American Bankers Association

January 3, 2003

Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549

Re: File No. S7-40-02; Disclosure Required by Sections 404, 406 and 407 of the Sarbanes-Oxley Act of 2002

Dear Mr. Katz:

The American Bankers Association (ABA) appreciates the opportunity to comment on the proposed rule, "Disclosure Required by Sections 404, 406, and 407 of the Sarbanes-Oxley Act of 2002." The purpose of this letter is to supplement the portion of our comment letter of November 29, 2002 relating to Section 407, "Disclosure of audit committee financial expert". ABA brings together all categories of banking institutions to best represent the interests of the rapidly changing industry. Its membership - which includes community, regional, and money center banks and holding companies, as well as savings associations, trust companies and savings banks - makes ABA the largest banking trade association in the country.

As described in our November 29 letter, the ABA is extremely concerned about the impact of the definition of "financial expert" in the SEC proposal. We believe that the SEC proposal appears to be in direct conflict with the Professional Standards of the American Institute of Certified Public Accountants (AICPA), which could severely limit the number of persons who would qualify as a "financial expert" - specifically for the audit committee of a bank.

A community banker in a rural state brought this to our attention, and we believe it is important that the SEC consider its implications. The community banker invited a local public accountant to participate on the bank's board. The accountant turned the banker down, and pointed to an AICPA rule that specifically recommends that CPAs not participate on a bank board if the CPA's clients are likely to engage in significant transactions with the bank. Specifically, the AICPA's Professional Standards on this point (ET Section 191.170-171, Ethics Rulings on Independence, Integrity, and Objectivity) are as follows:

85. Bank Director

.170 Question-May a member in public practice serve as a director of a bank?

.171 Answer-Yes; however, before accepting a bank directorship, the member should carefully consider the implications of such service if the member has clients that are customers of the bank.

These implications fall into two categories:

  1. Confidential Client Information-Rule 301 [ET section 301.01] provides that a member in public practice shall not disclose any confidential client information without the specific consent of the client. This ethical requirement applies even though failure to disclose information may constitute a breach of the member's fiduciary responsibility as a director.

  2. Conflicts of Interest-Interpretation 102-2 [ET section 102.03] provides that a conflict of interest may occur if a member performs a professional service (including service as a director) and the member or his or her firm has a relationship with another entity that could, in the member's professional judgment, be viewed by appropriate parties as impairing the member's objectivity. If the ember believes that the professional service can be performed with objectivity and the relationship is disclosed to and consent is obtained from all appropriate parties, performance of the service shall not be prohibited.

In view of the above factors, it is generally not desirable for a member in public practice to accept a position as a bank director where the member's clients are likely to engage in significant transactions with the bank. If a member is engaged in public practice, the member should avoid the high probability of a conflict of interest and the appearance that the member's fiduciary obligations and responsibilities to the bank may conflict with or interfere with the member's ability to serve the client's interest objectively and in complete confidence.

The general knowledge and experience of CPAs in public practice may be very helpful to a band in formulating policy matters and making business decisions; however, in most instances, it would be more appropriate for the member as part of the member's public practice to serve as a consultant to the bank's board. Under such an arrangement, the member could limit activities to those which did not involve conflicts of interest or confidentiality problems.

Although this rule has been in place for some time, the implications of it have not been as significant as they are now. Now that companies are required to have a financial expert (or disclose why not), the AICPA rule plays a much bigger role. The AICPA rule (which specifically focuses on banks) will make it even more difficult for banks, especially in small communities, to find a financial expert as defined in the SEC proposal. We believe that the AICPA rule even further limits the pool of candidates that could serve as financial experts on the boards of financial institutions.

In conclusion, we are very concerned about the conflict between the AICPA rules and the SEC proposed definition. We appreciate the opportunity to provide our views, and we would be pleased to work with the SEC and the AICPA to attempt to resolve this issue, which appears to be unique to banking. Please feel free to contact me at 202-663-5318 for additional information.


Donna Fisher