nef business plan requirements

A Guide to NEF Funding in South Africa

Updated on Mar 13, 2023

Table of Contents

Introduction To The National Empowerment Fund

The National Empowerment Fund (NEF) may be the right funder for you if your business venture has the potential to make a positive impact on the local economy, creates jobs and endeavours to increase the economic participation of black people, women, youth and other previously disenfranchised groups.

The fund is designed to facilitate and promote black economic participation. Founded in post-apartheid South Africa in 1998, the funder provides financial and non-financial support to black entrepreneurs and groups in support of Broad-Based BEE (B-BBEE) in terms of government legislation.

Find Out More About B-BBEE  

How The Nef Supports Smes

The NEF is a major part of the government’s effort to support SMEs in the country. The fund offers a wide variety of financing products which target businesses across all industries.

Businesses can apply for funding for startup, expansion and equity acquisition purposes. This is offered in a combination of debt, equity and quasi-equity. Non-financial support is also made available in the form of funding advice, business planning and “general assistance to help ensure that applications are of sufficient quality to complete all steps in the application process”. Successful NEF candidates can also access post-investment support.

What Goes Into Applying For Development Funding

Before applying for development funding such as NEF funding it’s important that business owners do their research and prepare for what can be an extensive process. Your business must be able to meet the fund’s strict criteria, deal with the heavy paperwork, and handle the long processing times.

A lack of knowledge and time are some of the key challenges that businesses applying for government funding need to be prepared for, said Zahra Rawjee, director of operations and business development, in a previous interview with SME South Africa . Her company helps entrepreneurs access development funding from the NEF and other government funders .

“Entrepreneurs [who own and manage their own businesses] are good at what they do. While they are masters of their craft, they often have limited knowledge of how or where to access finance from.

“If this knowledge and skill set does reside within the business, capacity constraints exist as these initiatives require a substantial amount of time to see through to conclusion, which will require the business to redirect resources that should be focused on sales and customer service.

Financial and B-BBEE compliance are often also lacking, says Rawjee, including annual financial statements, management accounts and tax clearance.

“Record keeping is essential if you would like to access developmental finance in the future. You need to ensure that you have a strong bookkeeping administrative system, accountants that would ensure you remain tax compliant and provide you with regular management accounts and annual financial statements,” she says.

Finally, business owners also have to manage expectations, she adds.

“The timeframe of decision-making to undertake an expansion project by the client often results in unrealistic expectations.”

Access the full article: The Consulting Firm That’s Helping Black Industrialists Secure Millions In Funding

The Type Of Businesses That Can Apply For The Nef

NEF funding is available for a wide range of different business ideas and opportunities. This includes:

• Food and beverage
• Tourism and entertainment
• Financial services
• Construction and materials
• Agro-processing
• Manufacturing
• Motor industry
• Transportation
• Textile industry

Funding Criteria

As long as you run a compliant business that meets the set requirements, any South African business owner can apply for funding.

Each application for funding is assessed in terms of the following criteria:

• Commercial viability of the business case being presented
• The business must comply with all relevant laws and regulations
• There must be operational involvement at the managerial and board levels by black people
• Minimum percentage of black ownership or interest of 51% is a requirement
• The business must be able to repay NEF funding
• The business must create a reasonable number of jobs
• Geographic location of the business is also important with the focus on rural or economically depressed areas encouraged
• Meaningful black women participation is viewed more favourably
• Rural and Community Development Projects must have meaningful participation by communities
• Possibility of co-funding with private or public sector institutions is encouraged in larger projects.

Funding Amounts

The NEF provides business loans ranging from R 250 000 to R 75 million.

Non-financial Support Available

The following non-support is provided by the NEF.

1. Pre-investment Unit (PIU) – support for entrepreneurs through the application process.

The PIU’s primary functions are to:

• Information on NEF funding and non-funding solutions
• Provide guidance in drawing up funding applications
• Identify applications which meet the NEF’s funding criteria
• Keep clients informed on the progress of their applications
• Advise applicants on qualifying criteria and application process

2. Post-investment unit – support to mitigate against business failure.

The unit is responsible for:

• Regular portfolio monitoring
• Regular collections management and credit control
• Mini restructure of distressed investments
• Turnaround and rescue of highly distressed investments
• Legal and workouts
• Active board seats on larger investments
• Mentorship and technical assistance
• Valuations of investee companies
• Impairments of investments; bad debt write off
• Legal Compliance
• Portfolio Management
• Portfolio Risk Management
• Additional funding on existing investments
• Exits on matured investments
• Knowledge Management
• IT system development
• To provide a superior customer relationship management channel for all NEF’s Investees

Funding Approval Process

According to the NEF, the process period is 3 to 4 months on receipt of the application up to the disbursement stage. It includes the following key steps:

• Screening of funding application form
• Submission to investment committee
• Due diligence process
• Resubmission of final report
• Legal process and procedures
• Disbursement

Nef Funding Products

NEF funding is currently obtainable from the following nine funds:

Women Empowerment Fund (WEF)

The NEF Women Empowerment Fund allocates funding in the form of a loan or debt equity to qualifying black women-owned businesses across all industries for start-ups, expansion, or equity acquisition purposes.

The funding ranges from R250,000 to R75 million.

The funding requirements for this fund are as follows:

• Minimum of 51% black female ownership.
• Operational involvement at the managerial and board levels by black women.
• Commercial viability of the business case being presented.
• Compliance with all relevant laws and regulations.
• Ability of the business to repay WEF funding.
• Creation of jobs.
• Focus on rural or economically depressed areas encouraged.
• Possibility of co-funding with private or public sector institutions in larger projects.
• For property transactions, at least 51% of the annual expenditure of the business to be allocated to majority black-owned businesses.

Where to Access Funding For Women-Owned Businesses in South Africa [UPDATED]

iMbewu Fund

This fund is designed to support black entrepreneurs requiring startup capital or existing black-owned enterprises in need of expansion capital.

The key requirements of this product are:

• BEE applicants should be actively involved in the day-to-day management of the business.
• Minimum black ownership of 51% is a requirement.
• Business and/or industry experience by black entrepreneurs is considered.
• The NEF reserves the right to oblige applicants to participate in the NEF mentorship programme where there is a lack of business and/or industry experience.
• The business should be able to repay NEF’s investment.
• Funding instruments include term-loans, shares, and other structures with ordinary share characteristics.
• NEF funding is charged at prime linked interest rates.
• Business must have a clear value-add with a sound business case.
• Maximum NEF funding is R10 million.
• The NEF will exit from the investment in 5 to 7 years.

Procurement Finance

The Procurement Finance product assists black-owned SMEs that have secured tenders or contracts with financing to complete them. Funding instruments for this fund include term loans, bridging finance, asset finance, and revolving facilities. NEF funding is generally limited to R10 million for this product.

The key criteria of this product are:

• Active participation by black individuals in the operations of the business.
• Minimum black ownership of 50.1% is required.
• Industry knowledge by management or clear transfer of skills through relevant partnerships.
• Funding instruments include term loans, bridging finance, asset finance, revolving facilities, and debt finance.
• NEF will fund both the acquisition of assets and the working capital requirements of the business.
• The NEF reserves the right to oblige applicants to participate in the NEF mentorship programme.
• NEF will support contracts awarded by reputable entities.
• NEF does not generally support subcontracts, especially those awarded by agents and entities that have a weak financial position and lack track record.
• The contract must be commercially viable and generate sufficient profits and cash flow to repay NEF’s loan.

Franchise Finance

This product provides financing for entrepreneurs interested in acquiring a franchise business or looking for expansion capital.

The key criteria of Franchise finance are:

• The NEF prefers to fund well-established franchise concepts.
• Active management involvement by BEE parties is required.
• Minimum BEE shareholding of 51% is a requirement.
• NEF funding of franchises is through a loan instrument with the term matching the duration of the franchise license, up to a maximum term of 7 years.
• BEE party must have been pre-approved by the franchisor before approaching NEF.
• NEF funding generally limited to R10 million.
• NEF will fund SMEs using mainly debt.

uMnotho Fund

This Fund is designed to improve access to BEE capital.

uMnotho Fund has the following products:

• Acquisition Finance
• Project Finance
• Expansion Finance
• Capital Markets Fund
• Liquidity and Warehousing

These products provide capital to black-owned and managed enterprises; black entrepreneurs who are buying equity shares in established black and white-owned enterprises; starting new ventures; expanding existing businesses and BEE businesses that are or wish to be listed on the JSE.

1. Acquisition Finance

• BEE applicants seeking to fund equity purchases of between R2 million and R75 million in existing businesses.
• Focus on medium to large companies.
• Focus on partnerships with existing management teams and other equity investors.
• Minimum BEE ownership of 25.1% post NEF investment.
• Active BEE management participation.
• Active BEE involvement in investee companies.
• BEE financial contribution determined on a case-by-case basis.
• Investment instruments can include a combination of debt, equity, and mezzanine finance.
• Typical investment horizon of 4 to 7 years.
• Security to include personal guarantees.

2. Project Finance

This product provides capital of R5 million to R25 million per project for BEE parties seeking to participate in medium-sized greenfields projects with total funding requests of between R10 million and R200 million.

• Minimum 25.1% BEE shareholding.
• Investment instruments can include a combination of debt, equity, and mezzanine finance in support of BEE.
• BEE-specific financial contribution assessed on a case-by-case basis.
• NEF exposure to the project generally not to exceed 50% of total project costs.
• Proven management experience within the consortium.
• Debt funding raised from the market to match equity funding provided by NEF and other project sponsors.
• The NEF investment horizon is 5 to 10 years.

3. Expansion Finance

The NEF will provide funding of R5 million to R75 million to entities that are already black-empowered but seek expansion capital to grow the business.

• BEE shareholding should be a minimum of 51%.
• Pricing based on instrument, risk matrix, security package, etc.
• Security to include personal guarantees and security over business assets.

4. Capital Markets Fund

This product invests in BEE enterprises, particularly those owned by black women, that seek to list on the JSE or its junior AltX market. The uMnotho Fund will also help listed BEE companies to raise additional capital for expansion.

All other key features are similar to those of the Acquisition Finance product.

5. Liquidity and Warehousing

This product

assists BEE shareholders who need to sell a portion or all of their shares while keeping the shareholding black.

All other key features are similar to the Acquisition Finance Fund.

Strategic Projects Fund (SPF)

The SPF fund works to ensure the participation of black people in early-stage projects. The fund provides venture capital finance to develop industrial capacity in strategic sectors identified by the government as key drivers to economic growth.

SPF targets the following priority sectors:

• Agriculture
• Business Process Outsourcing (Call centres, data storage centres, and termination centres)
• Mining, Mineral Processing, and Mineral Beneficiation
• Automobiles
• Renewable Energy and Biofuels (solar, biomass, hydro, co-gen, and wind)
• Pharmaceuticals and Chemicals
• Forestry, Pulp, and Paper
• Infrastructure (telecoms, healthcare, roads, rail, airports, dams, and water)
• Tourism (hotels, resorts, tourism attractions, and leisure)

Rural, Township and Community Development Fund

The aim of the Rural, Township and Community Development Fund is to provide funding to aspiring rural entrepreneurs, cooperatives, and community groupings. The fund also seeks to facilitate skills transfer.

The sectors funded are as follows:

• Agro Processing and Manufacturing
• Eco-Tourism
• Forestry and Fisheries
• Commercial Property
• Aqua and Marine Culture
• Non-Farm Activities (rural based)
• Projects must be financially sustainable.
• BEE applicants should be actively involved in the day-to-day operations of the business.
• Technical partners should be actively involved in the day-to-day operations of the business.
• The NEF will invest using debt, equity, and quasi-equity instruments.
• Minimum black ownership of 25.1% is a requirement.
• Joint ventures between black and non-black partners to support skills transfer.
• The business must have a clear value-add with a sustainable business case.
• The NEF will exit from the investment in 5 to 10 years.

Arts and Culture Venture Capital

The fund is designed to promote and develop the arts and culture sector by providing affordable loans to start and/or expand small businesses.

All compliance requirements listed below must be submitted:

• Completed NEF application form;
• Business plan and projected Income Statement, Balance Sheet, and Cash Flow Statement for the duration of the funding period;
• Cash flow projections indicating how the loan will be repaid over the term and the loan duration;
• Registration documents as a legal entity;
• Valid tax clearance certificate;
• Minimum of 51% shareholding by black South African citizens as defined in the B-BBEE Act who are resident within the borders of South Africa;
• In need of start-up or expansion capital;
• Require loan from the Arts and Culture Venture Capital Fund of not less than R250,000 and not more than R5 million;
• However, applicants are welcome to apply for normal NEF funding above R5 million;
• Loan repayment should be within twenty-four (24) months;
• Own contribution of 5% or more towards the project;
• Audited/reviewed financial statements for the past three years along with management accounts not older than three months ONLY for businesses that have been in operation;
• A minimum of three (3) months must be provided between the closing date of the advert and the actual date when the first disbursement on the loan is required to allow enough time for the project;
• Financing any asset such as equipment or infrastructure must be for the purpose of start-ups or expansion with existing contracts or orders;
• Social impact in the form of job creation and economic empowerment by indicating how many job opportunities will be created;
• Employment numbers must be stated by race, gender, disability, etc. for the project to be funded;
• Applicants should be actively involved in the day-to-day operations of the business. If the applicant is employed full time, they may be required to resign from his/her employment and provide the Fund manager with proof of resignation;
• Necessary skills, experience, or with the potential skill appropriate for the enterprise to succeed;
• Have a profit motive and clearly indicate how the loan will be repaid;
• Applicant’s projections must show growth prospects in order to be self-sustainable in the future; and
• Brief profile and financial strength to settle projected receipts when due of the applicant’s customer(s) or sponsor(s)

Tourism Transformation Fund (TTF)

The TTF is a dedicated capital investment mechanism that was developed in collaboration with the National Empowerment Fund (NEF) to drive transformation in the tourism sector in a more direct and impactful manner. It aims to assist small and micro black-owned tourism enterprises to expand and grow with the goal of creating a new generation of black-owned, youth, women, and community-based tourism operators. All applications and approvals for this program are managed by the NEF.

The TTF provides a combination of grant funding, debt financing, and equity contributions to facilitate capital investment in the tourism sector by black entrepreneurs.

Application requirements

New and existing black-owned enterprises are eligible for funding if they satisfy the following requirements:

• The enterprise must provide services to tourists as its direct clients.
• The project must have proven commercial viability and sustainability, as per the NEF funding criteria and due diligence.
• The enterprise must be majority (51%) black-owned.
• The enterprise must be black management controlled.
• Shareholders must be operationally involved in the business.
• The enterprise must be registered as a legal entity in South Africa in terms of South African law.
• The enterprise must either be a black-owned Exempted Micro Enterprise (EME) or black-owned Qualifying Small Enterprise (QSE), in terms of the Amended Tourism Broad-Based Black Economic Empowerment (B-BBEE) Sector Code.

Read: Everything you Need to Know about the Newly Launched Tourism Transformation Fund

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How to apply for business grants? DTI, SEDA, IDC, NEF and non-repayable grants

Many South Africans have business ideas with the potential to earn them a lot of money. Unfortunately, many lack the financial resources to actualise their ideas. If you are an entrepreneur looking for cash to start a venture, you need to learn about business grants, including DTI funding for small businesses.

Many South Africans have benefited from business grants like DTI funding for small businesses, SEDA, NEF, and IDC. If you wish to be a beneficiary, you must apply for them.

How to apply for business grants in South Africa

Starting and running a successful business is a challenging task. Many people struggle because they lack adequate capital to start and run operations.

Programmes like DTI funding for small businesses have made many people's dreams a reality. Read on if you need to learn how to apply for government grants for small businesses.

DTI funding

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DTI stands for the Department of Trade and Industry. DTI offers a type of government funding to small businesses in multiple sectors. The aim of the assistance is to promote economic development, increase healthy competition, increase the enterprise economy , and widen the economic opportunities available to citizens.

DTI incentives available

There are multiple ways the DTI offers financial assistance to small businesses, as shown below.

• Capital Projects Feasibility Program (CPFP): For enterprises dealing in local exports.
• Production Incentive (PI): This is an upgrade grant facility or interest subsidiary facility.
• Automotive Investment Scheme (AIS): This is used to grow the automotive sector
• Clothing and Textile Improvement Competitiveness Program (CTICP): For enterprises dealing in apparel and textile manufacture.
• Support Program for Industrial Innovation (SPII): This is given to technology innovators.
• Aquaculture Development Enhancement Program (ADEP): This facility is issued to registered entities engaged in aquaculture activities.
• Critical Infrastructure Program (CIP): This scheme improves investment in critical infrastructure projects

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NB: The DTI funding requirements may vary depending on the type or form of funding you want. To apply for this financial assistance, your business should fill out the DTI funding application forms on the DTI website .

SEDA refers to the Small Enterprise Development Agency. The agency was established in December 2004 under the Department of Small Business Development.

SEDA offers loans and grants to small businesses. It puts the specific businesses it wishes to issue grants to on the website. The agency also issues the criteria businesses must meet to receive funding.

SEDA online application

Applications for the SEDA grant are made online . You can confirm if your small business meets the criteria for funding. SEDA normally gives details of the application process on its official website .

Since the details vary depending on the sector and requirements, there are no official SEDA funding application forms for 2023.

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SEFA funding

SEFA is an acronym for Small Enterprise Finance Agency. It was founded in 2012. Since then, the government has been funding it to support small businesses.

There are various forms of SEFA funding , including term loans, bridging loans, and structured finance. As a result, SEFA funding requirements vary depending on the form you wish for.

To get a SEFA loan, for instance, you must submit a completed SEFA application form and a comprehensive business plan.

IDC funding

IDC is an acronym for the Industrial Development Corporation. IDC offers financial support to businesses looking to acquire capital for buildings, equipment, business expansion, or starting a venture.

How to apply

There is no official IDC funding application form. Instead, enterprises seeking funding should follow the steps below.

• Write a well-researched business plan. The plan should give a compelling case for funding.
• Register online for submission or submit the plan to the IDC offices. Ensure your application contains all relevant documents and certificates.
• IDC will confirm it has received your documents. Allow the officials time to process them. They may ask for extra information or documentation.
• The agency will give you feedback on the outcome of your application. If your business is successful, due diligence will be conducted by the relevant officials.
• Once verified, you will be asked to sign a loan contract before receiving cash.

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NEF funding

The National Empowerment Fund (NEF) is a project by the Government of South Africa to support and boost public participation in business and entrepreneurship. The fund was established in 1998.

NEF offers financial and non-financial support to black-owned and managed businesses. It also promotes a saving and investment culture among black people. NEF offers various f orms of support , as listed below.

• Tourism Transformation Fund
• Rural, Township & Community Development Fund
• Strategic Projects Fund
• Arts & Culture Venture Capital Fund
• Women Empowerment Fund
• IMbewu Fund
• UMnotho Fund
• Visit the NEF website to download the NEF funding application form.
• Complete and submit the form.
• The relevant officials will screen the application.
• Screened application forms will be taken to the investment committee for approval.
• Once approved, NEF will do due diligence on your business.
• The relevant officials will re-submit the final report.
• Next, the relevant NEF officials will conduct the necessary legal procedures.
• Finally, the funds will be disbursed.

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LEDA funding

The Limpopo Economic Development Agency (LEDA) was established in 2016 with the aim of accelerating job creation and promoting economic growth and development. It does this by offering business loans.

The LEDA funding application form is available on the official website. Kindly note that these are loans, not grants.

What are non-repayable small business grants?

These are a type of development funding the Government of South Africa offers to support small business growth. The businesses are not required to pay back the amount received.

How do I get local grants for my small business?

You can get grants by applying for those you qualify for, e.g. DTI, SEDA, IDC, and NEF.

What does SEDA help with?

SEDA provides support for small businesses in various phases of their life cycle. The support includes offering business talks and providing funds, tools, and equipment needed to start, run, and operate an enterprise.

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Many South Africans are beneficiaries of DTI funding for small businesses. SEDA, IDC, and NEF have assisted others. These agencies promote business development in the country.

DISCLAIMER: This article is intended for general informational purposes only and does not address individual circumstances. It is not a substitute for professional help or advice and should not be relied on to make decisions of any kind. Any action taken upon the information presented in this article is strictly at your own risk and responsibility!

READ ALSO: How to calculate PAYE on salary 2022: step-by-step guide

Briefly.co.za recently published details on how to calculate PAYE on salary. PAYE means pay-as-you-earn tax. It is a repayment scheme that incrementally makes deductions as paychecks are received in South Africa.

The South African Revenue Service collects pay-as-you-earn tax from employees. After PAYE is deducted, one receives a net salary.

