2016 dollars. Based on an economic analysis of impacts of revisions to the Common Rule (Ref. 1), we use wages for postsecondary education administrators to proxy for IRB administrator wages (Ref. 4), wages for office and administrative support workers to proxy for IRB administrative staff wages (Ref. 5), and wages for postsecondary health teachers to proxy for the wages of IRB chairs and IRB voting members (Ref. 6). We double each hourly wage to account for benefits and overhead, yielding wage rates of $134.50 for IRB administrators (= $67.25 × 2), $35.94 for IRB administrative staff (= $17.97 × 2), $109.40 for IRB chairs (= $54.70 × 2), and $109.40 for IRB voting members (= $54.70 × 2). We estimate that each of these forms of labor would experience time savings as a result of the proposed rule ranging from 15 to 60 minutes, with a central estimate of 30 minutes. We also estimate that time savings would be incurred by one IRB administrator, one IRB administrative staff, one IRB chair, and one IRB voting member. We multiply the number of active IRBs regulated by the percentage of IRBs affected by the proposed rule, the estimated reduced time burden of the proposed rule, and the sum of each IRB wage rate to yield a total estimated cost savings of approximately $237,631 (= 2,442 × 0.50 × 0.50 × [$134.50 + $109.40 + $109.40 + $35.94]), with lower bound estimated cost savings of approximately $59,408 (= 2,442 × 0.25 × 0.25 × [$134.50 + $109.40 + $109.40 + $35.94]) and upper bound estimated cost savings of approximately $950,524 (= 2,442 × 1 × 1 × [$134.50 + $109.40 + $109.40 + $35.94]). The net present value of the cost savings of the proposed rule is approximately $230.7 thousand, discounted at 3 percent, with a lower bound of approximately $57.7 thousand and an upper bound of approximately $922.8 thousand. The net present value of the cost savings of the proposed rule are approximately $222.1 thousand, discounted at 7 percent, with a lower bound of approximately $55.5 thousand and an upper bound of approximately $888.3 thousand. The annualized cost savings of the proposed rule are approximately $27 thousand, discounted at 3 percent over 10 years, with a lower bound of approximately $6,762 and an upper bound of approximately $108.2 thousand. The annualized cost savings of the proposed rule are approximately $26 thousand discounted at 7 percent over 10 years, with a lower bound of approximately $6,509 and an upper bound of approximately $104.1 thousand. The estimated cost savings of the proposed rule to IRBs are summarized in table 1.

We do not anticipate additional costs associated with this rulemaking. This proposed rule would help enable the conduct of certain minimal risk clinical investigations for which the requirement to obtain informed consent is waived or for which certain elements of informed consent are waived or altered.

Executive Order 13771 requires that the costs associated with significant new regulations “shall, to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations.” We believe that the proposed rule, if finalized, is deregulatory under Executive Order 13771 and does not require us to identify cost offsets.

The net present value of the cost savings of the proposed rule are approximately $222.1 thousand, discounted at 7 percent, with a lower bound of approximately $55.5 thousand and an upper bound of approximately $888.3 thousand. The annualized cost savings of the proposed rule are approximately $15,546, discounted at 7 percent on an infinite time horizon, with a lower bound of approximately $3,886 and an upper bound of approximately $62,184. Discounted at 3 percent, the net present value of the cost savings of the proposed rule are approximately $230.7 thousand, with a lower bound of approximately $57.7 thousand and an upper bound of approximately $922.8 thousand. The annualized cost savings of the proposed rule are approximately $6,921, discounted at 3 percent on an infinite time horizon, with a lower bound of approximately $1,730 and an upper bound of approximately $27,685. The estimated net cost savings under Executive Order 13771 are summarized in table 2.

We have determined under 21 CFR 25.30(h) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

This proposed rule refers to previously approved collections of information found in FDA regulations. These collections of information are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). IRB actions related to the waiver or alteration of informed consent requirements are currently approved under OMB control numbers 0910-0014, 0910-0078, 0910-0130, and 0910-0755. Therefore, FDA tentatively concludes the requirements in this document are not subject to additional review by OMB.

We have analyzed this proposed rule in accordance with the principles set forth in Executive Order 13175. We have tentatively determined that the rule does not contain policies that would have a substantial direct effect on one or more Indian Tribes, on the relationship between the Federal Government and Indian Tribes, or on the distribution of power and responsibilities between the Federal Government and Indian Tribes. The Agency solicits comments from tribal officials on any potential impact on Indian Tribes from this proposed action.

