Federal Register Vol. 83, No.43,

I. Policy Objectives

The intent of the final rule is to conform Part 347 with section 939A's directive to reduce reliance on external credit ratings. By removing references to credit ratings in Part 347 and adopting an alternative standard of creditworthiness, the final rule encourages regular, in-depth analysis of the credit risks associated with specific types of securities held by foreign branches of state nonmember banks under subpart A of Part 347 (subpart A), or pledged for the benefit of the Deposit Insurance Fund (DIF) by the insured U.S. branches of foreign banks under subpart B of Part 347 (subpart B). The final rule supports these objectives by establishing an investment grade definition that is now applied in both subparts A and B.

The financial crisis in 2008 highlighted the importance of considering the liquidity of a security when assessing its overall risk. To address this concern, the revisions to the asset pledge requirement in subpart B include the application of a liquidity standard to the securities pledged to the FDIC by the insured U.S. branches of foreign banks, and applying a fair value discount to such pledged assets. These amendments support the objective of the asset pledge requirement, which is to ensure orderly asset liquidation at maximum value in the event such assets need to be liquidated to pay the insured deposits of the U.S. branch of the foreign bank.

In the decades prior to the financial crisis in 2008, third party credit risk assessments by nationally recognized statistical ratings organizations (NRSROs) helped to provide transparency and efficiency to the securities markets. Their assessments of creditworthiness allowed originators and investors to more accurately and readily meet their risk tolerances and investment strategies. Many financial regulations used these external credit risk ratings to set limits on the activities of regulated entities in order to foster safe and sound investment practices. However, during the run-up to the crisis many regulated institutions overly relied on the credit risk assessments of NRSROs, often neglecting to conduct a thorough, independent credit risk analysis. At the same time, flaws in the NRSROs' rating methodologies and conflicts arising from their business model (including certain commercial relationships with the originators of securities and strong competition by NRSROs for market share), undermined the accuracy of the credit ratings for a number of asset classes. Consequently, many investors, including banking organizations, experienced significant losses on securities with ratings that implied credit losses would be very unlikely and minimal. This prompted Congress to enact section 939A of the Dodd-Frank Act,1 which directs each federal agency to review and modify regulations that reference credit ratings.

Section 939A requires each federal agency to review its regulations that require the use of an assessment of creditworthiness of a security or money market instrument and any references to or requirements in such regulations regarding credit ratings. Each agency must modify its regulations identified in the review by removing references to, or requirements of reliance on, credit ratings and substituting appropriate standards of creditworthiness.

Subpart A of Part 347, 12 CFR 347.101 to 347.122, addresses the international banking and investment activities of state nonmember banks, including the establishment and operations of foreign branches and subsidiaries.2 In general, these regulations implement the FDIC's statutory authority under section 18(d)(2) of the FDI Act 3 regarding branches of insured state nonmember banks in foreign countries, and section 18(l) of the FDI Act 4 regarding insured state nonmember bank investments in foreign entities.

In addition to their general banking powers, banks with foreign branches are permitted to conduct a broad range of investment activities, including investment services and underwriting of debt and equity securities.5 Under 12 CFR 347.115(b), a foreign branch of a bank may invest in, underwrite, distribute and deal, or trade foreign government obligations that have an investment grade rating, up to an aggregate limit of ten percent of the bank's Tier 1 capital, as calculated under the Basel III capital rules in 12 CFR part 324, subpart C.6 Section 347.102(o) currently defines investment grade to mean a security that is rated in one of the four highest categories by two or more NRSROs or one NRSRO if the security is rated by only one NRSRO.7

The regulations contained in subpart B of Part 347 primarily implement provisions of the FDI Act and the International Banking Act (IBA) 8 concerning insured and noninsured U.S. branches of foreign banks.9 Each foreign banking organization maintaining an insured branch must comply with specific FDIC asset maintenance 10 and asset pledge requirements under section 5(c) of the FDI Act. These requirements are separate and apart from other capital equivalency requirements of federal or state licensing authorities.11 The FDIC no longer insures the deposits accepted by branches of foreign banks, except for deposits made in branches of foreign banks that are insured by operation of the grandfathering provisions of the IBA, as amended by the Foreign Bank Supervision Enhancement Act of 1991 (FBSEA).12 The universe of these grandfathered branches is very limited. There are currently only ten insured U.S. branches of foreign banks in operation (four federal branches and six state branches). A foreign bank that has an insured branch must pledge assets for the benefit of the FDIC to protect the DIF in the event that the FDIC is obligated to pay the insured deposits of an insured branch under section 11(f) of the FDI Act.13 Section 347.209(d) provides a list of the types of assets that a foreign bank may pledge for the benefit of the FDIC. In describing certain asset types, 12 CFR 347.209(d) references credit ratings issued by a nationally recognized rating service in connection with a determination of the credit quality of the assets that a foreign bank may pledge. Specifically, in three instances in subpart B, the references are to the highest subset of rating bands within the investment grade categories established by the ratings agencies.

On June 28, 2016, the FDIC published the NPR in the Federal Register.14 The NPR proposed amending the provisions of subparts A and B of Part 347 that reference credit ratings. The NPR proposed amending subpart A, which sets forth the FDIC's requirements for insured state nonmember banks that operate foreign branches, by replacing references to credit ratings in the definition of investment grade with a standard for determining the creditworthiness of securities and other financial instruments that has been adopted in other federal regulations that conform to section 939A. The NPR proposed amending subpart B to revise the FDIC's asset pledge requirement for insured U.S. branches of foreign banks. The NPR proposed amending the eligibility criteria for the types of assets that foreign banks may pledge by replacing the references to credit ratings with the revised definition of investment grade. This investment grade standard would be applied to each type of pledgeable asset under the NPR, which also proposed a liquidity requirement for such assets, and proposed subjecting them to a fair value discount. The NPR also proposed introducing cash as a new asset type that foreign banks may pledge under subpart B, and proposed creating a separate asset category expressly for debt securities issued by government sponsored enterprises.

The FDIC sought comments on all aspects of the June 2016 NPR and received two comment letters, one from a foreign banking organization and one from a private individual. These comments were considered in developing this final rule. The comments are discussed in the relevant sections that follow.

The final rule amends the definition of investment grade in 12 CFR 347.102(o) by deleting the references to credit ratings and NRSROs. This final rule defines investment grade as a security whose issuer has adequate capacity to meet all financial commitments under the security for the projected life of the exposure. Such an entity has adequate capacity to meet financial commitments if the risk of its default is low, and the full and timely repayment of principal and interest is expected.

The FDIC sought comment on whether this proposed standard of creditworthiness addressed the FDIC's objective of applying a standard that is transparent, well defined, differentiates credit risk, and provides for the timely measurement of change to the credit profile of the investment. One commenter, while generally supportive of efforts to implement an alternative to credit ratings references, expressed concern that the standard was subjective, entity-specific and possibly arbitrary. The other commenter expressed a similar concern that the standard was general and would require subjective determinations. The commenter recommended that the FDIC provide a more straightforward and objective standard.

The FDIC believes that the revised standard provides a flexible, straightforward measure of creditworthiness that is consistent with existing policy. The revised definition achieves the dual goal of reducing reliance on credit ratings and encouraging regular, in-depth analysis of the credit risks associated with specific types of securities held by foreign branches of state nonmember banks under subpart A, or pledged for the benefit of the FDIC by the insured U.S. branches of foreign banks under subpart B. The revised definition of investment grade is also consistent with the definition of investment grade that was adopted by the FDIC, OCC, and Federal Reserve in the Basel III capital rules.15 This definition is also consistent with the non-ratings based creditworthiness standard applicable to permissible corporate debt securities investments of savings associations adopted by the FDIC in 12 CFR part 362 16 and the credit quality standards regarding permissible investments for national banks adopted by the OCC under 12 CFR parts 1, 16, and 160.17 In addition, it is consistent with the final rules adopted by the OCC that remove references to credit ratings from its regulations pertaining to foreign bank capital equivalency deposits for federal branches under 12 CFR 28.15.18 Achieving consistency with other creditworthiness standards adopted by the federal banking agencies advances section 939A's directive that agencies establish, to the extent feasible, uniform standards of creditworthiness. Based on these considerations, the FDIC is adopting as final the revisions in the proposed rule to the regulatory definition of investment grade.

Section 347.115 defines the particular activities that a foreign branch of an insured state nonmember bank may conduct. These activities are subject to safety and soundness limitations and are limited by the extent to which the activities are consistent with banking practices in the foreign country where the bank maintains a branch. The final rule, consistent with the NPR, retains the language of 12 CFR 347.115(b), but § 347.115(b) is affected by the final rule insofar as § 347.115(b) uses the adopted definition of the term investment grade in 12 CFR 347.102(o). Subject to certain limitations and restrictions, § 347.115(b) permits a state nonmember bank's foreign branches to underwrite, distribute and deal, invest in, or trade investment grade obligations of any foreign country, its political subdivisions, and certain of its agencies and instrumentalities.19 This authority is generally consistent with the provisions of the Federal Reserve's Regulation K, which governs the international operations of foreign branches of member banks.20

The regulatory definition of investment grade adopted in the final rule will remove references to credit ratings consistent with section 939A but will not affect the general consistency between the Federal Reserve's Regulation K and the FDIC's Part 347 with regard to permissible activities. For purposes of the final rule, an issuer would satisfy this new standard if the state nonmember bank appropriately determines that the obligor presents low default risk and is expected to make timely payments of principal and interest. The definition addresses the safety and soundness concerns of this activity of foreign branches—namely the exposure of the foreign branch and the DIF to the entity issuing the security—without reference to a credit rating or an NRSRO. As noted above, the FDIC believes that the finalized standard will encourage state nonmember banks to conduct regular, in-depth analysis of the credit risks associated with specific types of securities held by their foreign branches.

12 CFR 347.209 establishes the asset pledge requirement for insured U.S. branches of foreign banks. The amount that each foreign bank must pledge is determined by the supervisory risk posed by each U.S. branch and the U.S. branch's asset maintenance level.21 The amount of assets that a U.S. branch of a foreign bank must pledge varies from two percent to eight percent of the branch's liabilities and is determined by reference to the risk-based assessment schedule provided in 12 CFR 347.209(b)(1).22

The current FDIC rules in 12 CFR 347.209(d) require that certain asset types have credit ratings within the top rating bands of an NRSRO. Under the existing rule, commercial paper may be eligible for pledging purposes if it is rated P-1 or P-2, or their equivalent, by an NRSRO.23 Municipal general obligations are eligible if they have a credit rating within the top two rating bands of a NRSRO. Notes issued by bank and thrift holding companies, banks, or savings associations must also be rated within the top two rating bands of an NRSRO in order to be eligible. These references to the highest subset of rating bands within the investment grade categories established by the ratings agencies impose a higher credit standard than investment grade. The other types of eligible assets in the existing rules include: Bank CDs with maturities of not greater than one year; Treasury bills, interest bearing bonds, notes, debentures, or other direct obligations of or fully guaranteed by the United States or any agency thereof; banker's acceptances with a maturity not greater than 180 days; and obligations of certain international development banks.24

The final rule removes the references to credit ratings issued by NRSROs in 12 CFR 347.209(d) and substitutes an investment grade standard to ensure the assets have appropriate credit quality. As proposed in the NPR, the final rule also permits only highly liquid assets to be pledged, and submits these instruments to fair value haircuts. The revised credit and liquidity standards and the comments addressing these standards are discussed below.

Under this final rule, instruments falling within the relevant asset categories are eligible for pledging if they are investment grade. Consistent with this final rule's amendment to subpart A of Part 347, the final rule adds the same definition of investment grade to the definitions section of subpart B, 12 CFR 347.202, to define investment grade as a security issued by an entity that has adequate capacity to meet financial commitments under the security for the projected life of the exposure. To meet this standard, the insured branch of the foreign bank needs to determine that the risk of default by the obligor is low, and that full and timely repayment of principal and interest is expected. As noted earlier, this investment grade standard is consistent with other regulations amended pursuant to section 939A.

As proposed in the NPR, this final rule also provides that instruments falling within the relevant asset categories are eligible for pledging only if they are highly liquid. Highly liquid securities are those that:

• Exhibit low credit and market risk;

• are traded in an active secondary two-way market that has committed market makers and independent bona fide offers to buy and sell so that a price reasonably related to the last sales price or current bona fide competitive bid and offer quotations can be determined within one day and settled at that price within a reasonable time period conforming with trade custom; and

• are a type of asset that investors historically have purchased in periods of financial market distress during which market liquidity has been impaired.25

The final rule requires a foreign bank to demonstrate that the instrument meets the highly liquid standard.

The FDIC sought comment on whether the proposed investment grade and liquidity standards for pledged assets under subpart B of Part 347 are reasonable provisions and whether the removal of references to external credit ratings should be implemented as proposed or whether there are alternatives that would achieve a creditworthiness standard that is sufficiently risk sensitive. One commenter expressed concern that the proposed investment grade and liquidity requirements will significantly increase the operational burden on the branch. This commenter expressed concern that the new standards contained in the definitions of investment grade and highly liquid are general and will require subjective determinations. The commenter also expressed the opinion that the highly liquid standard is not required under Section 939A. The commenter further noted that the introduction of this new standard is not necessary to protect the DIF against losses. This commenter contended that the types of pledgeable assets, coupled with the investment grade requirement, would provide adequate assurance that pledged assets are sufficiently low risk and liquid.

The proposed amendments in Subpart A address the permissible international banking and investment activities of state nonmember banks. Subpart A differs in scope and purpose from subpart B, which establishes asset maintenance and pledge requirements for insured U.S. branches of foreign banks. The asset pledge requirements exist to protect the DIF by ensuring orderly asset liquidations at maximum values in the event such assets are liquidated to pay the insured deposits of the U.S. branch of the foreign bank.

Although requiring foreign banks to verify that pledged assets satisfy the proposed standards may require some initial adjustment of existing processes, the FDIC believes that it would impose minimal additional burden. The final rule adopts standards of investment grade and highly liquid assets that are already in use in other banking regulations. In addition, insured U.S. branches of foreign banks are currently expected to conduct due diligence to meet applicable standards of safety and soundness in connection with their investment activities without sole reliance on NRSRO ratings as a measure of creditworthiness. Furthermore, market data should already be accessible through an insured branch's normal data source channels, and should be used in pre-purchase and ongoing investment due diligence. Therefore, the FDIC does not believe that the final rule will significantly increase the operational burden on insured branches of foreign banks.

Existing 12 CFR 347.209(d) includes creditworthiness standards that exceed investment grade. That is, with some pledgeable asset types only the top two letter ratings (e.g., AAA, AA) within the investment grade band would be acceptable. The highly liquid standard in the final rule is necessary, in part, to ensure that the elevated quality of the pledged assets established under the current standard continues. Furthermore, complementing the investment grade requirement with the highly liquid requirement will ensure that the pledged assets can be readily converted to cash with little impact on their values.

The FDIC believes that adopting the investment grade and highly liquid criteria, in conjunction with the fair value discount, helps ensure that pledged assets continue to support orderly asset liquidation at maximum value in the event such assets need to be liquidated to pay the insured deposits of the U.S. branch of the foreign bank. Based on these considerations, the FDIC is adopting as final the revisions in the proposed rule related to the definition of investment grade and the highly liquid requirement.

As proposed in the NPR, the final rule requires that the fair values of the investment grade and highly liquid pledged assets be discounted to reflect the credit risk and market price volatility of such assets. Under the final rule, the discounted fair value of the assets determines the pledged dollar amount. The FDIC expects that the valuations of the pledged assets be updated at least quarterly. Further, the final rule adopts a standardized haircut table, consistent with the Basel III capital rules, to promote simplicity and ease of reference.26 Under this approach, the applicable haircut is determined by reference to the asset's risk-weight and remaining maturity.27 For example, a foreign insured branch may elect to pledge investment grade commercial paper with a fair value of $100,000 and remaining maturity of less than one year. These instruments are risk-weighted at 100 percent under the Basel III capital rules. Under the reference table, the corresponding haircut is 4 percent; therefore, the amount of the $100,000 asset that counts towards the satisfaction of the asset pledge requirement is arrived at by multiplying $100,000 by 0.96 (1−0.04), which equals $96,000. Consistent with the haircut requirements in the risk-based capital rules, pledged assets that receive a zero percent risk weight do not receive a fair value haircut.28

The FDIC solicited comment on whether pledged assets should be discounted as proposed, or whether the full fair value of assets pledged under the existing risk-based assessment schedule already provide sufficient protection to the DIF. In addition, the FDIC sought comment on whether another method of discounting would advance the objective of ensuring that pledged assets be as free from risk and as liquid as possible. One commenter indicated that the fair value discount is burdensome and suggested that the full fair value be permitted to be pledged, contending that the benefit to the DIF of the discount requirement would likely be minimal. The commenter further cited operational burden concerns with implementing the quarterly valuation calculation. The commenter also contended that, based on its tentative calculations, the fair value discount requirement would require it to pledge a considerable amount of additional eligible assets, resulting in increased costs.

The FDIC believes the fair value haircut provides an appropriate methodology for discounting fair values which is consistent with the haircuts applied to financial collateral pledged to certain transactions under the Basel III capital rules as adopted by the FDIC.29 Further, the FDIC believes the expectation of quarterly updates to valuation of the pledged assets is reasonable given that quarterly valuations are currently required in the pledge agreement between each of the foreign banks and the FDIC. Moreover, the FDIC believes that applying the fair value discount results in minimal burden because the calculation of the applicable fair value discount is based on the risk weight of the applicable asset under the Basel III capital rules, which is an analysis that should already be undertaken by these institutions. Lastly, the FDIC recognized in the NPR that the haircut provision could impact foreign banks that pledge bank notes or CDs because they may need to pledge additional collateral under the proposed rule compared with the pledge requirements under the existing rule. However, the FDIC expects any additional collateral required as a result of the haircut provision to be minimal.

Based on these and other considerations, the FDIC is adopting as final the discount methodology in the proposed rule.

As proposed in the NPR, the final rule also amends 12 CFR 347.209(d) by adding cash as a new asset type that foreign banks may pledge under subpart B, and by creating a separate asset category expressly for debt securities issued by government sponsored enterprises (GSEs). Cash and securities issued by GSEs are included in the definition of highly liquid assets in the Federal Reserve's regulation prescribing enhanced prudential standards for foreign banking organizations.30 The FDIC also understands that some insured branches of foreign banks currently pledge GSE debt securities under 12 CFR 347.209(d)(2) because they qualify as obligations of a U.S. government instrumentality. The Basel III capital rules recognize that the risk characteristics of GSE securities differ from those guaranteed by the U.S. government. The capital rules bear this out by assigning the former a twenty percent risk weight and the latter a zero percent risk weight.31 Therefore, the final rule eliminates the reference to obligations of U.S. instrumentalities in 12 CFR 347.209(d)(2), and creates a separate category expressly for GSE securities. Creating a separate category for GSE securities is necessary because such securities are subject to a haircut under the final rule to account for their twenty percent risk weight under the Basel III capital rules, whereas securities guaranteed by the U.S. government are not subject to a haircut given their zero percent risk weight.

Pursuant to subpart B, all assets pledged, including cash, are required to be subject to the terms of a pledge agreement executed by the pledging foreign bank and the depository.32 Subpart B requires that the pledge agreement's terms include a requirement that pledged assets be placed with a depository for safekeeping.33 Subpart B also requires that the pledged assets be designated as assets subject to the pledge agreement.34 In addition, the assets must be held separately from the assets of the foreign bank or depository, and must at all times be segregated on the records of the depository and clearly identified as assets subject to the pledge agreement.35 Subpart B requires that a foreign bank obtain the FDIC's prior written approval of the depository selected.36

The FDIC solicited comment on whether the types of assets that may be pledged should be expanded to include cash as proposed. One commenter expressed support for the addition of cash as a new eligible asset type. The commenter also sought clarification as to whether an insured branch would be permitted to receive interest on any such pledged cash. While subpart B generally authorizes insured branches to retain interest earned on pledged assets,37 the operation of subpart B's segregation and safekeeping requirements as applied to pledged cash would preclude the payment of interest on such cash. Most importantly, in order for pledged cash to be deemed held for safekeeping and segregated in accordance with subpart B's requirements, such cash must be held separate from the general funds of the bank and may not be commingled with any cash or other property of the depository. Accordingly, such cash may not be loaned, invested, used in operations, or used for any other purpose by the depository. Because, generally, interest is paid for the use of cash, if the depository complies with the safekeeping and segregation requirement, it cannot use the cash and, thus, there would be no basis for the payment of interest. In the event that the FDIC is appointed receiver of the depository, cash pledged and held for the purposes of, and in accordance with, the requirements of subpart B, would not be treated as property of the depository receivership.

The FDIC views the amendments to the pledgeable asset criteria as consistent with other rulemakings, and as resulting in minimal impact on the insured U.S. branches of foreign banks.

Based on these, and other, considerations, the final rule adopts the pledgeable asset categories as proposed in the NPR. Accordingly, a foreign bank may pledge the assets listed below, provided that such assets are denominated in United States dollars, and satisfy both the investment grade and highly liquid standards. Further, such assets must be discounted at the rates set forth in the haircut table.