Source: Briefly News

Peris Walubengo (Lifestyle writer) Peris Walubengo is a content creator with 5 years of experience writing articles, researching, editing, and proofreading. She has a Bachelor of Commerce & IT from the University of Nairobi and joined Briefly.co.za in November 2019. The writer completed a Google News Initiate Course. She covers bios, marketing & finance, tech, fashion & beauty, recipes, movies & gaming reviews, culture & travel. You can email her at [email protected].

Cyprine Apindi (Lifestyle writer) Cyprine Apindi is a content creator and educator with over six years of experience. She holds a Diploma in Mass Communication and a Bachelor’s degree in Nutrition and Dietetics from Kenyatta University. Cyprine joined Briefly.co.za in mid-2021, covering multiple topics, including finance, entertainment, sports, and lifestyle. In 2023, she finished the AFP course on Digital Investigation Techniques. She received the 2023 Writer of the Year Award. In 2024, she completed the Google News Initiative course. Email: [email protected]

NATIONAL EMPOWERMENT FUND (NEF)

NEF aim to support B-BEEE and previously disadvantaged individuals and communities in their business ventures. NEF offers funding for start ups and expansion as a loan, equity funding.

To view their website, click here!

The National Empowerment Fund (NEF) is a driver and thought leader in promoting and facilitating black economic participation by providing financial and non-financial support to black empowered businesses and promoting a culture of savings and investment among black people.

The NEF’s role is to support Broad-Based Black Economic Empowerment (BB-BEE). It provides business loans from R250 000 to R75 million across all industry sectors, for start-ups, expansion and equity acquisition purposes

The NEF implements its mandate in three ways:

1. Asset Management

By structuring accessible retail savings products for black people through its Asset Management Division, which is a custodian of certain equity allocations in State-Allocated Investments (SAIs), the NEF aims to foster a culture of savings and investment among its beneficiaries.

2. Fund Management

Fund Management, as a facilitator of the Codes of Good Practice of the Broad-Based Black Economic Empowerment Act (the Codes), supports the pillars of black enterprise by providing financial and non-financial solutions across a range of sectors to black empowered businesses, for start-up, expansion and equity transformation purposes.

3. Strategic Projects Fund

As a leader in venture capital finance which allows entrepreneurs to participate in projects that are at an early stage within sectors identified by the RSA government as key drivers to the economic growth of South Africa. The fund also provides project finance and private equity in these projects once they are regarded as bankable.

NEF funding is currently obtainable from the following four funds:

Imbewu Fund:

This Fund is designed to support black entrepreneurs wishing to start new businesses as well support existing black-owned enterprises with expansion capital. The Fund supports these entities by offering debt, quasi-equity and equity finance products with the funding threshold ranging from a minimum of R250 000 to a maximum of R10 million.

Umnotho Fund:

This Fund is designed to improve access to BEE capital and has five products: Acquisition Finance, Project Finance, Expansion Finance, Capital Markets Fund, and Liquidity and Warehousing. These products provide capital to black-owned and managed enterprises, black entrepreneurs who are buying equity shares in established black and white-owned companies, starting new ventures, expanding existing businesses and BEE businesses that are or wish to be listed on the JSE.

Rural and Community Development Fund:

This Fund was designed to promote sustainable change in social and economic relations and supporting the goals of growth and development in the rural economy, through financing of sustainable enterprises. This would be achieved through the mobilisation of rural communities in legal entities or cooperatives, in order to participate in the broader economic activities and realise the economic transformation goals in rural South Africa.

The fund has three products: Acquisition Finance, Expansion Capital and Project Finance (New Venture/Start-up/Greenfields) with the funding threshold ranging from a minimum of R1 million to R50 million.

Strategic Projects Fund:

This fund is a unit of the NEF established with a mandate to increase the participation of black people in early-stage projects. It is aligned to national Government policy and seeks competitive opportunity for the South African economy and the inclusion of black participation in opportunities at the outset of projects, as opposed to doing so during equity closure.

APPLY THROUGH FUNDING CONNECTION

At Funding Connection, we understand the complexities of the various funding agencies and the unique application criteria for each. We have assisted numerous entrepreneurs through the application process to access funds like this for business growth, and we can help you with the whole process.

If you would like to begin the application process through us, please start by filling out our free assessment.

If you do not yet have a business plan in place, we can help you create a viable and fundable business plan.

If you have already begun the process and would like to consult with us or need a business plan review, please click here to contact us.

And to keep in touch with the latest funding news and opportunities, you can subscribe to our free Funding Connection Newsletter.

National Empowerment Fund (NEF)

• Equity-based risk approach
• Focus on preferential procurement
• Seven different funds
• Quick Navigation
• National Empowerment Fund (NEF) esd fund product
• National Empowerment Fund (NEF) contact details

About National Empowerment Fund (NEF)

The National Empowerment Fund (NEF) plays a crucial role in supporting Enterprise and Supplier Development activities in South Africa as part of its mandate to promote Broad-Based Black Economic Empowerment (B-BBEE).

It aims to facilitate economic transformation by providing financial and non-financial support to black-owned and managed businesses, as well as promoting a culture of savings and investment among black individuals and communities.

Driving economic equality: NEF's impactful push for preferential procurement

One of the key areas of focus for the NEF is preferential procurement, which involves encouraging the procurement of goods and services from black-owned businesses. By promoting preferential procurement, the NEF aims to broaden the reach of black equity ownership and prevent the dilution of black shareholding in the economy. The NEF recognizes the importance of transformation in management and staff as well, ensuring that black individuals have equal opportunities to hold positions of leadership and decision-making power.

To maximise the impact of its efforts, the NEF adopts an equity-based risk approach, balancing the risk with sound commercial decisions. The NEF's objective is to leverage equity-based risks in order to optimize the Empowerment Dividend and align with national priorities and government strategies, including AsgiSA and the DTIC's IPF. Through this approach, the NEF aims to make significant contributions to these initiatives, maximising their impact on economic growth and transformation.

The NEF also collaborates with other Development Finance Institutions (DFIs) to promote B-BBEE. By sharing its sector expertise and knowledge of B-BBEE, the NEF enhances the work of other DFIs and their mandates.

Transforming lives, empowering communities: NEF's impact on South Africa's economic landscape

Over the years, the NEF has played a significant role in driving economic transformation and empowerment in South Africa. Through its financial support, the NEF has facilitated over 1,349 transactions, totaling more than R12.466 billion, with a total project value of R21.44 billion. This support has resulted in the creation of over 114,000 jobs, of which 72,363 were new jobs.

In addition to financial support, the NEF has also been allocated funding for various programs and initiatives. These include the NEF Women Empowerment Fund, the COVID-19 Black Business Fund, the SME Distress Fund, the Black Business Manufacturing Enhancement program, and the Economic Recovery Fund. These allocations demonstrate the government's commitment to supporting the NEF's mandate and its role in promoting economic inclusion and empowerment.

With its sound governance ecosystem, the NEF has established itself as one of the model agencies across the public service. By continuing to focus on Enterprise and Supplier Development activities, the NEF is playing a crucial role in driving economic transformation and empowering black individuals, communities, and businesses in South Africa.

National Empowerment Fund (NEF) Services

NEF (National Empowerment Fund) provides funding through seven different funds to support various entrepreneurial ventures. Here is an overview of each fund, their funding amounts, and their purposes:

• Funding range: R250,000 to R75 million
• Purpose: Accelerating funding provision to businesses owned by black women. It supports start-ups, expansions, and equity acquisitions in various sectors.
• Funding range: R250,000 to R15 million
• Purpose: Supporting black entrepreneurs in starting new businesses or expanding existing black-owned enterprises. It offers debt, quasi-equity, and equity finance products.
• Funding range: R2 million to R50 million
• Purpose: Improving access to BEE (Black Economic Empowerment) capital. It has five products: acquisitions, project funding, business expansion, investment in capital markets, and managing liquidity and asset storage.
• Funding range: Varies
• Purpose: Promoting social and economic upliftment in rural areas. It supports sectors like agro-processing, eco-tourism, forestry, fisheries, commercial property, and non-farm activities.
• Purpose: Supporting early-stage projects in sectors aligned with the government's strategies on industrial development. Sectors include agriculture, textiles, mining, renewable energy, manufacturing, tourism, and more.
• Purpose: Promoting and developing the arts and culture sector by providing affordable loans to start or expand small businesses. It aims to foster self-sustainability and job creation.
• Funding range: Up to R5 million (grant funding portion)
• Purpose: Driving transformation in the tourism sector by supporting black-owned tourism enterprises. It provides a combination of grant funding, debt financing, and equity contributions.

These funds cater to different needs, such as supporting black women entrepreneurs, facilitating BEE capital access, fostering rural development, promoting strategic projects, empowering the arts and culture sector, and transforming the tourism industry.

National Empowerment Fund (NEF) – ESD Fund

• Loan Type ESD Funds

Benefits of National Empowerment Fund (NEF)

• Support for black-owned and managed businesses.
• Focus on preferential procurement.
• Equity-based risk approach.
• Collaboration with development finance institutions.
• Drives economic transformation.
• Creates jobs.
• Aligns with government strategies.
• Diverse sector coverage.
• Promotes B-BBEE (Broad-Based Black Economic Empowerment).

Applying for Enterprise and Supplied Development Funding with the NEF

The National Empowerment Fund (NEF) provides funding through various funds to support different sectors and promote economic empowerment.

Eligibility and funding requirements for the NEF's funds

Women empowerment fund (wef).

• Aimed at accelerating funding for businesses owned by black women.
• Requires a minimum of 51% black female ownership.
• Black women should be actively involved at managerial and board levels.
• Business case must demonstrate commercial viability.
• Compliance with relevant laws and regulations.
• Ability to repay WEF funding.
• Creation of jobs.
• Encourages focus on rural or economically depressed areas.

iMbewu Fund

• Supports black entrepreneurs starting new businesses or expanding existing ones.
• Offers debt, quasi-equity, and equity finance products.
• Funding ranges from R250,000 to R15 million.
• Entrepreneurship finance, procurement finance, and franchise finance are available.

uMnotho Fund

• Improves access to BEE (Black Economic Empowerment) capital.
• Provides capital to black-owned and managed enterprises, entrepreneurs buying equity shares, and BEE businesses.
• Funding ranges from R2 million to R50 million.
• Funding for acquiring assets or businesses
• Financing for specific projects
• Capital support for business growth and expansion
• Investment opportunities in the capital markets
• Financial resources for maintaining liquidity and storing assets

Rural, Township & Community Development Fund

• Promotes social and economic upliftment in rural areas.
• Sectors funded include agro processing and manufacturing, eco-tourism, forestry and fisheries, commercial property, aqua and marine culture, and non-farm activities.
• Requires financially sustainable projects.
• Minimum black ownership of 25.1%.
• Skills transfer and involvement of technical partners.
• Repayment capability.
• Exit from investment within 5 to 10 years.

Strategic Projects Fund (SPF)

• Focuses on early-stage projects in key sectors identified by the government.
• Supports black participation in new industrial capacity.
• Funding aligned with government strategies.
• Provides venture capital finance for feasibility studies and project development.
• Projects go through six stages: These stages involve scoping and concept analysis, pre-feasibility assessment, bankable feasibility examination, financial conclusion, construction period, and technical finalisation, which encompass the process of analyzing project requirements, conducting preliminary assessments, conducting comprehensive feasibility studies, finalising financial arrangements, carrying out construction activities, and achieving technical project completion.

Arts & Culture Venture Capital Fund

• Promotes and develops the arts and culture sector.
• Provides affordable loans for start-ups and expansions.
• Finance for small businesses with limited operating history.
• Aims for self-sustainability without relying on government grants.
• Funding is available in all provinces.

Tourism Transformation Fund

• Drives transformation in the tourism sector.
• Supports black-owned tourism enterprises and youth, women, and community-owned enterprises.
• Offers a combination of grant funding, debt financing, and equity contributions.
• Grant funding reduces approved loan finance and/or equity contribution.
• Department's grant contribution limited to 50% of total funding approved, capped at R5 million per beneficiary.
• Co-financing with accredited Development Finance Institutions (DFIs) is allowed.

Applicants should follow the specific application procedures for each fund and submit the required forms and supporting documents directly to the NEF. It's important to ensure that applications are complete to be considered for funding.

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Funding & grants for black business

Funding for Black Entrepreneurs from Government Grants & Funds

By  Entrepreneur

How do you raise funding? A small business can on average employ 12 people. The drop in entrepreneurial activity over the past five years is equal to 2.3 million possible job opportunities lost. Small and micro business sectors are the main source of real employment in the economy.

South Africa’s economy needs to inspire entrepreneurship in order for it to grow. By creating an environment that is friendlier to small businesses and actively encouraging the sector, the country is in a better position to create jobs.

Two simple measures that would go a long way to support and develop entrepreneurs is access to finance and improvement of logistics.

Content in this guide

• National Empowerment Fund (NEF)

Industrial Development Corporation (IDC) Funding

• Small Enterprise Finance Agency (SEFA)
• The Isivande Women’s Fund (IWF)
• Khula SME Fund
• Black Business Supplier Development Programme (BBSDP)
• Incubation Support Programme (ISP)
• National Youth Development Agency (NYDA)
• PDF Download

Government Funds

The government created government funding to extend finances to previously disadvantaged South African’s in order to develop black economic development. Your much needed capital investment could come from government funding opportunities.

Financing a small business, whether you’re starting-up or trying to expand, is a challenge all entrepreneurs go through. Here are a few examples of government funding that focuses on black entrepreneurs:

1 National Empowerment Fund (NEF)

The NEF is, a part of the government’s development mandate to encourage black participation in business and entrepreneurship. It helps to assist black entrepreneurs in achieving funding. This fund aims to assist black youth, women and men, communities and businesses to achieve sustainable success.

Types of NEF Funding

The NEF has four main channels of funding that consist of subdivisions. These are:

1. iMbewu Fund:

• This consists of subdivision is entrepreneur finance, procurement finance and franchise finance.
• This fund supports black entrepreneurs who are starting up a new business or expanding an existing one.
• This contribution takes the form of offering debt counselling, quasi-equity and equity finance products.
• The funds contribution ranges from R250 000 to a maximum of R10 million

2. uMnotho Fund:

• This NEF funding has subdivisions in finance, new venture finance, expansion capital, capital markets, and liquidity and warehousing.
• This fund is available to black entrepreneurs who manage or own businesses, new ventures, expanding existing business. It is also available to black entrepreneurs who want to buy a share of equity in black and white owned businesses.
• The contributions from this fund range from R2 million to R75 million.

3. Rural and Community Development Fund:

• This NEF fund has subdivisions in acquisition, new venture capital, expansion capital and start-up/green categories.
• The creation of this government fund is to promote sustainable change in social and economic relations along with supporting and developing the rural economy by financing sustainable enterprises and co-operatives.
• This NEF funding ranges from R1 million to R50 million.

3. Strategic Projects:

• This NEF fund has subdivisions of empowerment objectives.
• The aim of the government fund is to increase black participation in early-stage projects.
• These projects need to have economic merit and the ability to deliver on the government’s development mandate.

How Can You Apply for NEF Funding?

NEF funding is available for start-up and existing businesses. It will conduct the following processes when evaluating your business:

• It will conduct a, self-needs analysis to determine how the NEF funding can assist your businesses needs and which offer is best suited.
• You will need to provide an application form and a comprehensive proposal with evidence that supports the commercial viability and financial position of your business.
• After you’ve submitted your application to the NEF, it will assess your information for final approval and receiving of funds.
• The NEF website offers the following checklist to ensure you include everything needed when applying for funding.
• You’ll need to meet all the requirements or your application won’t be successfully considered.
• This process can take up to six weeks.
• If your application is successful, it could take up to three to four months to receive NEF funding.

Contact Details for NEF Funding

• For more information about the NEF fund, visit www.nefcorp.co.za .
• Email general enquiries to [email protected]
• Or call the following numbers +27 (0)11 305 8000 or 0861 843 633 (call centre).

IDC funding is available to those who have an existing business or wish to start a new one; those that have the visions of job creation along with serving previously disadvantaged communities.

The IDC achieves its goals by providing finance for industrial projects, promoting partnerships between and across industries within SA and internationally. It focuses on projects that finance and facilitate, that lead to the creation and innovation of new industries. It also focuses on diverse expertise to drive growth in priority sectors and to take on higher-risk funding projects.

The IDC supports B-BBEE and actively boosts and promotes black-owned and managed business along with those with employment equity. It aims at developing the skills of black employees and business owners, by supporting local, regional, provincial and national government projects.

The Different Types of IDC Funding

1. Development Funds.

• These funds aim at supporting projects that will have high long-term impacts on the economy through growth.
• Its aim is to bring projects out of the informal sector and into the economic mainstream.
• Please find more information on these funds and links to the online application process here .

2. Agro-Processing Competitiveness Fund

• This government fund provides support and helps businesses to achieve increased competitiveness, business growth, job creation and development in the agro-processing and beverages industries.
• For further information and a link for the online application process please visit here .

3. Product Process Development Scheme (PPD)

• The aim of this fund is to provide financial support to micro and small enterprises where the total assets are below R5 million, annual turnover is less than R13 million, and the business employs less than 50 people.
• The fund intends to promote innovation and technology development with financial support.
• This enables the development of new products and/or processes.
• For more information on the PPD Scheme continue to the website here , to apply for funding, please visit their website http://www.idc.co.za/ , click on “Online Funding” and follow the prompts.

4. Risk Capital Facility Programme

• IDC Funding aimed at providing risk finance to businesses owned by previously disadvantaged individuals that offer substantial job creation potential.
• For more information on the Risk Capital Facility Programme continue to the website here , to apply for funding please visit their website http://www.idc.co.za/ , click on “Online Funding” and follow the prompts.

This programme provides three channels of funding:

• Direct channel operating alongside IDC’s mainstream business
• Through a niche fund channel
• Third party channel.

5. Transformation and Entrepreneurship Scheme

• This fund finances marginalised groups of South Africans such as women and the disabled.
• The aim of the fund is to gain access to finance that will help to develop and grow your business as a start-up or through expansions or acquisitions.
• This IDC funding also offers mentorship and non-financial support including business planning, training and mentorship.
• For more information on the Transformation and Entrepreneurship Scheme continue to the website here , to apply for funding please visit their website http://www.idc.co.za/ , click on “Online Funding” and follow the prompts.

6. Green Energy Efficiency Fund

• The fund aims at improving energy efficiency and helping South Africa become a low-carbon economy.
• It aims to drive down energy related costs, improve production capacity, operational effectiveness and competitiveness, which would aid in job creation.
• For more information on the Green Energy Efficiency Fund continue to the website here , to apply for funding please visit their website http://www.idc.co.za/ , click on “Online Funding” and follow the prompts.

How Can You Apply for IDC Funding?

The IDC government funds aims are: Job creation potential, rural development, urban renewal and poverty alleviation, the employment of women and youth as well as up-skilling of employees. All of the projects that the IDC funds, need to show economic viability and sustainability and should target previously disadvantaged groups, women, people with disabilities, low income working groups and marginalised communities.

Contact the IDC for funding

• For more information on any of the funds visit www.idc.co.za , click on “Online Funding” and follow the prompts.
• You can also phone the IDC call centre on 0860 69 38 88
• Or email [email protected] .

3 Small Enterprise Finance Agency (SEFA)

Do you have an existing small business or want to start one? SEFA are piloting direct finance to entrepreneurs wanting to start or grow a business.

Types of SEFA Funding

SEFA provides direct funding to business in loans between R50 000 and R3 million in three different ways: Directly to business owners, via retail finance intermediaries, and through banks using credit guarantee schemes including Khula.

1. Bridging loans

• These are short-term loans, which provide working capital.
• The types of working capital offered by this government fund include stock purchases and operating overheads. This loan is offered for only one year.

2. Term loans

• This government fund is a loan of a specific amount and has a specified repayment schedule, amount and interest rate.
• This type of SEFA funding is normally used to finance your assets that have a medium to long-term lifespan, for example machinery, vehicles, office equipment.
• Term loans can be used to expand your business or for acquisitions.
• This loan has a repayment range of one to five years.

3. Structured finance

• Use this SEFA facility for funding that falls outside the parameters of the term and bridge loans.
• Provided by a debt facility, it can be repaid over a period of five years and tailored to your unique requirements.
• The following businesses can’t apply from the benefits of this fund: Liquor, tobacco, gambling, sex trade, armaments, speculative real estate, leveraged buy-out funds, and illegal trade.
• This includes any business activity that would tarnish SEFA’s reputation, political organisation, entrepreneurs under debt review, insolvent business owners and business.

How to Apply for SEFA Funding?