We have analyzed this proposed rule in accordance with the principles set forth in Executive Order 13132. We have determined that this proposed rule does not contain policies that have substantial direct effects on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. Accordingly, we conclude that the rule does not contain policies that have federalism implications as defined in the Executive Order and, consequently, a federalism summary impact statement is not required.

The following references are on display in the Dockets Management Staff (see ADDRESSES) and are available for viewing by interested persons between 9 a.m. and 4 p.m., Monday through Friday; they are also available electronically at https://www.regulations.gov. FDA has verified the website addresses, as of the date this document publishes in the Federal Register, but websites are subject to change over time.

Therefore under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act, and under authority delegated to the Commissioner of Food and Drugs, it is proposed that 21 CFR parts 50, 312, and 812 be amended as follows:

On September 27, 2018, the Department published an NPRM and request for comments in the Federal Register (83 FR 48737), proposing to revise Hazardous Order Number 7 under the FLSA to allow for 16- or 17-year-olds to operate power-driven patient lifts. The NPRM also requested public comments on the NPRM on or before November 26, 2018. Not all supporting documents in the public docket may have been originally fully visible. That issue has now been addressed, however, and the documents are fully publicly viewable. In light of the above, and out of an abundance of caution, the Department has extended the period for submitting public comment to December 11, 2018.

On October 16, 2018, the U.S. Copyright Office issued a notice of inquiry (“NOI”) regarding the Classics Protection and Access Act, title II of the recently enacted Orrin G. Hatch-Bob Goodlatte Music Modernization Act.1 In connection with the establishment of federal remedies for unauthorized uses of sound recordings fixed before February 15, 1972 (“Pre-1972 Sound Recordings”), Congress established an exception for certain noncommercial uses of Pre-1972 Sound Recordings that are not being commercially exploited. To qualify for this exemption, a user must file a notice of noncommercial use after conducting a good faith, reasonable search to determine whether the Pre-1972 Sound Recording is being commercially exploited, and the rights owner of the sound recording must not object to the use within 90 days. To promulgate the regulations required by the new statute, the Office solicited comments regarding specific steps that a user should take to demonstrate she has made a good faith, reasonable search, as well as the filing requirements for the user to submit a notice of noncommercial use and for a rights owner to submit a notice objecting to such use.2

To ensure that members of the public have sufficient time to respond, and to ensure that the Office has the benefit of a complete record, the Office is extending the deadline for the submission of initial written comments to 11:59 p.m. Eastern Time on November 26, 2018. Written reply comments must be received no later than 11:59 p.m. Eastern Time on December 11, 2018. So that the Office is able to meet the statutory deadlines described in the NOI, no further extensions of time will be granted in this rulemaking.

Each commenter will have 5 minutes to provide oral testimony. The EPA encourages commenters to provide the EPA with a copy of their oral testimony electronically (via email) or in hard copy form.

The EPA may ask clarifying questions during the oral presentations but will not respond to the presentations at that time. Written statements and supporting information submitted during the comment period will be considered with the same weight as oral comments and supporting information presented at the public hearing. Commenters should notify Virginia Hunt if there are special needs related to providing comments at the hearing. Verbatim transcripts of the hearing and written statements will be included in the docket for the rulemaking.

Please note that any updates made to any aspect of the hearing will be posted online at https://www.epa.gov/stationary-sources-air-pollution/forms/public-hearing-proposal-adopt-subpart-ba-requirements. While the EPA expects the hearing to go forward as set forth above, please monitor our website or contact Virginia Hunt at (919) 541-0832 or [email protected] to determine if there are any updates. The EPA does not intend to publish a document in the Federal Register announcing updates.

The EPA will not provide audiovisual equipment for presentations unless we receive special requests in advance. Commenters should notify Virginia Hunt when they pre-register to speak that they will need specific equipment. If you require the service of a translator or special accommodations such as audio description, please pre-register for the hearing and describe your needs by November 21, 2018. We may not be able to arrange accommodations without advanced notice.