The revised pledgeable asset categories are as follows:

(1) Cash;

(2) Treasury bills, interest bearing bonds, notes, debentures, or other direct obligations of or obligations fully guaranteed as to principal and interest by the United States or any agency thereof;

(3) Obligations of U.S. GSEs;

(4) Negotiable CDs that are payable in the United States and that are issued by any state bank, national bank, state or federal savings association, or branch or agency of a foreign bank which has executed a valid waiver of offset agreement or similar debt instruments that are payable in the United States; provided, that the maturity of any certificate or issuance is not greater than one year; and provided further, that the issuing branch or agency of a foreign bank is not an affiliate of the pledging bank or from the same country as the pledging bank's domicile;

(5) Obligations of the African Development Bank, Asian Development Bank, Inter-American Development Bank, and the International Bank for Reconstruction and Development;

(6) Commercial paper;

(7) Notes issued by bank and savings and loan holding companies, banks, or savings associations organized under the laws of the United States or any state thereof or notes issued by branches or agencies of foreign banks, provided that the notes are payable in the United States, and provided further, that the issuing branch or agency of a foreign bank is not an affiliate of the pledging bank or from the same country as the pledging bank's domicile;

(8) Banker's acceptances that are payable in the United States and that are issued by any state bank, national bank, state or federal savings association, or branch or agency of a foreign bank; provided, that the maturity of any acceptance is not greater than 180 days; and provided further, that the branch or agency issuing the acceptance is not an affiliate of the pledging bank or from the same country as the pledging bank's domicile;

(9) General obligations of any state of the United States, or any county or municipality of any state of the United States, or any agency, instrumentality, or political subdivision of the foregoing or any obligation guaranteed by a state of the United States or any county or municipality of any state of the United States; and

(10) Any other asset determined by the FDIC to be acceptable.38

Cash, treasury bills or other direct obligations of or fully guaranteed by the United States or any agency thereof, and the obligations of the stated international development banks will categorically satisfy the investment grade and highly liquid standards discussed above.39 Therefore, foreign banks that pledge these assets will not be required to perform individual analyses to verify that the assets meet the investment grade and highly liquid standards. Pledgeable assets that receive a zero percent risk weight will generally not require a fair value haircut.

Foreign banks pledging assets that do not categorically satisfy the investment grade and highly liquid standards will need to demonstrate that the assets being pledged meet the investment grade and highly liquid standards. Foreign banks can find the appropriate haircut by identifying the risk weight associated with the asset in the capital rules.

As proposed in the NPR, the final rule adds a definition of agency to the definitions section of subpart B, 12 CFR 347.202, which already contains a definition of branch under the existing regulation, in order to clarify that negotiable CDs, banker's acceptances, and notes issued by a branch or agency of a foreign bank located only in the United States are eligible for pledging. The definition was not previously in subpart B. The term agency is used in 12 CFR 347.209(d)(1), (d)(4), and (d)(7) to describe the types of bank CDs, banker's acceptances, and notes issued by a branch or agency of a foreign bank that are eligible for pledging by a U.S. branch of a foreign bank. The final rule incorporates the definition of agency found in section 1(b)(1) of the IBA, which defines agency to mean “any office or any place of business of a foreign bank located in any State of the United States at which credit balances are maintained incidental to or arising out of the exercise of banking powers, checks are paid, or money is lent but at which deposits may not be accepted from citizens or residents of the United States.” 40 This definition makes clear that only negotiable CDs, banker's acceptances, or notes issued by an agency of a foreign bank located in the United States are eligible pledged assets. The FDIC does not allow for the pledging of these instruments unless they are issued by an agency of a foreign bank located in the United States. It is also consistent with the definition of branch in subpart B, which means any office or place of business of a foreign bank located in any state of the United States.41 The final rule also amends 12 CFR 347.209(d)(7) by removing the reference to United States in the description of branches or agencies of foreign banks because those terms as defined in existing subpart B necessarily mean an office or place of business of a foreign bank located in the United States. Furthermore, as proposed, the final rule amends 12 CFR 347.209(d)(7) to clarify that, consistent with requirements associated with pledging CDs and banker's acceptances in paragraphs (d)(1) and (d)(4), a pledging U.S. branch of a foreign bank may not pledge a note issued by a branch or agency of a foreign bank that has the same country of domicile as the pledging bank. This requirement avoids potential same-country risks represented by the branches and agencies as direct extensions of foreign banks.

One commenter expressed concern with the proposal to amend 12 CFR 347.209(d)(7) to clarify that a pledging U.S. branch of a foreign bank may not pledge a note issued by a branch or agency of a foreign bank that has the same country of domicile as the pledging bank. In particular, the commenter contended that in some instances the same-country risk would be very low in certain jurisdictions and recommended the implementation of an objective standard when evaluating same-country risks given that the risk profiles of different countries can vary significantly. The FDIC believes the requirement as proposed is an important safeguard against potential same-country risks represented by issuing branches and agencies as direct extensions of foreign banks. The requirement as proposed is also consistent with the existing requirements for pledging CDs and banker's acceptances under 12 CFR 347.209(d)(1) and (d)(4). The FDIC is adopting the proposed requirement related to this and all other proposed technical revisions as final.

As proposed in the NPR, the final rule amends the list of eligible collateral to eliminate the obsolete exception for non-negotiable CDs that were pledged as collateral to the FDIC on March 18, 2005, until maturity according to the original terms of the existing deposit agreement. The maturity date for any non-negotiable CD that was grandfathered under this provision has passed. Consequently, the provision by its terms is obsolete and no longer serves a useful purpose.

The applicability of the revision to subpart A of Part 347 in the final rule is limited to state nonmember banks that operate branches in foreign countries. As of June 30, 2017, there were seven state nonmember banks operating 13 foreign branches in six countries. All but one of the state nonmember banks with foreign branches are large, multi-billion dollar financial institutions with commensurate systems and capabilities. The revision to subpart A will therefore apply to a small number of mostly larger state nonmember banks with more sophisticated operations, and the effect of the revision to the definition of investment grade is expected to impose negligible additional burden relative to the size and capabilities of these banks. The FDIC also notes that prior to the enactment of the Dodd-Frank Act and implementation of section 939A, state nonmember banks were expected to have a credit risk management framework for securities and investments that included robust pre-purchase analysis and ongoing monitoring by the banking organization. The revision to the definition of investment grade in Part 347 will encourage regular, in-depth analysis by the banking organization of credit risks of securities, which is a prudent practice already expected of banks. This will likely result in little or no additional costs associated with credit risk analysis over those currently expended. However, potential credit losses will likely decline as covered institutions are more diligent in assessing their credit risk exposure, which would provide a benefit.

The revisions to subpart B of Part 347 in the final rule will apply only to the insured U.S. branches of foreign banks. As of June 30, 2017, there were ten insured branches of foreign banks. The FDIC expects the revisions to subpart B to have the effect of ensuring that collateral pledged by these institutions is very low risk and as liquid as possible in order to provide protection to the DIF. For purposes of carrying out the section 939A review related to subpart B, the FDIC surveyed the insured U.S. branches of foreign banks to examine the composition of assets pledged. At the time of the review, treasury bills, bank notes, and CDs were the primary instruments pledged. Consequently, the haircut provision could impact foreign banks that choose to continue pledging a predominance of bank notes or CDs, as this may require pledging some measure of additional collateral under the proposed rule compared with the pledge requirements under the existing rule. Additionally, the final rule may alter to some extent the nature of the recordkeeping and reporting requirements associated with subpart B. Information developed through prudent investment practices will need to evidence satisfaction of the new standards. That information will be retained for supervisory review, but additional time should be negligible. Therefore, the FDIC views the proposed amendments to the pledgeable asset criteria as resulting in minimal impact on the insured U.S. branches of foreign banks.

Section 939A requires that agencies adopt standards of creditworthiness that, to the extent feasible, are uniform. The adoption of an alternative definition of investment grade would be inconsistent with section 939A's directive to adopt uniform standards.

In addition to adopting the definition of investment grade, the final rule, consistent with the proposed rule, amends subpart B of Part 347 to impose liquidity and discounting requirements for assets pledged by insured branches of foreign banks operating in the United States. Alternatives to the proposed definition of highly liquid would contradict the definition of highly liquid assets as adopted in other Dodd-Frank Act rulemakings, thereby creating different treatment of the same securities. Similarly, the calculation of fair value discounts for pledged assets is based on the risk weights assigned to such assets in the capital rules. The FDIC did not receive any comments with specific recommendations for alternatives.

The Administrative Procedure Act (APA) generally requires that a final rule be published in the Federal Register no less than 30 days before its effective date.42 Section 302 of Riegle Community Development and Regulatory Improvement Act (RCDRIA) 43  generally requires that regulations prescribed by Federal banking agencies which impose additional reporting, disclosures or other new requirements on insured depository institutions take effect on the first day of a calendar quarter which begins on or after the date on which the regulations are published in final form unless an agency finds good cause that the regulations should become effective sooner. The effective date of the Rule is April 1, 2018, which is the first day of the calendar quarter which begins on or after the date on which the regulations are published in final form, as required by RCDRIA. 12 CFR 347.209(b) requires that a foreign bank with an insured branch pledge assets equal to the appropriate percentage of the insured branch's average liabilities for the last 30 days of the most recent calendar quarter. The FDIC expects foreign banks with insured branches to comply with Part 347 Subpart B's asset pledge requirements, as amended by the final rule, beginning in the calendar quarter commencing on April 1, 2018. This provides foreign banks and their insured branches with adequate time to transition to Subpart B's amended asset pledge requirements.

In accordance with the requirements of the Paperwork Reduction Act of 1995 (PRA) 44 the FDIC may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. The collection of information associated with subpart A is entitled Foreign Banking and Investment by Insured State Nonmember Banks (OMB No. 3064-0125). This information collection consists of applications related to establishing and closing a foreign branch; applications related to acquiring stock of a foreign organization; and records and reports which a nonmember bank must maintain once it has established a foreign branch or foreign organization. As described above, the final rule's revision to subpart A consists of a change to the definition of investment grade and imposes no additional recordkeeping or reporting burden on insured state nonmember banks. Therefore, the FDIC expects that the PRA burden estimates of this collection will not be affected by this final rule. Accordingly, the FDIC will not be submitting any information collection request to OMB relating to the information collection associated with subpart A (OMB 3064-0125).

The collection of information associated with subpart B is entitled Foreign Banks (OMB No. 3064-0114). This information collection consists of, among other things, internal recordkeeping by insured branches of foreign banks, and reporting requirements related to an insured branch's pledge of assets to the FDIC. Under the final rule, all assets pledged to the FDIC under subpart B must be investment grade, highly liquid, and subject to a fair value discount. Several types of assets pledged by banks under subpart B would be categorically investment grade and highly liquid, and subject to a zero percent discount under the final rule. Insured branches of foreign banks will be able to continue to pledge these assets without any adjustment to their reporting and recordkeeping requirements. To the extent that an insured branch of a foreign bank pledges an asset that would not be categorically investment grade, highly liquid, or that would not receive a zero percent discount, the FDIC expects minimal additional burden to accompany such a pledge of assets. Recordkeeping associated with the diligence that will be required for determining that an asset is highly liquid and investment grade is already expected of these institutions as part of their pre-purchase and ongoing investment due diligence. Similarly, the calculation of the applicable fair value discount is based on the risk weight of the applicable asset under the Basel III capital rules, which is an analysis that should already be undertaken by these institutions. Therefore, the FDIC expects that any resulting changes in burden will be so minimal that they will not alter the existing PRA burden estimates of this collection. Notwithstanding the fact that the FDIC does not expect a change in burden, the final rule may alter to some extent the nature of the recordkeeping requirements associated with subpart B. Accordingly, the FDIC will be submitting an information collection request to OMB relating to the information collection associated with subpart B (OMB 3064-0114). The existing burden estimates for the information collection associated with subpart B are as follows:

The FDIC has a continuing interest in the public's opinions of our existing information collections. At any time, comments are invited on:

• Whether the collections of information are necessary for the proper performance of the Agencies' functions, including whether the information has practical utility;

• The accuracy of the estimates of the burden of the information collections, including the validity of the methodology and assumptions used;

• Ways to enhance the quality, utility, and clarity of the information to be collected;

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

• Estimates of capital or startup costs and costs of operation, maintenance, and purchase of services to provide information.

All comments will become a matter of public record. A copy of the comments may also be submitted to the OMB desk officer for the FDIC by mail to U.S. Office of Management and Budget, 725 17th Street NW, #10235, Washington, DC 20503, by facsimile to 202-395-5806, or by email to [email protected], Attention, Federal Banking Agency Desk Officer.

The Regulatory Flexibility Act (RFA) generally requires that, in connection with a notice of final rulemaking, an agency prepare a Final Regulatory Flexibility Act analysis describing the impact of the rule on small entities (defined in regulations promulgated by the Small Business Administration to include banking organizations with total assets of less than or equal to $550 million). A Final Regulatory Flexibility Act analysis, however, is not required if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities, and publishes its certification and a short explanatory statement in the Federal Register together with the final rule. For the reasons provided below, the FDIC certifies that the final rule will not have a significant economic impact on a substantial number of small entities.

The final rule makes revisions to the existing rules in subpart A of Part 347 consistent with section 939A of the Dodd-Frank Act.45 The rules in subpart A of Part 347 address issues related to the international activities and investments of insured state nonmember banks. In general, they implement the FDIC's statutory authority under section 18(d)(2) of the FDI Act regarding branches of insured state nonmember banks in foreign countries, and section 18(l) of the FDI Act regarding insured state nonmember bank investments in foreign entities. As of June 30, 2017, there were seven state nonmember banks with 13 foreign branches. Available information indicates that state nonmember banks with foreign investments or foreign branches are not small entities.

The final rule also amends subpart B of Part 347 as applied to insured U.S. branches of foreign banks. As of September 30, 2016, there were ten insured branches of foreign banks, only one of which qualifies as a small entity. Therefore, the revisions to subpart B of Part 347 will not have a significant impact on a substantial number of small entities.

The OMB has determined that the final rule is not a major rule within the meaning of the relevant sections of the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA).46 As required by SBREFA, the FDIC will submit the final rule and other appropriate reports to Congress and the Government Accountability Office for review.

The FDIC has determined that this final rule will not affect family well-being within the meaning of section 654 of the Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999.47

Section 722 of the Gramm-Leach-Bliley Act requires the FDIC to use plain language in all proposed and final rules published after January 1, 2000. The FDIC sought to present the final rule in a simple and straightforward manner. The FDIC did not receive any comment on its use of plain language.

For the reasons stated in the preamble, the Federal Deposit Insurance Corporation amends part 347 of chapter III of Title 12, Code of Federal Regulations as follows:

I. Background

Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended (Title XI), established the ASC.1 The purpose of Title XI is to provide protection of Federal financial and public policy interests by upholding Title XI requirements for appraisals performed for federally related transactions.2 Pursuant to Title XI, one of the ASC's core functions is to monitor the requirements established by the States 3 for certification and licensing of appraisers qualified to perform appraisals in connection with federally related transactions. This is accomplished through periodic ASC Compliance Reviews of each State appraiser regulatory program (Appraiser Program) to determine compliance or lack thereof with Title XI, and to assess implementation of minimum requirements for credentialing of appraisers as adopted by the Appraiser Qualifications Board (The Real Property Appraiser Qualification Criteria or AQB Criteria). The revised ASC Policy Statements provide guidance to the States regarding how Appraiser Programs will be evaluated during ASC Compliance Reviews.

Title XI as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) 4 expanded the ASC's core functions to include monitoring of the requirements established by States that elect to register and supervise the operations and activities of appraisal management companies 5 (AMCs). States electing to register and supervise AMCs must implement minimum requirements in accordance with the AMC Rule.6 As a result, States with an AMC regulatory program (AMC Program) will be evaluated during the ASC's Compliance Review to determine compliance or lack thereof with Title XI, and to assess implementation of the minimum requirements for State registration and supervision of AMCs as established by the AMC Rule. The amendments to Title XI by the Dodd-Frank Act also allow States with an AMC Program to add information about AMCs in their State to the National Registry of AMCs (AMC Registry). The revised ASC Policy Statements include guidance to the States regarding how AMC Programs will be evaluated during ASC Compliance Reviews.

The ASC published Proposed Revised Policy Statements on January 10, 2017. The comment period was scheduled to close on April 10, 2017. The ASC suspended the comment period in response to the White House Chief of Staff Memorandum titled Regulatory Freeze Pending Review, signed on January 20, 2017, pending review by the Office of Management and Budget (OMB). The ASC re-published Proposed Revised Policy Statements on September 20, 2017, with a 60-day comment period.7 With certain changes to the proposal, the revised ASC Policy Statements were adopted by the ASC at its February 14, 2018 Meeting substantially as proposed.

The revised ASC Policy Statements 8 are being issued by the ASC in three parts to provide States with the necessary information to maintain their Appraiser Programs and AMC Programs in compliance with Title XI and the rules promulgated thereunder:

➢ Part A, Appraiser Program—Policy Statements 1 through 7 correspond with the categories that are: (a) Evaluated during the Appraiser Program Compliance Review; and (b) included in the ASC's Compliance Review Report of the Appraiser Program.

➢ Part B, AMC Program—Policy Statements 8 through 10 correspond with the categories that are: (a) Evaluated during the AMC Program Compliance Review; and (b) included in the ASC's Compliance Review Report of the AMC Program. Policy Statement 11 addresses the statutory implementation period.

➢ Part C, Interim Sanctions - Policy Statement 12 sets forth required procedures in the event that interim sanctions are imposed against a State by the ASC for non-compliance in either the Appraiser Program or the AMC Program.

The revised ASC Policy Statements include two appendices:

1. Appendix A provides an overview of the Compliance Review process; and

2. Appendix B provides a glossary of terms.

For reasons discussed in section III of this SUPPLEMENTARY INFORMATION, the revised Policy Statements are adopted substantially as proposed with modifications to Policy Statements 7 and 10 removing proposed additional requirements for complaint logs. The revised Policy Statements also contain technical, nonsubstantive changes.

The following provides a section by section review of the proposed Policy Statements and a discussion of public comments received by the ASC concerning the proposal. The ASC received 29 comments, 27 of which addressed issues such as wind turbines and environmental issues, and were non-responsive to the proposal. The 2 comments that were responsive to the proposal were received from State appraiser certifying and licensing agencies.

The ASC proposal to expand the introduction to include the monitoring of States that elect to register and supervise the operations and activities of AMCs, and to include an explanation of the proposed Policy Statements' three parts and appendices is adopted without change in the revised ASC Policy Statements.

The ASC proposal to modify Policy Statement 1 to include a definition of trainee appraiser to better reflect how changes to Title XI affect Appraiser Programs with trainee requirements is adopted without change in the revised ASC Policy Statement.

The ASC proposal to modify Policy Statement 2 to clarify requirements for temporary practice, including requirements to track temporary practice permits and maintain documentation, is adopted without change in the revised ASC Policy Statements.

The ASC received one comment regarding the proposal to add language to Policy Statement 3 stating, “Only those appraisers whose registry fees have been transmitted to the ASC will be eligible to be on the Appraiser Registry for the period subsequent to payment of the fee.” The commenter expressed concern that States would not be able to upload information to the Appraiser Registry until after the monthly invoice is paid. This would not, however, be the case. There is no change in how States populate the Appraiser Registry; States are invoiced after the information is added to the Appraiser Registry. Nothing in that process would change. An appraiser on the Appraiser Registry would only be impacted if the State failed to pay the invoice amount for that appraiser timely, which has always been ASC practice and policy. The ASC proposal to modify Policy Statement 3 to clarify requirements regarding States' submission of registry fees and eligibility of appraisers for the Appraiser Registry is adopted without change in the revised ASC Policy Statements.

The ASC proposal to modify Policy Statement 4 to include: (1) Additional guidance to States implementing AQB Criteria regarding the background of applicants for credentials and requiring States to document applicant files with evidence supporting decisions made regarding individual appraisers; (2) additional guidance on requirements for States to validate renewal requirements for appraisers and parameters for auditing education-related affidavits; and (3) clarification on the requirement that States engage analysts who are knowledgeable about the Uniform Standards of Professional Appraisal Practice (USPAP) and document how the analysts are qualified is adopted without change in the revised ASC Policy Statements.

The ASC proposal to modify Policy Statement 5 to include a requirement that States obtain and maintain sufficient relevant documentation pertaining to an application for issuance of a credential by reciprocity is adopted without change in the revised ASC Policy Statements.

The ASC proposal to modify Policy Statement 6 to clarify that States may not continue to accept AQB approved courses after the AQB's expiration date unless the course content is reviewed and approved by the State is adopted without change in the revised ASC Policy Statements.

The ASC received one comment regarding the proposal to require additional information on complaint logs. As proposed, States would be required to include terms of disposition, and, in the case of open complaints, the most recent activity and date thereof. The commenter addressed the burden imposed on States by requiring them to duplicate information that is readily available and documented elsewhere. The commenter also suggested that such additional requirements may be more appropriate in the case of a State that needs additional monitoring due to compliance issues with Title XI. The ASC agrees with the commenter's concerns and is adopting Policy Statement 7 without the proposed additional requirements for complaint logs. Policy Statement 7 is otherwise adopted as proposed.

Policy Statement 8 reflects the statutory provision that States are not required to establish an AMC Program, and clarifies for those States that establish AMC Programs the ASC oversight during ASC Compliance Reviews. Policy Statement 8 reiterates that States with an AMC Program must: (1) Establish and maintain an AMC Program with the legal authority and mechanisms consistent with the AMC Rule; (2) impose requirements on AMCs consistent with the AMC Rule; and (3) enforce and document ownership limitations for State-registered AMCs. Policy Statement 8 informs States that while they may have a more expansive definition of an AMC in their State statute, only AMCs that meet the federal definition in Title XI may be included on the AMC Registry. The language in Policy Statement 8 has been modified to clarify that formal ASC oversight of State AMC Programs will begin at the next regularly scheduled Compliance Review of a State after a State elects to register and supervise AMCs pursuant to the AMC Rule. Policy Statement 8 is otherwise adopted as proposed.

The ASC proposal for new Policy Statement 9 is adopted without change in the revised ASC Policy Statements. Policy Statement 9 clarifies requirements for States with an AMC Program to maintain the AMC Registry.