Your start-up and existing survivalist, micro, small and medium business must meet these criteria:

• Submit a completed application form
• Submit a completed comprehensive business plan that meet SEFA’s application requirements. Include initial and supporting documentation.
• Demonstrated ability to repay loans
• Personal and business credit references
• The applicant must be an owner manager
• The applicant must be a South African citizen with ID documents or a valid permanent residence. Alternatively, the business can be in the control of a South African citizen.
• The business must be legally constituted including sole traders with a fixed physical address
• Must have contractual capacity
• All operations including projects, programmes activities etc. must be within South Africa
• The enterprise must be compliant with accepted corporate governance practices
• A trust that has within the trust deed the power to borrow money and pledge assets as security and to give surety for borrowing.

Contact SEFA for funding

• Visit www.sefa.org.za for more information on regional branches, how to apply, exclusion criteria, products and services available. To contact head office, call 0860 00 73 32.
• To apply for Sefa Funding visit their website http://www.sefa.org.za/ , you can either submit your application online or you can print it out and submit to their physical offices. You can see the contact information for both online and physical submissions for all their funds here .

4 The Isivande Women’s Fund (IWF)

This government fund aims at accelerating women’s economic empowerment by supplying cost effective, user friendly and responsive, available finance. The IWF offers support services to improve the success of your business.

It targets business that are starting up, expanding, rehabilitating, franchising and those that need bridging finance. The aim of the fund is to create self-sustaining black and women owned businesses by offering you primary financial and non-financial support.

How to Apply for IWF Funding

The women owned companies need to meet the following criteria to be eligible:

• Operational for 6 months.
• Needs early stage capital for expansions and growth.
• 50% plus one share owned and managed by women.
• Have potential growth and commercial sustainability.
• Improving social impact with employment creation.

Contact IWF for funding

• Businesses that are eligible and need funding between R30 000 and R2 million can submit their application.
• Apply to the IWF through the IDF website or call +27 (11) 772 7910.
• Download the application form here  www.idf.co.za .

5 Khula SME Fund

Offered by Khula Enterprise Finance Ltd, this government funds aim is to grow and increase sustainability of small businesses.

The purpose of the fund is to:

• Offers SME’s early-stage and expansion capital.
• Offer early-stage debt funding to business that meet the criteria.
• Support SME’s in rural and peri-urban areas.
• Improve the business owners access to finance.
• Grow businesses so they can create new jobs.
• Encourage meaningful economic involvement of black South Africans.
• Foster entrepreneurship for men and women within the SME sector.

How to Apply for Khula Funding?

The following are the requirements for business wanting to apply for Khula government fund:

• South African SME who have a majority share in their company and who are seeking to start and/or grow their company.
• South African SME’s who have a majority share in their business that is in rural areas.

Contact Khula for funding

• Business that are eligible and need funding can contact Khula at: +27 (0)11 807 8464.
• To apply for Khula funding, visit the SEFA website http://www.sefa.org.za/ , you can either submit your application online or you can print it out and submit to their physical offices. You can see the contact information for both online and physical submissions for the Khula Fund here .

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6 Black Business Supplier Development Programme (BBSDP)

The Black Business Supplier Development Programme (BBSDP) is a cost-sharing grant that offers black-owned businesses improve their competitiveness and sustainability.

This government grant does not support start-ups, only the expansions of existing business.

The aim of this government grant is to fast-track small and micro-enterprises, encourage links between black-owned businesses, corporates and public sector as well as to complement affirmative procurement and outsourcing.

It provides black entrepreneurs with a grant to a maximum of R1 million.

Do You Qualify for the BBSDP government grant?

• Your business must be a CIPC Registered company or corporation
• 50.1% black owned (Black, Indian or Coloured) or more
• Management team 50% Black
• Trading for at least one year and have financial statements to prove turnover.
• Turnover must be between R250k and R35m per annum
• Valid SARS tax clearance and Vat registered if turnover is greater than R1 000 000.

How to apply for the BBSDP government grant

The following are the documentation that you need to apply for the BBSDP grant:

• CIPC Company registration documents (proof of ownership and shareholding)
• Certified ID of all Directors/ members
• Certified ID of all managers/ staff training (if applicable)
• Certified financial statements for latest financial year (three years if available)
• Management accounts for current year
• Valid SARS tax clearance (with 3 months to expiry or get a new one)
• VAT registration document (where applicable)
• 3 Months bank statements
• 3 Quotations (comparable) for every intervention
• Declaration appointing Graphit as the consultant.
• Company diagnostic questionnaire and application typed on template supplied by Graphit. Please send back as a Word Document
• Domicillium form
• Bank confirmation of your 50% contribution (Will you be able to get finance for your 50% or 20% contribution.) (Clear credit record)

To apply you will need to email all your documentation, all your documents need to be in a PDF format except your application form, which needs to be in word format. Please send them as individual documents.

To apply for the BBSDP government grant, send your documents to [email protected] . For further information visit the BBSDP government grant website here .

7 Incubation Support Programme (ISP)

Designed to create and develop successful enterprises. These are enterprises with the ability to revitalise communities and local economies.

Do You Qualify for the Incubation Support Programme?

In order to qualify for the Incubation Support Programme you need to be:

• A registered legal entity in South Africa
• A registered higher or further education institution
• A licensed and/or registered science council.

This programme is also available to applicants who want to establish their own incubators or wan t to grow and expand existing ones. The incubator may either offer physical and/or virtual incubation support services. The incubator may be a:

• Corporate incubator
• A private investor’s incubator
• An academic or research institution incubator in partnership with industry

The incubator must be focused on establishing and/or growing enterprises that will graduate to sustainable enterprises.

How To Apply for the Incubation Support Programme

• Applicants can contact the DTI directly or appointed support agencies.
• They can assist you with the application process.
• You need to submit a completed application form to the DTI.
• This must outline the objectives of the project and demonstrate how the incubator would function and be sustainable.
• Submit your applications to the Incubation Support Programme Secretariat at the DTI.

Contact Incubation Support Programme

• Contact: Semakaleng Mangwedi
• Email: [email protected]          
• Contact Number: +27 (12) 394 1073
• Contact: Ambani Ramaru       
• Email: [email protected]  
• Contact Number: +27 (12) 394 1119

Application enquiries: [email protected]

Claims enquiries: [email protected]

8 National Youth Development Agency (NYDA)

This government grant is moving away from grants for youth and shifting towards mentorship and development programmes. Grants are however, still available for youth entrepreneurs.

Types of NYDA Funding

NYDA awards individual grants to formal and informal businesses that are in the start-up or development phase of their business. These government grants get awarded to co-operatives, which is an autonomous association of people united to meet common economic and social goals through a jointly owned and democratically controlled enterprise. Additionally, another option is community development and facilitation projects.

Do You Qualify for NYDA funding?

• You need to be eighteen years old at the time of application
• Need the grant for business start-up or growth
• You need to be between the ages of 18-35 years with necessary skills, experience or with the potential skill appropriate for the enterprise
• South African citizens and resident within the borders of South Africa
• Are involved in the day-to-day operation and management of the business
• Require grant from NYDA of not less than R1 000 and not more than R100 000.

Upon approval of the grant, if you are employed full time, you could be required to resign from employment and provide grant officer with proof of resignation. This is a requirement so that you can focus an appropriate amount of time on your venture.

How to apply for NYDA funding

NYDA government grants are available to entrepreneurs or co-operatives that meet the following criteria:

• Applicants must be a youth (18 to 35 years old). They must have the necessary skills and experience or show the potential of skills for the business and industry in which they wish to operate.
• Applicants must be South African citizens with ID documents and operate their business within South Africa.
• The applicant must need the grant to start or grow their business i.e. no other source of capital.
• Applicants must involve themselves in the operation and management of the business on a day to day basis and must work on a full-time basis.
• The business may be formal or informal and categorised as a micro-enterprise.
• The enterprise must show, or have potential to be commercially viable and sustainable
• Applicants should be sole traders or in the case of groups have a minimum of five people.

Contact details for NYDA funding

For more information on the NYDA government grant visit www.nyda.gov.za or contact the call centre on 0800 52 52 52.

Source: http://www.entrepreneurmag.co.za/

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Determining Cash Flow

As a small business owner, it’s important to know how much cash is moving in and out of your business. You need to think ahead in order to meet financial obligations and run a profitable business on a long-term basis.

Calculating Start-Up Expenses

Business startup costs can add up quickly. You’ll likely need to invest in equipment, inventory, payroll, software, and office space – just to name a few expenses. Plus, you’ll also have to pay for permits, marketing costs, and any needed legal fees.

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Budgeting – creating a realistic spending plan for your money – helps ensure you will always have enough capital for business necessities and aids long-term financial planning. Following a budget can also keep you out of – or help get you out of – debt.

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Part 10. Security, Privacy and Assurance

Chapter 6. continuity operations, section 1. overview of continuity planning, 10.6.1 overview of continuity planning, manual transmittal.

March 21, 2022

(1) This transmits revised IRM 10.6.1, Continuity Operations Program, Overview of Continuity Planning, catalogue number 59988F.

Material Changes

(1) IRM 10.6.1 is revised as follows:

List of Essential Supporting Activities includes General Legal Services for Chief Counsel

(2) Sections added to conform to Publishing requirements.

(3) Editorial changes were made to provide clarity.

Effect on Other Documents

Effective date.

Pablo F. Meléndez Chief, Business Continuity Operations Officer, Deputy Chief of Staff Office C:CoS:DCoS: IRS Continuity Coordinator

Program Scope and Objectives

Continuity planning includes IRS activities and efforts to document and ensure that the IRS is capable of continuing its Mission Essential Functions (MEFs) and Essential Supporting Activities (ESAs) during a wide range of potential emergencies.

The IRS continuity plans and supporting procedures, when implemented, will provide for the continued performance of IRS essential and other functions under all circumstances.

This manual provides policies and guidance to be used by IRS organizations to carry out their respective roles and responsibilities in continuity planning. It provides guidance for developing viable and executable continuity plans and procedures.

These provisions apply to all Business Units (BUs) within the IRS.

Audience. These procedures apply to IRS employees who are responsible for developing, implementing, and using the Business Unit Continuity Plans including:

Members of SCR Continuity Operations and Field Operations;

Members of Headquarters Continuity Operations (COOP) Teams;

National Continuity Points of Contact (NCPOCs);

Local Continuity Representatives (LCRs).

Policy Owner. The IRS Continuity Coordinator is the Business Continuity Operations Officer of the Deputy Chief of Staff Office of the Commissioner’s Complex.

Program Owner. The Program Manager of Continuity of Operations of the Senior Commissioner’s Representatives within the Deputy Chief of Staff Office.

Stakeholders. All audience listed above plus all other Continuity Planners.

Continuity planning is a good business practice, part of the fundamental mission of IRS as a responsible and reliable public institution. The changing threat environment and recent emergencies, including localized acts of nature, accidents, technological emergencies, and terrorist attack-related incidents, have increased awareness of the need for continuity capabilities and plans that will enable the IRS to continue its MEFs across a broad spectrum of emergencies.

Continuity planning applies to a wide range of potential emergencies or threats, including natural disasters, accidents, technological failures, workplace violence, and terrorism. Some of these hazards may produce emergencies that render a single facility unusable for a period of time, such as a local water main break or hazardous material incident. Others may result in more severe and widespread emergencies such as a major national or regional disaster.

The primary goal of the IRS continuity planning efforts is to ensure the continuation of IRS MEFs and ESAs under all circumstances. This is accomplished through the development of comprehensive plans, procedures, and provisions for alternate facilities, personnel, resources, interoperable communications, and Essential Records.

Continuity planning prepares the IRS for disaster prevention, response, and recovery and for the IRS to maintain viability of its MEFs and ESAs during and following an emergency or continuity event.

PPD 40, National Continuity Policy , directs the Secretary of Homeland Security through the Administrator of the Federal Emergency Management Agency (FEMA) to coordinate the implementation, execution, and assessment of continuity activities among Federal Executive Branch Departments and Agencies (D/As). Specifically, the Administrator of FEMA is directed to develop and promulgate Federal Continuity Directives to establish continuity program and planning requirements for Federal Executive Branch (D/As).

Federal Continuity Directive 1 (FCD-1) U.S. Department of Homeland Security Federal Emergency Management Agency Federal Continuity Directive 1 , dated January 17, 2017, implements the requirement of PPD 40 by establishing the framework, requirements, and processes to support the development of Federal Executive Branch (D/As) continuity programs and by specifying and defining elements of a continuity plan.

Federal Continuity Directive 2 (FCD-2), Federal Executive Branch Mission Essential Function and Primary Mission Essential Function Identification and Submission Process dated June 13, 2017, implements the requirements of FCD-1, annex B (Essential Functions), and provides direction and guidance to Federal Executive Branch (D/As) to assist in validation of Mission Essential Functions (MEFs) and Primary Mission Essential Functions (PMEFs)

These authorities can be found on the FEMA website, and searching for FCD-1 and FCD-2.

Responsibilities

The IRS will implement roles and responsibilities that ensure the continuing performance of its MEFs and ESAs under all circumstances.

The following roles and responsibilities are based on the National Continuity Policy (PPD-40) , National Continuity Policy , Homeland Security Presidential Directives, Federal Continuity Directives, and the Department of the Treasury’s (Treasury’s) policies and guidance.

IRS employees are responsible for following guidelines in IRM 10.5.1 Privacy and Information Protection, Privacy Policy to safeguard employee privacy.

Roles and responsibilities are not delegable unless documented as Orders of Succession on a Continuity Registry.

Agency Head

As the Agency Head, the National Continuity Policy assigns the IRS Commissioner responsibilities for overseeing:

The establishment of an IRS Continuity Program;

Continued performance of IRS MEFs and ESAs;

Incorporation of continuity requirements into daily IRS operations;

That IRS has continuity plans for dealing with a national or localized emergency situation and ensuring continued performance of IRS MEFs and ESAs;

Appointment of a senior accountable official as the IRS Continuity Coordinator;

Validation and approval of IRS MEFs and ESAs;

A viable Continuity Multi-Year Strategy and Program Management Plan;

Maintenance of secure continuity communications capabilities;

That IRS MEFs and ESAs interdependencies are coordinated within IRS, at the interagency level, and with private sector partners;

The participation in Treasury’s National Exercise Program;

As required, the submission of Continuity Readiness Reports and other reports, through designated channels (the Readiness Reporting System);

The development of a Continuity Assessment Program to assist in documenting, prioritizing, and resourcing continuity issues during test, training, and exercise, assessments, and emergency operations;

The evaluation of IRS continuity program readiness to ensure the adequacy and capability of its continuity plans and programs;

The promulgation of and dissemination of continuity guidance to all IRS subordinate organizational elements including field offices;

The emphasis of geographic dispersion of leadership, staff, and infrastructure, as appropriate, in order to increase survivability and maintain uninterrupted government functions;

The execution of IRS continuity plans and compliance with the requirements and assigned responsibilities under the Continuity of Government Readiness Condition (COGCON) program;

The participation in testing, as appropriate, to ensure viability of communications systems.

In accordance with the National Continuity Policy, as the Agency Head, the IRS Commissioner will, on an annual basis oversee:

That key IRS leaders and support staff are provided familiarization training of IRS MEFs and ESAs;

The conducting of tests, training, and exercises of the IRS continuity plans, to include continuity personnel and essential IT systems and equipment, in order to evaluate program readiness and ensure adequacy and viability of continuity plans and communications systems.

The above Agency Head responsibilities will be clearly outlined in IRS continuity plans and internal documents.

IRS Business Unit Head of Office

Each IRS Business Unit (BU) Head of Office (Commissioner, Director, or Chief) is responsible for:

Certifying their BU Continuity Plan annually;

Meeting annually with the BU National Continuity Point of Contact (NCPOC) to discuss yearly continuity requirements;

Participating in required Test, Training, and Exercises including Eagle Horizon National Level Exercise.

Each BU Commissioner, Director, or Chief will receive a quarterly dashboard of continuity status.

IRS Continuity Coordinator

The Chief, Business Continuity Operations Officer is the IRS Continuity Coordinator.

The responsibilities of IRS Continuity Coordinator include:

Managing, overseeing, and ensuring the readiness and compliance of the IRS Continuity Program;

Coordinating and managing all activities required for the IRS to perform its MEFs and ESAs during an emergency or other situation that would disrupt normal operations;

Developing the IRS Continuity Program short- and long-term goals and objectives;

Working with the executive leadership of the IRS BUs to complete the IRS MEFs and ESAs identification and analysis process;

Identifying and assisting with resolving issues related to continuity plans development, activation, implementation, and reconstitution;

Assisting with the identification of continuity planning team members;

Acting as liaison between the IRS continuity planning team and executive leadership of the IRS BUs;

Coordinating with IRS BUs on emergency preparedness and response issues;

Ensuring the preparation and maintenance of emergency preparedness and post disaster response and recovery plans;

Preparing and maintaining current rosters of IRS headquarters continuity or emergency response personnel who will assist in disaster operations;

Coordinating appropriate training for continuity or emergency response personnel.

IRS Continuity Program Manager

The IRS Continuity Program Manager represents the IRS to Treasury in all matters of Continuity Preparation and Emergency Response.

The IRS Continuity Program Manager will:

Manage and oversee all IRS Continuity Operations (COOP) Activities;

Serve as IRS Liaison to Treasury’s Office of Emergency Program (OEP);

Represent IRS at Treasury’s Monthly Emergency Planners’ Roundtable Meetings.

The IRS Continuity Program Manager must have a current Secret Security Clearance.

Emergency Response Team

Any member of the Continuity Community (Local Continuity Representatives - LCRs, Incident Management Team - IMT, Senior Commissioner’s Representatives - SCR, or others as necessary) may be considered part of the ERT.

Members of the Emergency Response Team are required to be familiar with and follow guidelines for their roles in support of emergency response.

For more information, see IRM 10.6.4 Incident Management Program and IRM 1.4.12 Resource Guide for Managers, Senior Commissioner’s Representatives Roles in Management of IRS Field and Headquarters .

Senior Management/Executives

The role of the Senior Management Team is to serve as a resource to the Local Continuity Representative during an incident. The team is responsible for providing the LCR logistical, managerial, administrative guidance from a Senior Management Level as a method of assisting the LCRs to represent the BU on the incident management team as needed.

Each member of the Senior Management Team should be well versed in the BU’s continuity plan. The team is required to fully participate with the BU Senior Leadership Tabletop, and any other continuity exercises as applicable. All members of the Senior Management Team members should be listed in the BU HQ COOP Roster or appropriate roster with their name, position, and full contact information. Also, detail instructions should be included regarding activation so the LCRs can successfully implement the Continuity Plan.

The senior management/executive responsible for a BU is responsible for:

Designating BU representatives to occupy the first, second and third positions of the Headquarters COOP Teams (CCCT, AACLT and CST);

Identifying a suitable primary and alternate National Continuity Points of Contact (NCPOCs) who are geographically dispersed and appointed to ensure continuity requirements are met within their respective BU. Appointees must have knowledge of BU operations and an overall high-level acumen enabling them to perform all levels of continuity related tasks;

Identifying and/or approving primary, alternate and geographically dispersed second alternate LCRs to represent their BU on the Incident Management Team (IMT);

Ensuring that IRS continuity policies, guidance, and procedures are implemented and followed;

Managing their organization’s day-to-day continuity programs;

Ensuring they are capable of carrying out their respective MEFs, ESAs, and Business Priorities related to continuity operations, including planning, activation, execution, and reconstitution;

Planning for continuity capabilities;

Ensuring that comprehensive and viable continuity plans are developed, exercised, implemented, and maintained.

All Senior Management/Executive vacancies on the HQCOOP must be filled by the BU (either permanently or with an actor) within 30 days of notification of the vacancy;

The senior management/executive responsible for a BU will, at a minimum:

Identify and prioritize the MEFs and ESAs within their organization;

Identify mission critical data, Essential Records, and systems needed to perform MEFs or ESAs;

Establish critical resource requirements needed to perform each MEF or ESAs;

Identify communications systems needed to support each MEF or ESAs;

Develop recovery or resumption strategies for each identified MEF or ESAs;

Establish a roster of knowledgeable key personnel to serve on continuity operations or recovery teams;

Establish orders of succession to key leadership positions within their organization;

Pre-delegate authorities for making policy determinations and decisions within their organization, as appropriate;

Establish and periodically (at least annually) test the capability to perform their MEFs and ESAs.

The senior management/executive responsible for a BU will ensure that required continuity information is complete and accurate in the appropriate continuity plans and procedures.

Business Unit Continuity Personnel

Each BU Chief or Director shall select a primary and alternate NCPOC who are geographically dispersed.

Each NCPOC working with Business Unit leadership will be responsible for appointing Continuity Planners (CPs) and LCRs.

Each member of any Continuity Team should have sufficient knowledge of personnel and processes to ensure timely completion of responsibilities. Each should also have sufficient authority to be able to represent their BU in all continuity matters.