Congress made several amendments to the pipeline safety statutes in the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (the 2011 Act). The Secretary of Transportation (the Secretary) has delegated to PHMSA the responsibility for implementing the changes resulting from the 2011 Act. Section 5, “Integrity Management,” paragraph (e), of the 2011 Act made a technical correction to the Federal pipeline safety statutes regarding the performance of integrity management assessments. As part of an operator's integrity management program, operators must assess pipelines in high-consequence areas for defects and anomalies at a minimum of once every 7 years. The technical correction clarified that the Secretary may extend such deadlines by an additional 6 months if the operator submits written notice to the Secretary with sufficient justification of the need for the extension.

To implement this authority, PHMSA is issuing guidance on what constitutes sufficient justification to extend a gas pipeline operator's 7-year integrity management reassessment interval by up to 6 months if the operator submits written notice. PHMSA invites interested individuals to participate by reviewing the FAQs provided below and submitting written comments, data, or other information. Please include any comments on potential safety and environmental impacts that may result from issuance of the FAQs. Before finalizing the FAQs, PHMSA will evaluate all comments received on or before the comment closing date. PHMSA will consider all relevant comments we receive prior to the deadline when making changes to the final FAQs. Comments received after the closing date will be evaluated to the extent practicable.

Once finalized, PHMSA's FAQs will be posted on PHMSA's public website at https://primis.phmsa.dot.gov/gasimp/faqs.htm:

Guidance on the Extension of the 7-year Integrity Management Reassessment Interval by 6 Months (FAQs):

• NEW FAQ-281. How do I extend the assessment schedule beyond 7 years?

Notify PHMSA, in accordance with 49 CFR 192.949, of the need for an extension, which may not exceed 6 months. The notification must be made 180 days prior to end of the 7-year assessment date and include sufficient information to justify the extension.

• NEW FAQ-282. What constitutes sufficient information to justify extension of the assessment interval?

Documentation is required to comply with 49 CFR 192.943 and include:

• REVISED FAQ-207. Table 3 of ASME/ANSI B31.8S indicates that reassessment intervals must be 5 years for some instances in which test pressure was higher than would be required by subpart J. If I conduct my assessments in accordance with Subpart J, must I reassess more frequently than once every 7 years?

Section 192.939(a)(1) specifies requirements for establishing reassessment intervals. Two options are allowed: (i) Basing the interval on identified threats, assessment results, data integration, and risk analysis, or (ii) using the intervals specified in Table 3 of ASME/ANSI B31.8S. An operator using the former option (§ 192.939(a)(1)(i)) could establish intervals longer than those in Table 3. The intervals that can be established by either method are limited to the maximum intervals in the table in § 192.939.

Pressure tests used as integrity management assessments must meet the requirements of Subpart J, including required test pressures. Higher test pressures must be used to justify extended reassessment intervals (§ 192.937(c)(2)). As used here “extended reassessment intervals” refers to any interval longer than 7 years as required by §§ 192.937(a) and 192.939(a) and (b).

Operators conducting assessments by pressure testing and who use test pressures meeting Subpart J requirements may establish a reassessment interval of 7 years, unless their analysis under § 192.939(a)(i) indicates a need for a shorter interval. This is true even if Table 3 would lead to a shorter interval.

Operators who use Table 3 test pressures may establish reassessment intervals in accordance with Table 3 up to the maximums listed in the table in § 192.939, again unless their analysis under § 192.939(a)(i) indicates a need for a shorter interval. Operators who establish intervals longer than 7 years must conduct a confirmatory direct assessment within the 7-year period. (For segments operating at less than 30% specified maximum yield strength, a low-stress reassessment per § 192.941 may be conducted in lieu of confirmatory direct assessment—see § 192.939(b)(1)).

PHMSA may extend the 7-year interval for an additional 6 months if the operator submits written notice that includes sufficient justification regarding the need for an extension (Reference FAQ-281 and 282).

General Background

The Mid-Atlantic Fishery Management Council (Council) and the Atlantic States Marine Fisheries Commission (Commission) cooperatively manage the summer flounder, scup, and black sea bass fisheries. The Summer Flounder, Scup, and Black Sea Bass Fishery Management Plan (FMP) and its implementing regulations outline the Council's process for establishing specifications. Specifications in these fisheries include various catch and landing subdivisions, such as the commercial and recreational sector annual catch limits (ACL), annual catch targets (ACT), and sector-specific landing limits (i.e., the commercial fishery quota and recreational harvest limit), as well as management measures, as needed, that are designed to ensure these catch limits will not be exceeded. Annual specifications may be established for three year periods, and, in interim years, specifications are reviewed by the Council to ensure previously established multi-year specifications remain appropriate. The FMP also contains formulas to divide the specification catch limits into commercial and recreational fishery allocations, state-by-state quotas, and quota periods, depending on the species in question. Rulemaking for measures used to manage the recreational fisheries (minimum fish sizes, open seasons, and bag limits) for these three species occurs separately, and typically takes place in the spring of each year.