Consistent with Policy Statement 7, Policy Statement 10 is adopted without the proposed additional requirements for complaint logs. Policy Statement 10 is otherwise adopted as proposed and clarifies requirements for States' AMC enforcement programs in those States with an AMC Program.

The ASC proposal for new Policy Statement 11 is adopted without change in the revised ASC Policy Statements. Policy Statement 11 clarifies the statutory implementation period and any extensions that may be granted.

The ASC proposal for new Policy Statement 12 is adopted without change in the revised ASC Policy Statements. Policy Statement 12 clarifies interim sanctions which may be imposed on State Programs when those programs fail to be effective. The procedures include due process provisions and rules of evidence, and establish timeliness for proceedings.

The ASC proposal for Appendix A, which provides an overview of the Compliance Review process; and Appendix B, which provides a glossary of terms, is adopted without change in the revised ASC Policy Statements.

The ASC revised Policy Statements are adopted as follows:

Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 as amended (Title XI) established the Appraisal Subcommittee of the Federal Financial Institutions Examination Council (ASC).9 The purpose of Title XI is to provide protection of Federal financial and public policy interests by upholding Title XI requirements for appraisals performed for federally related transactions. Specifically, those appraisals shall be performed in writing, in accordance with uniform standards, by individuals whose competency has been demonstrated and whose professional conduct will be subject to effective supervision.

Pursuant to Title XI, one of the ASC's core functions is to monitor the requirements established by the States 10 for certification and licensing of appraisers qualified to perform appraisals in connection with federally related transactions.11 Title XI as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) 12 expanded the ASC's core functions to include monitoring of the requirements established by States that elect to register and supervise the operations and activities of appraisal management companies 13 (AMCs).14

The ASC performs periodic Compliance Reviews 15 of each State appraiser regulatory program (Appraiser Program) to determine compliance or lack thereof with Title XI, and to assess implementation of minimum requirements for credentialing of appraisers as adopted by the Appraiser Qualifications Board (The Real Property Appraiser Qualification Criteria or AQB Criteria). As a result of the Dodd-Frank Act amendments to Title XI, States with an AMC regulatory program (AMC Program) will be evaluated during the Compliance Review to determine compliance or lack thereof with Title XI, and to assess implementation of the minimum requirements for State registration and supervision of AMCs as established by the AMC Rule.16

The ASC is issuing these revised Policy Statements 17 in three parts to provide States with the necessary information to maintain their Appraiser Programs and AMC Programs in compliance with Title XI:

Part A, Appraiser Program—Policy Statements 1 through 7 correspond with the categories that are: (a) Evaluated during the Appraiser Program Compliance Review; and (b) included in the ASC's Compliance Review Report of the Appraiser Program.

Part B, AMC Program—Policy Statements 8 through 10 correspond with the categories that are: (a) Evaluated during the AMC Program Compliance Review; and (b) included in the ASC's Compliance Review Report of the AMC Program.

Part C, Interim Sanctions—Policy Statement 12 sets forth required procedures in the event that interim sanctions are imposed against a State by the ASC for non-compliance in either the Appraiser Program or the AMC Program.

Title XI requires the ASC to monitor each State appraiser certifying and licensing agency for the purpose of determining whether each such agency has in place policies, practices and procedures consistent with the requirements of Title XI.18 The ASC recognizes that each State may have legal, fiscal, regulatory or other factors that may influence the structure and organization of its Appraiser Program. Therefore, a State has flexibility to structure its Appraiser Program so long as it meets its Title XI-related responsibilities.

States should maintain an organizational structure for appraiser certification, licensing and supervision that avoids conflicts of interest. A State agency may be headed by a board, commission or an individual. State board 19 or commission members, or employees in policy or decision-making positions, should understand and adhere to State statutes and regulations governing performance of responsibilities consistent with the highest ethical standards for public service. In addition, Appraiser Programs using private entities or contractors should establish appropriate internal policies, procedures and safeguards to promote compliance with the State agency's responsibilities under Title XI and these Policy Statements.

The Dodd-Frank Act amended Title XI to require the ASC to determine whether States have sufficient funding and staffing to meet their Title XI requirements. Compliance with this provision requires that a State must provide its Appraiser Program with funding and staffing sufficient to carry out its Title XI-related duties. The ASC evaluates the sufficiency of funding and staffing as part of its review of all aspects of an Appraiser Program's effectiveness, including the adequacy of State boards, committees, or commissions responsible for carrying out Title XI-related duties.

Title XI requires States to adopt and/or implement all relevant AQB Criteria. Requirements established by a State for certified residential or certified general appraisers, as well as requirements established for licensed appraisers, trainee appraisers and supervisory appraisers must meet or exceed applicable AQB Criteria.

“State certified appraisers” means those individuals who have satisfied the requirements for residential or general certification in a State whose criteria for certification meet or exceed the applicable minimum AQB Criteria. Permitted scope of practice and designation for State certified residential or certified general appraisers must be consistent with State and Federal laws, including regulations and supplementary guidance.

“State licensed appraisers” means those individuals who have satisfied the requirements for licensing in a State whose criteria for licensing meet or exceed the applicable minimum AQB Criteria. The permitted scope of practice and designation for State licensed appraisers must be consistent with State and Federal laws, including regulations and supplementary guidance.

“Trainee appraisers” means those individuals who have satisfied the requirements for credentialing in a State whose criteria for credentialing meet or exceed the applicable minimum AQB Criteria. Any minimum qualification requirements established by a State for individuals in the position of “trainee appraiser” or “supervisory appraiser” must meet or exceed the applicable minimum AQB Criteria. ASC staff will evaluate State designations such as “registered appraiser,” “apprentice appraiser,” “provisional appraiser,” or any other similar designation to determine if, in substance, such designation is consistent with a “trainee appraiser” designation and, therefore, administered to comply with Title XI. The permitted scope of practice and designation for trainee appraisers must be consistent with State and Federal laws, including regulations and supplementary guidance.

Any State or Federal agency may impose additional appraiser qualification requirements for trainee, State licensed, certified residential or certified general classifications, if they consider such requirements necessary to carry out their responsibilities under Federal and/or State statutes and regulations, so long as the additional qualification requirements do not preclude compliance with AQB Criteria.

States using non-federally recognized credentials or designations 20 must ensure that they are easily distinguished from the federally recognized credentials.

Title XI and the Federal financial institutions regulatory agencies' regulations mandate that all appraisals performed in connection with federally related transactions be in written form, prepared in accordance with generally accepted appraisal standards as promulgated by the Appraisal Standards Board (ASB) in the Uniform Standards of Professional Appraisal Practice (USPAP), and be subject to appropriate review for compliance with USPAP.21 States that have incorporated USPAP into State law should ensure that statutes or regulations are updated timely to adopt the current version of USPAP, or if State law allows, automatically incorporate the latest version of USPAP as it becomes effective. States should consider ASB Advisory Opinions, Frequently Asked Questions, and other written guidance issued by the ASB regarding interpretation and application of USPAP.

Any State or Federal agency may impose additional appraisal standards if they consider such standards necessary to carry out their responsibilities, so long as additional appraisal standards do not preclude compliance with USPAP or the Federal financial institutions regulatory agencies' appraisal regulations for work performed for federally related transactions.

The Federal financial institutions regulatory agencies' appraisal regulations define “appraisal” and identify which real estate-related financial transactions require the services of a State certified or licensed appraiser. These regulations define “appraisal” as a “written statement independently and impartially prepared by a qualified appraiser setting forth an opinion as to the market value of an adequately described property as of a specific date(s) supported by the presentation and analysis of relevant market information.” Per these regulations, an appraiser performing an appraisal review which includes the reviewer providing his or her own opinion of value constitutes an appraisal. Under these same regulations, an appraisal review that does not include the reviewer providing his or her own opinion of value does not constitute an appraisal. Therefore, under the Federal financial institutions regulatory agencies' regulations, only those transactions that involve appraisals for federally related transactions require the services of a State certified or licensed appraiser.

Title XI and the Federal financial institutions regulatory agencies' regulations specifically require the use of State certified or licensed appraisers in connection with the appraisal of certain real estate-related financial transactions.22 A State may not exempt any individual or group of individuals from meeting the State's certification or licensing requirements if the individual or group member performs an appraisal when Federal statutes and regulations require the use of a certified or licensed appraiser. For example, an individual who has been exempted by the State from its appraiser certification or licensing requirements because he or she is an officer, director, employee or agent of a federally regulated financial institution would not be permitted to perform an appraisal in connection with a federally related transaction.

The efficacy of the ASC's Compliance Review process rests on the ASC's ability to obtain reliable information about all areas of a State's Appraiser Program. ASC staff regularly attends open State board meetings as part of the on-site Compliance Review process. States are expected to make available for review by ASC staff minutes of closed meetings and executive sessions. States are encouraged to allow ASC staff to attend closed and executive sessions of State board meetings where such attendance would not violate State law or regulation or be inconsistent with other legal obligations of the State board. ASC staff is obligated to protect information obtained during the Compliance Review process concerning the privacy of individuals and any confidential matters.

1. States must require that appraisals be performed in accordance with the latest version of USPAP.23

2. States must, at a minimum, adopt and/or implement all relevant AQB Criteria.24

Good Cause for Immediate Adoption

Section 553(b)(3)(A) of the Administrative Procedure Act (APA) (5 U.S.C.) authorizes agencies to dispense with notice and comment procedures for rules of agency organization, procedure, or practice, except when notice or hearing is required by statute. Under this section, an agency may issue a final rule without seeking comment prior to the rulemaking.

Additionally, section 553(b)(3)(B) of the APA authorizes agencies to dispense with notice and comment procedures for rules when the agency for “good cause” finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under this section, an agency, upon finding good cause, may issue a final rule without seeking comment prior to the rulemaking. The FAA finds that notice and public comment to this immediately adopted final rule are unnecessary because this rule meets the exception of section 553(b)(3)(A). The sole purpose of this rule is to reflect organizational changes within AIR and AFS. This rule imposes no additional requirements on the public. Therefore, the FAA has determined that notice and public comment are unnecessary.

The FAA further finds, under 5 U.S.C. 553(d)(3), that good cause exists for making this rule effective upon publication in the Federal Register. It is unnecessary to delay the effective date of this rule because the final rule consists only of organizational amendments that have no substantive effect on the public.

The FAA's authority to issue rules is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator.

This rulemaking is promulgated under the authority described in 49 U.S.C. 106(f), which establishes the authority of the Administrator to promulgate regulations and rules, including rules that carry out the functions of the agency.

This regulation is within the scope of that authority because the rule makes non-substantive edits to agency organization, procedure, or practice that guides the public's interaction with AIR and AFS.

AIR and AFS have reorganized to align with a functional organization design concept. Currently, various rules in title 14 of the Code of Federal Regulations (14 CFR) parts 21, 25, 26, 27, 34, 91, 121, 125, 129, 135, and 183 refer to specific AIR offices that are obsolete after its reorganization. Additionally, various rules in 14 CFR parts 1, 43, 45, 60, 61, 63, 65, 91, 97, 107, 110, 119, 121, 125, 129, 133, 135, 137, 141, 142, 145, and 183 refer to specific AFS offices that are obsolete after its reorganization. This rule replaces specific office references with generic references not dependent on any particular office structure. This rule is intended to eliminate any confusion about with whom regulated entities and other persons should interact when complying with these various rules in the future.

AIR and AFS have played a critical role in assuring that the U.S. National Airspace System operates at the highest level of safety. This level of safety has been achieved through the development of standards, policy, and guidance to assure the safe design and production of aviation products, as well as the safe and standardized certification, operation, and oversight of multiple types of FAA certificate holders.

The aviation system is rapidly changing, placing greater demands on its participants. It is more complex, interconnected, and reliant on new technologies. Each component of the aircraft certification safety system—which extends beyond AIR and AFS to include industry's role in ensuring compliance to regulations, and the public's participation in the regulatory process—must address the challenges posed by the changing environment. The FAA's ability to meet the diverse and ever-increasing expectations of its stakeholders, including the flying public, industry, Congress, and other certification authorities, requires fundamental changes to several aspects of the aircraft, airmen, and operator certification safety system, including the organizational structure of AIR and AFS.

The AIR and AFS management teams evaluated changing domestic and global demands on AIR and AFS and determined a need for improved organizational efficiencies in order to provide other civil aviation authorities, manufacturers, and stakeholders with consistent and predictable outputs. The management teams evaluated feasible options and selected a functional organization design concept. AIR's reorganization into functional divisions has built necessary infrastructure to enable a comprehensive approach to becoming more efficient and effective. AIR has implemented and completed its reorganization in a phased approach. Product directorates have been eliminated in 2017 and replaced with functional divisions. Field offices have been reorganized and re-designated. For further details on this reorganization, please refer to https://www.faa.gov/news/fact_sheets/news_story.cfm?newsId=21315 and https://www.faa.gov/about/office_org/headquarters_offices/avs/offices/air/transformation/.

You can also obtain more information on the new AIR organization and the responsibilities and functions of the AIR divisions in FAA Order 8100.5C, “Aircraft Certification Service—Organizational Structure and Functions.” AIR also created a new order, FAA Order 8100.18, “Aircraft Certification Service Organizational Realignment References,” that facilitates the use of existing AIR policy and guidance after the realignment of AIR by detailing which new AIR office takes the place of which former AIR office. These orders are available online at https://www.faa.gov/regulations_policies/orders_notices/.

The AFS reorganization into functional areas aligns its infrastructure to more efficiently and effectively meet the needs of the aviation industry and improve standardization and agility to changing world needs while providing oversight for continued operational safety. AFS has eliminated regional offices, realigned headquarters organizations, and restructured field offices. More functional alignment in field offices will take place in the future. Where legacy AFS references exist, the user can access the Flight Standards Information Management System (FSIMS) publication page (http://fsims.faa.gov/PublicationForm.aspx) and select “Future of Flight Standards (FFS) Updates” found under “Active Publication.” This link provides a listing that translates organizational codes from the legacy AFS structure to the FFS structure.

Certain offices referenced in various rules under 14 CFR parts 1, 21, 25, 26, 27, 34, 43, 45, 60, 61, 63, 65, 91, 97, 107, 110, 119, 121, 125, 129, 133, 135, 137, 141, 142, 145, and 183 are obsolete due to AIR and AFS reorganization. References to non-existent offices may cause confusion for applicants, approval holders, and certificate holders in the future when interacting with AIR and AFS. The FAA is replacing specific references with generic references not dependent on any particular office structure. This rule is intended to eliminate any confusion about with whom regulated entities and other persons should interact when complying with these various rules in the future.

The new AIR and AFS organizations will continue to maintain offices throughout the United States that—for the public—perform the same functions and provide the same services that those offices performed previously. However, the names of these offices and their internal reporting structure have changed, and may continue to change over time. The generic references to offices that the FAA used in this rule are intended to refer to the same offices as the previous specific references, but with references to regions or localities removed, along with specific office names. The generic references also include offices that have international duties. Table 1 provides the specific changes for nomenclature. Additionally, some manager and director titles have changed, but these new titles are of equivalent hierarchy within the FAA. One advantage of AIR and AFS restructuring is to allow for a more-virtual work environment with less dependence on geographic region, which accommodates resource sharing among offices performing the same functions, resulting in more efficiency.

This rule does not change any existing processes. Processes for public interaction with AIR and AFS (such as application processes, reporting processes, and oversight processes) are documented in orders, notices, advisory circulars (ACs), and policy statements. These documents are available online at https://www.faa.gov/regulations_policies/. AIR and AFS will continue to provide the public the opportunity to comment on any proposed revisions to these documents prior to incorporation.

Where general references to “the FAA” are introduced in specific sections, existing advisory material for the affected section specifies the AIR and AFS offices responsible for the function identified in that section. For example, in § 21.3, the FAA is replacing the words “Aircraft Certification Office in the region in which the person required to make the report is located” with the word “FAA.” AC 21-9B, “Manufacturers Reporting Failures, Malfunctions, or Defects,” provides instructions on reporting to specific offices within AIR. The existing AIR advisory material remains in effect and is not affected by the realignment of AIR, except as noted in FAA Order 8100.18. Similarly, AFS's advisory material remains in effect and is not affected by the realignment of AFS, except as noted in FAA Order 1100.1.

In addition to the above nomenclature changes, this rule makes the following conforming changes:

• In §§ 1.2 and 110.2, removes the acronym and definition for certificate holding district office because the FAA no longer uses this nomenclature in the rules.

• In § 21.15, removes the reference “and is submitted to the appropriate aircraft certification office” because the FAA no longer uses this nomenclature in the rules and this information is adequately addressed by existing guidance on submitting applications for type certificates.

• In § 21.603, removes the reference “to the appropriate aircraft certification office” because the FAA no longer uses this nomenclature in the rules and this information is adequately addressed by existing guidance on submitting applications for technical standard order authorizations.

• In §§ 26.3, 91.1501, 121.1101, 125.501, and 129.101, removes the definition of “FAA Oversight Office” because the FAA no longer uses this nomenclature in the rules.

• In § 34.60, removes the reference to the “Aircraft Certification Office” because the FAA no longer uses this nomenclature in the rules.

• In appendix B to part 43, removes references to office designators “AFS-750” and “AFS-751”, which are obsolete references.

• In appendices A and C to part 60, removes the contact information for Ed Cook, Senior Advisor to the Division Manager, Air Transportation Division, because this information is obsolete and not necessary.

• In §§ 60.5 and 60.29, removes the reference to “AFS-1”, which is an obsolete reference.

• In § 91.1505, replaces the words “that have been approved by the FAA Aircraft Certification Office (ACO), or office of the Transport Airplane Directorate, having cognizance over the type certificate for the affected airplane are incorporated within its inspection program:” with “are incorporated within its inspection program. The repair assessment guidelines must be approved by the responsible Aircraft Certification Service office for the type certificate for the affected airplane.” This revision does not change the requirements of this section. It clarifies the wording so it is easier to understand and harmonizes the sentence structure with the other rules for repairs assessment of pressurized fuselages in §§ 121.1107, 125.505, and 129.107.

• In appendix P to part 121, removes the reference to “AFS-200”, which is an obsolete reference.

• In § 97.20, replaces “FAA National Aeronautical Charting Office. These charts are available for purchase from the FAA's National Aeronautical Charting Office, Distribution Division, 6303 Ivy Lane, Suite 400, Greenbelt, MD 20770” with “FAA. These charts are available from the FAA at https://www.faa.gov/air_traffic/flight_info/aeronav/digital_products/” because the FAA has ceased the sale of paper charts and now publishes charts for free on the internet.

• In § 125.509, replaces the word “Office” with the word “office” to create a generic reference.

In addition, this rule removes the Transport Airplane Directorate address from §§ 25.5 and 25.795 and removes the Rotorcraft Standards Staff address from § 27.685. These addresses were provided as one option to obtain documents incorporated by reference in the rule. With the movement of the Northwest Regional office and the movement to a more virtual work environment, the FAA addresses provided may change and require more flexibility. Therefore, we have removed these addresses. Per 5 CFR 51.7, documents incorporated by reference need to be “reasonably available” to regulated entities. Additional options for obtaining these documents from the National Archives and Records Administration (NARA) and other locations such as the National Institute of Justice at no cost continue to be listed in the rule. This rule also updates the website reference to NARA in these sections.

Changes to Federal regulations must undergo several economic analyses. First, Executive Orders 12866 and 13563 direct that each Federal agency shall propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs. Second, the Regulatory Flexibility Act of 1980 (Pub. L. 96-354), as codified in 5 U.S.C. 603 et seq., requires agencies to analyze the economic impact of regulatory changes on small entities. Third, the Trade Agreements Act of 1979 (Pub. L. 96-39), as amended, 19 U.S.C. Chapter 13, prohibits agencies from setting standards that create unnecessary obstacles to the foreign commerce of the United States. In developing U.S. standards, the Trade Agreements Act requires agencies to consider international standards and, where appropriate, that they be the basis of U.S. standards. Fourth, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), as codified in 2 U.S.C. 1532, requires agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more annually (adjusted for inflation with a base year of 1995). This portion of the preamble summarizes the FAA's analysis of the economic impacts of this final rule.

In conducting these analyses, the FAA has determined this final rule is not a “significant regulatory action,” as defined in section 3(f) of Executive Order 12866. The rule is also not “significant” as defined in the Department of Transportation's (DOT's) Regulatory Policies and Procedures. The final rule will not have a significant economic impact on a substantial number of small entities, will not create unnecessary obstacles to international trade, and will not impose an unfunded mandate on State, local, or tribal governments, or on the private sector.

DOT Order 2100.5 prescribes policies and procedures for simplification, analysis, and review of regulations. If the expected cost impact is so minimal that a proposed or final rule does not warrant a full evaluation, this order permits a statement to that effect and the basis for it to be included in the preamble if a full regulatory evaluation of the costs and benefits is not prepared. Such a determination has been made for this final rule. The reasoning for this determination follows:

AIR and AFS have reorganized to align with functional organization design concepts. The AIR reorganization included eliminating product directorates and restructuring and re-designating field offices. The AFS reorganization included eliminating geographic regions and moving to a more functionally based organization. Specific AIR and AFS office references currently in 14 CFR are obsolete post-reorganization and will be replaced by generic references not dependent on any particular office structure. This rule is intended to clarify any confusion over which offices regulated entities and other persons should interact with when complying with 14 CFR regulations. Since this rule involves non-substantial clarifying editorial changes only, the costs of the rule will be minimal.

The Regulatory Flexibility Act of 1980 (Pub. L. 96-354, “RFA”) establishes “as a principle of regulatory issuance that agencies shall endeavor, consistent with the objectives of the rule and of applicable statutes, to fit regulatory and informational requirements to the scale of the businesses, organizations, and governmental jurisdictions subject to regulation. To achieve this principle, agencies are required to solicit and consider flexible regulatory proposals and to explain the rationale for their actions to assure that such proposals are given serious consideration.” The RFA covers a wide-range of small entities, including small businesses, not-for-profit organizations, and small governmental jurisdictions.