National Continuity Points of Contact

NCPOCs are appointed by each BU to represent the BU in all areas of Continuity.

Unless an exception is granted by SCR-CO:CO, each BU must have a primary and an alternate NCPOC named as a minimum. Any exceptions will be considered on an individual BU level, and will be based on the size of the BU or lack of geographic dispersion;

All NCPOC vacancies must be filled by the BU within 30 days of notification of the vacancy;

NCPOCs will:

Be the primary point of contact for BU Leadership in ensuring continuation of the MEFs and ESAs should a significant incident occur;

Ensure the BU’s continuity plan is developed and maintained;

Initiate employee accountability during an event that spans multiple SCR areas;

Lead and oversee the applicable continuity test and exercises;

Participate in COOPWG meetings;

Coordinate selection of LCRs and Continuity Planners (CPs) and ensure the swift identification of a replacement for a departing LCR;

Be the BU's conduit with SCR-CO:CO on all COOP matters

Meet with their Business Unit (BU) Commissioner, Director, or Chief annually and provide documentation to SCR-CO:CO;

Meet with newly appointed BU Commissioners, Directors, or Chiefs within 90 days of appointment and provide documentation to SCR-CO:CO.

All NCPOCs must complete training in Integrated Talent Management (ITM), Course 53521 National Continuity Point of Contact (NCPOC) Training , within 30 days of notification of appointment.

Continuity Planners

Continuity planners at all levels have the responsibility of fully understanding their organization and monitoring the direction, guidance, and best practices of the government and private sector in order to develop the most relevant continuity plans.

Continuity planners may:

Serve as continuity coordinators for their respective business, operating, or functional unit;

Work with their BU NCPOCs on continuity activities;

Participate in the business process analysis used to identify IRS MEFs and ESAs;

Represent their unit on continuity committees or working groups, as appropriate.

Local Continuity Representatives

LCRs represent the BU for emergency response and Continuity Purposes.

Each IRS BU must identify a primary, first alternate, and second alternate LCR (one of which must be geographically dispersed) for each Incident Commander’s geographical area where employees are located. The second alternate requirement is waived for BUs with less than 100 employees.

To prevent any potential mishandling or confusion during an emergency LCR selections should not include individuals who perform other roles within an IMT.

All LCR vacancies must be filled by the NCPOC within 30 days of notification of the vacancy;

The primary role of an LCR is to conduct employee accountability. LCRs will also:

Implement the BU’s Continuity Plan;

Activate the recovery teams;

Represent and serve as on-site spokesperson for their BU as members of the Incident Management Team’s Operations Section.

LCRs need to be familiar with processes and operations of their BUs, geographic distribution of the BU employees in their areas, and BU Continuity Plans.

All LCRs must complete training in ITM, Courses 32294 Introduction to Continuity Planning and 29959 LCR Roles and Responsibilities within 30 days of notification of appointment.

Program Manager, Continuity Operations

The Program Manager, Continuity Operations (CO) is designated to be the IRS Continuity Program Manager.

The Program Manager, CO is responsible for developing and maintaining IRS-wide continuity planning and emergency preparedness policy, guidance, and procedures.

The Program Manager, CO will:

Direct the standard of Continuity Readiness of each BU by issuing annual Requirements at the beginning of each fiscal year to each business unit;

Evaluate, as appropriate, the BU’s self-assessments of their Continuity Plans, Test and Exercises conducted, Training, and remediation of Corrective Actions, and any other relevant issues at that time that indicate Continuity Readiness;

Maintain training and certification for all members of the Continuity community;

Certify to Treasury an annual certification which declares that IRS sustains a continuity capability by maintaining the needed continuity plans and by participating in annual continuity exercises (see IRM 10.6.5 Annual Certification Requirements ).

Program Reports

Test and Exercise Completion Rate (monthly) tracks the completion of scheduled test and exercises by each BU. The goal is 80%.

Test and Exercise Corrective Action (monthly) tracks the timely closing of Corrective Actions resulting from the tests and exercises. The goal is 80%.

COGCON Changes (quarterly) tracks the HQCOOP members response rate for notification of COGCON (Continuity of Government Readiness Condition). The goal is an 80% response rate.

GETS Testing (quarterly) tracks the user test and test success rate of GETS and WPS Cards Servicewide. The goal is 80%.

WPS Testing (quarterly) tracks the user test and test success rate of GETS and WPS Cards Servicewide. The goal is 80%.

Satellite Phone Testing (quarterly) tracks the user test and test success rate of Satellite phones Servicewide. The goal is 80%.

Incident Corrective Action (monthly) tracks the opening and timely closing of Corrective Actions resulting from an incident in which an After Action Report is created. The goal is 80% completed timely.

Training Completion (monthly) tracks the completion of required training in ITM by LCRs and NCPOCs. The goal is 80% completed timely, which is 30 days from appointment.

Continuity Plan Review (monthly) tracks annual updates of the Continuity Plans by the business units. Ten elements are tracked (see IRM 10.6.2 Continuity Plan Requirements ). The goal is 80%.

NCPOC and LCR Fill Rate (monthly) tracks how well the BUs keep their continuity positions filled. The goal is 80%.

The following definitions apply for all IRMs 10.6.1 through 10.6.6:

The following acronyms apply for all IRMs 10.6.1 through 10.6.6:

Related Resources

The following resources apply for all IRMs 10.6.1 through 10.6.6:

Continuity of Government Functions

Essential functions are those functions that enable the Federal Government to provide vital services, exercise civil authority, maintain the safety of the public, and sustain the industrial and economic base during an emergency. Essential functions are described as the limited set of agency-level government functions that must be continued throughout or resumed rapidly after a disruption of normal activities.

The four categories of essential functions are:

National Essential Functions (National Level);

Primary Mission Essential Functions (Cabinet or Department Level);

Mission Essential Functions (Agency Primary Responsibilities);

Essential Support Activities (Agency Level Activities required to support MEF).

Two categories of other functions are:

Business Process Priorities (BPPs) (Agency Specific Activities);

Deferred Business Priorities (DBPs) (Agency Specific Activities).

Federal Government Continuity Requirements

National Essential Functions (NEFs) represent the overarching responsibilities of the Federal Government to lead and sustain the Nation and are the primary focus of the Federal Government leadership during and in the aftermath of a continuity event. The IRS is not responsible for any NEFs.

Treasury Continuity Requirements

Primary Mission Essential Functions (PMEFs) are collections of similar agency MEFs, validated by the National Continuity Coordinator, which must be performed in order to directly support the performance of the NEFs before, during, and in the aftermath of a continuity event. PMEFs are defined as those functions that need to be continuous or resumed within 12 hours after an event and maintained for up to 30 days or until normal operations can be resumed. The IRS has no PMEFs. Treasury's PMEFs are:

IRS Continuity Tiers

The IRS has three Tiers of Continuity of Government Functions:

MEFs and ESAs;

The IRS will validate these functions every three years. These functions serve as key continuity planning factors to determine appropriate staffing, communications, information, facilities, training, and other continuity requirements.

When validating the processes, the IRS will:

Determine which IRS functions must be continued under all circumstances;

Prioritize these processes based on criticality of the function. To the extent possible, prioritize these processes against likely continuity operations triggers and scenarios;

Establish staffing, resource requirements, and any other supporting activities needed to perform these functions;

Identify equipment, including IT hardware and telecommunications hardware needed to perform these functions;

Identify mission critical data (Essential Records) and IT systems necessary;

Determine consumable office supplies needed;

Integrate supporting activities;

Defer functions not deemed BPPs until additional personnel and resources become available.

Maximum Tolerable Downtimes (MTDs) for each function need to be addressed. MTD refers primarily to the Business Process. Recovery Time Objectives (RTOs), and Recovery Point Objectives (RPOs) are related and refer to the associated systems. These must not conflict. They are to be determined based on criticality; on seasonality and any other cyclical demand; and on IRS, Treasury, or other Federal Government policy. All objectives for each essential function must be coordinated for the objectives of all subsidiary and ancillary processes, and for all systems supporting the processes.

The IRS will be capable of sustaining its functions for a period up to 30 days or until normal business activities can be resumed.

The lists of resources required to perform the IRS functions will be reviewed annually and updated as necessary.

Tier 1: Mission Essential Functions

MEFs are directly related to accomplishing the mission of the organization–providing the goods and services to the Nation that the agency was established in the first place to produce. Generally, a MEF is unique to the agency–most other agencies do not perform this function. MEFs are those functions the agency performs to provide vital services, exercise civil authority, maintain the health and safety of the general public, and sustain the economic/industrial base during a disruption of normal operations.

These must be operational within 12 hours.

The IRS has three MEFs. These are Processing Tax Remittances, Processing Tax Returns, and Processing Tax Refunds.

Tier 1a: Essential Supporting Activities for the MEF

ESAs for the MEFs are the Essential Functions that must be performed in order to support the agency’s performance of its MEFs. Typically, ESAs are common to most agencies (paying staff, providing a secure workplace, ensuring computer systems are operating, etc.), but do not accomplish the agency’s mission. ESAs are facilitating activities; they are important and urgent, but accomplishing an ESA does not complete the mission or deliver the services the agency was created to accomplish.

These must be operational quickly to support the recovery of the MEF. The specific time will be determined for each process.

The IRS has eight Essential Supporting Activities:

Tier 2: Business Process Priorities

BPPs are important and urgent to accomplish the BUs’ mission in support of the MEF, but accomplishing the BPP does not complete the mission or deliver the services the agency was created to accomplish.

These functions are usually recovered by relocation.

The IRS has six BPPs.

Tier 3: Deferred Business Processes

DBPs are all other Business Processes of the IRS, which while important to maintaining an efficient and effective tax processing system, either do not have either statutory or regulatory deadlines -OR- are not directly in support of one of the MEFs.

DBPs are discretionary functions that can be deferred until after an emergency situation has been stabilized.

DBPs are usually addressed with either shipment of the work to an alternate location, or resumption, when possible.

Each BU should prioritize functions and locations, and understand that resumption of the DBPs may not occur simultaneously after an event.

Continuity Planning Objectives

Federal Continuity Directive 1 (FCD-1) outlines the objectives of a continuity plan for all Federal agencies. These objectives have been implemented by the IRS and include:

Ensuring the safety of IRS personnel and visitors;

Ensuring the IRS can continue to perform its MEFs and ESAs including conducting activities from an alternate location, if necessary;

Reducing the loss of life and minimizing property damage and loss;

Executing, as required, successful succession to office with accompanying delegation of authorities in the event a disruption renders IRS leadership unable, unavailable, or incapable of assuming and performing their duties and responsibilities;

Reducing or mitigating disruptions to IRS operations;

Ensuring that IRS has facilities available where it can continue to perform its MEFs during a continuity event or emergency;

Protecting essential facilities, Essential Records, equipment, and other assets in the event of a disruption;

Achieving a timely and orderly recovery and reconstitution from a continuity event or emergency;

Ensuring and validating IRS continuity readiness through an integrated continuity test, training, and exercise program to support the implementation of the IRS continuity plans.

IRS continuity planning will be based on the assumption that there will be no warning of potential emergencies or incidents, using a worst-case scenario (the inaccessibility or unavailability of an IRS facility and all of its contents).

The primary purpose of the Continuity Plan is to ensure recovery of the MEFs and ESAs. Other processes (BPPs and DBPs) should be addressed but may not need all Continuity Plan sections. Specific guidance on BPPs and DBPs will be provided by SCR-CO:CO.

General Policy

In accordance with, and in support of, the National Continuity Policy, the IRS will have in place a comprehensive and effective Continuity Program to ensure the continuity of IRS MEFs and ESAs under all circumstances across the spectrum of threats, including localized acts of nature, accidents, and technological or attack-related emergencies.

The IRS Continuity Program is implemented through its related continuity plans and procedures and its continuity test, training, exercise and operational capability to support these plans and procedures.

The IRS Continuity Program will address geographic dispersion, risk management, security, and readiness and preparedness:

The IRS will incorporate geographic dispersion of its leadership, data storage, personnel, and other capabilities into its normal daily operations, as appropriate. Geographic dispersion of the IRS normal daily operations can significantly enhance IRS resilience and reduce the risk of losing the capability to perform IRS MEFs and ESAs;

The IRS will apply risk management principles to ensure that appropriate operational readiness decisions are based on the probability of an attack or other incident and its consequences;

The IRS will integrate its security strategies that address personnel, physical, and information security to protect personnel, facilities, plans, and capabilities, to prevent adversaries from disrupting IRS continuity plans and operations;

The IRS leadership will ensure that the IRS, through normal procedures or with a continuity plan, can perform its MEFs and ESAs before, during, and after an incident.

The performance of IRS MEFs and ESAs in an emergency or continuity event will be the basis for continuity planning, preparation, and execution.

The IRS will develop and maintain continuity plans and procedures and implement test, training, exercise, and assessment programs that ensure continuity under all conditions.

The IRS continuity plans will be responsive and executable with or without warning.

The IRS will have in place a viable continuity capability to ensure continued performance of IRS MEFs and ESAs from alternate operating sites during any emergency or situation that may disrupt normal operations.

To ensure effective continuity capabilities, the IRS will maintain a multiyear strategy and a program management plan with objectives and metrics set forth in that plan.

In accordance with the National Continuity Policy, the IRS will use metrics to measure its ability to meet its continuity requirements. The IRS will use the list of continuity requirements, key questions, and metrics guidance specified in IRM 10.6.2 IRM Continuity Plan Requirements to certify to Treasury that it has a strong continuity capability as required in IRM 10.6.5 Annual Certification Requirements .

Continuity Requirements

The IRS must be capable of continuing the performance of its MEFs and ESAs during any emergency for a period up to 30 days or until normal operations can be resumed.

The IRS must have the capability to be fully operational at its continuity facilities as soon as possible after the occurrence of an emergency, but not later than 12 hours after continuity operations activation.

The IRS mus have succession orders and pre-planned delegations of authority to ensure there is an orderly and predefined transition of leadership and delegation of authority within IRS during any emergency must be planned and documented in accordance with applicable laws.

The IRS must safeguard its vital resources, facilities, and records, and provide official access to them.

The IRS must make provisions for acquisition of the staff and resources necessary for continuity operations on an emergency basis.

The IRS must make provisions for the availability and redundancy of critical communications capabilities at continuity sites in order to support connectivity between and among key government leadership, IRS organizational elements, other executive departments and agencies, critical partners, and the public.

The IRS must make provisions for reconstitution capabilities that allow for recovery from a catastrophic emergency and resumption of normal operations.

The IRS must make provisions for the identification, training, and preparedness of IRS personnel capable of relocating to continuity facilities to support the continuation of the performance of IRS MEFs and ESAs.

The IRS will incorporate these continuity requirements into its daily operations to ensure a seamless and immediate continuation of the capabilities of MEFs and ESAs.

Orders of Succession

Orders of succession are provisions for the assumption of senior IRS leadership positions during an emergency when the incumbents are unable or unavailable to perform their authorized duties, roles, and responsibilities. Orders of succession allow an orderly and predefined transition of leadership.

The IRS will provide for a clear line of succession in the absence of existing IRS leadership and the necessary delegations of authority to ensure that the succeeding leadership has the legal authorities to carry out their duties and responsibilities. The IRS leadership is responsible for establishing, promulgating, and maintaining orders of succession to key positions.

Every BU must have a listing of Orders of Succession for BU leadership. Orders of Succession will:

Establish an order of succession for the position of agency head, the IRS Commissioner;

Establish orders of succession for other key IRS leadership positions, including, but not limited to administrators, regional or field directors, key managers, other key mission essential personnel or their equivalent positions (Deputy Commissioners, heads of IRS BUs; directors of computing centers, submission processing sites, and campuses, etc.). Orders of Succession should also be established for devolution counterparts in these positions;

Be listed in an appropriate IRM for that BU;

Be listed in the BU Continuity Plan.

Orders of Succession will be of sufficient depth to ensure that IRS is able to perform its MEFs. At a minimum an Order of Succession will:

Identify any limitations of authority based on delegations of authority to others;

Describe orders of succession by positions or titles, rather than by names of individuals holding those offices;

If there are any questions regarding legal sufficiency, IRS General Legal Services can provide assistance.

Revise, as necessary, and distribute revised versions promptly as changes occur;

Establish the procedures that designated alternates are to follow when facing the issues of succession to office in emergency situations;

Include in the succession procedures the conditions under which succession will take place, method of notification, and time, geographical, or organizational limitations of authorities granted by the Orders of Succession;

Include a duties and responsibilities briefing to the designated successors to the position of agency head (IRS Commissioner), when named, and other key IRS leadership positions, on their responsibilities as successors and on any provisions for their relocation.

Designated successors will be provided annual refresher briefings on IRS continuity preparations.

Orders of Succession will be included in the Essential Records and be available at all continuity facilities in the event the continuity plan is activated.

See IRM 1.2.2.2 IRM Servicewide Policies and Authorities, Delegations of Authority for Organization, Finance and Management Activities for further information and requirements for approval.

Emergency Delegations of Authority

An emergency Delegation of Authority identifies who is authorized to act on behalf of the agency head or other agency officials for specified purposes and ensures that designated individuals have the legal authorities to carry out their duties. To the extent possible, these emergency authorities should be identified by title or position, and not by the individual office holder’s name.

The IRS will pre-delegate authorities for making policy determinations and other decisions to ensure rapid response to any emergency situation requiring implementation of its continuity plans.

Generally, predetermined emergency delegations of authority will take effect when normal channels of direction are disrupted and will terminate when these channels are reestablished. Delegation of Authority is an essential part of IRS continuity plans and should reach to a sufficient depth and have sufficient breadth—at least three positions deep and geographically dispersed where feasible to ensure the IRS can perform its MEFs while remaining a viable part of the Federal Government during the course of any emergency.

An emergency Delegation of Authority must document, in advance, the legal authority of officials (including those below the level of IRS Commissioner) to make key policy decisions during a continuity situation.

To ensure IRS essential functions are performed, emergency Delegations of Authority must be planned and documented in advance of an incident and in accordance with applicable laws, including by:

Delineating the limits of authority and accountability;

Outlining explicitly in a statement, the authority (including any exceptions to that authority) of an official so designated to exercise IRS direction, and the authority of an official to re-delegate functions and activities, as appropriate;

Defining the circumstances under which Delegation of Authorities would take effect and would be terminated.

Emergency Delegations of Authority must ensure that those officials who might be expected to assume authorities in a continuity situation are properly informed and trained to carry out their emergency responsibilities.

Delegations of Authority must ensure the orderly (and predefined) transition of leadership, for the position of IRS Commissioner as well as for key supporting positions within IRS, during an emergency and be closely tied to succession.

Delegations of Authority will be included in the Essential Records and be available at all continuity facilities in the event the continuity plan is activated.

Every BU must have a listing of Delegations of Authority for business unit leadership.

Other Plans in the Business Continuity Planning Suite

Occupant Emergency Plan (OEP):

OEPs are the first set of documents to be used in the event of any disruption or emergency. They are specific to each building;

OEPs are maintained by Facilities Management and Security Services (FMSS) and requirements are covered in IRM 10.2.9 Occupant Emergency Planning.

Incident Management Plan (IMP):

The IMP is a single set of documents maintained by SCR-CO:CO for use by Incident Commanders and others involved in any incident management or response;

This plan details general steps to respond to any incident as well as resumption of operation;

This is detailed in IRM 10.6.4 Incident Management Program .

Information System Contingency Plan (ISCP):

The ISCP is the plan for IT systems resumption and continuity. It contains specific steps for the restoration of service when any IT system or application is non-functional, as well as steps needed for activation of backup systems and data;

IRM 10.8.60 IT Service Continuity Management (ITSCM) Policy and Guidance and IRM 10.8.62 Information System Contingency Plan (ISCP) and Disaster Recovery (DR) Test, Training, and Exercise TT&E Process list requirements for the ISCP.

Internal Cross Functional Continuity Groups

Continuity Operations Working Group (COOPWG) is comprised of SCR-CO:CO, and theBUs’ NCPOCs and alternates. The COOPWG meets 11 times a year.

Continuity Operations Executive Steering Committee (COOPESC) is comprised of SCR-CO:CO, and the Directors or their designees from each BU. The COOPESC meets as needed.

Summary of Oversight Agencies Roles

Treasury Operations: Safety, Health, and Emergency Management:

Set any needed additional Treasury standards to those described in FCD-1 and 2;

Maintain standing and ad hoc committees and boards as necessary;

Receive Annual Certification (see IRM 10.6.5 Annual Certification Requirements ).

Treasury Inspector General for Tax Administration:

Audits to address state of IRS' readiness for response and recovery;

Participates as appropriate in training, test, and exercises;

Conducts post-incident audit and evaluation.

DHS/FEMA sets standards for Readiness and Continuity.