This action proposes 2019 specifications for summer flounder and black sea bass. The previously approved 2019 scup specifications (82 FR 60682; December 22, 2017) remain unchanged from the current two year specifications and are maintained through this action. The Council's Science and Statistical Committee (SSC) and Summer Flounder, Scup, and Black Sea Bass Monitoring Committee met in July 2018 to develop specification recommendations, including new acceptable biological catch limits (ABC) for summer flounder and black sea bass. The Council and the Commission's Summer Flounder, Scup, and Black Sea Bass Management Board (Board) met jointly August 14-15, 2018, to consider the SSC and Monitoring Committee's recommendations, receive public comments on those recommendations, and to formalize recommendations to the NMFS for catch limit specifications and commercial management measures. Recreational fishery management measures will be developed in early 2019. A summer flounder benchmark assessment, which will incorporate updated Marine Recreational Information Program (MRIP) data, is expected to be completed by early 2019. Operational assessments for black sea bass and scup that will also incorporate updated MRIP information will be completed in spring 2019. Because of this, the Council and Board have only recommended specifications for 2019. As explained below, the Council and Board are considering the specifications here as interim measures and will likely develop mid-year changes to the summer flounder specifications, if not also black sea bass, to address the updated assessment information, if necessary.

In June, the Northeast Fisheries Science Center (Center) provided the Council with a summer flounder data update. The data update provided a projection for stock biomass for 2019. Most state and Federal survey indices of abundance, with the exception of Massachusetts and Delaware, remain below their most recent peaks (generally 2009-2012) in the update. Recruitment indices in 2017 were highly variable. Based on the best available scientific information, the summer flounder stock is subject to overfishing but is not overfished. After reviewing the update, the SSC and Monitoring Committee recommended an interim ABC of 15.41 million lb (6,990 mt).

At the joint August meeting, the Council and Board made recommendations for interim summer flounder specifications for the start of the 2019 fishing year (Table 1). Compared to 2018, the proposed interim 2019 ABC is a 16-percent increase. The results from the benchmark stock assessment are expected to be available in early 2019 following peer review in November 2018. The Council and Board intend to consider revising the 2019 summer flounder specifications at a joint meeting in February 2019 taking into account the benchmark stock assessment. If revisions are recommended at this meeting, we anticipate updated catch limits could be in place by early May 2019.

Our final 2017 catch accounting shows that the 2017 commercial fishery exceeded its ACL by 21 percent and the 2017 ABC was exceeded by 7 percent, due to higher than expected discards in the commercial fishery. Currently, the regulations require a pound-for-pound accountability measure (AM) that is applied to the commercial ACT when the ACL has been exceeded and the overage is caused by higher discards than those estimated prior to the fishing year. A final rule for a framework adjustment (Framework 13) that would modify this AM published on October 25, 2018 (83 FR 53825), and will be effective on November 26, 2018. That action adjusts this non-landings based AM to help account for the variability in commercial discard estimates and provide additional flexibility based on stock status and the biological consequences, if any, of estimated discard overages. In terms of impacts of the 2017 discard overage for 2019, the AM as modified by the pending framework would result in a scaled payback against the commercial fishery's ACT, based on the amount of the overage and the status of the summer flounder stock, using the most recent biological reference points.

Based on the 2016 assessment update, this scaled payback would be 1.04 million lb (472 mt). This overage, when applied to the proposed 2019 commercial ACT of 9.18 million lb (3,502 mt), would result in a commercial quota of 6.67 million lb (3,030 mt), after subtracting the 2019 projected estimated discards. The resulting quota is less than one percent higher than the 2018 quota.

Table 2 presents the proposed state summer flounder allocations for 2019 using the commercial state quota allocations described in the FMP. Any commercial quota adjustments to account for commercial landings overages will be published in the final specification rule prior to the start of the respective fishing year.

The Council and Board recommended no adjustment to the commercial minimum fish size (14-inch (35.6 cm) total length), gear requirements, and possession limits. The Council and Board will develop recreational management measures (i.e., minimum fish sizes, open seasons, and bag limits) for summer flounder this fall and NMFS rulemaking will occur in early spring of 2019.