Agencies must perform a review to determine whether a rule will have a significant economic impact on a substantial number of small entities. If the agency determines that it will, the agency must prepare a regulatory flexibility analysis as described in the RFA.

However, if an agency determines that a rule is not expected to have a significant economic impact on a substantial number of small entities, section 605(b) of the RFA provides that the head of the agency may so certify and a regulatory flexibility analysis is not required. The certification must include a statement providing the factual basis for this determination, and the reasoning should be clear.

As discussed above, since the rule involves non-substantial editorial changes only, due to FAA reorganization, the FAA finds the costs of this rule will be minimal. Therefore, as provided in section 605(b), the head of the FAA certifies that this rulemaking will not result in a significant economic impact on a substantial number of small entities.

The Trade Agreements Act of 1979 (Pub. L. 96-39), as amended, prohibits Federal agencies from establishing standards or engaging in related activities that create unnecessary obstacles to the foreign commerce of the United States. Pursuant to this Act, the establishment of standards is not considered an unnecessary obstacle to the foreign commerce of the United States, so long as the standard has a legitimate domestic objective, such as the protection of safety, and does not operate in a manner that excludes imports that meet this objective. The statute also requires consideration of international standards and, where appropriate, that they be the basis for U.S. standards.

The FAA has assessed the potential effect of this rule and has determined that the rule is in accord with the Trade Agreements Act as the rule applies equally to domestic and foreign persons engaged in aviation activities under 14 CFR.

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires each Federal agency to prepare a written statement assessing the effects of any Federal mandate in a proposed or final agency rule that may result in an expenditure of $100 million or more (in 1995 dollars) in any one year by State, local, and tribal governments, in the aggregate, or by the private sector; such a mandate is deemed to be a “significant regulatory action.” The FAA currently uses an inflation-adjusted value of $155 million in lieu of $100 million.

This final rule does not contain such a mandate; therefore, the requirements of Title II of the Act do not apply.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires that the FAA consider the impact of paperwork and other information collection burdens imposed on the public. The FAA has determined that there is no new requirement for information collection associated with this immediately adopted final rule.

In keeping with U.S. obligations under the Convention on International Civil Aviation, it is FAA policy to conform to International Civil Aviation Organization (ICAO) Standards and Recommended Practices to the maximum extent practicable. The FAA has reviewed the corresponding ICAO Standards and Recommended Practices and has identified no differences with these proposed regulations.

FAA Order 1050.1F identifies FAA actions that are categorically excluded from preparation of an environmental assessment or environmental impact statement under the National Environmental Policy Act in the absence of extraordinary circumstances. The FAA has determined this rulemaking action qualifies for the categorical exclusion identified in paragraph 5-6.6(d), which covers the issuance of regulatory documents covering administrative or procedural requirements and involves no extraordinary circumstances.

The FAA has analyzed this immediately adopted final rule under the principles and criteria of Executive Order 13132, “Federalism.” The agency determined that this action will not have a substantial direct effect on the States, or the relationship between the Federal Government and the States, or on the distribution of power and responsibilities among the various levels of government, and, therefore, does not have Federalism implications.

The FAA analyzed this immediately adopted final rule under Executive Order 13211, “Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use” (May 18, 2001). The agency has determined that it is not a “significant energy action” under the executive order and it is not likely to have a significant adverse effect on the supply, distribution, or use of energy.

Executive Order 13609, “Promoting International Regulatory Cooperation,” promotes international regulatory cooperation to meet shared challenges involving health, safety, labor, security, environmental, and other issues and to reduce, eliminate, or prevent unnecessary differences in regulatory requirements. The FAA has analyzed this action under the policies and agency responsibilities of Executive Order 13609, and has determined that this action would have no effect on international regulatory cooperation.

Executive Order 13771 titled “Reducing Regulation and Controlling Regulatory Costs,” directs that, unless prohibited by law, whenever an executive department or agency publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed. In addition, any new incremental costs associated with new regulations shall, to the extent permitted by law, be offset by the elimination of existing costs. Only those rules deemed significant under section 3(f) of Executive Order 12866, “Regulatory Planning and Review,” are subject to these requirements.

This rule is not an Executive Order 13771 regulatory action because this rule is not significant under Executive Order 12866.

An electronic copy of a rulemaking document may be obtained from the internet by—

1. Searching the Federal eRulemaking Portal (http://www.regulations.gov);

2. Visiting the FAA's Regulations and Policies web page at http://www.faa.gov/regulations_policies/; or

3. Accessing the Government Printing Office's web page at http://www.thefederalregister.org/fdsys/.

Copies may also be obtained by sending a request (identified by notice, amendment, or docket number of this rulemaking) to the Federal Aviation Administration, Office of Rulemaking, ARM-1, 800 Independence Avenue SW, Washington, DC 20591, or by calling (202) 267-9680.

The Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996 requires FAA to comply with small entity requests for information or advice about compliance with statutes and regulations within its jurisdiction. A small entity with questions regarding this document, may contact its local FAA official, or the person listed under the FOR FURTHER INFORMATION CONTACT heading at the beginning of the preamble. To find out more about SBREFA on the internet, visit http://www.faa.gov/regulations_policies/rulemaking/sbre_act/.

In consideration of the foregoing, the Federal Aviation Administration amends chapter I of title 14, Code of Federal Regulations as follows:

The FAA has determined that notice and opportunity for prior public comment hereon are impracticable because these procedures would significantly delay issuance of the approval design and thus delivery of the affected aircraft. In addition, the FAA has determined, in accordance with 5 U.S.C. 553(b)(3)(B) and 553(d)(3), that notice and opportunity for prior public comment hereon are unnecessary because the substance of these special conditions has been subject to the public comment process in several prior instances with no substantive comments received. The FAA therefore finds that good cause exists for making these special conditions effective upon issuance.

We invite interested people to take part in this rulemaking by sending written comments, data, or views. The most helpful comments reference a specific portion of the special conditions, explain the reason for any recommended change, and include supporting data. We ask that you send us two copies of written comments.

We will consider all comments we receive on or before the closing date for comments. We will consider comments filed late if it is possible to do so without incurring expense or delay. We may change these special conditions based on the comments we receive.

On January 12, 2016, Nextant Aerospace applied for a supplemental type certificate (STC) for installation of two General Electric (GE) H75-100E engines that include electronic engine and propeller controls in the model C90A King Air. The model C90A, currently approved under Type Certificate No. 3A20, is a normal category twin turbo-propeller airplane with a maximum capacity of up to 13 passengers and a maximum takeoff weight of up to 9650 lbs. or 10,100 lbs., depending on the serial number modified. The airplane includes two Pratt & Whitney Corporation (PWC) PT6A-21 engines and either Hartzell or McCauley reversing propellers.

Nextant Aerospace originally received an STC for the model C90A for installation of two GE H75-100 engines. Nextant Aerospace has made application to amend the STC to install GE H75-100E engines, which include single channel analog supervisory electronic engine controls (EECs) in addition to the existing mechanical engine controls. The EEC does not include any software, but does provide single lever control for both the fuel metering and propeller control. The EEC also ensures the engine and propeller remain within their operating limits throughout the approved operating range, including propeller reverse operation and starting. Loss of the EEC results in the pilot control of the hydro-mechanical metering/shut-off lever.

The Nextant Aerospace installation of GE H75-100E engines in the model C90A King Air use an electronic engine control system (a single channel supervisory control with a mechanical backup as opposed to a two-channel full authority control with no mechanical backup) instead of a traditional mechanical only control system. Although the engine control system is certificated as part of the engine, the installation of an engine with an electronic control system requires evaluation due to critical environmental effects and possible effects on or by other airplane systems. This includes indirect effects of lightning, radio interference with other airplane electronic systems, shared engine and airplane data, and power sources.

The regulatory requirements in 14 CFR part 23 for evaluating the installation of complex systems, including electronic systems and critical environmental effects, are contained in §§ 23.1306, 23.1308, and 23.1309. However, when § 23.1309 was developed, the use of electronic control systems for engines was not envisioned. The integral nature of these systems makes it necessary to ensure the airplane functions, which may be included in the EEC, are properly evaluated and that the installation does not degrade the EEC reliability, which is approved under part 33. Sections 23.1306(a) and 23.1308(a) are applied to the EEC to ensure it remains equivalent to a mechanical only system, which is not generally susceptible to the High Intensity Radiated Fields (HIRF) and lightning environments.

In some cases, the airplane in which the engine is installed determines a higher classification than the engine controls are certificated for, requiring the EEC systems be analyzed at a higher classification. As of November 2005, EEC special conditions mandated the § 23.1309 classification for loss of EEC control as catastrophic for any airplane. This is not to imply an engine failure is classified as catastrophic, but that the EEC must provide an equivalent reliability to mechanical engine controls. In addition, §§ 23.1141(e) and 25.901(b)(2) are applied to provide the fault tolerant design requirements of turbine engine mechanical controls to the EEC and ensure adequate inspection and maintenance interval for the EEC. As this is a supervisory EEC with a mechanical control backup, the intent of this special condition is to ensure the installation of both the EEC and mechanical backup provide an equivalent reliability to that expected of a mechanical only control.

Part 23 did not envision the use of electronic engine controls with either full authority controls or supervisory only controls, and lacks the specific regulatory requirements necessary to provide an adequate level of safety. Therefore, special conditions are necessary.

Under the provisions of Title 14, Code of Federal Regulations (CFR) 21.101, Nextant Aerospace must show that the model C90A, as changed, continues to meet the applicable provisions of the regulations incorporated by reference in Type Certificate No. 3A20 or the applicable regulations in effect on the date of application for the change. The regulations incorporated by reference in the type certificate are commonly referred to as the “original type certification basis.” The regulations incorporated by reference in 3A20 are as follows: CAR 3, effective May 15, 1956, amendments 3-1, 3-2, and 3-8; CAR 3, amendment 3-6; and CAR 3 § 3.705, amendment 3-7. In addition, the certification basis includes special conditions and some requirements from 14 CFR parts 23, 25, 36 and SFAR 27, as noted on the Type Certificate Data Sheet. If the Administrator finds that the applicable airworthiness regulations in part 23 do not contain adequate or appropriate safety standards for the model C90A because of a novel or unusual design feature, special conditions are prescribed under the provisions of § 21.16.

In addition to the applicable airworthiness regulations and special conditions, the model C90A must comply with the fuel vent and exhaust emission requirements of 14 CFR part 34 and the noise certification requirements of 14 CFR part 36.

The FAA issues special conditions, as defined in § 11.19, under § 11.38 and they become part of the type certification basis under § 21.101.

Special conditions are initially applicable to the model for which they are issued. Should the applicant apply for a supplemental type certificate to modify any other model included on the same type certificate to incorporate the same novel or unusual design feature, the FAA would apply these special conditions to the other model.

The model C90A King Air will incorporate the following novel or unusual design features: The installation of an Electronic Engine Control (EEC) system.

As defined in the summary section, this airplane makes use of an electronic engine control system in addition to a traditional mechanical control system, which is a novel design for this type of airplane. The applicable airworthiness regulations do not contain adequate or appropriate safety standards for this design feature. Mandating a structured assessment to determine potential installation issues mitigate the concerns that the addition of an electronic engine control does not produce a failure condition not previously considered.

These special conditions are applicable to the model C90A King Air when modified by Nextant Aerospace. Should Nextant Aerospace apply later for a supplemental type certificate to modify any other model included on Type Certificate No. 3A20 to incorporate the same novel or unusual design feature, the FAA would apply these special conditions to that model as well.

This action affects only certain novel or unusual design features on the model C90A airplane. It is not a rule of general applicability and affects only the applicant who applied to the FAA for approval of these features on the airplane.

The substance of these special conditions has been subjected to the notice and comment period in several prior instances, identified above, and has been derived without substantive change from those previously issued. It is unlikely that prior public comment would result in a significant change from the substance contained herein. Therefore, notice and opportunity for prior public comment hereon are unnecessary and the FAA finds good cause, in accordance with 5 U.S. Code §§ 553(b)(3)(B) and 553(d)(3), making these special conditions effective upon issuance. The FAA is requesting comments to allow interested persons to submit views that may not have been submitted in response to the prior opportunities for comment described above.

The authority citation for these special conditions is as follows:

Accordingly, pursuant to the authority delegated to me by the Administrator, the following special conditions are issued as part of the type certification basis for Textron Aviation (formerly Beechcraft); model C90A King Air airplanes modified by Nextant Aerospace.

a. For electronic engine control (EEC) system installations, it must be established that no single failure or malfunction or probable combinations of failures of EEC system components will have an effect on the system, as installed in the airplane, that causes the Loss of Thrust Control (LOTC) probability of the system to exceed those allowed in part 33 certification.

b. Supervisory electronic engine control system installations must be evaluated for environmental and atmospheric conditions, including lightning. The EEC system lightning and High Intensity Radiated Fields (HIRF) effects that would result in LOTC or an unacceptable change in power or thrust must be evaluated in accordance with §§ 23.1306 and 23.1308.

c. The components of the installation must be constructed, arranged, and installed to ensure their continued safe operation between normal inspections or overhauls.

d. Functions incorporated into any electronic engine control that make it part of any equipment, systems or installation whose functions are beyond that of basic engine control and which may also introduce system failures and malfunctions, are not exempt from § 23.1309 and must be shown to meet part 23 levels of safety as derived from § 23.1309. Part 33 certification data, if applicable, may be used to show compliance with any part 23 requirements. If part 33 data is used to substantiate compliance with part 23 requirements, then the part 23 applicant must be able to provide this data for their showing of compliance.

Discussion

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to all The Boeing Company Model 737-100, -200, -200C, -300, -400, -500 series airplanes. The NPRM published in the Federal Register on September 26, 2017 (82 FR 44744). The NPRM was prompted by a report of wire damage on a fuel boost pump power cable, and a separate report of a fuel tank explosion on a similarly equipped airplane. The NPRM proposed to require the installation of new shielded wire bundles and convoluted liners within fuel tank conduits, and revision of the maintenance or inspection program, as applicable, to incorporate certain AWLs.

We are issuing this AD to prevent electrical arcing between the fuel boost pump power cable wiring and the surrounding conduit, which could lead to arc-through of the conduit, consequent fire or explosion of the fuel tank, and subsequent loss of the airplane.

This AD is further rulemaking following the interim action of AD 2007-24-02, Amendment 39-15268 (72 FR 65446, November 21, 2007) (“AD 2007-24-02”), which applies to all Boeing Model 737-100, -200, -200C, -300, -400, -500 series airplanes. AD 2007-24-02 was prompted by reports of a fuel tank explosion on a Boeing Model 727-200F airplane and chafed wires and a damaged wiring sleeve on a fuel boost pump power cable in a Boeing Model 737-300 airplane. AD 2007-24-02 requires repetitive detailed inspections for damage of the electrical wire and sleeve that run to the fuel boost pump through a conduit in the fuel tank, to address potential electrical arcing between the wiring and the surrounding conduit that could result in arc-through of the conduit, consequent fire or explosion of the fuel tank, and subsequent loss of the airplane. The preamble to AD 2007-24-02 explains that its requirements are considered “interim action” and that we might consider further rulemaking. We now have determined that further rulemaking is necessary, and this AD follows from that determination.

We gave the public the opportunity to participate in developing this final rule. The following presents the comments received on the NPRM and the FAA's response to each comment.

The Air Line Pilots Association, International (ALPA) and The Boeing Company concurred with the proposed AD.

The commenter, Hannes Merrick, requested that the FAA consider not requiring wire bundle replacement if faults are not found during inspection of the affected wire bundles, or at a minimum to extend the compliance time to allow for more time to accomplish the replacement required by the proposed AD. We infer that the commenter would regard the existing repetitive inspections as adequate for maintaining an acceptable level of safety with the current wire bundle configuration. The commenter did not provide substantiating data for extending the compliance time.

We do not agree with the commenter's requests. Our experience has shown that these specific wiring design changes are more effective than repetitive inspections in preventing unsafe conditions. The design change required by this AD adds an extra protective layer that is necessary to prevent wire chafing in specific areas of the airplane that are identified in Boeing Alert Service Bulletin 737-28A1273, Revision 1, dated March 14, 2017. We have also determined that the compliance time specified in this AD is appropriate to address the unsafe condition described in this AD. However, under the provisions of paragraph (l) of this AD, we will consider requests for approval of an extension of the compliance time if sufficient data are submitted to substantiate that the change would provide an acceptable level of safety. We have not changed this AD in this regard.

Aviation Partners Boeing stated that the installation of winglets per supplemental type certificate (STC) ST01219SE does not affect the accomplishment of the manufacturer's service instructions.

We agree with the commenter that STC ST01219SE does not affect the accomplishment of the manufacturer's service instructions. Therefore, the installation of STC ST01219SE does not affect the ability to accomplish the actions required by this AD. We have not changed this AD in this regard.

In paragraph (h) of the proposed AD we referred to Boeing 737-100/200/200C/300/400/500 Airworthiness Limitations (AWLs) and Certification Maintenance Requirements (CMRs), D6-38278-CMR, dated May 2016, as an appropriate source of service information for incorporating certain airworthiness limitations. After the NPRM was issued, we reviewed Boeing 737-100/200/200C/300/400/500 Airworthiness Limitations (AWLs) and Certification Maintenance Requirements (CMRs), D6-38278-CMR, dated November 2017, which also contains the airworthiness limitations cited in this AD. The November 2017 document includes a change to airworthiness limitation 28-AWL-29, which is not one of the airworthiness limitations cited in this AD. We have revised paragraph (h) of this AD to also refer to Boeing 737-100/200/200C/300/400/500 Airworthiness Limitations (AWLs) and Certification Maintenance Requirements (CMRs), D6-38278-CMR, dated November 2017, as an appropriate source of service information for incorporating the airworthiness limitations cited in this AD.

We reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting this final rule with the change described previously and minor editorial changes. We have determined that these minor changes:

• Are consistent with the intent that was proposed in the NPRM for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM.

We reviewed the following service information.

• Boeing Alert Service Bulletin 737-28A1273, Revision 1, dated March 14, 2017. This service information describes procedures for the installation of new shielded wire bundles and convoluted liners within fuel tank conduits.

• Boeing 737-100/200/200C/300/400/500 Airworthiness Limitations (AWLs) and Certification Maintenance Requirements (CMRs), D6-38278-CMR, dated May 2016 and November 2017. This service information describes new AWLs for inspecting the fuel tank wiring and conduits. These documents are distinct since the November 2017 document includes a change to airworthiness limitation 28-AWL-29 (which is not required by this AD).

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 estimate that this AD affects 499 airplanes of U.S. registry. We estimate the following costs to comply with this AD:

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 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 to the Director of the System Oversight Division.

This AD will not have federalism implications under Executive Order 13132. This AD will 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 that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under 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 amends 14 CFR part 39 as follows:

Authority for This Rulemaking

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. 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. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it amends Class E airspace extending upward from 700 feet above the surface at Penn Valley Airport, Selinsgrove, PA, to support IFR operations at the airport.

The FAA published a notice of proposed rulemaking in the Federal Register (82 FR 55060, November 20, 2017) for Docket No. FAA-2014-0839 to amend Class E airspace extending upward from 700 feet above the surface at Penn Valley Airport, Selinsgrove, PA. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received.

Class E airspace designations are published in paragraph 6005 of FAA Order 7400.11B dated August 3, 2017, and effective September 15, 2017, which is incorporated by reference in 14 CFR part 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This document amends FAA Order 7400.11B, Airspace Designations and Reporting Points, dated August 3, 2017, and effective September 15, 2017. FAA Order 7400.11B is publicly available as listed in the ADDRESSES section of this document. FAA Order 7400.11B lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points.

This amendment to Title 14, Code of Federal Regulations (14 CFR) part 71 amends Class E airspace extending upward from 700 feet above the surface within a 9-mile radius (increased from an 8-mile radius) of Penn Valley Airport, Selinsgrove, PA, to accommodate the new RNAV (GPS) standard instrument approach procedure to Runway 35 developed for the safety and management of IFR operations at the airport.

The action removes the segment extending northbound from the Selinsgrove VOR/DME because it is no longer required as part of the airspace redesign.

The geographic coordinates of the airport are amended to coincide with the FAA's aeronautical database, and the name of the navigation aid is corrected from VORTAC to VOR/DME.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that only affects air traffic procedures and air navigation, it is certified that this rule, when promulgated, does not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA has determined that this action qualifies for categorical exclusion under the National Environmental Policy Act in accordance with FAA Order 1050.1F, “Environmental Impacts: Policies and Procedures,” paragraph 5-6.5a. This airspace action is not expected to cause any potentially significant environmental impacts, and no extraordinary circumstances exist that warrant preparation of an environmental assessment.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

Electronic Availability

This document and additional information concerning OFAC are available from OFAC's website (www.treasury.gov/ofac).

On November 4, 2010, OFAC issued the North Korea Sanctions Regulations, 31 CFR part 510 (75 FR 67912, November 4, 2010) (the “Regulations”), to implement Executive Order 13466 of June 26, 2008 (73 FR 36787, June 27, 2008) (E.O. 13466) and Executive Order 13551 of August 30, 2010 (75 FR 53837, September 1, 2010) (E.O. 13551) pursuant to authorities delegated to the Secretary of the Treasury in those orders. The Regulations were initially issued in abbreviated form for the purpose of providing immediate guidance to the public. On June 20, 2011, OFAC amended the Regulations to implement Executive Order 13570 of April 18, 2011 (76 FR 22291, April 20, 2011) (E.O. 13570) pursuant to authorities delegated to the Secretary of the Treasury in that order (76 FR 35740, June 20, 2011).