United States Congress may receive (at their request) post-incident reports.

Government Accountability Office may audit and validate processes and costs related to any incident and recovery.

More Internal Revenue Manual

Kamala Harris is embracing the degree-free wave — and thousands of workers could benefit

• Vice President Kamala Harris proposed eliminating college-degree requirement for 500,000 federal jobs.
• She also announced plans to double apprenticeship programs should she win the election.
• This would help Americans who question the value of a college degree and don't want student debt.

Vice President Kamala Harris wants to make it easier to get a job without a college degree if she wins the election.

During a campaign speech in Pittsburgh on Wednesday, Harris outlined a new element of her economic policy platform: eliminating college-degree requirements for thousands of federal workers and bolstering apprenticeship programs to provide Americans with more options should they choose not to pursue a traditional college path.

"We will double the number of registered apprenticeships by the end of my first term," Harris said. "Eliminate degree requirements while increasing skills development for half a million federal jobs. And challenge our private sector to make a similar commitment to emphasizing skills, not just degrees."

The proposal is part of her campaign's platform to make high-paying jobs accessible to more Americans by supporting registered apprenticeships, joint labor-management programs, innovative partnerships between school districts and industries, and career and technical education programs.

This comes as a growing number of Americans are questioning the value of a college degree . While Harris and President Joe Biden have worked to cancel billions of dollars in student debt for millions of federal borrowers, the cost of college remains high and many are still struggling with high debt loads. As a result, many younger Americans are choosing to skip college in favor of career paths that don't require degrees.

The federal government is one of the largest employers in the US — over 2 million federal employees were in the workforce in 2023, up by more than 7% since 2019. Harris' proposal would likely draw in more federal-government workers who could not afford college or decided not to attend.

Related stories

Eliminating degree requirements is a rare issue that Harris and Trump can agree on — in 2020, Trump signed an executive order requiring some federal employers to make it easier for those without degrees to secure jobs.

It's also an issue that's been picking up steam at the local and state levels. In 2022, former Maryland Gov. Larry Hogan announced the state would be opening up thousands of jobs to workers without degrees, and Utah Gov. Spencer Cox dropped college-degree requirements for 98% of the state's jobs that same year.

For many Americans, college remains the primary route to financial mobility. Harris' campaign says in its newly released policy book that "for those who do seek college degrees, Vice President Harris will provide a pathway to the middle class through high-quality, affordable education." It says she'll continue the work the administration has done to cancel student debt and make college more affordable by increasing the Pell Grants and strengthening public education.

Harris has not yet outlined specific details on any student-debt relief initiatives should she win the election. She supports the Biden administration's efforts to implement the SAVE income-driven repayment plan and Biden's second try at broader student-loan forgiveness under the Higher Education Act.

However, both of those plans are facing legal challenges, leaving borrowers hoping for relief in limbo.

As Business Insider has previously reported , student debt is a key reason Americans — particularly Gen Zers — are choosing to forego a college degree. LeLaina Wakeham, 25, told BI that she didn't think she needed a college degree to be successful, despite most of her peers choosing to go that route after high school, and she now financially supports herself in a real-estate job.

"I was taught that the only way supposedly I'll be able to learn is if I go to college and get a business degree to teach me what I can teach myself," she said. "That's crazy."

Watch: Kamala Harris called a 'diversity hire' and an 'escort' by Republicans after Biden's endorsement

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Business Combinations Under the Bank Merger Act

A Rule by the Comptroller of the Currency on 09/25/2024

This document has been published in the Federal Register . Use the PDF linked in the document sidebar for the official electronic format.

• Document Details Published Content - Document Details Agencies Department of the Treasury Office of the Comptroller of the Currency Agency/Docket Number Docket ID OCC-2023-0017 CFR 12 CFR 5 Document Citation 89 FR 78207 Document Number 2024-21560 Document Type Rule Pages 78207-78221 (15 pages) Publication Date 09/25/2024 RIN 1557-AF24 Published Content - Document Details
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• Document Dates Published Content - Document Dates Effective Date 01/01/2025 Dates Text The final rule is effective on January 1, 2025. Published Content - Document Dates

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Supplementary information:, i. background, ii. description of the final policy statement and regulatory amendments, regulatory amendments, policy statement, iv. regulatory analysis, a. paperwork reduction act, b. regulatory flexibility act, c. unfunded mandates reform act of 1995, d. riegle community development and regulatory improvement act of 1994, e. congressional review act, list of subjects in 12 cfr part 5, part 5—rules, policies, and procedures for corporate activities, appendix a to subpart c of part 5—policy statement regarding statutory, factors under the bank merger act, i. introduction, ii. general principles of occ review, iii. financial stability, a. factors considered, b. balancing test, iv. financial and managerial resources and future prospects, a. overarching considerations, b. individual factors, v. convenience and needs, vi. public comment period and public meetings, a. public comment period, b. public meetings.

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Department of the Treasury

Office of the comptroller of the currency.

• 12 CFR Part 5
• [Docket ID OCC-2023-0017]
• RIN 1557-AF24

Office of the Comptroller of the Currency (OCC), Treasury.

Final rule.

The OCC is adopting a final rule to amend its procedures for reviewing applications under the Bank Merger Act and adding, as an appendix, a policy statement that summarizes the principles the OCC uses when it reviews proposed bank merger transactions under the Bank Merger Act.

The final rule is effective on January 1, 2025.

Valerie Song, Assistant Director, Christopher Crawford, Special Counsel, Elizabeth Small, Counsel, Chief Counsel's Office, 202-649-5490; or Yoo Jin Na, Director for Licensing Activities, 202-649-6260, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. If you are deaf, hard of hearing or have a speech disability, please dial 7-1-1 to access telecommunications relay services.

The Bank Merger Act (BMA), section 18(c) of the Federal Deposit Insurance Act ( 12 U.S.C. 1828(c) ), and the OCC's implementing regulation, 12 CFR 5.33 , govern the OCC's review of business combinations of national banks and Federal savings associations with other insured depository institutions (institutions) that result in a national bank or Federal savings association. [ 1 ] Under the BMA, the OCC must consider the following factors: competition, the financial and managerial resources and future prospects of the existing and proposed institutions, the convenience and needs of the community to be served, the risk to the stability of the United States banking or financial system, and the effectiveness of any insured depository institution involved in combatting money laundering activities, including in overseas branches. [ 2 ] The BMA generally requires public notice of the transaction to be published for 30 days. [ 3 ] OCC regulations require the public notice include essential details about the transaction and instructions for public comment. The regulations incorporate the statutory 30-day public notice period and provide a 30-day public comment period, which the OCC may extend. [ 4 ] The OCC may also hold a public hearing, public meeting, or private meeting on an application. [ 5 ]

The OCC has issued several publications that provide additional information about the procedures that the OCC follows in reviewing and acting on proposed business combinations. For example, the “Business Combinations” booklet of the Comptroller's Licensing Manual details the OCC's review of applications under the BMA. The “Public Notice and Comments” booklet of the Comptroller's Licensing Manual sets forth policies related to the public notice and comment process, including hearings and meetings. The Comptroller's Licensing Manual provides OCC staff, institutions, and the public with information about the procedures applicable to corporate applications filed with the OCC.

After reviewing these materials, the OCC determined that additional transparency about the standards and procedures that the agency applies when reviewing bank business combinations may be helpful to institutions and the public.

To better reflect the OCC's view that a business combination is a significant corporate transaction, the OCC proposed amendments to 12 CFR 5.33 to remove provisions related to expedited review and the use of streamlined applications. [ 6 ] The OCC also proposed adding a policy statement at appendix A to 12 CFR part 5, subpart C, that would discuss both the general principles the agency uses to review applications under the BMA and how it considers financial stability, financial and managerial resources and future prospects, and convenience and needs factors. Proposed appendix A also described the criteria informing the OCC's decision on whether to hold a public meeting on an application subject to the BMA.

The OCC received 34 substantive written comments on this proposal from banks, trade groups, academics, and members of the public. Most commenters agreed that the OCC should update its merger regulations and guidelines, but expressed varying views on the proposed changes. The comments are addressed below with the relevant discussion of 12 CFR 5.33 and appendix A. After careful consideration of these comments, the OCC is adopting its proposed amendments to 12 CFR 5.33 in final form and making minor, clarifying modifications to proposed appendix A.

The OCC proposed two substantive changes to its business combination regulation at 12 CFR 5.33 . First, the OCC proposed removing the expedited review procedures in § 5.33(i). Paragraph (i) currently provides that a filing that qualifies either as a business reorganization as defined in § 5.33(d)(3) or for a streamlined application under § 5.33(j) is deemed approved as of the 15th day after the close of the comment period, unless the OCC notifies the applicant that the filing is not eligible for expedited review or the expedited review process is extended under § 5.13(a)(2). [ 7 ]

Some commenters opposed eliminating the expedited review procedures. These commenters argued that eliminating the expedited review procedures would unnecessarily increase the complexity and cost of the application process for categories of transactions that are unlikely to present issues under the BMA, such as reorganizations. Further, many commenters expressed concern that removing § 5.33(i) would increase the burden on smaller institutions, including community banks. Some of these commenters suggested that the OCC continue to allow expedited processing for banks under a certain size. Other commenters supported eliminating expedited review, stating that eliminating the possibility that an application will be deemed approved solely due to the passage of time is necessary to address the systemic risks posed by large banks and the harms of consolidation. Further, some commenters that supported eliminating expedited review noted that the current expedited review process fails to adequately prevent anti-competitive mergers and the proposed changes to the review process would allow for a ( print page 78208) more comprehensive evaluation of merger application. Nevertheless, some supportive commenters noted that the proposed changes, including the removal of expedited review, do not go far enough to effectively address the issues raised by large bank consolidations.

The OCC reviews business combination applications to determine whether applicable procedural  [ 8 ] and substantive  [ 9 ] requirements are met. The only benefit conferred by the expedited review provisions in § 5.33(i) is that these applications are deemed approved as of the 15th day after the close of the comment period  [ 10 ] unless the OCC takes action to remove the application from expedited review or extends the expedited review process. As described in the OCC's Annual Report, Licensing Activity section, the OCC's current target time frame for licensing decisions on merger applications is 45 days for expedited review and 60 days for standard review. [ 11 ] However, as noted in § 5.33(i), the OCC can remove an application from expedited review. Additionally, as noted in the OCC's Annual Report, the OCC may extend the standard review target time frame if it needs additional information to reach a decision, process a group of related filings as a single transaction, or extend the public comment period. The OCC's practice has been to approve or deny an application on expedited review within 15 days after the close of the comment period or remove the application from expedited review. The OCC is not aware of any application for a business combination having been deemed approved solely due to the passage of time. Accordingly, the OCC does not expect that removing this provision will result in a significant change to the time in which the OCC processes merger applications. Instead, this change will more closely align the regulatory framework with the OCC's current practices and promote transparency. Further, it is consistent with the OCC's view that any business combination subject to a filing under § 5.33 is a significant corporate transaction requiring active OCC consideration and decisioning of the application. The principles underlying the expedited process in § 5.33(i) ( i.e., transactions with certain indicators are likely to satisfy the statutory factors, do not otherwise raise supervisory or regulatory concerns, and therefore can be processed more expeditiously) are reflected in section II of the final appendix A.

Second, the OCC proposed removing § 5.33(j), which specifies four situations in which an applicant may use the OCC's streamlined business combination application, rather than the Interagency Bank Merger Act Application. [ 12 ] The streamlined application requests information about topics similar to those addressed in Interagency Bank Merger Act Application, but the former only requires an applicant to provide detailed information if the applicant answers in the affirmative to any one of a series of yes or no questions.

Many commenters opposed eliminating the streamlined application. Commenters stated that it is easy to complete and generally more efficient. Commenters stated that its removal would lead to longer processing times and higher costs for applicants. Several commenters emphasized that eliminating the streamlined application would disproportionately affect smaller banks, which often have limited resources to devote to a more complex, administratively burdensome, and detailed application process. Commenters critical of eliminating the streamlined application focused on the increased burden of associated with the Interagency Bank Merger Act Application. On the other hand, some commenters supported removing the streamlined application, with one also supporting the adoption of a more robust interagency merger application that would include a question on community benefit agreements or commitments.

The OCC believes that the more complete record created with the Interagency Bank Merger Act Application provides the appropriate basis for the OCC to consider a business combination application. Further, the removal of the streamlined business combination form should not significantly increase the burden on applicants. Although the Interagency Bank Merger Act Application requires the submission of additional information with the initial application, in practice, the OCC often requests additional information from many applicants, including those that file a streamlined application. Eliminating the streamlined application may decrease the likelihood the OCC requests additional information from applicants, which slows down the agency's processing an application and increases the burden on applicants. Further, the OCC may tailor the information applicants must submit in the Interagency Bank Merger Act Application as appropriate to reduce the information that the applicant needs to provide. [ 13 ] For example, there may be situations where a discussion of all items in the Interagency Bank Merger Act Application may not be appropriate, such as in a purchase and assumption transaction from an insured depository institution in Federal Deposit Insurance Corporation receivership.

Additionally, the U.S. Small Business Administration's (SBA's) Office of Advocacy and one other commenter stated that the OCC's Regulatory ( print page 78209) Flexibility Act (RFA) certification in the proposal lacked a factual basis. The SBA's Office of Advocacy and others recommended that the OCC continue to allow small entities to have access to expedited review and use the streamlined application form. Specifically with respect to the RFA certification, the commenters stated it lacked sufficient information about (1) the number of small entities that would be impacted (because the OCC only estimated the number of entities that apply for business combinations in a given year and did not explain how many of those entities were small entities) and (2) the basis for its conclusion that the impact on affected institutions would be de minimis.

In response to these comments, the OCC has revised the number of small entities that will be impacted by this rulemaking. (This change is reflected in its discussion of the RFA below.) Further, as discussed above, the OCC's process for reviewing business combination applications allows the agency to vary the information that applicants must submit on a case-by-case basis and to request additional information not required on the initial application, if necessary. The OCC also may remove an application from expedited review if it needs additional review time. Accordingly, the OCC expects these changes will have a de minimis impact on small entities.

For the reasons discussed above, the final rule removes § 5.33(i) and (j) as proposed. Further, because the term “business reorganization,” as defined in § 5.33(d)(3), is only used to define a class of applications eligible for expedited review under § 5.33(i), the final rule also removes § 5.33(d)(3).

As discussed in Section I, Introduction, of proposed appendix A, the policy statement would have provided institutions and the public with a better understanding of how the OCC reviews applications subject to the BMA and thus provided greater transparency, facilitate interagency coordination, and enhance public engagement. Specifically, proposed appendix A would have outlined the general principles the OCC applies when reviewing applications and provided information about how the OCC considers the BMA statutory factors of financial stability, financial and managerial resources, and convenience and needs of the community. [ 14 ] Proposed appendix A would have provided transparency regarding the public comment period and the factors the OCC considers in determining whether to hold public meetings.

Commenters generally supported the OCC's goals of increasing transparency; however, some commenters stated that by merely codifying current practices, the proposed appendix A did not go far enough in fulfilling the OCC's statutory obligations in reviewing bank mergers or preventing anti-competitive mergers in the banking industry. Several commenters also urged the OCC to coordinate closely with other regulators, such as the Federal Deposit Insurance Corporation, in finalizing the proposed policy statement and in updating the 1995 interagency document, Bank Merger Competitive Review—Introduction and Overview.

Other commenters suggested that appendix A should address the uncertainty surrounding the processing considerations and timelines of the OCC's review of BMA applications, noting that uncertainty in the timelines for regulatory approval could deter beneficial merger transactions. Several commenters offered additional ways to increase transparency, including by releasing some of the confidential supervisory information ( e.g., ratings) that the OCC uses in evaluating the statutory factors, televising live coverage of internal OCC deliberations, making all agency requests for additional information and bank responses public, and responding to all comments raised by the public in merger approval orders.

Several commenters suggested topics that the OCC should add to proposed appendix A. For example, several commenters suggested appendix A should provide details of the OCC's analysis of the BMA statutory factor of competition, generally and particularly with regard to how improvements in convenience and needs can outweigh anticompetitive effects. These commenters provided several suggested approaches. Other commenters urged the OCC to be more transparent when an applicant withdraws an application. One commenter also suggested the OCC take steps to reduce “charter shopping.” Another commenter urged the OCC to avoid the use of non-standard conditions to approve problematic mergers. Some commenters expressed concerns with the OCC's practice of holding prefiling meetings described in the Explanatory Calls or Meetings section of the “Business Combinations” booklet of the Comptroller's Licensing Manual and were concerned that such communications could unduly influence the agency. Suggestions to resolve this issue included automatically making transcripts or summaries of the calls or meetings public or ending the practice of holding the meetings.

The OCC is finalizing appendix A generally as proposed, with minor grammatical changes, except as noted below. The OCC intends for appendix A to provide substantive information on how it evaluates many of the BMA's statutory factors. Given complexities of the competition factor review and the involvement of the Department of Justice, the OCC does not believe that appendix A is the appropriate vehicle for discussing its current approach to competition issues. [ 15 ] The OCC's existing regulations govern the standards for impositions of conditions. [ 16 ] Similarly, the OCC does not intend appendix A to address OCC processing issues such as the disclosure of confidential supervisory information, the reasons for withdrawal of applications, its internal decision-making process, or its practice of holding pre-filing meetings. Accordingly, the OCC is finalizing Section I, Introduction, as proposed, with minor grammatical changes.

Section II, General Principles of OCC Review, of proposed appendix A would have discussed the OCC's review of and action on an application. Although, the OCC aims to act promptly on all applications, proposed appendix A identified certain indicators that, in the OCC's experience, generally feature in applications that are consistent with approval. These indicators included: (i) attributes regarding the acquirer's ( print page 78210) financial condition; size; Uniform Financial Institution Ratings System (UFIRS)  [ 17 ] or risk management, operational controls, compliance, and asset quality (ROCA)  [ 18 ] ratings; Uniform Interagency Consumer Compliance Rating System (CC Rating System) rating; Community Reinvestment Act (CRA) rating; the effectiveness of its Bank Secrecy Act/anti-money laundering program; and the absence of fair lending concerns; (ii) attributes regarding the target's size and status as a eligible depository institution, as defined in § 5.3; (iii) the transaction clearly not having a significant adverse effect on competition; and (iv) the absence of significant CRA or consumer compliance concerns, as indicated in any comments or supervisory information.

The General Principles of OCC Review section of proposed appendix A would have also recognized that there are indicators that raise supervisory or regulatory concerns. Based on the OCC's experience, if any of these indicators are present, the OCC is unlikely to find the statutory factors under the BMA to be consistent with approval unless and until the applicant has adequately addressed or remediated the concern. Proposed appendix A would have stated that these indicators include: (i) the acquirer has a CRA rating of Needs to Improve or Substantial Noncompliance; (ii) the acquirer has a UFIRS or ROCA composite or management rating of 3 or worse; (iii) the acquirer has a consumer compliance rating of 3 or worse; (iv) the acquirer is a global systemically important banking organization (G-SIB), or subsidiary thereof;  [ 19 ] (v) the acquirer has an open or pending Bank Secrecy Act/Anti-Money Laundering enforcement or fair lending action, including referrals or notification to other agencies;  [ 20 ] (v) failure by the acquirer to adopt, implement, and adhere to all the corrective actions required by a formal enforcement action in a timely manner; and (vi) multiple enforcement actions against the acquirer executed or outstanding during a three-year period.

Commenters expressed confusion about how these indicators apply and how the OCC's reviews applications that meet some, but not all, of the indicators that generally feature in applications consistent with approval. For example, numerous commenters interpreted the proposed policy statement as indicating that the OCC would not approve an application if one of the first set of indicators was absent. Commenters also requested clarification about how an absence or resolution of any or most of the listed indicators of supervisory or regulatory concerns would expedite a positive decision on an application.

The OCC understands the confusion of some commenters with respect to appendix A as proposed. In addition to the two categories of transactions recognized in proposed section II, there is a middle category of transactions that do not feature all of the indicators in the first category but also have none of the indicators that raise supervisory or regulatory concerns. The OCC believes that most transactions will be in this middle category and that many of these transactions are likely consistent with approval.

The OCC is revising proposed appendix A to eliminate this confusion and clarify the significance of the two types of indicators. The final appendix A includes prefatory text that notes that applications that feature all of the first set of indicators tend to be more likely to withstand scrutiny and to be approved expeditiously. In the OCC's experience, these indicators reflect a national bank or Federal savings association's condition or other features that the OCC is likely to quickly find consistent with approval. However, these indicators are not required for a transaction to be approved. For example, the OCC has approved many transactions where the target is not an eligible depository institution and the acquirer brings the appropriate financial and managerial resources to bear to mitigate deficiencies at the target.