At the August meeting, the Council and Board made recommendations for the 2019 black sea bass specifications, but for reasons outlined below, we propose maintaining status quo measures currently in place for 2018.

In June 2018, the Center provided the Council with a black sea bass data update, including updated catch, landings, and survey indices through 2017. Black sea bass biomass continues to be high and the 2015 year class appears to be above average in both the northern and southern surveys. Updated stock status information and biomass projections incorporating data on the 2015 year class are not available, but will be once the operational assessment is completed in April 2019.

The SSC recommended a 2019 ABC of 7.97 million lb (3,615 mt), which was based on biomass projections from the 2016 benchmark stock assessment. This ABC would be an 11-percent reduction compared to the 2018 ABC. This declining pattern of ABCs reflects the population responding to fishing at maximum sustainable yield and the decrease of the large 2011 year class, but does not incorporate the information on the 2015 year class. Based on this ABC recommendation, the Council and Board recommended the 2019 specifications outlined in Table 3.

Following the Council and Board meeting, the Center performed a sensitivity analysis of the 2019 projection derived from the 2016 benchmark stock assessment. As previously described, that projection did not include the 2015 year class because those fish were too small to be widely captured in the surveys at the time of the 2016 assessment. This sensitivity analysis used various recruitment scenarios applied to the original projection and compared them to the most recent survey indices. The objective of this analysis was to see if that projection would have supported different specifications for 2019 had we been able to incorporate what we know now about the strength of the 2015 year class. The results suggest that the 2015 year class would only have to be about 50 percent above average to allow for 2019 catch limits to be the same as what they were in 2018. Based on a comparison between the Center's 2018 spring survey results and average recruitment from 2003-2018, the 2015 year class appears to be well more than 50 percent above average. Based on this information, we propose maintaining status quo black sea bass specifications for 2019 (Table 3).

Maintaining status quo would allow for stability in the black sea bass commercial and recreational fisheries while we wait for the results of the MRIP operational assessment to be completed in April 2019. Once that information is available, the Council and Board may recommend adjusting black sea bass measures mid-year.

The Council and Board recommended no adjustment to the commercial minimum fish size (11-inch (27.9 cm) total length), gear requirements, and possession limits.

This action also proposes reopening the black sea bass recreational fishery for the month of February (during MRIP Wave 1). The current Federal black sea bass recreational management measures (i.e., a 12.5-inch (31.8-cm) minimum size and a possession limit of 15 fish) would apply to the fishery for this limited winter season. The intent of this action is to allow for some recreational fishing access during a portion of Wave 1 in 2019.

There are currently no MRIP survey estimates collected for Wave 1, but catch from this time period must be accounted for, and count against the recreational harvest limit. Similar to last year, to account for the harvest during this 28-day season, the Council and Board recommended a catch estimate of 100,000 lb (45.3 mt). States that decide to participate in the Wave 1 fishery must account for this catch when developing their management measures for the remainder of the fishing year. Only two states participated in the 2018 February recreational fishery. The estimated catch was nominal. Measures for the rest of the 2019 recreational fishery will be developed through the winter for implementation in spring 2019.

The scup fishery is currently operating under multi-year specifications projected through 2019. The Council received a data update indicating that biomass continues to be high, and the 2015 year class appears to be above average. In response, the Council and Board made no adjustments to the previously implemented multi-year specifications set in August 2017. This action reaffirms the Council's and Board's previous recommendation for scup 2019 specifications. Those specifications result in the same commercial quota and recreational harvest limit as implemented in 2018 (Table 4).

The 2019 scup commercial quota is divided into three commercial fishery quota periods, as outlined in Table 5.

The current quota period possession limits are not changed by this action, and are outlined in Table 6. The Winter I possession limit will drop to 1,000 lb (454 kg) upon attainment of 80 percent of that period's allocation. If the Winter I quota is not fully harvested, the remaining quota is transferred to Winter II. The Winter II possession limit may be adjusted (in association with a transfer of unused Winter I quota to the Winter II period) via notice in the Federal Register. The regulations specify that the Winter II possession limit increases consistent with the increase in the quota, as described in Table 7.