Today, OFAC is amending the Regulations and reissuing them in their entirety. As set forth in more detail below, OFAC is implementing three recent Executive orders: Executive Order 13687 of January 2, 2015 (“Imposing Additional Sanctions with Respect to North Korea”) (80 FR 819, January 6, 2015) (E.O. 13687), Executive Order 13722 of March 15, 2016 (“Blocking Property of the Government of North Korea and the Workers' Party of Korea, and Prohibiting Certain Transactions With Respect to North Korea”) (81 FR 14943, March 18, 2016) (E.O. 13722), and Executive Order 13810 of September 20, 2017 (“Imposing Additional Sanctions With Respect to North Korea”) (82 FR 44705, September 25, 2017) (E.O. 13810). In addition, OFAC is amending the Regulations to reference the North Korea Sanctions and Policy Enhancement Act of 2016, Public Law 114-122, 130 Stat. 93 (22 U.S.C. 9201 note) (NKSPEA), and Title III of the Countering America's Adversaries Through Sanctions Act, Public Law 115-44, Aug. 2, 2017, 131 Stat. 886 (22 U.S.C. 9401 et seq.) (CAATSA). Additionally, OFAC is incorporating into the Regulations several new general licenses that have, until now, appeared only on OFAC's website on the North Korea Sanctions page, adding several new general licenses, and adding and expanding provisions to issue a more comprehensive set of regulations that will provide further guidance to the public. Finally, OFAC is updating certain regulatory provisions and making other technical and conforming changes. Due to the number of regulatory sections being updated or added, OFAC is reissuing the North Korea Sanctions Regulations in their entirety.

E.O. 13466. On June 26, 2008, the President, invoking the authority of, inter alia, the International Emergency Economic Powers Act (50 U.S.C. 1701-1706) (IEEPA), issued E.O. 13466. In E.O. 13466, the President found that the existence and risk of the proliferation of weapons-usable fissile material on the Korean Peninsula constitute an unusual and extraordinary threat to the national security and foreign policy of the United States and declared a national emergency to deal with that threat. The President further found that it is necessary to continue certain restrictions with respect to North Korea that would otherwise be lifted pursuant to a then-forthcoming proclamation that would terminate the exercise of authorities then in place under the Trading With the Enemy Act (50 U.S.C. App. 1 et seq.) (TWEA) with respect to North Korea.

Section 1 of E.O. 13466 blocks, with certain exceptions, all property and interests in property of North Korea or a North Korean national that, pursuant to the President's authorities under the TWEA, were blocked as of June 16, 2000, and remained blocked immediately prior to the issuance of E.O. 13466.

Section 2 of E.O. 13466 prohibits, with certain exceptions, U.S. persons from registering a vessel in North Korea, obtaining authorization for a vessel to fly the North Korean flag, or owning, leasing, operating, or insuring any vessel flagged by North Korea.

E.O. 13551. On August 30, 2010, the President, invoking the authority of, inter alia, IEEPA and the United Nations Participation Act (22 U.S.C. 287c) (UNPA), and in view of United Nations Security Council Resolution (UNSCR) 1718 of October 14, 2006 and UNSCR 1874 of June 12, 2009, issued E.O 13551. In E.O. 13551, the President expanded the scope of the national emergency in E.O. 13466, finding that the continued actions and policies of the Government of North Korea—manifested by its unprovoked attack that resulted in the sinking of a Republic of Korea navy ship and the deaths of those onboard; its actions in violation of UNSCRs, including the procurement of luxury goods; and its illicit and deceptive activities in international markets, including money laundering, the counterfeiting of goods and currency, bulk cash smuggling, and narcotics trafficking—destabilize the Korean peninsula and imperil U.S. armed forces, allies, and trading partners in the region, and thereby constitute an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States.

Section 1(a) of E.O. 13551 blocks, with certain exceptions, all property and interests in property that are in the United States, that come within the United States, or that are or come within the possession or control of any U.S. person of the persons listed in the Annex to E.O. 13551 and other persons determined by the Secretary of the Treasury, in consultation with the Secretary of State to meet certain criteria set forth in E.O. 13551.

E.O. 13570. On April 18, 2011, the President, invoking the authority of, inter alia, IEEPA and section 5 of the UNPA, and in view of UNSCR 1718 of October 14, 2006 and UNSCR 1874 of June 12, 2009, issued E.O. 13570 to take additional steps to address the national emergency declared in E.O. 13466 and expanded in scope in E.O. 13551. Section 1 of E.O. 13570 prohibits, with certain exceptions, the importation into the United States, directly or indirectly, of any goods, services, or technology from North Korea.

E.O. 13687. On January 2, 2015, the President, invoking the authority of, inter alia, IEEPA, issued E.O. 13687. In E.O. 13687, the President expanded the scope of the national emergency declared in E.O. 13466, as modified in scope by and relied upon for additional steps in subsequent orders, finding that the provocative, destabilizing, and repressive actions and policies of the Government of North Korea, including its destructive, coercive cyber-related actions during November and December 2014, actions in violation of UNSCRs, and commission of serious human rights abuses, constitute a continuing threat to the national security, foreign policy, and economy of the United States.

Section 1(a) of E.O. 13687 blocks, with certain exceptions, all property and interests in property that are in the United States, that come within the United States, or that are or come within the possession or control of any U.S. person of persons determined by the Secretary of the Treasury, in consultation with the Secretary of State to be an agency, instrumentality, or controlled entity of the Government of North Korea or the Workers' Party of Korea, to be an official of the Government of North Korea or the Workers' Party of Korea, or to meet other criteria set forth in E.O. 13687.

E.O. 13722. On March 15, 2016, the President, invoking the authority of, inter alia, IEEPA, the UNPA, and NKSPEA, and in view of UNSCR 2270 of March 2, 2016, issued E.O. 13722 to take additional steps with respect to the national emergency declared in E.O. 13466, as modified in scope by and relied upon for additional steps taken in subsequent orders.

Section 1(a) of E.O. 13722 blocks, with certain exceptions, all property and interests in property that are in the United States, that come within the United States, or that are or come within the possession or control of any U.S. person of the Government of North Korea or the Workers' Party of Korea. The property and interests in property of the Government of North Korea or the Workers' Party of Korea may not be transferred, paid, exported, withdrawn, or otherwise dealt in.

Section 2(a) of E.O. 13722 blocks, with certain exceptions, all property and interests in property that are in the United States, that come within the United States, or that are or come within the possession or control of any U.S. person, of other persons determined by the Secretary of the Treasury, in consultation with the Secretary of State to operate in any industry in the North Korean economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, to be subject to section 2(a)(i) of E.O. 13722, including transportation, mining, energy, or financial services, or to meet other criteria set forth in E.O. 13722.

Section 3(a) of E.O. 13722 prohibits, with certain exceptions: (i) The exportation or reexportation, direct or indirect, from the United States, or by a U.S. person, wherever located, of any goods, services, or technology to North Korea; (ii) new investment in North Korea by a U.S. person, wherever located; and (iii) any approval, financing, facilitation, or guarantee by a U.S. person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by section 3(a) of E.O. 13722 if performed by a U.S. person or within the United States. The new exportation and reexportation prohibition operates in conjunction with preexisting comprehensive controls on North Korea that are maintained by the U.S. Department of Commerce under the Export Administration Regulations, 15 CFR parts 730-774 (EAR). The Department of Commerce requires a license for the export from the United States of all items subject to the EAR (other than food or medicine) that are destined for North Korea, whether by U.S. persons or non-U.S. persons. It also requires a license for the reexport to North Korea from a third country of all items subject to the EAR, whether by U.S. persons or non-U.S. persons. Section 3(a) of E.O. 13722, in effect, complements the restrictions maintained by the Department of Commerce and enhances those restrictions by adding a prohibition against the reexportation to North Korea by a U.S. person, wherever located, of items that are not subject to the EAR, including, for example, purely foreign-origin items.

E.O. 13810. On September 20, 2017, the President, invoking the authority of, inter alia, IEEPA and the UNPA, and in view of UNSCR 2321 of November 30, 2016, UNSCR 2356 of June 2, 2017, UNSCR 2371 of August 5, 2017, and UNSCR 2375 of September 11, 2017, issued E.O. 13810 to take further steps with respect to the national emergency declared in E.O. 13466, as modified in scope by and relied upon for additional steps in subsequent orders.

Section 1(a) of E.O. 13810 blocks, with certain exceptions, all property and interests in property that are in the United States, that come within the United States, or that are or come within the possession or control of any U.S. person of any person determined by the Secretary of the Treasury, in consultation with the Secretary of State to have engaged in at least one significant importation from or exportation to North Korea of any goods, services, or technology, or to meet other criteria set forth in E.O. 13810.

Section 2 of E.O. 13810 prohibits, with certain limited exceptions: (a) Any aircraft in which a foreign person has an interest that has landed at a place in North Korea from landing at a place in the United States within 180 days after departure from North Korea; and (b) any vessel in which a foreign person has an interest that has called at a port in North Korea within the previous 180 days, or that has engaged in a ship-to-ship transfer with such a vessel within the previous 180 days, from calling at a port in the United States.

Section 3(a) of E.O. 13810 blocks, with certain exceptions, all funds that are in the United States, that come within the United States, or that are or come within the possession or control of any U.S. person and that originate from, are destined for, or pass through a foreign bank account that has been determined by the Secretary of the Treasury to be owned or controlled by a North Korean person or to have been used to transfer funds in which any North Korean person has an interest. The funds described above may not be transferred, paid, exported, withdrawn, or otherwise dealt in.

Section 4 of E.O. 13810 authorizes the Secretary of the Treasury, in consultation with the Secretary of State, to impose the sanctions described below on any foreign financial institution determined by the Secretary of the Treasury, in consultation with the Secretary of State, to have: (i) Knowingly conducted or facilitated any significant transaction on behalf of any person whose property and interests in property are blocked pursuant to E.O. 13551, E.O. 13687, E.O. 13722, or E.O. 13810, or of any person whose property and interests in property are blocked pursuant to Executive Order 13382 (70 FR 38567, July 1, 2005) (“Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters”) in connection with North Korea-related activities; or (ii) knowingly conducted or facilitated any significant transaction in connection with trade with North Korea. With respect to a foreign financial institution determined to meet the criteria above, the Secretary of the Treasury, in consultation with the Secretary of State, may: (i) Prohibit the opening and prohibit or impose strict conditions on the maintenance of correspondent accounts or payable-through accounts in the United States by such foreign financial institution; or (ii) block all property and interests in property that are in the United States, that come within the United States, or that are or come within the possession or control of any U.S. person of such foreign financial institution, and such property and interests in property may not be transferred, paid, exported, withdrawn, or otherwise dealt in.

Other Executive Order provisions. In section 1(b) of E.O. 13551, section 2 of E.O. 13687, section 5 of E.O. 13722, and section 1(c) of E.O. 13810, the President determined that the making of donations of certain articles, such as food, clothing, and medicine, intended to be used to relieve human suffering, as specified in section 203(b)(2) of IEEPA (50 U.S.C. 1702(b)(2)), by, to, or for the benefit of any person whose property and interests in property are blocked pursuant to those orders would seriously impair the President's ability to deal with the national emergency declared in E.O. 13466, as modified in scope by and relied upon for additional steps in the subsequent orders. The President therefore prohibited the donation of such items unless authorized by OFAC.

Section 1(c) of E.O. 13551, section 3 of E.O. 13687, section 6 of E.O. 13722, and section 1(d) of E.O. 13810 provide that the prohibition on any transaction or dealing in blocked property or interests in property includes the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any person whose property and interests in property are blocked pursuant to those orders, and the receipt of any contribution or provision of funds, goods, or services from any such person.

Section 3 of E.O. 13466, section 2 of E.O. 13551, section 2 of E.O. 13570, section 5 of E.O. 13687, section 7 of E.O. 13722, and section 6 of E.O. 13810 prohibit any transaction by a U.S. person or within the United States that evades or avoids, has the purpose of evading or avoiding, or attempts to violate any of the prohibitions set forth in those orders, as well as any conspiracy formed to violate such prohibitions. Pursuant to a 2007 amendment of IEEPA clarifying that it is illegal to cause a violation of IEEPA, section 2 of E.O. 13551, section 2 of E.O. 13570, section 5 of E.O. 13687, section 7 of E.O. 13722, and section 6 of E.O. 13810 further prohibit any transaction by a U.S. person or within the United States that causes a violation of any of those orders.

Section 5 of E.O. 13466, section 6 of E.O. 13551, section 5 of E.O. 13570, section 8 of E.O. 13687, section 11 of E.O. 13722, and section 10 of E.O. 13810 authorize the Secretary of the Treasury, in consultation with the Secretary of State, to take such actions, including the promulgation of rules and regulations, and to employ all powers granted to the President by IEEPA, and, where relevant, the UNPA, as may be necessary to carry out the purposes of those orders. These sections also provide that the Secretary of the Treasury may redelegate any of these functions to other officers and agencies of the U.S. government.

NKSPEA. On February 18, 2016, the President signed NKSPEA into law. Among other things, section 104(a) of NKSPEA provides that the President, with certain exceptions, shall block and prohibit all transactions in property and interests in property that are in the United States, that come within the United States, or that are or come within control or possession of a U.S. person of: The Government of North Korea, the Workers' Party of Korea, and certain other persons the President determines knowingly engage in certain North Korea-related activities.

Section 404(a) of NKSPEA provides authority for the President to promulgate regulations as may be necessary to carry out the provisions of NKSPEA. Pursuant to Presidential Memorandum of May 18, 2016: Delegation of Certain Functions and Authorities under the North Korea Sanctions and Policy Enhancement Act of 2016, the President delegated to the Secretary of the Treasury, in consultation with the Secretary of State, the functions and authorities vested in the President by sections 104(a) and to the Secretary of State, the Secretary of the Treasury, the Secretary of Commerce, and the Director of National Intelligence the functions and authorities vested in the President by section 404(a) of NKSPEA as necessary to carry out the provisions of NKSPEA.

CAATSA. On August 2, 2017, the President signed CAATSA into law. Title III of CAATSA, among other things, amends NKSPEA. Section 311(a) of CAATSA amends section 104(a) of NKSPEA to provide that the President shall, with certain exceptions, block and prohibit all transactions in property and interests in property that are in the United States, that come into the United States, or that are or come into the possession of U.S. persons of any person the President determines knowingly, directly or indirectly: imports, exports, or reexports to or from North Korea any defense article or defense service or engages in certain other North Korea-related activities.

Section 333(a) of CAATSA provides that the President shall, not later than 180 days after the date of enactment, promulgate regulations as necessary for the implementation of and amendments made by title III of CAATSA. Pursuant to Presidential Memorandum of September 29, 2017: Delegation of Certain Functions and Authorities under the Countering America's Adversaries Through Sanctions Act of 2017, the Ukraine Freedom Support Act of 2014, and the Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014, the President delegated to the Secretary of the Treasury, in consultation with the Secretary of State, the relevant functions and authorities vested in the President by section 321(b), with respect to section 302B(a) and (b) of the NKSPEA, as amended by CAATSA, and section 333 of CAATSA.

The President, through the issuance of E.O. 13466, E.O. 13551, E.O. 13570, E.O. 13687, E.O. 13722, and E.O. 13810, has put in place prohibitions and designation criteria that encompass all of the prohibitions and designation criteria contained in the provisions of NKSPEA and CAATSA discussed above and has thereby already taken the steps necessary to implement those provisions. While it is not legally necessary to take further steps, OFAC is issuing these amended Regulations to further implement the many provisions of E.O. 13466, E.O. 13551, E.O. 13570, E.O. 13687, E.O. 13722, and E.O. 13810.

Subpart A of the Regulations clarifies the relation of this part to other laws and regulations. Subpart B of the Regulations implements the prohibitions contained in the various Executive Orders. See, e.g., §§ 510.201 and 510.208. Persons identified in the Annex to E.O. 13551, designated for blocking by or under the authority of the Secretary of the Treasury pursuant to E.O. 13551, E.O. 13687, E.O. 13722, or E.O. 13810, or otherwise subject to the blocking provisions of those orders, are referred to throughout the Regulations as “persons whose property and interests in property are blocked pursuant to § 510.201(a).” The names of persons listed in or designated pursuant to these orders are published on OFAC's Specially Designated Nationals and Blocked Persons List (SDN List), which is accessible via OFAC's website. Those names also are published in the Federal Register as they are added to the SDN List.

Section 510.201 of subpart B implements the many blocking prohibitions contained in the Executive Orders. Sections 510.202 and 510.203 of subpart B detail the effect of transfers of blocked property in violation of the Regulations and set forth the requirement to hold blocked funds, such as currency, bank deposits, or liquidated financial obligations, in interest-bearing blocked accounts. Section 510.204 of subpart B provides that all expenses incident to the maintenance of blocked physical property shall be the responsibility of the owners and operators of such property, and that such expenses shall not be met from blocked funds, unless otherwise authorized. Section 510.204 further provides that blocked property may, in OFAC's discretion, be sold or liquidated and the net proceeds placed in a blocked, interest-bearing account in the name of the owner of the property.

Sections 510.205 through 510.209 and 510.211 set forth additional prohibitions pursuant to E.O. 13570, E.O. 13687, E.O. 13722, and E.O. 13810, including prohibitions on certain North Korea-related vessel and aircraft transactions, the importation and exportation of goods, services, or technology to or from North Korea, and new investment in North Korea.

Section 510.210 of subpart B implements the non-blocking provisions of section 4 of E.O. 13810 regarding the opening or maintenance of correspondent accounts or payable through accounts in the United States (the blocking provisions of section 4 of E.O. 13810 are implemented in § 510.201 of subpart B). The names of foreign financial institutions that are determined by the Secretary of the Treasury, in consultation with the Secretary of State, to engage in the activities described in § 510.210, and which are determined to be subject to prohibitions or strict conditions on the opening or maintaining of correspondent or payable-through accounts in the United States, will be listed on the Correspondent Account or Payable-Through Account Sanctions (CAPTA) List, which is accessible via OFAC's website (www.treasury.gov/ofac) and published in the Federal Register. This list also will state the prohibition or strict condition(s) that applies with respect to each sanctioned foreign financial institution, and the relevant or applicable sanctions program. The names of foreign financial institutions that meet these same criteria but whose property and interests in property are instead determined to be blocked pursuant to § 510.201 will be published on the SDN List, which is also accessible via OFAC's website.

Section 510.212 of subpart B implements the prohibitions of E.O. 13466, E.O. 13551, E.O. 13570, E.O. 13687, E.O. 13722, and E.O. 13810 on any transaction by a U.S. person or within the United States that evades or avoids, has the purpose of evading or avoiding, or attempts to violate any of the prohibitions set forth in those orders, and on any conspiracy formed to violate such prohibitions. Section 510.212 further contains the additional prohibition, included in all but the first order but available for all IEEPA-based prohibitions, on any transaction by a U.S. person or within the United States that causes a violation of any of the prohibitions in any of the orders.

Section 510.213 of subpart B details transactions that are exempt from the prohibitions of the Regulations pursuant to section 203(b)(1), (3), and (4) of IEEPA (50 U.S.C. 1702(b)(1), (3), and (4)). These exempt transactions relate to personal communications, the importation and exportation of information or informational materials, and transactions ordinarily incident to travel. The exemptions described in this section do not apply to any transactions involving property or interests in property of certain persons whose property and interests in property are blocked pursuant to the provisions of E.O. 13551, E.O. 13722, or E.O. 13810 and that are blocked pursuant to the authority of the UNPA in addition to IEEPA.

In subpart C of the Regulations, new definitions are being added to other key terms used in the Regulations. Because these new definitions were inserted in alphabetical order, the definitions that were in the prior abbreviated set of regulations have been renumbered. Similarly, in subpart D, which contains interpretations of the Regulations, certain provisions have been added and updated from those in the prior abbreviated set of regulations. Section 510.411 explains that the property and interests in property of an entity are blocked if the entity is directly or indirectly owned, whether individually or in the aggregate, 50 percent or more by one or more persons whose property and interests in property are blocked, whether or not the entity itself is incorporated into the SDN List. Section 510.412 provides information about facilitation, and § 510.413 describes the non-exclusive factors the Secretary of the Treasury may consider when determining whether a transaction is significant.

Transactions otherwise prohibited by the Regulations but found to be consistent with U.S. policy may be authorized by one of the general licenses contained in subpart E of the Regulations or by a specific license issued pursuant to the procedures described in subpart E of 31 CFR part 501. Subpart E of the Regulations also contains certain statements of specific licensing policy in addition to the general licenses. General licenses and statements of licensing policy relating to this part also may be available through the North Korea sanctions page on OFAC's website: www.treasury.gov/ofac.

With this rule, OFAC is incorporating into the Regulations, and in some cases amending, 10 general licenses that were previously posted only on OFAC's website. These general licenses have been removed from OFAC's website, because they have been replaced and superseded in their entirety by the Regulations. Nine of these general licenses were originally issued and posted on OFAC's website on March 16, 2016—General Licenses 1 through 9—and then reissued and posted on OFAC's website on March 24, 2016, to incorporate a technical change regarding the date the President signed E.O. 13722. General License 1 was replaced and superseded in its entirety by General License 1-A, which was posted on OFAC's website on December 20, 2016. General License 1-A is now located in the Regulations at § 510.510. General License 2, which authorizes the provision of certain legal services, is now located at § 510.507. General License 3, which authorized certain blocked account-related transactions, was replaced and superseded in its entirety by General License 3-A, which was posted on OFAC's website on September 21, 2017. General License 3-A is now located at § 510.505. General License 4, regarding personal remittances, is now located at § 510.511, and includes a cap on such remittances of $5,000 per year. General License 5, which authorizes certain activities of nongovernmental organizations, is now located at § 510.512. With respect to General License 5, OFAC has removed an authorization relating to educational activities; OFAC also added an authorization relating to the exportation of food and medicines to harmonize with Department of Commerce authorities. General License 6, pertaining to third-country diplomatic and consular funds transfers, is now located at § 510.515. General License 7, relating to telecommunications and mail service, is now located at § 510.516; and General License 8, regarding patents and intellectual property, is now located at § 510.517. General License 9, authorizing emergency medical services, is now located in § 510.509. On September 21, 2017, OFAC issued and posted on its website General License 10, authorizing the calling of certain vessels and landing of certain aircraft. General License 10 is now located at § 510.518.