With respect to the individual indicators, some commenters objected to $50 billion in total assets serving as a ceiling for transactions consistent with approval. One commenter requested that the OCC raise indicator to $100 billion or more in total assets. Another commenter noted that having $50 billion dollars as a threshold could prevent or make it more difficult for regional and midsized institutions to combine and compete with the largest banks. As clarified in final appendix A, the $50 billion indicator merely reflects the likelihood of an expeditious approval. The OCC recognizes that national banks and Federal savings associations with $50 billion or more in total assets tend to be more complex than smaller banks. For example, insured national banks and Federal savings associations with at least $50 billion in total assets are subject to the OCC Guidelines Establishing Heightened Standards for Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches. In light of the increased complexity of these institutions, the OCC may require additional time for review of the application. The OCC believes that many transactions where the resulting institution will have total assets of more than $50 billion are consistent with approval. Accordingly, the OCC is finalizing the indicator as proposed at $50 billion or more in total assets, as clarified by a modification to the prefatory text to the indicators.

Two commenters expressed concern with the indicator focusing on transactions where the target's total assets are less than or equal to 50 percent of acquirer's total assets. The indicator is not intended to discourage mergers of equals. It was included because, in the OCC's supervisory experience, mergers between institutions of similar sizes are likely to require more review than transactions where the target is much smaller than the acquirer. In transactions with significant size disparities, the acquirer is more likely to use its existing policies, procedures, and control framework, with which the OCC is already familiar. Integration of two similarly sized institutions is more likely to result in more changes to resulting institution, which the OCC will need to review for consistency with the applicable BMA factors. The inclusion of this indicator simply highlights that applications for mergers between institutions that are similar in size may require additional time to assess but does not indicate that those applications will not be approved. The OCC is, however, deleting the word “combined” referring to the target's total assets in this indicator for clarity. The OCC is thus finalizing this indicator as proposed, as clarified by a modification of the prefatory text to the indicators which emphasizes that the first set of indicators are intended to identify applications that are more likely to withstand scrutiny and to be approved expeditiously.

Commenters also asserted that the proposed indicators regarding lack of enforcement actions, lack of fair lending concerns, clear absence of a “significant ( print page 78211) adverse effect” on competition, and no adverse public comments are inconsistent with the applicable standards under the BMA. Other commenters supported these indicators but had additional suggestions including urging the OCC to include language about coordinating with the Consumer Financial Protection Bureau regarding fair lending and consumer protection matters; barring applicants with records of noncompliance with fair lending, CRA, and other consumer protection laws from being acquired; and requiring merging parties to undergo new fair lending and CRA reviews under heightened scrutiny. The OCC does not require that all of these indicators are present for a transaction to be consistent with the BMA's statutory factors. Rather, the OCC can more quickly find that applications with all of these indicators are consistent with the BMA factors and approve the transactions. For example, a merger between two institutions without an overlapping footprint and few products in common will require less analysis with respect to competition compared to a merger between institutions with significant overlap. Similarly, the OCC approves mergers on which the public has commented after reviewing all comments. The OCC recognizes that while comments play an important role in the review process, some comments may fail to raise a significant supervisory, CRA, or compliance concern. [ 21 ] The OCC does not expect such comments, on their own, to warrant less expeditious processing of the application. Therefore, OCC is finalizing these indicators as proposed, as clarified by a modification of the prefatory language to the indicators.

With respect to the indicators of supervisory or regulatory concern, commenters expressed concern with any indication in the proposed appendix A that the acquirer is a G-SIB or subsidiary thereof would be unlikely to be consistent with approval. Some commenters noted that the indicator could restrict internal reorganizations by a G-SIB and its subsidiaries. Additionally, two commenters noted that Congress has already addressed large-bank concentration by prohibiting bank acquisitions based on deposit concentrations and that the OCC's use of the G-SIB designation was inconsistent with Congressional intent. Other commenters expressed concern that the indicator could be interpreted to include proposed business combinations involving U.S.-based bank subsidiaries of non-U.S. G-SIBs. These commenters assert that applications for combinations involving such entities could bring diversity to the U.S. banking system. On the other hand, another commenter supported increased scrutiny of transactions involving G-SIBs but asserted that transactions undertaken by large, non-G-SIBs should also trigger enhanced scrutiny.

The indicators of regulatory or supervisory concern do not preclude OCC approval of a BMA application by an institution that exhibits one or more of the indicators. For example, internal corporate reorganizations are frequently consistent with the BMA, notwithstanding many regulatory or supervisory concerns, particularly where the transaction enhances the resolvability of the institution. The OCC views these factors regarding size as independent from limits that Congress established in the BMA and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Riegle-Neal). [ 22 ] For certain interstate transactions, the BMA contains a national deposit cap, and Riegle-Neal has national and State deposit caps. [ 23 ] Similarly, there is a liability cap imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act  [ 24 ] that applies to both holding companies and banks. [ 25 ] These are all limits that a bank may not exceed absent a specific statutory exception. In contrast, the G-SIB indicator in the proposal reflects the OCC's supervisory experience with organizations of that size and the impact of size and complexity on the review of a business combination.

Similarly, even though the U.S. operations of a foreign-based G-SIB may be smaller than those of domestic G-SIBs, the potential for supervisory issues remains high, particularly if the foreign G-SIB's U.S. operations are material. G-SIBs are among the most complex financial institutions and, in the OCC's supervisory experience, they often present supervisory issues such that inclusion of this indicator is warranted. The OCC recognizes, however, that G-SIB status is unlikely to be remediated. While the OCC continues to believe that the G-SIB indicator is appropriate, it will evaluate all applications from foreign and domestic G-SIBs on their individual merits and undertake a fulsome analysis under the BMA and other applicable law.

Another commenter noted that a less than “Satisfactory” CRA rating should not preclude an internal reorganization that would simplify the banking organization and make it safer and sounder. Congress has mandated that the OCC consider an institution's CRA rating when acting on any BMA application. [ 26 ] The OCC recognizes that internal reorganizations present facts and analysis distinguishable from many other BMA applications, and while the inclusion of this indicator does not indicate those applications will not be approved, additional scrutiny may be warranted. In some instances, the benefits of a reorganization may overcome the less than “Satisfactory” CRA rating. Nevertheless, the OCC regards a less than “Satisfactory” CRA rating as raising significant regulatory or supervisory concerns and warranting inclusion on the list of indicators. One commenter also praised the inclusion of instances where an acquirer has experienced rapid growth as an indicator of supervisory or regulatory concern.

The OCC is making one change to the indicator regarding open enforcement actions. Proposed appendix A was specific to Bank Secrecy Act/Anti-money Laundering or fair lending actions, including referrals or notifications to other agencies. The OCC is including all types of consumer compliance enforcement actions in final appendix A to reflect the seriousness of these types of enforcement actions. Accordingly, the OCC is generally finalizing these indicators as proposed, as clarified by a modification to the prefatory language to the indicators and the addition of consumer compliance enforcement actions.

Section III, Financial Stability, of proposed appendix A would have provided additional information about how the OCC considers “the risk to the stability of the United States banking or financial system” as required by the BMA, including (i) the factors the OCC considers (which are currently described in the “Business Combinations” booklet of the Comptroller's Licensing Manual ); (ii) the balancing test that the OCC applies; and (iii) the OCC's ability to consider imposing conditions on the approval of any such transaction. The OCC's approach to considering the risk to the stability of the financial system set forth in proposed appendix A is consistent with longstanding OCC practice and ( print page 78212) principles. [ 27 ] Specifically, the OCC considers (i) whether the size of the combined institutions would result in material increases in risk to financial stability; (ii) any potential reduction in the availability of substitute providers for the services offered by the combining institutions; (iii) whether the resulting institution would engage in any business activities or participate in markets in a manner that, in the event of financial distress of the resulting institution, would cause significant risks to other institutions; (iv) the extent to which the combining institutions contribute to the complexity of the financial system; (v) the extent of cross-border activities of the combining institutions; (vi) whether the proposed transaction would increase the relative degree of difficulty of resolving or winding up the resulting institution's business in the event of failure or insolvency; and (vii) any other factors that could indicate that the transaction poses a risk to the U.S. banking or financial system.

Section III, Financial Stability, of proposed appendix A would have clarified that the OCC applies a balancing test when considering the financial stability factor and weighs the financial stability risk of approving the proposed transaction against the financial stability risk of denying it, particularly if the proposed transaction involves a troubled target. Specifically, the OCC considers each factor individually and in combination. Even if only a single factor indicates a risk to the stability of the U.S. banking or financial system, the OCC may determine that the proposal would have an adverse effect on the stability of the U.S. banking or financial system. [ 28 ] The OCC also considers whether the proposed transaction would provide any stability benefits and the enhanced prudential standards that would be applicable as a result of the proposed transaction would offset any potential risks. [ 29 ]

Section III also would have noted that, consistent with current OCC practice, [ 30 ] the OCC's review of the financial stability factors may result in a decision to approve a proposed transaction, subject to conditions that are enforceable under 12 U.S.C. 1818 . These conditions may include asset divestitures or higher minimum capital requirements and are intended to address and mitigate financial stability risk concerns.

Further, the OCC's review of the financial stability factors considers the impact of the proposed transaction in the context of any heightened standards applicable to the resulting institution pursuant to 12 CFR part 30, appendix D , “OCC Guidelines Establishing Heightened Standards for Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches” and the recovery planning standards applicable to the resulting institution pursuant to 12 CFR part 30, appendix E , “OCC Guidelines Establishing Standards for Recovery Planning by Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches.” Section III also would have stated that the OCC may consider the facts, circumstances, and representations of concurrent applications for related transactions, including the impact of the related transactions on the proposed transaction. [ 31 ]

Commenters generally supported the OCC's goal of providing additional transparency about how the OCC considers the effect of a transaction on financial stability. However, some commenters criticized the OCC's balancing test approach to evaluating financial stability as too lenient to protect financial institutions and the broader economy, especially for G-SIBs. These commenters noted that the OCC should not rely on enhanced prudential standards to offset risks. One commenter also objected to the OCC's consideration of the financial stability risk associated with denying an application in the balancing test and noted that the OCC should use the supervisory process and not business combinations to address concerns about troubled institutions. Some commenters suggested options including other, scored risk factors like the list of systemic risk factors used to calculate the G-SIB surcharge in 12 CFR part 217, subpart H . Additionally, commenters expressed concern that the OCC's review would consider the representations made in other pending applications and noted that applicants may not have detailed knowledge of pending or future applications. Another commenter suggested that the OCC revise proposed appendix A to promote more actively the acquisition of a troubled institution before it fails. One commenter suggested automatically categorizing transactions involving institutions below $10 billion in assets as low risk to financial stability unless specific factors suggest otherwise. Other commenters suggested that considerations of financial stability risks under the BMA must include an evaluation of climate-related financial risks and the impact of a resulting institution's activities on financial stability in that regard.

The proposed appendix A described the OCC's long-standing approach to considering the risk to the stability of the financial system and would have provided additional clarity on the factors considered, the balancing test applied, and the possibility that the OCC may impose conditions in certain situations. Although the OCC's considerations are not scored, the OCC considers each factor individually and in combination to develop a holistic view of the potential transaction's effect on financial stability. The OCC believes this balancing test allows it to consider all factors relevant to financial stability and results in determinations that fully incorporate the effect of the transaction on financial stability. Additionally, the OCC's review would have only considered the representations of other concurrent applications for related transactions, not unrelated applications that have no nexus to the application under consideration.

The OCC is removing the word “requirements” from the discussion of the OCC's consideration of the impact of the proposed transaction in light of the standards applicable to the resulting institution's recovery planning in Section III, Financial Stability, to more accurately describe the standards in 12 CFR part 30, appendix E , “OCC Guidelines Establishing Standards for Recovery Planning by Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches”. The OCC is otherwise generally finalizing Section III, Financial Stability, as proposed.

Section IV, Financial and Managerial Resources and Future Prospects, of proposed appendix A would have discussed the BMA's requirement that the OCC consider the managerial resources, financial resources, and future prospects of any proposed transaction. Under the BMA, the OCC must consider each of these factors independently for both the combining and resulting institutions. [ 32 ] However, because these factors are directly related ( print page 78213) to one another, the OCC also considers these factors holistically. This section of proposed appendix A would have described the overarching considerations of the OCC's review of these factors and provide additional details about what the OCC considers while reviewing these factors. The overarching considerations of this proposed section would have noted that the OCC would consider the size, complexity, and risk profile of the combining and resulting institutions.

Further, proposed appendix A would have expanded the discussion in the Comptroller's Licensing Manual about the types of transactions the OCC would normally not approve to provide additional details about acquirer characteristics with respect to financial and managerial resources and future prospects that are less likely to result in an approval. Specifically, the OCC is less likely to approve an application when the acquirer (i) has a less than satisfactory supervisory record, including its financial and managerial resources; (ii) has experienced rapid growth; (iii) has engaged in multiple acquisitions with overlapping integration periods; (iv) has failed to comply with conditions imposed in prior OCC licensing decisions; or (v) is functionally the target in the transaction. [ 33 ] The OCC also normally does not approve a combination that would result in a depository institution with less than adequate capital, less than satisfactory management, or poor earnings prospects.

Finally, this subsection would have confirmed the OCC's practice of considering all comments on proposed transactions, including those on financial and managerial resources and future prospects. To the extent public comments address issues involving confidential supervisory information, however, the OCC generally would not discuss or otherwise disclose confidential supervisory information in public decision letters.

Section IV of proposed appendix A would have next discussed the OCC's consideration of the financial resources, managerial resources, and future prospects factors. With respect to financial resources, proposed appendix A would have discussed the OCC's review of pro forma capital levels. Additionally, the OCC is generally prohibited by statute from approving business combination applications filed by an institution that is undercapitalized as defined in 12 CFR 6.4 . [ 34 ] Proposed appendix A also would have specified that the OCC closely scrutinizes transactions that increase the risk to the bank's financial condition and resilience, including risk to the bank's capital, liquidity, and earnings that can arise from any of the eight categories of risk included in the OCC's Risk Assessment System. [ 35 ] Further, with respect to the financial resources factor, the OCC considers the ability of management to address increased risks that would result from the transaction. Finally, proposed appendix A would have clarified that a transaction involving an acquirer with a strong supervisory record is more likely to satisfy the review factors. By contrast, a transaction involving an acquirer with a recent less than satisfactory supervisory record is less likely to satisfy this factor.

Section IV of proposed appendix A would have also discussed the OCC's approach to the managerial resources standard. The OCC considers the supervisory record and current condition of both the acquirer and target to determine if the resulting institutions will have sufficient managerial resources. For example, a significant number of matters requiring attention (MRA), or lack thereof, may impact the determination as to whether there are sufficient managerial resources. The OCC also reviews (i) both institutions' management ratings under the UFIRS or ROCA system, as well as their component ratings under the CC Rating System, Uniform Rating System for Information Technology, and Uniform Interagency Trust Rating System, as applicable; and (ii) relevant Risk Assessment System (RAS) conclusions for the applicant as well as the RAS conclusions for an OCC-supervised target. The OCC also considers the context in which the rating or RAS element was assigned and any additional information resulting from ongoing supervision. Finally, proposed appendix A would have noted that less than satisfactory ratings at the target do not preclude the approval of a transaction, provided that the acquirer can employ sufficiently robust risk management and financial resources to correct the weaknesses.

Proposed appendix A would have stated that the OCC considers whether the acquirer has conducted sufficient due diligence of the target depository institution to understand its business model, systems compatibility, and weaknesses. This consideration includes the acquirer's plans and ability to address its own previously identified weaknesses, remediate the target's weaknesses, and exercise appropriate risk management for the size, complexity, and risk profile of the resulting institution. Similarly, the OCC considers the acquirer's plans for and history of integrating combining institutions' operations, including systems and information security processes, products, services, employees, and cultures.

Proposed appendix A next would have discussed the OCC's consideration of the acquirer's plans to identify and manage systems compatibility and integration issues, such as information technology compatibility and implications for business continuity and resilience. A critical component of these plans includes identifying overreliance on manual controls, strategies for automating critical processes, and capacity and modernization of aging and legacy information technology systems. The OCC may conduct additional reviews where there are concerns with systems integration and, in some cases, the OCC may impose conditions that are enforceable pursuant to 12 U.S.C. 1818 to address those concerns. The OCC may deny an application if the integration or other issues present significant supervisory concerns, and the issues cannot be resolved through appropriate conditions or otherwise. [ 36 ]

Finally, with regard to managerial resources, proposed appendix A would have described the OCC's consideration of the proposed governance structure of the resulting institution. This includes consideration of (i) governance in decision-making processes, the board management oversight structure, and the risk management system, including change management; and (ii) the expansion of existing activities, introduction of new or more complex products or lines of business, and implications for managing existing and acquired subsidiaries and equity investments. When applicable, the resulting institution's governance is also ( print page 78214) considered in the context of the institution's relationship with its holding company and the scope of the holding company's activities.

Section IV of proposed appendix A also would have discussed how the OCC considers the future prospects factor. The OCC considers this factor in light of its assessment of the institutions' financial and managerial resources. The OCC also considers the proposed operations of the resulting institutions and the acquirer's record of integrating acquisitions. Specifically, the OCC considers whether the integrated institution will be able to function effectively as a single entity. The OCC also considers the resulting institution's business plan or strategy and management's ability to implement it in a safe and sound manner. Finally, the OCC considers the combination's potential impacts on the resulting institution's continuity planning and operational resilience.

One commenter highlighted the importance of assessing managerial resources and firm culture when considering an application under the BMA. This commenter urged the OCC to make it clear that, when considering the managerial resources factor, the OCC would take into consideration whether the acquirer and target have implemented governance solutions that generate outcomes that meet or exceed the OCC's expectations and suggested using artificial intelligence and machine learning tools to do so. Other commenters suggested that an assessment of financial and managerial resources and future prospects should include climate-related financial risk expertise. Several other commenters suggested the OCC include a requirement that banks describe their efforts to promote gender, racial, and ethnic diversity in their boards, senior management, and branch personnel, with some commenters suggesting that such information be considered under the managerial resources factor. One commenter also suggested that applicants submit an integration plan as part of their application. Given the varied nature of institutions' operations and proposed mergers, the OCC is declining to require these items as part of its review of all applications under the BMA. To the extent that it is relevant to any particular transaction, the OCC may, based on its supervisory expertise, request information on these or other items that are relevant to the financial and managerial and future prospects factors.

The OCC is thus generally finalizing section IV as proposed with one addition to make explicit a consideration that was implicit in the proposal. The OCC is adding a new overarching consideration in section IV of appendix A. Specifically, section IV will state that the OCC considers the financial and managerial resources and future prospects factors within the context of the prevailing economic and operating environment. The OCC recognizes that the financial resources and future prospects of institutions, and those of community institutions in particular, are likely to be highly dependent on the economic and other environments within which they operate. As such, a combined institution's financial resources and future prospects may in some cases be significantly greater than those of the individual institutions if no merger were to occur.

Section V of proposed appendix A would have expanded on the discussion in the Comptroller's Licensing Handbook of the OCC's consideration of the probable effects of the proposed business combination on the community to be served. Specifically, this section would have clarified that the OCC's consideration of the impacts of any proposed combination on the convenience and needs of the community is prospective and considers the likely impact on the community of the resulting institution after the transaction is consummated. [ 37 ] For this factor, the OCC considers, among other things (i) the proposed changes to branch locations, branching services, banking services or products, or credit availability offered by the target and acquirer, including in low- or moderate-income (LMI) communities; (ii) any job losses or lost job opportunities from branching changes; and (iii) any community investment or development initiatives, including particularly those that support affordable housing and small businesses. With respect to (i) above, the OCC also sought comment on whether to specify communities in addition to LMI communities as part of these considerations.

Finally, section V of proposed appendix A would have clarified that the OCC's forward-looking consideration of the convenience and needs factor under the BMA is separate and distinct from its consideration of an applicant's CRA record of performance in helping to meet the credit needs of the relevant community, including LMI neighborhoods.

Commenters expressed varying viewpoints on Section V, Convenience and Needs, of proposed appendix A. Some commenters criticized the OCC's inclusion of job losses or reduced job opportunities, and one commenter stated that such consideration lacked a statutory basis and diverged from longstanding regulatory precedent. Other commenters encouraged the OCC to place greater emphasis on factors such as potential job losses; projected branch losses in LMI and majority-minority census tracts; impacts to communities of color and underserved census tracts, including small businesses in those communities; reduced reinvestment; increased fees; and other factors that could affect access to banking services when evaluating the community and needs factor. One commenter suggested the OCC consider past bank branch closures. Another commenter recommended that the OCC require applicants to submit a list of branch closures planned for the three years following the consummation of a merger and a discussion of the impact on local communities and stated that applicants should be prohibited from closing other branches for three years. Some commenters suggested that a merger should not be approved unless applicants can demonstrate that the transaction will better meet the convenience and needs of the community, with several commenters specifically noting that the OCC should only approve transactions that better serve vulnerable communities, including low-income communities and communities of color. Several commenters suggested that the OCC's review of the convenience and needs factor should include broad consideration of the climate-related impact of the transaction, including financial risk, impacts resulting from bank activities that may impact climate change, and the climate related transition plans. One commenter suggested that the OCC should provide additional clarity on how it weighs the various impacts it considers. Other commenters noted that the OCC should specifically consider how the impacts of the expansion of digital banking affects underserved communities in the context of merger reviews.