This action proposes adjustments to the gear-based incidental possession limit for the commercial fishery. The incidental possession limit applies to vessels with commercial moratorium scup permits fishing with nets with diamond mesh smaller than 5 inches (12.7 cm) in diameter. The incidental possession limit is currently 1,000 lb (454 kg) during October 1-April 30 and 200 lb (91 kg) during May 1-September 30. The action would add another threshold period from April 15-June 15 to allow for higher retention in the small-mesh squid fishery that operates during that time and occasionally catches larger amounts of scup than the current limits allow to be landed (Table 8). During that time, vessels with scup moratorium permits using small mesh could land up to 2,000 lb (907 kg) of scup.

The Council and Board made no adjustments to the current commercial minimum fish size (9-inch (22.9-cm) total length) and winter quota period directed-fishery possession limits.

Pursuant to section 304(b)(1)(A) of the Magnuson-Stevens Act, the NMFS Assistant Administrator has determined that this proposed rule is consistent with the Summer Flounder, Scup, and Black Sea Bass FMP, other provisions of the Magnuson-Stevens Act, and other applicable law, subject to further consideration after public comment.

This proposed rule has been determined to be not significant for purposes of Executive Order 12866.

The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration that this proposed rule, if adopted, would not have a significant economic impact on a substantial number of small entities. The Mid-Atlantic Fishery Management Council conducted an evaluation of the potential socioeconomic impacts of the proposed measures in conjunction with an environmental assessment. According to the commercial ownership database, 771 affiliate firms landed summer flounder and/or black sea bass during the 2015-2017 period, with 762 of those business affiliates categorized as small businesses and nine categorized as large businesses. Summer flounder and black sea bass represented approximately 4 percent of the average receipts of the small entities and 1 percent for large entities considered over this time period.

The ownership data for the for-hire fleet indicate that there were 869 for-hire affiliate firms with summer flounder and/or black sea bass permits generating revenues from recreationally fishing, all of which are categorized as small businesses. Although it is not possible to derive what proportion of the overall revenues came from specific fishing activities, given the popularity of these three species as recreational targets it is likely that revenues generated from these species are important for some, if not all, of these firms.

For the summer flounder fishery, the proposed measures would increase both the 2019 commercial quota and the 2019 recreational harvest limit. Even though there will be an AM applied to the commercial summer flounder fishery, the resulting commercial quota will still be a slight increase from 2018. For the black sea bass fishery, the proposed measures would result in a 2019 commercial quota and a 2019 recreational harvest limit that are identical to what was in place for 2018. As a result, this action is not expected to adversely impact revenues for vessels that fish for summer flounder and black sea bass commercially. The increase in the summer flounder recreational harvest limit does not directly impact the party/charter fishery. Future regulatory action may be needed to adjust current summer flounder, black sea bass, and scup recreational management measures (i.e., bag limits, seasons, and minimum sizes), and consideration of the impact of those potential future measures on small entities engaged in the for-hire fishery will be evaluated at that time, should such a regulatory action become necessary.

Because this rule will not have a significant economic impact on a substantial number of small entities, an initial regulatory flexibility analysis is not required and none has been prepared. There are no new reporting or recordkeeping requirements contained in any of the alternatives considered for this action.

For the reasons set out in the preamble, 50 CFR part 648 is proposed to be amended as follows:

Background

The Northeast Multispecies Fishery Management Plan (FMP) requires the use of selective trawl gear in certain times and areas. The FMP specifies the list of selective trawl gear that meet the required selectivity standards. The FMP also authorizes NMFS to approve additional selective gear, at the request of the New England Fishery Management Council, if the gear meets the regulatory requirements for new selective gear. The regulations (§ 648.85(b)(6)(iv)(J)(2)(i)) require that new selective gear must either: Demonstrate a statistically significant reduction in catch of at least 50 percent, by weight, on a trip-by-trip basis, of each regulated species stock of concern, or, catch of stocks of concern must be less than 5 percent of the total catch of regulated groundfish (by weight, on a trip-by-trip basis). The Council submitted two requests to add the large-mesh belly panel to the list of approved selective gears: (1) For the Georges Bank yellowtail accountability measure (AM); and (2) for the southern windowpane AM.

The small-mesh trawl fishery (e.g., whiting and squid) has a sub-annual catch limit (sub-ACL) and AM for Georges Bank yellowtail flounder. If catch exceeds the sub-ACL, the AM requires small-mesh trawl vessels to use selective trawl gear that reduces flatfish catch in certain areas for the subsequent fishing year.