OFAC is also incorporating several new general licenses into the Regulations. Sections 510.506, 510.508, 510.513, and 510.514 authorize certain transactions relating to investment and reinvestment of certain funds, payments for legal services from funds originating outside the United States, the official business of the Federal government, and official activities of international organizations. Section 510.519 authorizes certain transactions for a 10-day period related to closing a correspondent account or payable-through account for a foreign financial institution whose name is added to the CAPTA List pursuant to the prohibition in § 510.211. This general license includes a reporting requirement pursuant to which a U.S. financial institution that maintained a correspondent account or a payable-through account for a foreign financial institution whose name is added to the CAPTA List must file a report with OFAC that provides full details on the closing of each such account within 30 days of the closure of the account. The report must include complete information on all transactions processed or executed in winding down and closing the account.

Subpart F of the Regulations refers to subpart C of part 501 for recordkeeping and reporting requirements. Subpart G of the Regulations describes the civil and criminal penalties applicable to violations of the Regulations, as well as the procedures governing the potential imposition of a civil monetary penalty or issuance of a finding of violation. Subpart G also refers to appendix A of part 501 for a more complete description of these procedures.

Subpart H of the Regulations refers to subpart E of part 501 for applicable provisions relating to administrative procedures and contains a delegation of certain authorities of the Secretary of the Treasury. Subpart I of the Regulations sets forth a Paperwork Reduction Act notice.

Because the Regulations involve a foreign affairs function, the provisions of Executive Order 12866 and the Administrative Procedure Act (5 U.S.C. 553) requiring notice of proposed rulemaking, opportunity for public participation, and delay in effective date, as well as the provisions of Executive Order 13771, are inapplicable. Because no notice of proposed rulemaking is required for this rule, the Regulatory Flexibility Act (5 U.S.C. 601-612) does not apply.

The collections of information related to the Regulations are contained in 31 CFR part 501 (the “Reporting, Procedures and Penalties Regulations”). Pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3507), those collections of information have been approved by the Office of Management and Budget under control number 1505-0164. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number.

The Delaware Department of Transportation, who owns and operates the SR 13 (Market Street) Bridge across Nanticoke River, mile 39.6, in Seaford, DE, has requested a temporary deviation from the current operating regulation. This deviation is necessary to facilitate placement of an emergency temporary public water line on the bridge due to contamination of the town of Blades, DE water system. The bridge is a bascule bridge and has a vertical clearance in the closed-to-navigation position of 3 feet above mean high water.

The current operating schedule is set out in 33 CFR 117.243(b). Under this temporary deviation, the bridge will remain in the closed-to-navigation position from noon on February 9, 2018, through noon on March 23, 2018. The Nanticoke River in the location of the bridge is predominantly used by small recreational vessels. The bridge has an average of one or two bridge openings per month during the time period of this temporary deviation. The Coast Guard has carefully considered the nature and volume of vessel traffic on the waterway, in relation to the emergency management purpose for maintaining the bridge in the closed-to-navigation position, in publishing this temporary deviation.

Vessels able to pass through the bridge in the closed-to-navigation position may do so at any time. The bridge will not be able to open for an emergency and there is no immediate alternate route for vessels to pass. The Coast Guard will also inform the users of the waterway through our Local and Broadcast Notices to Mariners of the change in operating schedule for the bridge so that vessel operators can arrange their transits to minimize any impact caused by the temporary deviation.

In accordance with 33 CFR 117.35(e), the drawbridge must return to its regular operating schedule immediately at the end of the effective period of this temporary deviation. This deviation from the operating regulations is authorized under 33 CFR 117.35.

I. Table of Acronyms APA Administrative Procedure Act COTP U.S. Coast Guard Captain on the Port DHS Department of Homeland Security FR Federal Register NOAA National Oceanic and Atmospheric Administration NPRM Notice of Proposed Rulemaking PATCOM U.S. Coast Guard Patrol Commander U.S.C. United States Code II. Background Information and Regulatory History

The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule. Since the Coast Guard received notice of this event on February 9, 2018, notice and comment procedures would be impracticable in this instance.

For similar reasons as those stated above, under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register.

The Coast Guard is issuing this rule under authority in 33 U.S.C. 1231. The Captain of the Port (COTP) San Francisco has determined that potential hazards associated with the planned fireworks display on March 5, 2018, will be a safety concern for anyone within a 100-foot radius of the fireworks barge and anyone within a 560-foot radius of the fireworks firing site. This rule is needed to protect spectators, vessels, and other property from hazards associated with pyrotechnics.

This rule establishes a temporary safety zone during the loading and transit of the fireworks barge, until after completion of the fireworks display. During the loading of the pyrotechnics onto the fireworks barge, scheduled to take place from 8:00 a.m. to 1:00 p.m. on March 5, 2018, at Pier 50 in San Francisco, CA, the safety zone will encompass the navigable waters around and under the fireworks barge within a radius of 100 feet.

The fireworks barge will remain at Pier 50 until the start of its transit to the display location. Towing of the barge from Pier 50 to the display location is scheduled to take place from 6:00 p.m. to 6:30 p.m. on March 5, 2018, where it will remain until the conclusion of the fireworks display.

At 9:10 p.m. on March 5, 2018, 30 minutes prior to the commencement of the 18-minute fireworks display, the safety zone will increase in size and encompass the navigable water around and under the fireworks barge within a radius of 560 feet in approximate position 37°48′37″ N, 122°26′49″ W (NAD 83) for the St. Francis Yacht Club Fireworks Display. The safety zone shall terminate at 10:30 p.m. on March 5, 2018.

The effect of the temporary safety zone is to restrict navigation in the vicinity of the fireworks loading, transit, and firing site. Except for persons or vessels authorized by the COTP or the COTP's designated representative, no person or vessel may enter or remain in the restricted areas. These regulations are needed to keep spectators and vessels away from the immediate vicinity of the fireworks firing sites to ensure the safety of participants, spectators, and transiting vessels.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive orders, and we discuss First Amendment rights of protestors.

E.O.s 12866 (“Regulatory Planning and Review”) and 13563 (“Improving Regulation and Regulatory Review”) direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits including potential economic, environmental, public health and safety effects, distributive impacts, and equity. E.O.13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. Executive Order 13771 (“Reducing Regulation and Controlling Regulatory Costs”), directs agencies to reduce regulation and control regulatory costs and provides that “for every one new regulation issued, at least two prior regulations be identified for elimination, and that the cost of planned regulations be prudently managed and controlled through a budgeting process.”

We expect the economic impact of this rule will not rise to the level of necessitating a full Regulatory Evaluation. This regulatory action determination is based on the size, location, duration of the safety zone. The size of the zone is the minimum necessary to provide adequate protection for the waterways users, adjoining areas, and the public. This zone is of limited duration and is the minimum necessary to provide adequate protection for the waterways users, adjoining areas, and the public. The Coast Guard will issue Broadcast Notice to Mariners via VHF-FM marine channel 16 about the zone and the rule allows vessels to seek permission to enter the zone.

The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612, as amended, requires federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

While some owners or operators of vessels intending to transit the safety zone may be small entities, for the reasons stated in section V.A above, this rule will not have a significant economic impact on any vessel owner or operator. Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has 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. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.

Also, this rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not 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. If you believe this rule has implications for federalism or Indian tribes, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section above.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such expenditure, we do discuss the effects of this rule elsewhere in this preamble.

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule is categorically excluded from further review under paragraph L60(c) of Section L of the Department of Homeland Security Instruction Manual 023-01-001-01 (series). An environmental analysis checklist supporting this determination and Record of Environmental Consideration (REC) are available in the docket where indicated under ADDRESSES. We seek any comments or information that may lead to the discovery of a significant environmental impact from this rule.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places or vessels.

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:

The TTT program was established in 1994 to assist transitioning service members in beginning new careers as school teachers. The program provides counseling and referral services for participants to help them meet education and licensing requirements to teach and subsequently helps them secure a teaching position.

On February 24, 2017, President Trump signed Executive Order 13777, “Enforcing the Regulatory Reform Agenda,” which established a Federal policy “to alleviate unnecessary regulatory burdens” on the American people. Section 3(a) of the Executive order directed each Federal agency to establish a Regulatory Reform Task Force, the duty of which is to evaluate existing regulations and “make recommendations to the agency head regarding their repeal, replacement, or modification.” Section 3(d)(ii) of the Executive order specifically instructs the Task Force to identify regulations that are “are outdated, unnecessary, or ineffective.” The Department is undertaking this regulatory action consistent with that objective.

The TTT program was jointly administered by the Department of Education and the Department of Defense Activity for Non-Traditional Education Support (DANTES) until fiscal year 2013, when full responsibility and authority for the TTT program was transferred from the Secretary of Education to the Secretary of Defense by the National Defense Authorization Act of 2013 (Pub. L. 112-239). For this reason, the Troops-to-Teachers program regulations in 34 CFR part 230 are obsolete and we are proposing to rescind those regulations.

Under the Administrative Procedure Act (5 U.S.C. 553) (APA) the Department generally offers interested parties the opportunity to comment on proposed regulations. However, this regulatory action merely rescinds regulations that have become obsolete due to statutory changes, and does not involve any exercise of discretion on the part of the Department. This regulatory action adopts no new regulations and does not establish or affect substantive policy. Therefore, under 5 U.S.C. 553(b)(B), the Secretary has determined that obtaining public comment on the removal of the regulations in 34 CFR part 230 is unnecessary.

The APA also generally requires that regulations be published at least 30 days before their effective date, unless the agency has good cause to implement its regulations sooner (5 U.S.C. 553(d)(3)). Again, because this final regulatory action merely removes outdated regulations that are unnecessary because administration of the affected program has been transferred to another agency, the Secretary is also waiving the 30-day delay in the effective date of these regulatory changes under 5 U.S.C. 553(d)(3).

Under Executive Order 12866, the Secretary must determine whether this regulatory action is “significant” and, therefore, subject to the requirements of the Executive order and subject to review by the Office of Management and Budget (OMB). Section 3(f) of Executive Order 12866 defines a “significant regulatory action” as an action likely to result in a rule that may—

(1) Have an annual effect on the economy of $100 million or more, or adversely affect a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or Tribal governments or communities in a material way (also referred to as an “economically significant” rule);

(2) Create serious inconsistency or otherwise interfere with an action taken or planned by another agency;

(3) Materially alter the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or

(4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles stated in the Executive order.

This final regulatory action is not a significant regulatory action subject to review by OMB under section 3(f) of Executive Order 12866.

We have also reviewed these regulations under Executive Order 13563, which supplements and explicitly reaffirms the principles, structures, and definitions governing regulatory review established in Executive Order 12866. To the extent permitted by law, Executive Order 13563 requires that an agency—

(1) Propose or adopt regulations only on a reasoned determination that their benefits justify their costs (recognizing that some benefits and costs are difficult to quantify);

(2) Tailor its regulations to impose the least burden on society, consistent with obtaining regulatory objectives and taking into account—among other things and to the extent practicable—the costs of cumulative regulations;

(3) In choosing among alternative regulatory approaches, select those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity);

(4) To the extent feasible, specify performance objectives, rather than the behavior or manner of compliance a regulated entity must adopt; and

(5) Identify and assess available alternatives to direct regulation, including economic incentives—such as user fees or marketable permits—to encourage the desired behavior, or provide information that enables the public to make choices.

Executive Order 13563 also requires an agency “to use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible.” The Office of Information and Regulatory Affairs of OMB has emphasized that these techniques may include “identifying changing future compliance costs that might result from technological innovation or anticipated behavioral changes.”

We are issuing this final regulatory action only on a reasoned determination that its benefits justify its costs. In choosing among alternative regulatory approaches, we selected those approaches that maximize net benefits. Based on the analysis that follows, the Department believes that these final regulations are consistent with the principles in Executive Order 13563.

We also have determined that this regulatory action does not unduly interfere with State, local, and Tribal governments in the exercise of their governmental functions.

In accordance with both Executive orders, the Department has assessed the potential costs and benefits, both quantitative and qualitative, of this regulatory action. Because the rescission of these regulations comports with statutory changes that have already taken effect, this action will not result in any additional costs or benefits.

Under Executive Order 13771, for each new regulation that the Department proposes for notice and comment or otherwise promulgates that is a significant regulatory action under Executive Order 12866 and that imposes total costs greater than zero, it must identify two deregulatory actions. For FY 2018, any new incremental costs associated with a new regulation must be fully offset by the elimination of existing costs through deregulatory actions. Because this final rule is not a significant regulatory action, the requirement to offset new regulations in Executive Order 13771 does not apply.

The Secretary certifies that these regulations will not have a significant economic impact on a substantial number of small entities. As detailed above, this regulatory action merely removes outdated regulations from the Code of Federal Regulations and imposes no costs.

These regulations do not contain any information collection requirements.

This program is subject to Executive Order 12372 and the regulations in 34 CFR part 79. One of the objectives of the Executive order is to foster an intergovernmental partnership and a strengthened federalism. The Executive order relies on processes developed by State and local governments for coordination and review of proposed Federal financial assistance.

Electronic Access to This Document: The official version of this document is the document published in the Federal Register. You may access the official edition of the Federal Register and the Code of Federal Regulations via the Federal Digital System at: www.thefederalregister.org/fdsys. At this site you can view this document, as well as all other documents of this Department published in the Federal Register, in text or Portable Document Format (PDF). To use PDF you must have Adobe Acrobat Reader, which is available free at the site.

You may also access documents of the Department published in the Federal Register by using the article search feature at: www.federalregister.gov. Specifically, through the advanced search feature at this site, you can limit your search to documents published by the Department.

Section 260 of the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017, and Zika Response and Preparedness Act (Pub. L.114-223) allows VA to use appropriated funds available to VA for the Medical Services account to provide fertility counseling and treatment using assisted reproductive technology (ART) to a covered veteran or the spouse of a covered veteran, or adoption reimbursement to a covered veteran. On January 19, 2017, VA published an interim final rule at 82 FR 6275 addressing fertility counseling and treatment using ART, including in vitro fertilization (IVF) (which is a type of ART), for both covered veterans and spouses. We now address reimbursement of qualifying adoption expenses in this rulemaking.

Per the statute, veterans with a service-connected disability that results in the inability of the veteran to procreate without the use of fertility treatment are authorized to receive reimbursement for certain adoption-related expenses for an adoption that is finalized after September 29, 2016, (the date the law was enacted) under the same terms as apply under the adoption reimbursement program of DoD, as authorized in DoD Instruction 1341.09, including the reimbursement limits and requirements set forth in that DoD policy. DoD Instruction 1341.09, “DoD Adoption Reimbursement Policy” (July 5, 2016) establishes policy, assigns responsibilities within DoD, and provides procedures for the reimbursement of qualifying adoption expenses incurred by members of the Military Services (including document submission requirements) pursuant to 10 U.S.C. 1052. That statute was enacted in 1991 and establishes the parameters of DoD's adoption reimbursement program. VA amends part 17 by adding new section 17.390 to provide for reimbursement of qualifying adoption expenses to covered veterans, consistent with the policies and procedures established by DoD in implementing 10 U.S.C. 1052.

Paragraph (a) of new § 17.390 addresses general requirements for reimbursement. Except as noted, all of these requirements are terms of the adoption reimbursement program of DoD, as authorized in DoD Instruction 1341.09. A covered veteran may request reimbursement for qualifying adoption expenses incurred by the veteran in the adoption of a child under 18 years of age. To clarify the scope of adoptions that are contemplated, we state that reimbursement for qualifying adoption expenses includes expenses for an adoption by a married or single person, an infant adoption, an intercountry adoption, and an adoption of a child with special needs as defined in section 473(c) of the Social Security Act (42 U.S.C. 673(c)). A “special needs” child is generally assessed by considering whether the child has a specific factor or condition that prevents the child from being placed with adoptive parents without adoption assistance or medical assistance; or whether the child qualifies for disability supplemental security income benefits; and whether a reasonable, but unsuccessful, effort was made to place the child with adoptive parents without adoption assistance or medical assistance. Specific factors or conditions include the child's ethnic background, age, membership in a minority or sibling group, or the presence of factors such as medical conditions or physical, mental or emotional disabilities. In accordance with section 260 of Public Law 114-223, reimbursement for qualifying adoption expenses may be requested only for an adoption that became final after September 29, 2016, the date Public Law 114-223 was enacted. In addition, the application for reimbursement must be submitted no later than 2 years after the adoption is final or, in the case of adoption of a foreign child, no later than 2 years from the date a certificate of United States citizenship is issued. In the case of adoption of a foreign child, reimbursement for qualifying adoption expenses may be requested only after United States citizenship has been granted to the adopted child. VA will not provide reimbursement for qualifying adoption expenses for any expense paid to or for a covered veteran under any other adoption benefits program administered by the Federal Government or under any such program administered by a State or local government.

In paragraph (b) of new § 17.390, based on the terms in DoD Instruction 1341.09, we address limitations on the amount of reimbursement for qualifying adoption expenses that a covered veteran, or two covered veterans who are spouses, may receive per adopted child, and the maximum amount that may be paid to such veterans in any calendar year. No more than $2,000 may be reimbursed to a covered veteran, or to two covered veterans who are spouses of each other, for expenses incurred in the adoption of a child. In the case of two married covered veterans, only one spouse may claim reimbursement for any one adoption. No more than $5,000 may be paid under this section to a covered veteran in any calendar year. In the case of two married covered veterans, the couple is limited to a maximum of $5,000 per calendar year.

Relevant definitions are found in paragraph (c) of new § 17.390. The term “covered veteran” is defined as it is in section 260 of Public Law 114-223: A veteran with a service-connected disability that results in the inability of the veteran to procreate without the use of fertility treatment. The additional restrictions on the eligibility of covered veterans in § 17.380(a)(2) were required to implement the term “assisted reproductive technology” as defined in section 260(b)(3) of Public Law 114-223, and do not apply to the adoption reimbursement benefit.

“Qualifying adoption expenses” is defined based on the DoD Instruction to mean reasonable and necessary expenses that are directly related to the legal adoption of a child under 18 years of age, but only if such adoption is arranged by a qualified adoption agency. This definition includes several important elements. The expense must be “reasonable and necessary.” Based on the DoD Instruction, we define “reasonable and necessary” to include public and private agency fees, including adoption fees charged by an agency in a foreign country; placement fees, including fees charged to adoptive parents for counseling; and legal fees (including court costs). The term also includes medical expenses, including hospital expenses of the biological mother and medical care of the child to be adopted, as well as temporary foster care charges when payment of such charges is required before the adoptive child's placement.

The adoption expenses must be directly related to the legal adoption of a child under the age of 18. Certain items are not reimbursable including expenses such as clothing, bedding, toys and books; travel expenses; and expenses incurred in connection with an adoption arranged in violation of Federal, State, or local law.

To be reimbursable as a qualifying adoption expense the adoption must be arranged by a qualified adoption agency. We define “qualified adoption agency” as it is defined in the DoD Instruction. The term is broadly defined to include: a State or local government agency which has responsibility under State or local law for child placement through adoption; a nonprofit, voluntary adoption agency which is authorized by State or local law to place children for adoption; and, any other source authorized by a State to provide adoption placement if the adoption is supervised by a court under State or local law. In addition the term “qualified adoption agency” includes a foreign government or an agency authorized by a foreign government to place children for adoption, in any case in which the adopted child is entitled to automatic citizenship under section 320 of the Immigration and Nationality Act (8 U.S.C. 1431); or a certificate of citizenship has been issued for such child under section 322 of that Act (8 U.S.C. 1433).

Definitions in paragraph (c) are consistent with Public Law 114-223 section 260, the DoD policy referenced in that statute, and the statute authorizing DoD to operate its adoption reimbursement program (10 U.S.C. 1052).

Paragraph (d) addresses documentation that a covered veteran must provide VA to obtain reimbursement of qualifying adoption expenses. It mirrors DoD's submission requirements found in the DoD Instruction. The request for reimbursement must be submitted on a form prescribed for such purpose by VA.

Paragraph (e) provides that if documents submitted by a covered veteran in support of an application for reimbursement do not establish eligibility for reimbursement or justify claimed expenses, VA will retain the application and advise the covered veteran of additional documentation needed. All requested documentation must be submitted to VA within 90 calendar days of VA request. This is consistent with the DoD Instruction, and VA believes that it provides sufficient time to allow a covered veteran to obtain and submit additional documentation to support the claim for reimbursement.

Section 260 of Public Law 114-223 provides that VA is authorized to use appropriated funds available to VA for the Medical Services account in the Public Law for reimbursement of qualifying adoption expenses. Paragraph (f) states that authority to provide reimbursement for qualifying adoption expenses incurred by a covered veteran in the adoption of a child under 18 years of age expires September 30, 2018, to reflect the limitations on the use of appropriated funds in the Medical Services account under section 260 of Public Law 114-223.

VA believes this rulemaking will benefit covered veterans. Whether IVF or other fertility treatments using ART are or are not a viable option, the covered veteran may elect to adopt. This rulemaking decreases the financial burden of making that choice.

VA is publishing this rulemaking as an interim final rule effective on the date of publication. We are providing a 60-day comment period to provide the public with an opportunity to submit comments and feedback.

In accordance with 5 U.S.C. 553(b)(B) and (d)(3), the Secretary of Veterans Affairs has concluded that there is good cause to publish this rule as an interim final rule without prior opportunity for public comment and to publish this rule with an immediate effective date. The Secretary finds that it is impracticable and contrary to the public interest to delay this rule for the purpose of soliciting advance public comment or to have a delayed effective date. VA is authorized to reimburse qualified adoption expenses incurred by covered veterans only through the end of Fiscal Year 2018. Pursuing the standard administrative process of publishing a proposed rule, soliciting public comment, followed by publication of a final rule with an effective date 30 days after publication would result in a significant delay in implementation. VA believes that electing to follow that course of action would severely limit the agency's ability to utilize this authority as provided by Congress under Public Law 114-223. VA has determined that it is in the public interest to publish this rulemaking as an interim final rule effective on the date of publication to ensure that covered veterans have access to this benefit for the greatest amount of time practicable. VA believes that publishing this rule as an interim final rule without prior opportunity for public comment and to publish this rule with an immediate effective date will give effect to congressional intent that covered veterans have access to this benefit in a timely fashion. Further, we note that Public Law 114-223 section 260(b)(4) establishes strict parameters on VA's administration of this benefit, requiring us to operate under the same terms as apply under the DoD's adoption reimbursement program, as authorized in DoD Instruction 1341.09, including the reimbursement limits and requirements set forth in such instruction. Given these restrictions, there is very little room for substantive changes to the rule based on public comment. For the above reasons, the Secretary issues this rule as an interim final rule with an immediate effective date. VA will consider and address comments that are received within 60 days of the date this interim final rule is published in the Federal Register.

Title 38 of the Code of Federal Regulations, as revised by this final rulemaking, represents VA's implementation of its legal authority on this subject. Other than future amendments to this regulation or governing statutes, no contrary guidance or procedures are authorized. All existing or subsequent VA guidance must be read to conform with this rulemaking if possible or, if not possible, such guidance is superseded by this rulemaking.

This interim rule includes a provision constituting a collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) that requires approval by the Office of Management and Budget (OMB). VA has requested emergency clearance of information collection under this interim final rule. Accordingly, under 44 U.S.C. 3507(d), VA has submitted a copy of this rulemaking to OMB for review.

OMB assigns control numbers to collections of information it approves. VA may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. Section 17.390 contains a collection of information under the Paperwork Reduction Act of 1995. If OMB does not approve the collection(s) of information as requested, VA will immediately remove the provision(s) containing a collection of information or take such other action as is directed by OMB.

Comments on the collection of information contained in this rule should be submitted to the Office of Management and Budget, Attention: Desk Officer for the Department of Veterans Affairs, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies sent by mail or hand delivery to the Director, Regulations Management (00REG), Department of Veterans Affairs, 810 Vermont Avenue NW, Room 1068, Washington, DC 20420; fax to (202) 273-9026 (This is not a toll free no.); or through www.Regulations.gov. Comments should indicate that they are submitted in response to “RIN 2900-AQ01 Reimbursement of qualifying adoption expenses for certain veterans.”

OMB is required to make a decision concerning the collections of information contained in this rule between 30 and 60 days after publication of this document in the Federal Register.

VA considers comments by the public on proposed collections of information in—

• Evaluating whether the proposed collections of information are necessary for the proper performance of the functions of VA, including whether the information will have practical utility;

• Evaluating the accuracy of VA's estimate of the burden of the proposed collections of information, including the validity of the methodology and assumptions used;

• Enhancing the quality, usefulness, and clarity of the information to be collected; and

• Minimizing the burden of the collections of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.

The collections of information contained in regulatory section 38 CFR 17.390 are described immediately following this paragraph, under their respective titles.

Title: Reimbursement of qualifying adoption expenses for certain veterans.

Summary of collection of information: To receive reimbursement for qualifying adoption expenses a covered veteran must provide various types of documentation including a copy of the final adoption decree, certificate or court order granting the adoption; proof of citizenship of the adopted child in the case of a foreign adoption; documentation that the adoption was handled by a qualified adoption agency; and documentation to substantiate reasonable and necessary expenses paid by the covered veteran. In addition, the covered veteran must submit a full English translation of any foreign language document, to include the translator's certification that he or she is competent to translate the foreign language to English and that his or her translation is complete and correct. Finally, the covered veteran may be asked to provide information to facilitate electronic transfer of funds to effectuate the reimbursement. This information collection is consistent with DoD requirements imposed on a service member seeking reimbursement of qualifying adoption expenses.

Description of the need for information and proposed use of information: The information is needed to determine eligibility for reimbursement of qualifying adoption expenses.

Description of likely respondents: Veterans with a service-connected disability that results in the inability of the veteran to procreate without the use of fertility treatment who incurred qualifying adoption expenses related to an adoption that became final after September 29, 2016.

Estimated number of respondents per month/year: 80 annually.

Estimated frequency of responses per month/year: one response total.

Estimated average burden per response: 6 hours.

Estimated total annual reporting and recordkeeping burden: 480 hours.

The Secretary hereby certifies that this interim final rule will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-612. This interim final rule will directly affect only individuals and will not directly affect small entities. Therefore, pursuant to 5 U.S.C. 605(b), this rulemaking is exempt from the initial and final regulatory flexibility analysis requirements of 5 U.S.C. 603 and 604.

Executive Orders 12866 and 13563 direct agencies to assess the 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 effects, and other advantages; distributive impacts; and equity). Executive Order 13563 (Improving Regulation and Regulatory Review) emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. Executive Order 12866 (Regulatory Planning and Review) defines a “significant regulatory action,” requiring review by OMB, unless OMB waives such review, as “any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in this Executive Order.”

The economic, interagency, budgetary, legal, and policy implications of this regulatory action have been examined, and it has been determined not to be a significant regulatory action under Executive Order 12866. VA's impact analysis can be found as a supporting document at www.regulations.gov, usually within 48 hours after the rulemaking document is published. Additionally, a copy of the rulemaking and its impact analysis are available on VA's website at www.va.gov/orpm/, by following the link for “VA Regulations Published From FY 2004 Through Fiscal Year to Date.”

The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any one year. This interim final rule will have no such effect on State, local, and tribal governments, or on the private sector.

The Catalog of Federal Domestic Assistance numbers and titles for the programs affected by this document are 64.007, Blind Rehabilitation Centers; 64.008, Veterans Domiciliary Care; 64.009, Veterans Medical Care Benefits; 64.010, Veterans Nursing Home Care; 64.011, Veterans Dental Care; 64.012, Veterans Prescription Service; 64.013, Veterans Prosthetic Appliances; 64.014, Veterans State Domiciliary Care; 64.015, Veterans State Nursing Home Care; 64.018, Sharing Specialized Medical Resources; 64.019, Veterans Rehabilitation Alcohol and Drug Dependence; 64.022, Veterans Home Based Primary Care; and 64.024, VA Homeless Providers Grant and Per Diem Program.

The Secretary of Veterans Affairs, or designee, approved this document and authorized the undersigned to sign and submit the document to the Office of the Federal Register for publication electronically as an official document of the Department of Veterans Affairs. Gina S. Farrisee, Deputy Chief of Staff, Department of Veterans Affairs, approved this document on August 25, 2017, for publication.

For the reasons set out in the preamble, VA amends 38 CFR part 17 as follows:

Throughout this document, “we,” “us” and “our” refer to the EPA.

On November 3, 2017 (82 FR 51178) the EPA proposed to approve the following rule into the California SIP.

We proposed to approve this rule because we determined that it complies with the relevant CAA requirements. Our proposed action contains more information on the rule and our evaluation.

The EPA's proposed action provided a 30-day public comment period. During this period, we received 18 comments. One commenter supported the proposed rulemaking. The remaining commenters generally raised issues that are outside of the scope of this rulemaking, including forest management, wildfire suppression, greenhouse-gas and other emissions from wildfires, the Cross-State Air Pollution Rule, and litigation fees. Commenters did not raise any specific issues germane to the approvability of the rule.

No comments were submitted that change our assessment of the rule as described in our proposed action. Therefore, as authorized in section 110(k)(3) of the Act, the EPA is fully approving this rule into the California SIP.

In this rule, the EPA is finalizing regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, the EPA is finalizing the incorporation by reference of the City of Portola ordinance described in the amendments to 40 CFR part 52 set forth below. The EPA has made, and will continue to make, these documents available through www.regulations.gov and at the EPA Region IX Office (please contact the person identified in the FOR FURTHER INFORMATION CONTACT section of this preamble for more information).

Under CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, the EPA's role is to approve state choices, provided that they meet the criteria of the Act. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:

• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);

• Is not an Executive Order 13771 (82 FR 9339, February 2, 2017) regulatory action because SIP approvals are exempted under Executive Order 12866;

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.);

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and

• Does not provide the EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where the EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications and will not impose substantial direct costs on tribal governments or pre-empt tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. The EPA will submit a report containing this action and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register. A major rule cannot take effect until 60 days after it is published in the Federal Register. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by May 4, 2018. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)

Part 52, chapter I, title 40 of the Code of Federal Regulations is amended as follows:

Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA.

The EPA is publishing this action without prior proposal because the Agency views this as a noncontroversial submittal and anticipates no adverse comments. However, in the proposed rules section of this Federal Register publication, EPA is publishing a separate document that will serve as the proposal to approve the state rule should adverse comments be filed.

If the EPA receives such comments, then EPA will publish a notice withdrawing the direct final rule and informing the public that the rule will not take effect. All public comments received will then be addressed in a subsequent final rule based on the proposed rule. The EPA will not institute a second comment period on the proposed rule. All parties interested in commenting on the proposed rule should do so at this time. If no such comments are received, the public is advised that this rule will be effective on June 4, 2018 and no further action will be taken on the proposed rule. For further information about commenting on this rule, see the ADDRESSES section of this document.

Categories and entities potentially regulated by this direct final rule include:

This Table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be regulated by this direct final rule. To determine whether your facility is affected you should examine the applicability criteria in the Vermont Air Pollution Control Regulations, Chapter 5, Air Pollution Control, section 5-253.11 Perchloroethylene Dry Cleaning. If you have questions regarding the applicability of any aspect of this action to a particular entity, please contact the person identified in the “For Further Information Contact” section.

Do not submit information containing CBI to EPA through http://www.regulations.gov or email. Clearly mark the part or all of the information that you claim to be CBI. For CBI information on a disk or CD-ROM that you mail to the EPA, mark the outside of the disk or CD-ROM as CBI and then identify electronically within the disk or CD-ROM the specific information that is claimed as CBI. In addition to one complete version of the comments that includes information claimed as CBI, a copy of the comments that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2. Send or deliver information identified as CBI only to the following address: “EPA-R01-OAR-2017-0343”, Susan Lancey, U.S. Environmental Protection Agency, EPA New England Regional Office, 5 Post Office Square (mail code OEP05-2), Boston, MA 02109-3912.

Under CAA section 112(l), EPA may approve state or local rules or programs to be implemented and enforced in place of certain otherwise applicable Federal rules, emissions standards, or requirements. The Federal regulations governing EPA's approval of state and local rules or programs under section 112(l) are located at 40 CFR part 63, subpart E. See 58 FR 62262 (November 26, 1993), as amended by 65 FR 55810 (September 14, 2000). Under these regulations, a state air pollution control agency has the option to request EPA's approval to substitute a state rule for the applicable Federal rule (e.g., the National Emission Standards for Hazardous Air Pollutants). Upon approval by EPA, the state agency is authorized to implement and enforce its rule in place of the Federal rule, and the state rule becomes federally enforceable in that state.

EPA originally promulgated the Dry Cleaning NESHAP on September 22, 1993. See 58 FR 49354. The Dry Cleaning NESHAP has been amended several times and is codified at 40 CFR part 63, subpart M, “National Perchloroethylene Air Emission Standards for Dry Cleaning Facilities.” On May 26, 2017, EPA received VT DEC's request to implement and enforce Vermont Air Pollution Control Regulations (VT APCR) section 5-253.11 Perchloroethylene Dry Cleaning (Vermont Dry Cleaning Rule) in lieu of the Dry Cleaning NESHAP as applied to area sources.

A state must demonstrate that it has satisfied the general delegation/approval criteria contained in 40 CFR 63.91(d). The process of providing “up-front approval” assures that a state has met the delegation criteria in Section 112(l)(5) of the CAA as implemented by EPA's regulations at 40 CFR 63.91(d). These criteria require, among other things, that the state has demonstrated that its NESHAP program contains adequate authorities to assure compliance with each applicable Federal requirement, adequate resources for implementation, and an expeditious compliance schedule. Under 40 CFR 63.91(d)(3), interim or final Title V program approval under 40 CFR part 70 satisfies the criteria set forth in 40 CFR 63.91(d) for “up-front approval.” On November 29, 2001, EPA promulgated full approval of VT DEC's operating permits program with an effective date of November 30, 2001. See 66 FR 59535. Accordingly, VT DEC has satisfied the up-front approval criteria of 40 CFR 63.91(d).

Additionally, the regulations governing approval of state requirements that substitute for a section 112 rule require EPA to evaluate the state's submittal to ensure that it meets the stringency and other requirements of 40 CFR 63.93. A rule will be approved if the state requirements contain or demonstrate: (1) Applicability criteria that are no less stringent than the corresponding Federal rule; (2) levels of control and compliance and enforcement measures that result in emission reductions from each affected source that are no less stringent than would result from the otherwise applicable Federal rule; (3) a compliance schedule that requires each affected source to be in compliance within a time frame consistent with the deadlines established in the otherwise applicable Federal rule; and (4) the additional compliance and enforcement measures as specified in 40 CFR 63.93(b)(4). See 40 CFR 63.93(b).

A state may also seek, and EPA may approve, a partial delegation of the EPA's authorities. See CAA 112(l)(1). To obtain a partial rule substitution, the state's submittal must meet the otherwise applicable requirements in 40 CFR 63.91 and 63.93, and be separable from the portions of the program that the state is not seeking rule substitution for. See 64 FR 1889.

Before we can approve alternative requirements in place of a part 63 emissions standard, the state must submit to us detailed information that demonstrates how the alternative requirements compare with the otherwise applicable Federal standard. A detailed discussion of how EPA will determine equivalency for state alternative NESHAP requirements is provided in the preamble to EPA's proposed Subpart E amendments on January 12, 1999. See 64 FR 1908.

After reviewing VT DEC's partial rule substitution request and equivalency demonstration for the Dry Cleaning NESHAP as it applies to area sources, EPA has determined this request meets all the requirements necessary for approval under CAA section 112(l) and 40 CFR 63.91 and 63.93.

The following discussion explains the major differences between the area source requirements in the Vermont Dry Cleaning Rule and the area source requirements in the Dry Cleaning NESHAP and how EPA evaluated the Vermont Dry Cleaning Rule. A detailed side-by-side comparison of these requirements, as well as an equivalency narrative, are included in the public docket.

The Dry Cleaning NESHAP applies to each dry cleaning facility that uses perchloroethylene (PCE), except for coin-operated dry cleaning machines. The Dry Cleaning NESHAP exempts existing dry cleaning machines from certain requirements if the total PCE consumption of the dry cleaning facility is less than 140 gallons per year. See 40 CFR 63.320(d). The Vermont Dry Cleaning Rule applies to all dry cleaning facilities that use PCE at area sources of HAP. The Vermont Dry Cleaning Rule has no exemption for coin-operated machines and no exemption based on PCE consumption. Under Vermont's rule, major sources of Hazardous Air Pollutants (HAP) must continue to comply with the Federal Dry Cleaning NESHAP. See VT APCR section 5-253.11(a). Consequently, EPA finds that the applicability of the Vermont Dry Cleaning Rule is no less stringent than that of the Dry Cleaning NESHAP.

The Dry Cleaning NESHAP requires the owner or operator of each dry cleaning system at area sources to equip each dry cleaning machine with a refrigerated condenser, except that certain existing dry cleaning systems installed between December 9, 1991, and September 22, 1993, may alternatively comply by routing the air-perchloroethylene gas-vapor stream of each dry cleaning machine through a carbon adsorber. See 40 CFR 63.322(a). The Dry Cleaning NESHAP requires new area source dry cleaning systems installed after December 21, 2005, to equip each dry cleaning machine with a refrigerated condenser and a non-vented carbon adsorber and to desorb the carbon adsorber in accordance with the manufacturer's instruction. See 40 CFR 63.322(o)(2). The Vermont Dry Cleaning rule requires all dry cleaning machines to be equipped with a refrigerated condenser without exception, and requires dry cleaning systems installed after December 21, 2005 to equip each dry cleaning machine with a refrigerated condenser and a non-vented carbon adsorber. The carbon adsorber must be desorbed in accordance with the manufacturer's instruction. The Vermont Dry Cleaning rule does not allow a primary carbon adsorber as a method of control. See VT APCR section 5-253.11(c)(2) and (4). Both the Vermont Dry Cleaning Rule and the Dry Cleaning NESHAP effectively prohibit transfer machines, prohibit dry cleaning systems installed after December 21, 2005 in a building with a residence, and prohibit any dry cleaning system in a building with a residence after December 21, 2020. See VT APCR section 5-253.11(c)(3), (5)-(6) and 40 CFR 63.322(o)(3)-(5). The Vermont Dry Cleaning Rule only allows equivalent control devices approved by the Vermont Air Pollution Control Officer and the EPA pursuant to 40 CFR 63.325. See VT APCR section 5-253.11(c)(2)(ii) and (3). Consequently, EPA finds that the Vermont Dry Cleaning control requirements are no less stringent than those of the Dry Cleaning NESHAP.

The Dry Cleaning NESHAP requires dry cleaning systems at area sources to be inspected weekly for perceptible leaks and requires a monthly inspection using a halogenated hydrocarbon detector or PCE gas analyzer. See 40 CFR 63.322(k) and (o)(1)(i). Instead, the Vermont Dry Cleaning Rule requires a weekly inspection for perceptible leaks and a weekly inspection using a halogenated hydrocarbon detector or PCE gas analyzer. See VT APCR section 5-253.11(e)(1). The Dry Cleaning NESHAP requires weekly temperature monitoring to determine if the temperature is equal to or less than 45 degrees Fahrenheit, or alternatively monitoring of refrigeration system high pressure and low pressure during the drying phase. See 40 CFR 63.323(a)(1). The Vermont Dry Cleaning Rule requires weekly temperature monitoring of the refrigerated condenser and requires the temperature to be maintained at less than or equal to 40 degrees Fahrenheit. The Vermont Dry Cleaning Rule does not allow refrigeration system high and low pressure monitoring as an alternative to temperature monitoring of the refrigerated condenser. See VT APCR section 5-253.11(c)(2)(i)(B) and (e)(2). Therefore, EPA finds that the Vermont Dry Cleaning Rule monitoring requirements are no less stringent than those of the Dry Cleaning NESHAP.

The Dry Cleaning NESHAP requires the owner or operator of any new dry cleaning facility to submit a notification of compliance status within 30 days after startup. See 40 CFR 63.324(b). The Vermont Dry Cleaning Rule also requires the owner or operator of any new dry cleaning facility to submit a notification of compliance status within 30 days of commencing operations. See VT APCR section 5-253.11(g)(2). Thus, the Vermont Dry Cleaning Rule reporting requirements are no less stringent than those of the Dry Cleaning NESHAP.

A state may also seek, and EPA may approve, a partial delegation of the EPA's authorities. See CAA 112(l)(1). To obtain a partial rule substitution, the state's submittal must meet the otherwise applicable requirements in 40 CFR 63.91 and 63.93, and be separable from the portions of the program that the state is not seeking rule substitution for. See 64 FR 1889. A separable portion of a state rule or program is a section(s) of a rule or a portion(s) of a program which can be acted upon independently without affecting the overall integrity of the rule or program as a whole.

Here, the state's rule applies to area source dry cleaners, while the NESHAP continues to apply to major source dry cleaners. EPA finds that there exists a logical and compelling distinction between area and major dry cleaning sources. That is, the state rule may independently regulate area source dry cleaners separate from major source dry cleaners, without affecting the overall integrity of the rule or program as a whole. EPA further finds that granting partial delegation would not create an overly cumbersome or unworkable scheme. For these reasons, EPA concludes that the portion of the NESHAP delegated under this partial rule substitution is separable from the remainder of the NESHAP. Therefore, partial delegation is appropriate.

After reviewing VT DEC's request for approval of the Vermont Dry Cleaning Rule, EPA has determined that the Vermont Dry Cleaning Rule meets all of the requirements necessary for partial rule substitution under section 112(l) of the CAA and 40 CFR 63.91 and 63.93. Therefore, EPA hereby approves VT DEC's request to implement and enforce VT APCR section 5-253.11 (as effective under state law on December 15, 2016), in place of the Dry Cleaning NESHAP for area sources in Vermont. As of the effective date of this action, the Vermont Dry Cleaning Rule is enforceable by EPA and by citizens under the CAA. Although VT DEC has primary responsibility to implement and enforce the Vermont Dry Cleaning Rule, EPA retains the authority to enforce any requirement of the rule upon its approval under CAA 112. See CAA section 112(l)(7).

EPA is approving the Vermont Air Pollution Control Regulations, Chapter 5, Air Pollution Control, section 5-253.11, Perchloroethylene Dry Cleaning (as effective under state law on December 15, 2016) as a partial rule substitution for the Dry Cleaning NESHAP for area sources in Vermont. The Federal Dry Cleaning NESHAP continues to apply to major source dry cleaners in Vermont. The applicability of the Federal NESHAP to major source dry cleaners is in no way affected by this action.

This rule will be effective June 4, 2018 without further notice unless the Agency receives relevant adverse comments by April 4, 2018.

In this rule, the EPA is finalizing regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, the EPA is finalizing the incorporation by reference of Vermont Air Pollution Control Regulations, Chapter 5, Air Pollution Control, section 5-253.11, Perchloroethylene Dry Cleaning, effective December 15, 2016. The EPA has made, and will continue to make, these documents generally available electronically through http://www.regulations.gov.

Under the CAA, the Administrator has the authority to approve section 112(l) submissions that comply with the provisions of the Act and applicable Federal regulations. In reviewing section 112(l) submissions, EPA's role is to approve state choices, provided that they meet the criteria and objectives of the CAA and of EPA's implementing regulations. Accordingly, this action merely approves the State's request as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:

• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);

• does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);

• is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.);

• does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and

• does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

In addition, this rule does not have Tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the submitted rule is not approved to apply in Indian country located in the State, and EPA notes that it will not impose substantial direct costs on Tribal governments or preempt Tribal law.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register. A major rule cannot take effect until 60 days after it is published in the Federal Register. This action is not a “major rule” as defined by 5 U.S.C. 804(2). This rule will be effective June 4, 2018.

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by May 4, 2018. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. See section 307(b)(2).

40 CFR part 63 is amended as follows:

A “rail equipment accident/incident” is a collision, derailment, fire, explosion, act of God, or other event involving the operation of railroad on-track equipment (standing or moving) that results in damages to railroad on-track equipment, signals, tracks, track structures, or roadbed, including labor costs and the costs for acquiring new equipment and material, greater than the reporting threshold for the year in which the event occurs. See 49 CFR 225.19(c). A railroad must report each rail equipment accident/incident to FRA using the Rail Equipment Accident/Incident Report (Form FRA F 6180.54). See 49 CFR 225.19(b), (c), 225.21(a). Paragraphs (c) and (e) of 49 CFR 225.19 further provide that FRA will adjust the dollar figure constituting the reporting threshold, if necessary, every year under the procedures in 49 CFR part 225 Appendix B to reflect any cost increases or decreases.

Approximately one year has passed since FRA reviewed the reporting threshold. See 81 FR 94271, Dec. 23, 2016. Consequently, FRA has recalculated the reporting threshold under 49 CFR 225.19(c), using updated costs for labor and equipment. FRA has determined the current reporting threshold of $10,700, which applies to rail equipment accidents/incidents that occur during CY 2017, should remain the same for rail equipment accidents/incidents that occur during CY 2018. The specific inputs to the equation set forth in Appendix B (Tnew = Tprior * [1 + 0.4(Wnew − Wprior)/Wprior + 0.6(Enew − Eprior)/100]) are:

FRA intends to publish a rulemaking (RIN 2130-AC49) to reexamine its method for calculating the reporting threshold in 2018 because more accurate methodologies for calculating the threshold are available. FRA believes updating its methodology will ensure the reporting threshold reflects changes in equipment and labor costs as accurately as possible.

FRA is proceeding directly to a final rule as it finds public notice and comment to be unnecessary per the “good cause” exemption in 5 U.S.C. 553(b)(3)(B). FRA made this finding because it: (1) Is required under current regulations to establish the monetary reporting threshold; (2) Is utilizing a formula developed after notice and comment in a final rule published in 2005 (70 FR 75414, Dec. 20, 2005); and (3) is not exercising any discretion in calculating and applying the monetary threshold for 2018.

FRA evaluated this final rule under existing policies and procedures, and determined it is non-significant under both Executive Orders 12866 and 13563, and DOT policies and procedures. See 44 FR 11034, Feb. 26, 1979. Furthermore, this final rule is exempt from the regulatory budgeting and two-for-one requirements of Executive Order 13771 as it has been determined to be non-significant.

FRA developed this rule under Executive Order 13272, Proper Consideration of Small Entities in Agency Rulemaking, and DOT's procedures and policies to promote compliance with the Regulatory Flexibility Act (RFA) to ensure potential impacts of rules on small entities are properly considered. See E.O. 13272; 5 U.S.C. 601.

The RFA requires an agency to review regulations to assess their impact on small entities, unless the Secretary certifies the rule will not have a significant economic impact on a substantial number of small entities. Under Section 312 of the Small Business Regulatory Enforcement Fairness Act of 1996 (Public Law 104-121), Federal agencies may adopt their own size standards for small entities in consultation with both the Small Business Administration and public comment. Under that authority, FRA has published a final statement of agency policy formally establishing, for FRA's regulatory purposes, that “small entities” are railroads, contractors, and hazardous materials shippers that meet the revenue requirements of a Class III railroad as set forth in 49 CFR 1201.1-1 ($20 million or less in inflation-adjusted annual revenues, and commuter railroads or small governmental jurisdictions that serve populations of 50,000 or less). See 49 CFR part 209 Appendix C. FRA used this definition for the current rulemaking.

About 748 of the approximately 799 railroads in the United States are considered small entities by FRA. FRA certifies this final rule will have no significant economic impact on a substantial number of small entities. To the extent this rule has any impact on small entities, the impact will be neutral or insignificant. The frequency of rail equipment accidents/incidents, and therefore also the frequency of required reporting, is generally proportional to the size of the railroad. A railroad employing thousands of employees and operating trains millions of miles is exposed to greater risks than one with a substantially smaller operation. Small railroads may go for months at a time without having a reportable occurrence of any type, and even longer without having a rail equipment accident/incident. Class III reported rail equipment accidents/incidents for a five-year period are shown below.

On average over those five calendar years, small railroads reported about 15% (ranging from 14% to 17%) of the total number of rail equipment accidents/incidents. FRA notes that these data are subject to minor changes due to additional reporting.

The monetary reporting threshold, when rounded, did not increase for CY 2018. In general, however, absent this rulemaking (i.e., absent increasing the reporting threshold in future years), the number of reportable accidents/incidents in future years would likely increase, as keeping the same threshold in place would not allow it to keep pace with the likely increases in wages and rail equipment repair costs. (Note that the calculated monetary threshold (before rounding) for CY 2017 was $10,698 versus $10,701 for CY 2018.) Therefore, this rule will be neutral in effect (i.e., accidents/incidents reportable by railroads in CY 2017 will be reportable in CY 2018). Any recordkeeping burden will not be significant, and will affect the large railroads more than the small railroads due to the higher proportion of reportable rail equipment accidents/incidents experienced by large entities.

Furthermore, FRA has determined the RFA does not apply to this rulemaking. As this rule updates the reporting threshold for CY 2018 using the formula developed through notice and comment rulemaking and published in Appendix B to 49 CFR part 225, FRA finds notice and public comment is unnecessary and would serve no public benefit. The Small Business Administration's A Guide for Government Agencies: How to Comply with the Regulatory Flexibility Act, p. 55 (2017) provides:

As this rulemaking does not require a Notice of Proposed Rulemaking, the RFA does not apply.

There are no new or additional information collection requirements associated with this final rule. FRA's collection of accident/incident reporting and recordkeeping information is currently approved under OMB No. 2130-0500. Therefore, FRA is not required to provide an estimate of a public reporting burden in this document.

Executive Order 13132 (64 FR 43255, Aug. 10, 1999) requires FRA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” See E.O. 13132. Policies that have federalism implications are defined in Executive Order 13132 to include regulations 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.” See E.O. 13132. Under Executive Order 13132, the agency may not issue a regulation with federalism implications that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments, or the agency consults with State and local government officials early in the process of developing the regulation. See E.O. 13132. Where a regulation has federalism implications and preempts State law, the agency seeks to consult with State and local officials in the process of developing the regulation.

FRA analyzed this final rule under the principles and criteria in Executive Order 13132. This rule will not have a substantial direct effect on States, on the relationship between the national government and the States, or on the distribution of power and the responsibilities among the various levels of government. See Executive Order 13132. In addition, FRA determined this rule does not impose substantial direct compliance costs on State and local governments. Accordingly, FRA concluded the consultation and funding requirements of Executive Order 13132 do not apply, and preparation of a federalism assessment is not required.

FRA evaluated this final rule under its Procedures for Considering Environmental Impacts (FRA Procedures) (64 FR 28545, May 26, 1999) as required by the National Environmental Policy Act (42 U.S.C. 4321 et seq.), other environmental statutes, Executive Orders, and related regulatory requirements. FRA has determined this final rule is not a major FRA action requiring the preparation of an environmental impact statement or environmental assessment because it is categorically excluded from detailed environmental review under FRA Procedures Section 4(c)(20), which addresses the promulgation of railroad safety rules and policy statements that do not result in significantly increased emissions of air or water pollutants or noise or increased traffic congestion in any mode of transportation. See 64 FR 28547, May 26, 1999.

Consistent with FRA Procedures Section 4(c)(20), FRA concluded that no extraordinary circumstances exist with respect to this regulation that might trigger the need for a more detailed environmental review. As a result, FRA finds this rule is not a major Federal action that significantly affects the quality of the human environment.

Under Section 201 of the Unfunded Mandates Reform Act of 1995 (Reform Act) (Pub. L. 104-4, 2 U.S.C. 1531), each Federal agency shall, unless otherwise prohibited by law, assess the effects of Federal regulatory actions on State, local, and tribal governments, and the private sector (other than to the extent that such regulations incorporate requirements specifically set forth in law). See 2 U.S.C. 1531 Section 201. Section 202 of the Reform Act (2 U.S.C. 1532) further requires each agency to prepare a comprehensive written statement for any proposed or final rule that includes a 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 1 year . . . .2

This final rule will not result in the expenditure of more than $156,000,000 (the value equivalent of $100,000,000 in 2015 dollars) by the public sector in any one year. Thus, preparation of such a statement is not required.

Executive Order 13211 requires Federal agencies to prepare a Statement of Energy Effects for any “significant energy action.” 66 FR 28355, May 22, 2001. Under Executive Order 13211, a “significant energy action” is defined as any action by an agency (normally published in the Federal Register) that promulgates, or is expected to lead to the promulgation of, a final rule or regulation (including a notice of inquiry, advance notice of proposed rulemaking, and notice of proposed rulemaking) that: (1)(i) Is a significant regulatory action under Executive Order 12866 or any successor order, and (ii) is likely to have a significant adverse effect on the supply, distribution, or use of energy; or (2) is designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. See E.O. 13211. FRA has evaluated this rule under Executive Order 13211. FRA has determined this rule will not have a significant adverse effect on the supply, distribution, or use of energy, and, thus, is not a “significant energy action” under Executive Order 13211.

In accordance with 5 U.S.C. 553(c), DOT solicits comments from the public to better inform its rulemaking process. DOT posts these comments, without edit, to www.regulations.gov, as described in the system of records notice, DOT/ALL-14 FDMS, accessible through www.dot.gov/privacy. In order to facilitate comment tracking and response, FRA encourages commenters to provide their name, or the name of their organization; however, submission of names is completely optional. Whether or not commenters identify themselves, all timely comments will be fully considered. If one wishes to provide comments containing proprietary or confidential information, please contact the agency for alternate submission instructions.

In consideration of the foregoing, FRA amends part 225 of chapter II, subtitle B of title 49, Code of Federal Regulations, as follows:

The Board's current regulations at 49 CFR 1102.2 generally prohibit most informal communications between the Board and interested persons concerning the merits of pending Board proceedings. These regulations require that communications with the Board or Board staff regarding the merits of an “on-the-record” Board proceeding not be made on an ex parte basis (i.e., without the knowledge or consent of the parties to the proceeding).1 See 49 CFR 1102.2(a)(3), (c). The current regulations detail the procedures required in the event an impermissible communication occurs and the potential sanctions for violations. See 49 CFR 1102.2(e), (f).

In 1977, the Board's predecessor agency, the Interstate Commerce Commission (ICC), determined that the general prohibition on ex parte communications in proceedings should include the informal rulemaking proceedings the Board uses to promulgate regulations.2 See Revised Rules of Practice, 358 I.C.C. 323, 345 (1977).3 At that time, several court decisions expressed the view that ex parte communications in informal rulemaking proceedings were inherently suspect.4 Accordingly, it has long been the agency's practice to prohibit meetings with individual stakeholders on issues that are the topic of pending informal rulemaking proceedings.

At the same time, however, other court decisions were more tolerant of ex parte communications in informal rulemaking proceedings, so long as the proceedings were not quasi-adjudicative in nature and the process remained fair.5 In 1981, in Sierra Club v. Costle, 657 F.2d 298 (D.C. Cir. 1981), the U.S. Court of Appeals for the District of Columbia Circuit significantly clarified and liberalized treatment of this issue. In that case, the court considered the “timing, source, mode, content, and the extent of . . . disclosure” of numerous written and oral ex parte communications received after the close of the comment period to determine whether those communications violated the governing statute or due process. Id. at 391. The court held that, because the agency docketed most of the ex parte communications and none of the comments were docketed “so late as to preclude any effective public comment,” the agency satisfied its statutory requirements. Id. at 398. The court also declined to prohibit ex parte communications in informal rulemakings on constitutional due process grounds, and even held that not all ex parte communications must necessarily be docketed (implicitly concluding that whether such communications require docketing depends on case-specific circumstances). Id. at 402-04. Today, Sierra Club is considered the most recent influential decision on ex parte communications in informal rulemakings and is often cited by courts for the proposition that ex parte communications in informal agency rulemaking are generally permissible.6

More recently, in 2014, the Administrative Conference of the United States (ACUS), the body charged by Congress with recommending agency best practices, provided guidance to agencies indicating that a general prohibition on ex parte communications in informal rulemaking proceedings is neither required nor advisable. Ex Parte Commc'ns in Informal Rulemaking Proceedings (2014 ACUS Recommendation), 79 FR 35988, 35994 (June 25, 2014). ACUS concluded that ex parte communications in informal rulemaking proceedings “convey a variety of benefits to both agencies and the public,” although it acknowledged that fairness issues can arise if certain groups have, or are perceived to have, “greater access to agency personnel than others.” Id. However, in balancing these competing considerations, ACUS urged agencies to consider placing few, if any, restrictions on ex parte communications that occur before an NPRM is issued because communications at this early stage are less likely to cause harm and more likely to “help an agency gather essential information, craft better regulatory proposals, and promote consensus building among interested persons.” Id. ACUS further recommended that agencies establish clear procedures ensuring that all ex parte communications occurring after an NPRM is issued, whether planned or unplanned, be disclosed.

Starting in 2015, the Board began to look at the possibility of conducting ex parte meetings to gain more stakeholder input in the informal rulemaking process. As a result, the Board waived the ex parte prohibition to permit Board Members or designated Board staff to participate in ex parte communications in two proceedings.7 See Reciprocal Switching, EP 711 (Sub-No. 1), slip op. at 28-29 (STB served July 27, 2016); 8 U.S. Rail Serv. Issues—Performance Data Reporting, EP 724 (Sub-No. 4), slip op. at 2-3 (STB served Nov. 9, 2015). Many stakeholders in these proceedings expressed appreciation for the opportunity to meet with Board Members or Board staff regarding the merits of the proposed rules and expressed the hope to interact with the Board informally in the future as well.9 In these meetings, parties have been able to respond directly to questions from Board Members and Board staff on the feasibility and utility of certain aspects of the Board's proposals.

Based on the developments in case law related to ex parte communications and the Board's own experiences waiving its ex parte prohibitions in the two recent proceedings, the Board determined that it was appropriate to revisit the agency's strict prohibition on ex parte communications in informal rulemaking proceedings. The Board also determined that certain other aspects of its ex parte regulations that apply to proceedings other than rulemakings could be clarified and updated to reflect current practices and better guide stakeholders and agency personnel. Accordingly, the Board issued an NPRM on September 28, 2017, proposing to: (1) Modify its regulations to permit, subject to disclosure requirements, ex parte communications in informal rulemaking proceedings, and (2) change its ex parte rules to clarify and update when and how interested persons may communicate informally with the Board regarding pending proceedings other than rulemakings. See Ex Parte Commc'ns in Informal Rulemaking Proceedings (NPRM), EP 739 (STB served Sept. 28, 2017). The Board received nine opening comments and three reply comments on the NPRM. 10

Below, the Board addresses the comments submitted by parties in response to the NPRM and discusses clarifications and modifications being adopted in the final rule. The text of the final rule is also below.

Changes to Definitions. In the NPRM, the Board proposed to add two new definitions to section 1102.2(a): “informal rulemaking proceeding” and “covered proceedings.” “Informal rulemaking proceeding” would include any proceeding to issue, amend, or repeal rules pursuant to 49 CFR part 1110 and 5 U.S.C. 553. “Covered proceedings” would encompass both on-the-record proceedings and informal rulemaking proceedings following the issuance of an NPRM.11 The Board further proposed, as discussed in more detail below, that ex parte communications would be permitted in informal rulemaking proceedings (subject to disclosure requirements for those communications occurring post-NPRM), but would remain prohibited in on-the-record proceedings.

Additionally, the Board proposed redefining an “ex parte communication” as “an oral or written communication that concerns the merits or substantive outcome of a pending proceeding; is made without notice to all parties and without an opportunity for all parties to be present; and could or is intended to influence anyone who participates or could reasonably be expected to participate in the decision.” This proposed new definition would alter the existing definition in two ways; first, by removing the existing concept that communications are only ex parte if made “by or on behalf of a party” and second, by removing the suggestion that an ex parte communication that is made with the “consent of any other party” could be permissible.

The Board noted in the NPRM that these revisions would not change the generally understood concept that certain communications, by their very nature, do not concern the merits or substantive outcome of pending proceedings or are not made to Board Members or staff who are reasonably expected to participate in Board decisions. Such permissible communications include, for example, communications about purely procedural issues; public statements or speeches by Board Members or staff that merely provide general and publicly available information about a proceeding; communications that solely concern the status of a proceeding; and communications with the Board's Rail Customer and Public Assistance Program.

ASLRRA, NGFA, and RCC support the proposed changes to the definitions. (ASLRRA Comments 3; NGFA Comments 5; RCC Comments 7.) ASLRRA argues that the proposed definitions and amendments preserve the transparency and fairness of the rulemaking process. (ASLRRA Comments 3.)

WCTL supports the Board's proposed changes to the definition of “ex parte communication.” (WCTL Comments 23; WCTL Reply 9.) WCTL agrees with the Board that ex parte communications can be made by non-parties and that the definition of “ex parte communication” should encompass communications made by these non-parties. (WCTL Reply 9.) WCTL argues, however, that the Board should amend the definition of “on-the-record proceeding” to expressly include rate reasonableness and unreasonable practice adjudications. (WCTL Comments 19.) According to WCTL, rate reasonableness and unreasonable practice cases may not technically be formal “on-the-record” proceedings within the meaning of the APA, and adding the suggested text would remove any uncertainty. (Id. at 20.) AAR states that it does not oppose WCTL's suggestion. (AAR Reply 5.)

The final rule will adopt the proposal as set forth in the NPRM. It is not necessary to amend the definition of “on-the-record proceeding” to specifically include rate reasonableness and unreasonable practice adjudications, as WCTL suggests. Although rate reasonableness and unreasonable practice formal complaints may not technically be covered by the APA definition of on-the-record proceedings, the definition of that term in the Board's regulations is sufficient to cover those types of proceedings, which are decided solely on the record. See 49 CFR 1102.2(a)(1).

Communications That Are Not Prohibited. The Board also proposed in the NPRM to modify section 1102.2(b) to include additional categories of ex parte communications that are permissible and would not be subject to the disclosure requirements of proposed section 1102.2(e) and (g), discussed in more detail below. Specifically, the Board proposed adding to this category communications related to an informal rulemaking proceeding prior to the issuance of an NPRM; 12 communications related to the Board's implementation of the National Environmental Policy Act and related environmental laws; and communications concerning judicial review of a matter that has already been decided by the Board made between parties to the litigation and the Board or Board staff involved in that litigation. Additionally, the Board proposed to modify the existing regulations to remove from section 1102.2(b)(1) the language permitting any communication “to which all the parties to the proceeding agree.”

NGFA, RCC, and WCTL support including environmental review and judicial review communications within the scope of permitted ex parte communications. (NGFA Comments 5; RCC Comments 7; WCTL Comments 2; WCTL Reply 2, 10.) ASLRRA, NGFA, and RCC also support the proposal to permit ex parte communications prior to the issuance of an NPRM. (ASLRRA Comments 3; NGFA Comments 3; RCC Comments 7.) ASLRRA argues that allowing undisclosed ex parte communications prior to the issuance of an NPRM would enable the Board to obtain helpful stakeholder input, particularly in the preliminary stages of a rulemaking proceeding, without adversely implicating due process or raising administrative concerns. (ASLRRA Comments 3.) NGFA likewise supports permitting undisclosed ex parte communications before the issuance of an NPRM. (NGFA Comments 3.) According to NGFA, the information the Board gathers prior to the issuance of an NPRM would be evident within the NPRM itself. (Id.) NGFA, however, suggests that the Board adopt the practice of including in the NPRM a list of the identities of all stakeholders who provided input, as the Board did in Expediting Rate Cases, EP 733, slip op. at 2 n.3 (STB served June 15, 2016). (Id.)

AAR, FRCA, SMART, and WCTL object to the Board's proposal to permit undisclosed ex parte communications prior to the issuance of an NPRM. (See AAR Comments 5-6; FRCA Comments 1; SMART Comments 10; WCTL Comments 21; AAR Reply 4.) AAR argues that the Board should require the disclosure of ex parte contacts occurring after the issuance of an ANPRM. (AAR Comments 5-6.) For cases initiated by a petition for rulemaking, AAR suggests that ex parte communications should be permitted, subject to disclosure requirements, once that petition has been filed and docketed. (AAR Reply 5.) AAR argues that such a rule would be consistent with Department of Transportation (DOT) policy that recommends disclosure of ex parte communications upon issuance of an ANPRM, and Federal Aviation Administration rules that require disclosure of ex parte communications before an ANPRM or an NPRM. (AAR Comments 6.) According to AAR, permitting such ex parte communications without disclosure may discourage stakeholder participation on the record. (AAR Comments 6; AAR Reply 4-5.) 13