Several commenters emphasized the importance of community benefit agreements and plans and collaboration with community groups and urged the OCC to use its policy statement to elevate the importance of these agreements, plans, and collaborations. Suggestions included signaling that the OCC would enforce community benefit ( print page 78215) commitments made during merger applications or imposing a condition of approval on the acquirer requiring it to adhere to the elements of such commitments. Another commenter requested additional transparency with respect to conditional approvals for convenience and needs, CRA, or fair lending concerns. [ 38 ]

The OCC considers the convenience and needs factor in light of the specific facts of each transaction. The factors listed in proposed section V are indicators of whether the proposed transaction will enable the resulting institution to better meet the convenience and needs of its community. A net positive impact on its ability to meet the convenience and needs of community is, in the OCC's experience, generally consistent with approval with respect to this factor. Applicants need not make a showing with respect to any or all of these items for the application to be consistent with approval. The OCC agrees with commenters that the BMA does not require consideration of particular facts such as job losses with respect to the convenience and needs of the community. Consistent with the BMA, the OCC will evaluate the facts of each application and determine whether particular items are relevant to its consideration of convenience and needs of the specific community to be served. For example, job losses or reduced job opportunities may have an impact on the local community as a whole in certain circumstances. Additionally, the OCC will consider any plans regarding the availability or cost of banking services or products to the community in the context of the communities affected, including LMI communities. Based on its supervisory experience, including its review of business combination applications, the OCC believes that the existing information requirements in the Interagency Bank Merger Act Application provide the appropriate initial level of information. The OCC may request additional information regarding branch closures or other facts impacting the convenience and needs of the community to be served. Further, the OCC believes that the items listed in proposed section V are appropriately tailored to cover the full range of BMA applications it receives.

Another commenter suggested that unless material changes are expected post-consummation, the OCC should use the acquirer's and target's CRA ratings as the primary method of assessing a merger's impact on the convenience and needs of the community. Other commenters asserted that CRA alone is not sufficient for determining a merger's impact on the convenience and needs of the community. As discussed in the Business Combinations booklet of the Comptroller's Licensing Manual, a CRA rating is based on past performance, while the convenience and needs factor is prospective. [ 39 ] Accordingly, analysis of past CRA performance is not sufficient to analyze the prospective convenience and needs of the community. The OCC believes that section V correctly articulated this standard as proposed.

The OCC is making clarifying edits to section V of appendix A. The OCC is changing the order of the discussion of an institution's plans to close, consolidate, limit, or expand branches to have the activities in a more logical sequence. Likewise, with respect to credit availability, the OCC is specifying that it considers an institution's plans to maintain, reduce, or improvement credit availability, including access to specific types of loans. Accordingly, the OCC is finalizing section V generally as proposed.

Section VI, Public Comments and Meetings, of proposed appendix A would have provided additional details about the process and procedures relating to the OCC's receipt of public comments and considerations related to public meetings and clarified the information contained within 12 CFR part 5 and the “Public Notice and Comments” booklet of the Comptroller's Licensing Manual. [ 40 ] Specifically, the public comments subsection would have articulated the circumstances under which the OCC may extend the usual 30-day comment period  [ 41 ] pursuant to § 5.10(b)(2). [ 42 ] It also would have provided additional clarity by noting that the OCC may find that additional time is necessary to develop factual information, and thus warrant extending the comment period. This could happen, for example, if a filer's response to a comment does not fully address the matters raised in the comment and the commenter requests an opportunity to respond. This subsection also would have provided examples of extenuating circumstances when the OCC may determine that an extension is needed, including if a public meeting is held, the transaction is novel or complex, or a natural disaster has occurred that affects the public's ability to timely submit comments.

With respect to the discussion of public comments, some commenters supported the proposal's discussion of how a comment period can be extended when a filer does not adequately respond to a commenter. However, other commenters expressed concern that the OCC's ability to extend the comment period based on the completeness of a filer's response to a comment may create a risk of commenters repeatedly filing comments in bad faith, which will result in delay. Two commenters suggested that the OCC consider extending the comment period in some instances, with one commenter suggesting that the OCC use an initial 60-day comment period for larger transactions. Other commenters also encouraged the OCC to minimize the negative impacts of prolonged review periods on affected communities and stakeholders. One commenter also requested that the OCC develop policies to address the abuse of the public comment process, including via the use of artificial intelligence.

The OCC did not propose any changes to its regulations regarding its acceptance and review of public comments, which are broadly applicable to transactions covered by 12 CFR part 5 and not only business combinations. The OCC periodically considers which of its regulations would benefit from proposed changes and will consider whether to propose changes to the public comment regulations at an appropriate time. [ 43 ] The OCC is mindful ( print page 78216) of the effects of the length of review periods on all relevant parties. The OCC uses the standard 30-day notice period prescribed by the BMA  [ 44 ] and will extend the comment period pursuant to the factors discussed in section VI as appropriate. The OCC intends to act on applications in a timely fashion, consistent with a fulsome review of applications and safety and soundness. To clarify that the purpose of section VI is to address considerations regarding the public comment period and not the OCC's acceptance and review of public comments, the OCC is revising the headings in section VI to specifically reference the public comment period.

The proposed public meetings subsection of section VI would have stated that when determining whether to hold a public meeting, the OCC balances the public's interest in the transaction with the value or harm of a public meeting to the decision-making process. Proposed appendix A would also have clarified the criteria that inform the OCC's decision on whether to hold a public meeting. The criteria include (i) the public's interest in the transaction; (ii) the appropriateness of a public meeting to document or clarify issues raised during the public comment process; (iii) the significance of the transaction to the banking industry; (iv) the significance of the transaction to the communities affected; (v) the potential value of any information that could be gathered and documented during a public meeting; and (vi) the acquirer's and target's CRA, consumer compliance, fair lending, or other pertinent supervisory records, as applicable. Several commenters proposed additional triggers for holding public meetings, including when there is a significant overlap in branch networks, when CRA ratings are lower in affected geographies, when the resulting entity will exceed a certain asset size, or when there is a merger protest. These commenters also suggested several ways that the OCC could improve outreach to underserved communities and dialogue about the impact of potential mergers. These included adopting a public registry for CRA examinations and mergers, improving the format of public meetings, and providing clearer information on regulatory websites on how to engage with regulators on particular mergers. One commenter objected to what it characterized as the OCC's implication that input from the public could be harmful to the OCC's decision-making process. This commenter suggested a public meeting should be held when requested.

As discussed in proposed section VI, the OCC considers the significance of the transaction to the communities affected, as well as applicable CRA ratings. The OCC believes that these considerations are sufficiently broad to cover issues such as a significant overlap in branch networks. Further, the OCC believes that a decision to hold a public meeting should be based on the individual facts and circumstances of each proposed merger. For example, the considerations for whether to hold a public meeting on an internal corporate reorganization likely differ from those in a transaction between unaffiliated institutions. Additionally, the OCC believes that the fact that a comment is filed with respect to a proposed merger is insufficient alone to warrant a meeting. For example, through requests for additional information, the OCC can often obtain the information it needs to fully consider the comment without organizing a meeting. Consistent with applicable law, the OCC makes public all CRA performance evaluations on its website  [ 45 ] and all applications under the BMA in its Freedom of Information Act Reading Room. [ 46 ] While the OCC may consider additional methods to provide information to the public it believes that this issue is outside the scope of appendix A. Similarly, 12 CFR 5.11(i) provides the OCC with broad discretion in the conduct of public meetings. The OCC may tailor the format and structure of public meetings as needed based on the specific circumstance. The OCC believes that the information contained in proposed section VI is appropriate for general consideration of public meetings. Accordingly, besides the revision to the headings in section VI to specifically reference the public comment period, the OCC is generally finalizing section VI as proposed.

Under the Paperwork Reduction Act of 1995 (PRA), [ 47 ] the OCC may not conduct or sponsor, and a 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 information collection requirements in this rule have been submitted to OMB under OMB control number 1557-0014 (Licensing Manual).

The final rule amends 12 CFR 5.33 by removing the expedited review procedures in § 5.33(i), which currently allow an application to be deemed approved by the OCC as of the 15th day after the close of the comment period, unless the OCC notifies the filer that the filing is not eligible for expedited review or the expedited review process is extended. The final rule also removes the streamlined application in § 5.33(j), which removes the ability of eligible institutions to file for certain types of business combinations using a streamlined application form.

Title: Licensing Manual.

OMB Control Number: 1557-0014.

Frequency of Response: Occasional.

Affected Public: National banks and Federal savings associations.

The changes to the burden of the Licensing Manual are de minis and continue to be:

Estimated Number of Respondents: 3,694.

Estimated Total Annual Burden: 12,481.15.

Comments continue to be invited on:

a. Whether the collections of information are necessary for the proper performance of the agency functions, including whether the information has practical utility;

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

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

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

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

All comments will become a matter of public record. Written comments and recommendations for the information collection should be sent within 30 days of publication of this notice. Comments on the collection of information should be sent to Chief Counsel's Office, Attention: Comment Processing, Office of the Comptroller of the Currency, Attention: 1557-0014, 400 7th Street SW, Suite 3E-218, Washington, DC 20219. Comments may also be sent to [email protected] or www.reginfo.gov/​public/​do/​PRAMain . Find this information collection by selecting “Currently under 30-day ( print page 78217) Review—Open for Public Comments” or using the search function.

The RFA  [ 48 ] requires an agency, in connection with a proposal and final rule, to prepare and make available to the public a Regulatory Flexibility Analysis that describes the impact of the rule on small entities (defined by the SBA for purposes of the RFA to include commercial banks and savings institutions with total assets of $850 million or less and trust companies with total assets of $47 million or less). However, under section 605(b) of the RFA, this analysis is not required if an agency certifies that the rule would 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 along with its rule. The OCC included an RFA certification in the Federal Register along with its proposal.

As discussed above, the SBA's Office of Advocacy and one other commenter stated that the proposal's RFA certification lacked a factual basis. The SBA's Office of Advocacy, along with other commenters, recommended that the OCC continue to allow expedited review for applications from small entities and allow those entities to continue to use the streamlined application form. Specifically, with respect to the proposal's RFA certification, the SBA's Office of Advocacy's comment and the other comment addressing the RFA stated that it lacked sufficient information about (1) the number of small entities that would be impacted because it only estimated the number of entities that would apply for business combinations in a given year and did not explain how many of those entities were small entities and (2) the basis for its conclusion that the impact on affected institutions would be de minimis .

The OCC currently supervises 1,040 institutions (commercial banks, trust companies, Federal savings associations, and branches or agencies of foreign banks), [ 49 ] of which approximately 636 are small entities. [ 50 ] As the SBA's Office of Advocacy noted, all of the 636 small entities may have been impacted by the proposed rule to the extent that they elected to submit applications to the OCC for approval of business combination activities. However, in practice and based on the number of merger applications that the OCC has received annually over the past five years, the agency expects the annual impact of the final rulemaking could be 78 OCC-supervised small institutions in a given year, assuming that all merger applications are submitted by small banks.

In terms of the potential economic impact of the final rule on affected institutions, the OCC does not expect that the changes will result in (1) a different outcome for merger applications or (2) additional burden on affected institutions. First, the final appendix A aims to provide transparency with respect to the OCC's BMA review process, including consideration of certain statutory factors under the BMA. This should provide regulated institutions with additional clarity and transparency about the OCC's decision-making process. Second, the removal of the expedited review process will likely not result in any change to the timing of the OCC's processing of licensing applications. The only benefit conferred by the expedited review provisions in § 5.33(i) is that applications are deemed approved as of the 15th day after the close of the comment period unless the OCC takes action to remove the application from expedited review or extends the process. However, the OCC is not aware of an application for a business combination being deemed approved due to the passage of time under § 5.33(i). Third, the OCC expects that the removal of the streamlined application form will not result in a substantive impact on affected institutions or on the information collected. Although the Interagency Bank Merger Act Application requires the submission of additional documentation and information with the initial application, that documentation and information is largely related to the same categories of information. Further, in practice, the OCC may request additional information from applicants to enable it to conclude on the applicable statutory factors. Eliminating the streamlined application may decrease the likelihood the OCC needs to request additional information from applicants, which could otherwise slow down the processing of an application. The agency also does not expect that the removal of the streamlined application will result in a material change to the time it takes to OCC to respond to submitting banks and, therefore, does not expect any subsequent impact on bank operations that could otherwise result from a delayed response from the OCC. Accordingly, the OCC expects these changes to have a de minimis impact on small entities.

In general, the OCC classifies the economic impact on an individual small entity as significant if the total estimated impact in one year is greater than 5 percent of the small entity's total annual salaries and benefits or greater than 2.5 percent of the small entity's total non-interest expense. Furthermore, the OCC considers 5 percent or more of OCC-supervised small entities to be a substantial number. At present, 32 OCC-supervised small entities constitute a substantial number. Therefore, the final rule will potentially affect a substantial number of OCC-supervised small entities in any given year.

However, based on the thresholds for a significant economic impact, the OCC expects that, if implemented, the final rule will not have a significant economic impact on any small entities. For these reasons, the OCC certifies that the final rule would not have a significant economic impact on a substantial number of small entities.

Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded Mandates Act)  [ 51 ] requires that the OCC prepare a budgetary impact statement before promulgating a rule that includes any Federal mandate that may result in the expenditure by State, local, and Tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation, currently $183 million) in any one year. If a budgetary impact statement is required, section 205 of the Unfunded Mandates Act  [ 52 ] also requires the OCC to identify and consider a reasonable number of regulatory alternatives before promulgating a rule.

The OCC estimates that the annual aggregate cost of the final rule once fully phased in will be de minimis. Furthermore, the rule's changes are not new substantive or information requirements for OCC-supervised institutions but rather describe ( print page 78218) considerations and principles that guide the OCC's review of applications under the BMA. Therefore, the OCC concludes that the final rule will not result in an expenditure of $183 million or more annually by State, local, and Tribal governments or by the private sector.

Pursuant to section 302(a) of the Riegle Community Development and Regulatory Improvement Act (RCDRIA) of 1994  [ 53 ] in determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on insured depository institutions, the OCC must consider, consistent with principles of safety and soundness and the public interest (1) any administrative burdens that the final rule would place on depository institutions, including small depository institutions and customers of depository institutions, and (2) the benefits of the final rule. In addition, section 302(b) of RCDRIA requires new regulations and amendments to regulations that impose additional reporting, disclosures, or other new requirements on insured depository institutions generally to take effect on the first day of a calendar quarter that begins on or after the date on which the regulations are published in final form. [ 54 ] The OCC considered the changes made by this final rule and believes that the effective date of January 1, 2025, will provide OCC-regulated institutions with adequate time to comply with the rule. The final rule will not impose any new administrative compliance requirements, and the administrative burdens from the removal of the Streamlined Application are de minimis.

For purposes of the Congressional Review Act, the Office of Management and Budget (OMB) makes a determination as to whether a final rule constitutes a “major rule.”  [ 55 ] If a rule is deemed a “major rule” by OMB, the Congressional Review Act generally provides that the rule may not take effect until at least 60 days following its publication. [ 56 ]

The Congressional Review Act defines a “major rule” as any rule that the Administrator of the Office of Information and Regulatory Affairs of the OMB finds has resulted in or is likely to result in: (1) an annual effect on the economy of $100,000,000 or more; (2) a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions; or (3) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and export markets. [ 57 ]

As required by the Congressional Review Act, the OCC will submit the final rule and other appropriate reports to Congress and the Government Accountability Office for review.

• Administrative practice and procedure
• National banks
• Reporting and recordkeeping requirements
• Savings associations

For the reasons set forth in the preamble, OCC amends 12 CFR part 5 as follows:

1. The authority citation for part 5 continues to read as follows:

Authority: 12 U.S.C. 1 et seq., 24a, 35, 93a, 214a, 215, 215a, 215a-1, 215a-2, 215a-3, 215c, 371d, 481, 1462a, 1463, 1464, 1817(j), 1831i, 1831u, 2901 et seq., 3101 et seq., 3907, and 5412(b)(2)(B).

2. Section 5.33 is amended by removing and reserving paragraphs (d)(3), (i), and (j).

3. Add appendix A to subpart C to read as follows:

The purpose of this policy statement is to provide insured depository institutions (institutions) and the public with a better understanding of how the Office of the Comptroller of the Currency (OCC) considers certain statutory factors under the Bank Merger Act (BMA), 12 U.S.C. 1828(c) . The matters discussed in this statement are intended to provide greater transparency, facilitate interagency coordination, and enhance public engagement.

The OCC aims to act promptly on all applications. The agency's range of potential actions on applications includes approval, denial, and requesting that an applicant withdraw the application because any shortcomings are unlikely to be resolved in a timely manner. Applications that tend to withstand scrutiny more easily and are more likely to be approved expeditiously generally feature all of the following indicators:

1. The acquirer is well capitalized under § 5.3, and the resulting institution will be well capitalized;

2. The resulting institution will have total assets less than $50 billion;

3. The acquirer has a Community Reinvestment Act (CRA) rating of Outstanding or Satisfactory;

4. The acquirer has composite and management ratings of 1 or 2 under the Uniform Financial Institution Ratings System (UFIRS) or ROCA rating system;

5. The acquirer has a consumer compliance rating of 1 or 2 under the Uniform Interagency Consumer Compliance Rating System (CC Rating System), if applicable;

6. The acquirer has no open formal or informal enforcement actions;

7. The acquirer has no open or pending fair lending actions, including referrals or notifications to other agencies;

8. The acquirer is effective in combatting money laundering activities;

9. The target's total assets are less than or equal to 50% of acquirer's total assets;

10. The target is an eligible depository institution as defined in § 5.3;

11. The proposed transaction clearly would not have a significant adverse effect on competition;

12. The OCC has not identified a significant legal or policy issue; and

13. No adverse comment has raised a significant CRA or consumer compliance concern.

If certain indicators that raise supervisory or regulatory concerns are present, the OCC is unlikely to find that the statutory factors under the BMA are consistent with approval unless and until the applicant has adequately addressed or remediated the concern. The following are examples of indicators that raise supervisory or regulatory concerns:

1. The acquirer has a CRA rating of Needs to Improve or Substantial Noncompliance.

2. The acquirer has a consumer compliance rating of 3 or worse.

3. The acquirer has UFIRS or ROCA composite or management ratings of 3 or worse or the most recent report of examination otherwise indicates that the acquirer is not financially sound or well managed.

4. The acquirer is a global systemically important banking organization or subsidiary thereof.

5. The acquirer has open or pending Bank Secrecy Act/Anti-money Laundering, fair lending, or consumer compliance actions, including enforcement actions, referrals, or notifications to other agencies.

6. The acquirer has failed to adopt, implement, and adhere to all the corrective actions required by a formal enforcement action in a timely manner, or there have been multiple enforcement actions against the acquirer executed or outstanding during a three-year period. ( print page 78219)

The BMA requires the OCC to consider “the risk to the stability of the United States banking or financial system” when reviewing transactions subject to the Act. In reviewing a BMA application under this factor, the OCC considers the following factors:

1. Whether the proposed transaction would result in a material increase in risks to financial system stability due to an increase in size of the combining institutions.

2. Whether the proposed transaction would result in a reduction in the availability of substitute providers for the services offered by the combining institutions.

3. Whether the resulting institution would engage in any business activities or participate in markets in a manner that, in the event of financial distress of the resulting institution, would cause significant risks to other institutions.

4. Whether the proposed transaction would materially increase the extent to which the combining institutions contribute to the complexity of the financial system.

5. Whether the proposed transaction would materially increase the extent of cross-border activities of the combining institutions.

6. Whether the proposed transaction would increase the relative degree of difficulty of resolving or winding up the resulting institution's business in the event of failure or insolvency.

7. Any other factors that could indicate that the transaction poses a risk to the U.S. banking or financial system.

1. In general: The OCC applies a balancing test when considering the factors in section III.A. of this appendix in light of all the facts and circumstances available regarding the proposed transaction, including weighing the financial stability risk posed by the proposed transaction against the financial stability risk posed by denial of the proposed transaction, particularly if the proposed transaction involves a troubled target. The OCC considers each factor both individually and in combination with others. Even if only a single factor indicates that the proposed transaction would pose a risk to the stability of the U.S. banking or financial system, the OCC may determine that there would be an adverse effect of the proposal on the stability of the U.S. banking or financial system. Finally, the OCC also considers whether the proposed transaction would provide any stability benefits and whether enhanced prudential standards applicable as a result of the proposed transaction would offset any potential risks.

2. Conditions: The OCC's review of the financial stability factors will include, as appropriate, whether to impose conditions on approval of the transaction. The OCC may impose conditions, enforceable under 12 U.S.C. 1818 , to address and mitigate financial stability risk concerns, such as requiring asset divestitures by the resulting institution, imposing higher minimum capital requirements, or imposing other financial stability-related conditions.

3. Recovery planning and heightened standards: The OCC's review of the financial stability factors will consider the impact of the proposed transaction in light of:

b. Standards applicable to the resulting institution pursuant to 12 CFR part 30, appendix D , “OCC Guidelines Establishing Heightened Standards for Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches”; and

c. Standards applicable to the resulting institution's recovery planning pursuant to 12 CFR part 30, appendix E , “OCC Guidelines Establishing Standards for Recovery Planning by Certain Large Insured National Banks, Insured Federal Savings Associations, and Insured Federal Branches”.

4. Concurrent filings: the OCC's review of the financial stability factors may consider the facts, circumstances, and representations of concurrent filings for related transactions, including the impact of the related transactions to the proposed transaction under review by the OCC.

The OCC is required by the BMA to consider the managerial resources, financial resources, and future prospects of the combining and the resulting institutions. The OCC considers each of these factors independently for both the combining and resulting institutions. However, because these factors are directly related to one another, the OCC also considers these factors holistically.

1. The OCC tailors its consideration of the financial and managerial resources and future prospects of the combining and resulting institutions to their size, complexity, and risk profile.

2. The OCC considers these factors within the context of the prevailing economic and operating environment.

3. The OCC is more likely to approve combinations where the acquirer has sufficient financial and managerial resources to ensure safe and sound operations of the resulting institution than when:

a. The acquirer has a less than satisfactory supervisory record, including its financial and managerial resources;

b. The acquirer has experienced rapid growth;

c. The acquirer has engaged in multiple acquisitions with overlapping integration periods;

d. The acquirer has failed to comply with conditions imposed in prior OCC licensing decisions; or

e. The acquirer is functionally the target in the transaction.

4. The OCC normally does not approve a combination that would result in a depository institution with less than adequate capital or liquidity, less than satisfactory management, or poor earnings prospects.

5. The OCC considers all comments received on proposed business combinations. However, the OCC's consideration of an institution's financial and managerial resources and future prospects are necessarily based on confidential supervisory information. While the OCC will provide an appropriate discussion of comments pertaining to the financial resources, managerial resources, and future prospects factors, it will generally not discuss or otherwise disclose confidential supervisory information in public decision letters.

1. Financial Resources:

a. The OCC reviews the existing and proposed institutions' current and pro forma capital levels.

i. The OCC reviews for compliance with the applicable capital ratios required by 12 CFR part 3 and the Prompt Corrective Action capital categories established by 12 CFR 6.4 .

ii. The OCC may not approve a combination application filed by an insured depository institution that is undercapitalized as defined in 12 CFR 6.4 unless it has approved the institution's capital restoration plan or the Board of Directors of the Federal Deposit Insurance Corporation has determined that the transaction would fulfill the purposes of 12 U.S.C. 1831o .

b. The OCC closely scrutinizes transactions that increase the risk to the bank's financial condition and resilience, including bank capital, liquidity, and earnings, that can arise from any of the eight categories of risk included in the OCC's Risk Assessment System: credit, interest rate, liquidity, price, operational, compliance, strategic, and reputation.

c. In relation to the financial resources factor, the OCC considers management's ability to address increased risks that would result from the transaction.

d. A transaction involving an acquirer with a strong supervisory record relative to capital, liquidity, and earnings is more likely to satisfy the review factors. By contrast, a transaction involving an acquirer with a recent less than satisfactory financial or supervisory record is less likely to satisfy this factor.

2. Managerial Resources: The OCC considers several factors when considering the managerial resources of the institutions.

a. The OCC considers the supervisory record and current condition of both the acquirer and target to determine if the resulting institutions will have sufficient managerial resources to manage the resulting institution.

i. A significant number of MRAs suggests there may be insufficient managerial resources. Additionally, the OCC considers both institutions' management ratings under the UFIRS or ROCA system and component ratings under the CC Rating System, Uniform Rating System for Information Technology, and Uniform Interagency Trust Rating System, as applicable.

ii. When applicable, the OCC also considers the relevant Risk Assessment System (RAS) conclusions for the combining institutions.

iii. The OCC considers the context in which a rating or RAS element was assigned and any additional information resulting from ongoing supervision.

iv. Less than satisfactory ratings at the target do not preclude the approval of a ( print page 78220) transaction provided that the acquirer can employ sufficiently robust risk management and financial resources to correct the weaknesses at the target.

b. The OCC considers whether the acquirer has conducted sufficient due diligence of the target depository institution to understand the business model, systems compatibility, and weaknesses of the target. To facilitate the OCC's review, the acquirer's management team should demonstrate its plans and ability to address the acquirer's previously identified weaknesses, remediate the target's weaknesses, and exercise appropriate risk management for the size, complexity, and risk profile of the resulting institution.

c. The OCC also considers the acquirer's analysis and plans to integrate the combining institutions' operations, including systems and information security processes, products, services, employees, and cultures. The OCC's consideration and degree of scrutiny reflects the applicant's track record with information technology governance, business continuity resilience, and, as applicable, integrating acquisitions.

d. The OCC considers the acquirer's plans to identify and manage systems compatibility and integration issues, such as information technology compatibility and the implications for business continuity resilience. Any combination in which the OCC identifies systems integration concerns may lead to additional review.

i. A critical component of these plans includes the acquirer's identification and assessment of overreliance on manual controls, strategies for automating critical processes, and the strategies and capacity for modernization of aging and legacy information technology systems.

ii. The OCC may impose conditions, enforceable pursuant to 12 U.S.C. 1818 , if it determines that information technology systems compatibility and integration represent a supervisory significant concern. These conditions may include requirements and time frames for specific remedial actions and specific measures for assessing and evaluating the depository institution's systems integration progress.

iii. The OCC may deny the application if the integration issues or other issues present significant supervisory concerns, and the issues cannot be resolved through appropriate conditions or otherwise.

e. The OCC also considers the proposed governance structure of the resulting institution. This includes governance in decision-making processes, the board management oversight structure, and the risk management system, including change management. This also includes expansion of existing activities, introduction of new or more complex products or lines of business, and implications for managing existing and acquired subsidiaries and equity investments. When applicable, the resulting institution's governance is also considered in the context of the institution's relationship with its holding company and the scope of the holding company's activities.

3. Future Prospects:

a. The OCC considers the resulting institution's future prospects in light of its assessment of the institutions' financial and managerial resources.

b. The OCC also considers the proposed operations of the resulting institution. The OCC's consideration and degree of scrutiny reflects the acquirer's record of integrating acquisitions.

i. The OCC considers whether the integration of the combining institutions would allow it to function effectively as a single unit.

ii. The OCC considers the resulting institution's business plan or strategy and management's ability to implement it in a safe and sound manner.

iii. The OCC also considers the combination's potential impact on the resulting institution's continuity planning and operational resilience.

A. The OCC considers the probable effects of the proposed business combination on the community to be served. Review of the convenience and needs factor is prospective and considers the likely impact on the community of the resulting institution after the transaction is consummated, including but not limited to:

1. Any plans to close, consolidate, limit, or expand branches or branching services, including in low- or moderate-income (LMI) areas;

2. Any plans to reduce the availability or increase the cost of banking services or products, or plans to provide expanded or less costly banking services or products to the community;

3. Any plans to maintain, reduce, or improve credit availability throughout the community, including, for example, access to home mortgage, consumer, small business, and small farm loans;

4. Job losses or reduced job opportunities from branch staffing changes, including branch closures or consolidations;

5. Community investment or development initiatives, including, for example, community reinvestment, community development investment, and community outreach and engagement strategies; and

6. Efforts to support affordable housing initiatives and small businesses.

B. The OCC considers comments received during the comment period and information provided during any public hearing or meeting related to the proposed business combination. To the extent public comments or discussions address issues involving confidential supervisory information, however, the OCC generally will not discuss or otherwise disclose that confidential supervisory information in public decision letters and forums.

C. The OCC considers the CRA record of performance of an applicant in evaluating a business combination application. The OCC's forward-looking evaluation of the convenience and needs factor under the BMA is separate and distinct from its consideration of the CRA record of performance of an applicant in helping to meet the credit needs of the relevant community, including LMI neighborhoods.

1. Unless an exception applies, a combination under the BMA is subject to a 30-day comment period following publication of the notice of the proposed combination. The OCC may extend the comment period in certain instances:

a. When a filer fails to file all required publicly available information on a timely basis or makes a request for confidential treatment not granted by the OCC;

b. When requested and the OCC determines that additional time is necessary to develop factual information necessary to consider the filing; and

c. When the OCC determines that other extenuating circumstances exist.

2. The OCC may find that additional time is necessary to develop factual information if a filer's response to a comment does not fully address the matters raised in the comment, and the commenter requests an opportunity to respond.

3. Examples of extenuating circumstances necessitating an extension include:

a. Transactions in which public meetings are held to allow for public comment after the meeting;

b. Unusual transactions ( e.g., novel or complex transactions); and

c. Natural or other disasters occurring in geographic regions affecting the public's ability to timely submit comments.

1. While the BMA does not require the OCC to hold meetings or hearings, the OCC has three methods for seeking oral input: (1) public hearing, (2) public meeting, and (3) private meeting. Public meetings are the most-employed public option.

2. The OCC will balance the public's interest in the transaction with the value or harm of a public meeting to the decision-making process ( e.g., although there may be increased public interest in a transaction, a public meeting will not be held if it would not inform the OCC's decision on an application or would otherwise harm the decision-making process).

3. Criteria informing the OCC's decision on whether to hold public meetings include:

a. The extent of public interest in the proposed transaction.

b. Whether a public meeting is appropriate in order to document or clarify issues presented by a particular transaction based on issues the public raises during the public comment process.

c. Whether a public meeting would provide useful information that the OCC would not otherwise be able to obtain in writing.

d. The significance of the transaction to the banking industry. Relevant considerations may include the asset sizes of the institutions involved ( e.g., resulting institution will have $50 billion or more in total assets) and concentration of the resulting institution in one or more markets.

e. The significance of the transaction to the communities affected. Relevant considerations may include the effects of the transaction on the convenience and needs of ( print page 78221) the community to be served, including a consideration of a bank's CRA strategy and the extent to which the acquirer and target are currently serving the convenience and needs of their communities.

f. The acquirer's and target's CRA, consumer compliance, fair lending, and other pertinent supervisory records, as applicable.

Michael J. Hsu,

Acting Comptroller of the Currency.

1.  A business combination for these purposes includes an assumption of deposits in addition to a merger or consolidation.

2.   12 U.S.C. 1828(c)(5) , (11).

3.   12 U.S.C. 1828(c)(4) .

4.   12 CFR 5.8(b) , 5.10(b)(1) .

5.   12 CFR 5.11 .

6.   89 FR 10010 (February 13, 2024).

7.  Under the proposal, the provisions in 12 CFR 5.13(a)(2) regarding adverse comments would no longer apply to business combination applications because they only apply to filings that qualify for expedited review.

8.   See, e.g., 12 U.S.C. 215a (procedures for mergers resulting in a national bank).

9.   See, e.g., 12 U.S.C. 1828(c) (BMA).

10.  The public comment period is typically 30 days. See 12 CFR 5.10(b)(1) .

11.   See, e.g., Office of the Comptroller of the Currency, 2023 Annual Report, at 36.

12.   12 CFR 5.33(j) authorizes the use of a streamlined application if: (i) At least one party to the transaction is an eligible bank or eligible savings association, and all other parties to the transaction are eligible banks, eligible savings associations, or eligible depository institutions, the resulting national bank or resulting Federal savings association will be well capitalized immediately following consummation of the transaction, and the total assets of the target institution are no more than 50 percent of the total assets of the acquiring bank or Federal savings association, as reported in each institution's Consolidated Report of Condition and Income filed for the quarter immediately preceding the filing of the application; (ii) The acquiring bank or Federal savings association is an eligible bank or eligible savings association, the target bank or savings association is not an eligible bank, eligible savings association, or an eligible depository institution, the resulting national bank or resulting Federal savings association will be well capitalized immediately following consummation of the transaction, and the filers in a prefiling communication request and obtain approval from the appropriate OCC licensing office to use the streamlined application; (iii) The acquiring bank or Federal savings association is an eligible bank or eligible savings association, the target bank or savings association is not an eligible bank, eligible savings association, or an eligible depository institution, the resulting bank or resulting Federal savings association will be well capitalized immediately following consummation of the transaction, and the total assets acquired do not exceed 10 percent of the total assets of the acquiring national bank or acquiring Federal savings association, as reported in each institution's Consolidated Report of Condition and Income filed for the quarter immediately preceding the filing of the application; or (iv) In the case of a transaction under 12 CFR 5.33(g)(4) , the acquiring bank is an eligible bank, the resulting national bank will be well capitalized immediately following consummation of the transaction, the filers in a prefiling communication request and obtain approval from the appropriate OCC licensing office to use the streamlined application, and the total assets acquired do not exceed 10 percent of the total assets of the acquiring national bank, as reported in the bank's Consolidated Report of Condition and Income filed for the quarter immediately preceding the filing of the application.

13.  Under 12 CFR 5.2(b) , the OCC may adopt materially different procedures for a particular filing or class of filings as it deems necessary ( e.g., in exceptional circumstances or for unusual transactions) after providing notice of the change to the filer and any other party that the OCC determines appropriate. For example, the OCC may use this authority, if appropriate, to reduce the information it requires in a transaction involving a failing bank, given the limited time available to prepare the application.

14.  Proposed appendix A would not have addressed the BMA statutory factors of competition and the effectiveness of any insured depository institution involved in combatting money laundering activities, including in overseas branches. 12 U.S.C. 1828(c)(5) , (11).

15.  The OCC notes that the convenience and needs analysis is relevant to the competition analysis in some instances. Under 12 U.S.C. 1828(c)(5)(B) , the OCC may approve a merger whose effect in any section of the country may be substantially to lessen competition or to tend to create a monopoly, or which in any other manner would be in restraint of trade if it finds that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served.

16.   12 CFR 5.13(a)(1) governs the OCC's imposition of conditions to address a significant supervisory, Community Reinvestment Act (CRA), or compliance concern if the OCC determines that the conditions are necessary or appropriate to ensure that approval is consistent with relevant statutory and regulatory standards, including those designed to ensure the fair treatment of consumers and fair access to financial services, and OCC policies thereunder and safe and sound banking practices. The OCC imposes conditions on a case-by-case basis and makes a determination of appropriate conditions based on a merger's facts and circumstances.

17.  UFIRS is also known as the CAMELS rating system. The CAMELS component factors address capital, asset quality, management, earnings, liquidity, and sensitivity to market risk.

18.  The ROCA System is the interagency uniform supervisory rating system for U.S. branches and agencies of foreign banking organizations.

19.  The Basel Committee on Bank Supervision annually identifies certain banking organizations as global systemically important.

20.  For example, the OCC is required to institute an enforcement action or make a referral if it makes certain supervisory findings with respect to the Bank Secrecy Act or fair lending laws. See, e.g., 12 U.S.C. 1818(s)(3) ; 15 U.S.C. 1691e(g) .

21.   See 12 CFR 5.13(a)(2)(ii) (describing comments that do not warrant removing a filing from expedited review).

22.  Public Law 103-328, 108 Stat. 2338 (Sept. 29, 1994).

23.   12 U.S.C. 1828(c)(13) , 1831u(b)(2) .

24.   Public Law 111-203 , 124 Stat. 1376 (July 21, 2010).

25.   See 12 U.S.C. 1852 .

26.   12 U.S.C. 2903(a)(2) .

27.   See, e.g., OCC Conditional Approval #1298 (November 2022); OCC Corporate Decision #2012-05 (April 2012).

28.   See, e.g., FRB Order No. 2012-2 (February 14, 2012) at 30.

29.   See, e.g., FRB Order No. 2021-04 (May 14, 2021) at 24.

30.   See, e.g., OCC Conditional Approval #1298 (November 2022).

31.  For example, many business combinations under the BMA are part of a larger transaction that requires a filing with the Board under the Bank Holding Company Act.

32.   12 U.S.C. 1828(c)(5) .

33.  For example, in a reverse triangular merger, a holding company may acquire an institution and merge its existing subsidiary into the newly acquired institution, which survives as a subsidiary of the holding company. See Comptroller's Licensing Manual, “Business Combinations” at 23 (January 2021).

34.   12 U.S.C. 1831o(e)(4) . The OCC may only approve a combination application by an undercapitalized institution if the agency has accepted the institution's capital restoration plan and determines that the proposed combination is consistent with and will further the achievement of the plan or if the Board of Directors of the Federal Deposit Insurance Corporation determines that the proposed combination will further the purposes of 12 U.S.C.1831o . 12 U.S.C. 1831o(e)(4)(A)-(B) .

35.  These are credit, interest rate, liquidity, price, operational, compliance, strategic, and reputation risks. See Comptroller's Handbook, “Bank Supervision Process” at 26-28 (Version 1.1, September 2019).

36.   See 12 CFR 5.13(b) .

37.  As the OCC's review of this factor is with respect to the resulting institution, it necessarily includes review of the record, products, and services of both the acquirer and target.

38.  Additionally, one commenter recommended increased scrutiny of convenience and needs in transactions where credit unions acquire national banks because credit unions are not subject to CRA. The Federal Deposit Insurance Corporation, not the OCC, is the responsible agency for BMA transactions where national bank or Federal savings association assets and deposit liabilities are transferred to an institution that is not covered by the Deposit Insurance Fund, such as a credit union. See 12 U.S.C. 1828(c)(1)(C) . To the extent an application with the OCC is required, such as a substantial asset change under 12 CFR 5.33 , the OCC will examine the proposed transaction under all applicable standards.

39.   See Comptroller's Licensing Manual, “Business Combinations” (Jan. 2021) at 7.

40.  While the BMA does not require the OCC to hold meetings or hearings, 12 CFR 5.11 describes the consideration and procedures for public hearings and notes the availability of several other types of meetings. The OCC considers three options for seeking oral input: (1) public hearing, (2) public meeting, and (3) private meeting.

41.   See 12 CFR 5.10(b)(1) .

42.  Specifically, part 5 notes that the OCC may extend the comment period when: (1) a filer fails to file all required publicly-available information on a timely basis or makes a request for confidential treatment not granted by the OCC; (2) a person requesting an extension demonstrates to the OCC that additional time is necessary to develop factual information the OCC determines is necessary to consider the filing; and (3) the OCC determines that other extenuating circumstances exist.

43.  For example, the OCC decennially reviews its regulations as required by the Economic Growth and Regulatory Paperwork Reduction Act. 12 U.S.C. 3311. See, e.g., Regulatory Publication and Review Under the Economic Growth and Regulatory Paperwork Reduction Act of 1996, 89 FR 8084 (February 6, 2024).

44.   See 12 U.S.C. 1828(c)(3) .

45.  OCC, CRA Performance Evaluations, https://occ.gov/​publications-and-resources/​tools/​index-cra-search.html .

46.  OCC, Freedom of Information Act, https://foia-pal.occ.gov/​ .

47.   44 U.S.C. 3501-3521 .

48.   5 U.S.C. 601 et seq.

49.  Based on data accessed using FINDRS on August 18, 2024.

50.  The estimate of the number of small entities is based on the SBA's size thresholds for commercial banks and savings institutions, and trust companies, which are $850 million and $47 million, respectively. Consistent with the General Principles of Affiliation 13 CFR 121.103(a) , the OCC counts the assets of affiliated financial institutions when determining if it should classify an OCC-supervised institution as a small entity. The OCC uses December 31, 2023, to determine size because a “financial institution's assets are determined by averaging the assets reported on its four quarterly financial statements for the preceding year.” See footnote 8 of the SBA's Table of Size Standards.

51.   2 U.S.C. 1532 .

52.   2 U.S.C. 1535 .

53.   12 U.S.C. 4802(a) .

54.   12 U.S.C. 4802(b) .

55.   5 U.S.C. 801 et seq.

56.   5 U.S.C. 801(a)(3) .

57.   5 U.S.C. 804(2) .

[ FR Doc. 2024-21560 Filed 9-24-24; 8:45 am]

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