Southern windowpane flounder is allocated to three fishery components: Groundfish; scallops; and, other non-groundfish fisheries. The other (non-groundfish) component is primarily the scup, fluke, squid, and whiting fisheries. If the AM for the other (non-groundfish) component is triggered, vessels fishing with any trawl gear with a codend mesh size greater than, or equal to 5 in (12.7 cm), are required to use one of the approved selective trawl gears to reduce flatfish bycatch in certain areas in Southern New England in a subsequent year.

The selective trawl gears approved for use under these AMs are: Haddock separator trawl; Ruhle trawl; and rope separator trawl. When we adopted the AMs for the non-groundfish fisheries, many industry members expressed concern that the selective trawl gears currently approved for use were not suitable for their fisheries. To address this concern, Cornell University conducted a series of studies to test the effectiveness of a new selective gear, the large-mesh belly panel, in several non-groundfish fisheries. The experimental gear included a large-mesh panel to replace the first bottom belly of the trawl net that allows flatfish such as windowpane and yellowtail flounder to escape.

Cornell University conducted two studies in 2014 to investigate using a large-mesh belly panel in a small-mesh trawl net typical of those used in the squid and whiting fisheries on Georges Bank. Both experiments demonstrated a statistically significant reduction in catch of more than 50 percent of Georges Bank yellowtail flounder on a trip-by-trip basis, as required by regulations, without a significant reduction in squid and whiting catch. These studies also demonstrated that the large-mesh belly panel reduced catch, by more than 50 percent per trip, of stocks that are overfished or subject to overfishing.

Cornell University conducted an additional study in 2015 to investigate using a large-mesh belly panel in a trawl net typical of those used in the scup fishery in southern New England waters. The experiment demonstrated a statistically significant reduction in southern windowpane flounder catch of more than 50 percent, without a significant reduction in catch of legal-sized scup. Catch in the large-mesh belly panel gear was compared to catch in the standard net, and three regulated stocks of concern were caught in significant numbers in the standard net. The percent reduction by trip, and the mean percent reduction, for each species is presented in Table 1; trips that do not meet the 50 percent reduction standard are highlighted in gray. Catches, on average, of yellowtail and winter flounder were only reduced by 48 percent when the large-mesh belly panel was used.

Based on the results of the studies described above (copies available from NMFS at the mailing address listed under ADDRESSES), we have preliminarily determined that the large-mesh belly panel meets the necessary gear performance standards for use in the Georges Bank yellowtail AM area, and we are proposing to approve the use of this gear in that area. The large-mesh belly panel would be added to the list of three existing selective gears currently authorized for use in the Georges Bank yellowtail AM area. We have also preliminarily determined that the large-mesh belly panel does not meet the gear standard in the southern windowpane AM area, and we are proposing to disapprove its use in that area.

This action would define the large-mesh belly panel in the regulations in § 648.80. The proposed gear specifications included in this rule are based on the experimental gear used in the Cornell studies. The experimental selective gear was a 4-seam 3-bridal otter trawl, modified to include a large-mesh panel to replace the first bottom belly that allows escapement of flatfish. The large-mesh panel was made from 5 mm (3/16 in) poly webbing and the mesh size was approximately 32 in (81.3 cm) knot-center to knot-center diamond mesh. The panel was two meshes deep and was sewn into the standard mesh of the first bottom belly using a “saw-toothing” technique. This resulted in an effective area for fish escapement of three full 32-in (81.3-cm) meshes, or an opening in the belly of the net that is approximately 8 ft (2.4 m) deep from front to back. The large-mesh belly panel was attached approximately 1 ft (30.5 cm) behind the footrope and extended widthwise across the entire belly of the net (from gore to gore). Because it is important that the large-mesh belly panel gear definition balance the conservation requirements and adaptability of the gear modifications across multiple fisheries, we are requesting specific comments on this gear configuration.

Pursuant to section 304(b)(1)(A) of the Magnuson-Stevens Act, the National Marine Fisheries Service (NMFS) Assistant Administrator has made a preliminary determination that this proposed rule is consistent with Framework 51, other provisions of the Magnuson-Stevens Act, and other applicable law. In making the final determination, we will consider the data, views, and comments received during the public comment period.

This proposed rule has been determined to be not significant for purposes of Executive Order (E.O.) 12866.

This proposed rule does not contain policies with Federalism or takings implications as those terms are defined in E.O. 13132 and E.O. 12630, respectively.

The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration that this proposed rule, if adopted, would not have a significant economic impact on a substantial number of small entities. The factual determination for this determination is as follows.

The Council requested that we approve a new selective trawl gear (the large-mesh belly panel) for use in several non-groundfish fisheries to reduce groundfish bycatch. For some stocks, non-groundfish fisheries have an AM that requires the use of selective trawl gear when the ACL has been exceeded. Most of the approved selective trawls are not designed for use in these fisheries, and the large-mesh belly panel would provide these fisheries a better alternative than what is currently available. The requirement to use selective trawl gear was adopted in 2013. This rule would provide vessels an alternative selective gear for meeting that requirement, which would provide additional fishing opportunities, increase operational flexibility, and improve economic efficiency. This action is necessary to allow the fisheries to more effectively harvest its optimum yield, while continuing to reduce bycatch of windowpane and yellowtail flounder. This action seeks to fulfill the purpose and need while meeting the overarching goals and objectives of the Northeast Multispecies FMP.

For purposes of the Regulatory Flexibility Act, NMFS established a small business size standard for businesses, including their affiliates, whose primary industry is commercial fishing (see 50 CFR 200.2). A business primarily engaged in commercial fishing (NAICS code 11411) is classified as a small business if it is independently owned and operated, is not dominant in its field of operation (including its affiliates), and has combined annual receipts not in excess of $11 million for all its affiliated operations worldwide. The determination of whether the entity is large or small is based on the average annual revenue for the most recent 3 years for which data are available (in this case, from 2014 through 2016).

The small-mesh exempted fishery allows vessels to harvest species in designated areas using mesh sizes smaller than the minimum mesh size required by Regulated Mesh Area regulations. To participate in the small-mesh multispecies exempted fishery, vessels must possess either a limited access multispecies permit (categories A, C, D, E, or F) or an open access multispecies permit (category K). Limited access multispecies permit holders can target small-mesh multispecies with different possession limit requirements depending on fishing region and mesh size used. Open access, Category K permit holders may fish for small-mesh multispecies when participating in an exempted fishing program. Therefore, entities holding one or more multispecies permits (permit type A, C-F, K) are the entities that have the potential to be directly impacted by this action. According to the commercial database, there were 853 distinct ownership entities, based on entities' participation during the 2014-2016 time-period, that could potentially target small-mesh multispecies. This includes entities that could not be classified into a business type because they did not earn revenue from landing and selling fish in 2014-2016 and thus are considered to be small. Of the 853 total firms, 844 are categorized as small business entities and 9 are categorized as large businesses. While 853 commercial entities have the potential to be impacted by the proposed action, not all of these entities actively land small-mesh multispecies for commercial sale. There are 406 distinct entities that commercially sold small-mesh multispecies from 2014-2016 and may be directly affected by the proposed action. Of those, 404 are categorized as small businesses.

The measures proposed are expected to have a positive economic effect on small entities. It could increase catch of target stocks, in a scenario when fishing would otherwise be prohibited. Providing increased fishing opportunities should increase landings and profits. This action is not expected to have a significant or substantial effect on small entities. The effects on the regulated small entities identified in this analysis are expected to be positive relative to the no action alternative, in which this new selective trawl gear would not be added to the list of approved selective gears. Under the proposed action, small entities would not be placed at a competitive disadvantage relative to large entities, and the regulations would not reduce the profit for any small entities. As a result, an initial regulatory flexibility analysis is not required and none has been prepared.

This proposed rule contains a collection-of-information requirement subject to review and approval by OMB under the Paperwork Reduction Act (PRA). This requirement will be submitted to OMB for approval. Public reporting burden for the selection of the gear code is estimated to average one minute per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information.

Public comment is sought regarding: Whether this proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; the accuracy of the burden estimate; ways to enhance the quality, utility, and clarity of the information to be collected; and ways to minimize the burden of the collection of information, including through the use of automated collection techniques or other forms of information technology. Send comments on these or any other aspects of the collection of information to NMFS at the ADDRESSES above, and by email to [email protected] or fax to (202) 395-7285.

Notwithstanding any other provision of the law, no person is required to respond to, and no person shall be subject to penalty for failure to comply with, a collection of information subject to the requirements of the PRA, unless that collection of information displays a currently valid OMB control number.

For the reasons stated in the preamble, 50 CFR part 648 is proposed to be amended as follows: