ADOPTED RULES An agency may take final action on a section 30 days after a proposal has been published in the Texas Register. The section becomes effective 20 days after the agency files the correct document with the Texas Register, unless a later date is specified or unless a federal statute or regulation requires implementation of the action on shorter notice. If an agency adopts the section without any changes to the proposed text, only the preamble of the notice and statement of legal authority will be published. If an agency adopts the section with changes to the proposed text, the proposal will be republished with the changes. TITLE 7. BANKING AND SECURITIES PART I. State Finance Commission CHAPTER 4. Currency Exchange 7 TAC sec.4.3 The Finance Commission of Texas (the commission) adopts amendments to sec.4.3, concerning reporting and recordkeeping required under the Currency Exchange Act, Texas Civil Statutes, Article 350 (the Act), with nonsubstantive changes to the proposed text as published in the May 7, 1996, issue of the Texas Register (21 TexReg 3879). The Act, sec.3(b), grants an exemption from its licensing requirement to persons holding a license under the Sale of Checks Act, Texas Civil Statutes, Article 489d. However, this exemption does not exempt a person that conducts currency exchange or transmission transactions from complying with the other provisions of the Act. Section 4.3 has been amended to clarify that licensees under the Act, as well as those exempt from licensing under the Act, sec.3(b), and those who otherwise engage in a currency exchange or currency transmission business, must comply with the Act's reporting and record-keeping provisions. Other amendments permit records required by the Act to be maintained outside Texas under certain conditions; more clearly outline specific reporting requirements; conform certain requirements that, at present, conflict with 31 Code of Federal Regulations (CFR), sec.103.37; permit verification of customer identity under certain circumstances; change identity verification requirements; further specify circumstances under which multiple transactions are to be treated as a single transaction for recordkeeping and reporting purposes; expand methods of maintaining transaction receipt information; and provide exemptions from recordkeeping and reporting under this section. Amendments also promote consistency between the dollar threshold for recordkeeping and reporting of currency transmission transactions with that for currency exchange transactions and add certain requirements establishing the identity of the employee handling the transaction and the date of the transaction. Finally, other changes are adopted for clarification and consistency. The commission adopts amendments to sec.4.3 in order to more clearly outline and refine the basic requirements for recordkeeping and reporting under the Act. These amendments will better enable the examination process to flow efficiently and effectively and safeguard the rights and interests of customers of these industries and the general public. They will enhance the orderly administration of the Act and ensure that the purposes of the Act, as they relate to record keeping and reporting are substantially fulfilled. The Department of Banking received one comment on the proposed amendments. The commenter stated that subsection (a) of the proposed rule should be amended to indicate that entities exempt under the Act, sec.3(a), (c), (d), (e), and (f) are also exempt from reporting and record-keeping requirements. Accordingly, at the commenter's request, the department deleted the phrase "or otherwise" from the end of subsection (a) of this section. This commenter also suggested that the dollar threshold established in subsection (e)(1)(A) of the proposal be brought in line with those established in 31 CFR, Part 103. The department believes that, to combat money laundering most effectively, the lower amount established in this adoption is necessary; however, a licensee may apply for and obtain a waiver from compliance with this section on a showing of adequate financial condition and records pursuant to subsection (i) of this section. Amendments to sec.4.3 are adopted under the Act, sec.7, which authorizes the commission to adopt rules necessary to implement record-keeping and reporting requirements. sec.4.3. Reporting and Recordkeeping. (a) For purposes of this section, a "currency business" refers to a person that engages in or has engaged in currency exchange or currency transmission transactions, whether the person is licensed under Texas Civil Statutes, Article 350 (the Act), or is exempt from licensing under the Act, sec.3(b). (b) A currency business shall maintain separate accounting books and records for its operations in Texas under the Act at a location readily accessible to the Texas Department of Banking (the department). (c) Currency businesses shall comply with all federal laws and regulations affecting their operations under the Act and shall maintain records of all filings made pursuant to and documentation required under all applicable federal laws and regulations, including the requirements set forth in 31 United States Code, sec.5313 and 31 Code of Federal Regulations (CFR), Part 103. (d) Each currency business shall, in a form prescribed by the banking commissioner (the commissioner), file quarterly written reports with the department. These reports must include: (1) year-to-date financial statements of the currency business signed by a principal of the currency business, including a balance sheet and statement of income and expenses; (2) currency exchange and/or currency transmission activity reports for the currency business including: (A) monthly summaries of its activities for each month in the quarter; (B) the number of and total dollar amount reported on Currency Transaction Reports (CTRs), Form 4789, filed with the Internal Revenue Service; (C) the number of and total dollar amount reported on Reports of International Transportation of Currency or Monetary Instruments (CMIRs), Form 4790, filed with the U.S. Customs Service; (D) the total dollars of outbound currency transmission activities by country of destination; and (E) the total dollars of transmission activities transacted on behalf of other companies under agent agreements with the currency business; (3) a list of all new employees, with corresponding job titles and duties, hired by the currency business since the last reporting period; (4) a list of the current principals of the currency business; (5) an explanation of any change in ownership of the currency business during the quarter; (6) the days and hours of operation of the currency business; (7) a list of all services currently offered by the currency business; (8) a list of all foreign and domestic bank accounts, account numbers, and the current names of persons with signature authority on the accounts; (9) a list of all companies for which the currency business is an agent; (10) a reconciliation of capital since the last quarter and documentation of changes; and (11) other information required by the commissioner. (e) In addition to the records required to be maintained under subsections (b), (c), and (d) of this section, currency businesses shall keep the following records: (1) Currency exchange. (A) No currency business may engage in a currency exchange transaction in an amount in excess of $1,000 unless the currency business issues sequentially numbered receipts or receipts bearing a unique identification or transaction number for each of those transactions. The receipts must include the date of the transaction, the amount and type of currency received and given in exchange, the rate of exchange, and the applicable commission for the transaction. The currency business also shall maintain a record of each such transaction that includes the identifying receipt number as well as the following information: (i) the name and address of the customer; (ii) the social security number of the customer, or if the customer is an alien and does not have a social security number, then the passport number, alien identification card number, or other official document of the customer evidencing nationality or residence (e.g., a provincial driver's license with indication of home address); (iii) the name and address of the person on whose behalf the transaction is conducted if the customer is conducting the transaction on behalf of another person, together with the appropriate identification for such other person specified in clause (ii) of this subparagraph; (iv) the location of the office where the transaction was conducted; (v) the initials of the employee of the currency business effecting the transaction; and (vi) the date of birth of the customer. (B) In addition, in connection with all transactions in an amount in excess of $1,000, the currency business shall verify the customer's name by examination of a document that contains the name and a photograph of the customer and is customarily acceptable within the banking community as a means of identification when cashing checks for nondepositors and shall record the specific identifying information on the receipt or in the log entry related to the transaction (e.g., state of issuance and number of driver's license). (C) Contemporaneous currency exchange transactions of the same or different types of currency made by or on behalf of the same person totaling in excess of $1,000 must be treated as one transaction. Multiple transactions initiated by or on behalf of the same person during one or more business days totaling in excess of $1,000 must be treated as one transaction if made by such person for the purpose of evading the reporting requirements under this section and an individual employee, director, officer, or partner of the currency business knew or should have known that the transactions occurred. (2) Currency Transmission. (A) No currency business authorized to engage in currency transmission may enter into a currency transmission transaction in an amount in excess of $1,000 unless the currency business issues sequentially numbered receipts or receipts bearing a unique identification or transaction number for each of those transactions. The receipt must bear the date and time of day of the transaction, the amount of the transmission in United States dollars, the rate of exchange (if applicable), and the applicable fee or commission for the transaction. The receipt also must indicate whether the transaction initiated or terminated the currency transmission. The currency business also must maintain a record of each such transaction that includes the identifying receipt number as well as the following information: (i) the name, address, and telephone number of the customer, whether sender or recipient; (ii) the social security number of the customer, or if the customer is an alien and does not have a social security number, then the passport number, alien identification card number, or other official document of the customer evidencing nationality or residence (e.g., a provincial driver's license with indication of home address); (iii) the date of birth of the customer; (iv) the name and address of the person on whose behalf the transaction is conducted, if the customer is conducting the transaction on behalf of another person, together with the appropriate identification for such other person specified in clause (ii) of this subparagraph; (v) the location of the office where the transaction was conducted; (vi) the designated recipient's name, address, and telephone number, if the customer is the sender; (vii) the sender's name, address, and telephone number, if the customer is the recipient and that information is available to the currency business; (viii) all instructions or messages relating to the transmission; (ix) the method of payment (e.g., cash, check, credit card, etc.); and (x) the initials of the employee of the currency business effecting the transaction. (B) In addition, in connection with all transactions in an amount in excess of $1,000, the currency business shall verify the customer's name and address by examination of a document that contains the name, address and photograph of the customer and is customarily acceptable within the banking community as a means of identification when cashing checks for nondepositors, and shall record the specific identifying information on the receipt or in the log entry related to the transaction. (C) Contemporaneous currency transmission transactions initiated by or on behalf of the same person or received by or on behalf of the same person totaling in excess of $1,000 must be treated as one transaction. Multiple transactions initiated by or on behalf of the same person or received by or on behalf of the same person during one or more business days totaling in excess of $1,000 must be treated as one transaction if made by such person for the purpose of evading the reporting requirements under this section and an individual employee, director, officer, or partner of the currency business knew or should have known that the transactions occurred. (3) A currency business shall maintain a log or logs of its activities under the Act for each calendar month containing the following information for each transaction: (A) the date of the transaction; (B) the location of the office where the transaction was conducted; (C) the amount and type of currency received and given in exchange, or the amount of the transmission, as applicable; (D) the rate of exchange, if applicable; (E) the amount of service charges or fees assessed in connection with the transaction; and (F) the number of the receipt issued in connection with the transaction, if any. (f) All logs, records, and receipt information may be maintained by the currency business in a readily accessible and retrievable form and must be maintained for a period of at least five years. An actual duplicate copy of receipts issued by a currency business need not be retained if the information required on the receipt is maintained in hard copy form, on microfiche, or in an electronic database from which information may be reasonably retrieved in hard copy form. (g) Failure to comply with this section constitutes grounds for denial, revocation, or suspension of a license as provided in the Act, sec.6, and assessment of a civil penalty in accordance with the Act, sec.15. (h) The commissioner may waive any requirement of this section upon a showing of good cause if the commissioner is of the opinion that: (1) the currency business maintains records sufficient for the department to examine its operations; or (2) the imposition of the requirement would cause an undue burden on the currency business and conformity with the requirement would not significantly advance the state's interests under the Act. (i) In lieu of compliance with this section, the commissioner may authorize a currency business to maintain its records in accordance with 31 CFR, sec.103.33(f). Such authorization must be pursuant to the commissioner's written approval based on review of current audited financial statements of the currency business. To support authorization under this subsection, the audited financial statements must have been issued by a certified public accountant acceptable to the commissioner within the 18-month period prior to its submission to the department and must have an unqualified opinion. If at an examination or other review of the records of a currency business by the department a violation of 31 CFR, sec.103.33(f), or the Act is cited, the authorization of the currency business pursuant to this subsection is subject to immediate revocation by order of the commissioner. (j) A currency business does not violate this section if it cannot produce records on transactions conducted prior to the effective date of this section which were not previously required by statute or rule. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be within the agency's authority. Issued in Austin, Texas, on June 21, 1996. TRD-9608966 Everette D. Jobe General Counsel Texas Department of Banking Effective date: July 12, 1996 Proposal publication date: May 7, 1996 For further information, please call: (512) 475-1300 7 TAC sec.4.9 The Finance Commission of Texas (the commission) adopts new sec.4.9, concerning the procedure to be used by the Texas Department of Banking (the department) for handling continuing and repeat violations of the Currency Exchange Act, Texas Civil Statutes, Article 350 (the Act), or an order or rule of the banking commissioner (the commissioner) promulgated under the Act, with nonsubstantive changes to the proposed text as published in the May 7, 1996, issue of the Texas Register (21 TexReg 3881). Pursuant to the Act, sec.15, a person who violates the Act or an order or rule of the commissioner promulgated under the Act is subject to a civil penalty imposed by the commissioner. This new section requires a cited licensee or person exempt from licensing under the Act to correct the violation and notify the department in writing within a specified time that the violation has been corrected, giving the date of correction. Because of staffing limitations, the department in the short term must be able to rely on licensee representations that violations have been corrected. Therefore, this section sets out that, with certain exceptions, a licensee or person exempt from licensing under the Act who misrepresents that a violation has been corrected violates this section. Section 4.9 also provides that, if the violation is not corrected within the correction period, the department may prosecute an administrative hearing for civil penalties from the date the original written notice of the violation is received without giving additional notice citing the violation. The new section provides, however, that a notice of hearing must be given prior to the administrative hearing. Furthermore, sec.4.9 provides that the correction period is inapplicable to a violation repeated within 18 consecutive months, and the department may immediately set such a violation for an administrative hearing for civil penalties from the date of the subsequent violation. Finally, this section establishes a mailbox rule for service, defines repeat violation, and sets out certain enforcement measures with respect to repeat violations that are authorized under the Act, including the initiation of an administrative hearing seeking maximum civil penalties. Adoption of sec.4.9 will result in a more efficient, uniform procedure for assessing civil penalties against violators of the Act, or an order or rule of the commissioner promulgated under the Act. The department received one comment on proposed sec.4.9. The commenter requested that both the subsection (e) notice of hearing and subsection (a) notice of violation include a requirement that these notices be sent by certified mail. Accordingly, the department has changed subsection (e) to require that the notice of hearing be sent by certified mail, which is its current practice. As for the notice of violation, the department rejected the commenter's request that it be delivered by certified mail. With respect to this notice, the commenter intimated that a presumption of receipt within three days of mailing is not a reliable presumption unless delivery is by certified mail. The department's experience is contrary. Because certified mail deliveries often require the addressee to pick the mail up at a post office, service is rarely accomplished in this manner in three days. Since, in the majority of cases, the addressee receives the correspondence more quickly by general mail, the department has provided for notice in this manner. On the other hand, general delivery offers no proof of receipt; as a consequence, the department believes it is prudent to use the three-day presumption, also used as a presumption in the Texas Rules of Civil Procedure, Rule 21a, when a party is required to perform an act within a prescribed time after the date of a mailing. That delivery was made within this timeframe is merely a presumption that is subject to rebuttal. Section 4.9 is adopted pursuant to rulemaking authority under the Act, sec.7, which authorizes the commission to prescribe rules necessary to implement the Act. sec.4.9. Misrepresentation of Correction; Enforcement Actions for Continuing and Repeat Violations. (a) Notice to the department. A licensee or person exempt from licensing under the Act, sec.3(b) (exempt person), cited for a violation of Texas Civil Statutes, Article 350 (the Act), or a rule or order promulgated thereunder, shall correct the violation and notify the department in writing within 30 days of receiving written notice of the violation from the department that the violation has been corrected and that the correction occurred on a specified date. Absent proof to the contrary, receipt of notice of the violation is deemed to have occurred three days from the date of its mailing. (b) Misrepresentation of correction. Except as provided in subsection (c) of this section, a licensee or exempt person who responds to the department in writing under subsection (a) of this section indicating that the violation has been corrected violates this section if the violation has not been corrected as represented in the response. (c) Good faith actions and belief. Subsection (b) of this section does not apply to circumstances in which the department determines that a diligent effort has been made to correct a violation in good faith and that it was not unreasonable for the licensee or exempt person to believe the violation had been corrected as reported. (d) Civil penalties. In addition to another enforcement action permitted by law, if 30 days has elapsed since the cited licensee or exempt person received the notice of violation and the violation has not been corrected within that 30-day period, the department may prosecute an administrative hearing for civil penalties under the Act, sec.15. Civil penalties in such a hearing may properly be assessed against the licensee or exempt person from the date the original written notice of violation was received until the violation is corrected. Without sufficient proof to the contrary, receipt of notice under this subsection is deemed to have occurred three days from the date of its mailing. (e) Notice of hearing required. Notice of hearing meeting the requirements of the Act, sec.21, must be given by certified mail prior to an administrative hearing for civil penalties under the Act, sec.15. (f) Repeat violations. A violation of the Act, or a rule or order promulgated thereunder, that is cited on more than one consecutive examination report is a repeat violation. Repeat violations are subject to various enforcement actions under the Act, including but not limited to injunctive relief under the Act, sec.16, forfeitures under the Act, sec.17, and cease and desist orders under the Act, sec.18, and are sufficient cause for the department to seek maximum civil penalties available under the Act, sec.15, or to pursue other recourse authorized by law. (g) Correction period inapplicable. In the event a licensee or exempt person violates the same provision of the Act, rule, or order more than once within 18 consecutive months, the 30-day correction period provided for in subsection (a) of this section does not apply, and the department may immediately set the violation for an administrative hearing to assess civil penalties under the Act, sec.15. Civil penalties in such a hearing may properly be assessed against the licensee or exempt person from the date of the subsequent violation. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be within the agency's authority. Issued in Austin, Texas, on June 21, 1996. TRD-9608967 Everette D. Jobe General Counsel Texas Department of Banking Effective date: July 12, 1996 Proposal publication date: May 7, 1996 For further information, please call: (512) 475-1300 PART II. Texas Department of Banking CHAPTER 12. Loans and Investments SUBCHAPTER C. Investment Limits 7 TAC sec.12.61 The Finance Commission of Texas (the commission) adopts sec.12.61, concerning investment in securities by state banks, in new Subchapter C entitled Investment Limits, without changes to the proposal published in the May 7, 1996, issue of the Texas Register (21 TexReg 3882). The section will not be republished. The new section clarifies that a state bank does not violate an applicable investment limitation when an investment in securities that was legal when made becomes nonconforming as a result of the enactment of Texas Civil Statutes, Article 342-5.101, and Article 342-5.104. The new section also specifies that a state bank may not make an investment after September 1, 1995, which is not in compliance with law or that would cause an existing investment to become further out of compliance with law. No comments were received regarding adoption of this section. Adoption of this section is made under the Act, sec.5.101(i), which authorizes the commission to adopt rules to administer and carry out the Act, sec.5.101, including rules to establish limits, requirements, or exemptions other than those specified by the Act, sec.5.101, for particular classes or categories of investment securities, or limit or expand investment authority for state banks for particular classes or categories of investment securities. Adoption of this section is also made under the Act, sec.1.012(a), which authorizes the commission to adopt rules to implement and clarify the Act, to preserve or protect the safety and soundness of state banks, and grant the same rights and privileges to state banks that are or may be granted to national banks domiciled in this state. As required by the Act, sec.1.012(b), the commission considered the need to promote a stable banking environment, provide the public with convenient, safe, and competitive banking services, preserve and promote the competitive parity of state banks with national banks and other depository institutions in this state consistent with the safety and soundness of state banks and the state bank system, and allow for economic development within this state. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be within the agency's authority. Issued in Austin, Texas, on June 21, 1996. TRD-9608993 Everette D. Jobe General Counsel Texas Department of Banking Effective date: July 12, 1996 Proposal publication date: May 7, 1996 For further information, please call: (512) 475-1300 CHAPTER 15. Corporate Activities SUBCHAPTER E. Change of Control 7 TAC sec.15.81 The Finance Commission of Texas (the commission) adopts new sec.15.81, in new Subchapter E, concerning acquisitions or changes of control of state banks and bank holding companies subject to regulation by the Banking Commissioner of Texas (commissioner), with nonsubstantive changes to the text as proposed in the May 7, 1996, issue of the Texas Register (21 TexReg 3883). The section as adopted sets out when an application is necessary and the information which must be included in the application; identifies additional exempt transactions; defines situations in which a notice in lieu of filing is permissible and clarifies the role of the commissioner in the approval process. The adopted new section is necessary as a result of the enactment of Texas Civil Statutes, Article 342-1.001 et seq (the Texas Banking Act, sec.sec.1.001 et seq) (Act), particularly Chapter 4, Subchapter A-Transfer of Ownership Interests in State Bank (Act, sec.sec.4.001-4.007), which substantially amends the prior law, Texas Civil Statutes, Article 342-401 and Article 342-401a (repealed). In addition, new sec.15.81 is adopted to reduce regulatory burden, especially concerning exempt transactions, and to make the Act, sec.sec.4.002-4.005, compatible with federal regulations to the extent possible. Repealed Texas Civil Statutes, Article 342-401, required regulated entities to file notice subsequent to the transfer of 10% or more of the outstanding voting securities. Article 342-401a required the filing of an application with the commissioner prior to a transfer of 25% or more of the outstanding voting securities. The filing requirement for notice subsequent to the transfer of 10% of the outstanding voting securities of a state bank or bank holding company has been eliminated in the Act. The Act, sec.1.002(15), has, however, broadened the definition of control. Control is defined generally as the ability to control or influence management, or to elect the board of directors, regardless of the number of voting securities transferred or the form used for accomplishment of control. Ownership of 25% of the voting securities outstanding of a state bank or bank holding company is a presumption of control and requires application for approval. The Act, sec.4.001(a), also defines control as direct or indirect ownership or power to vote, by a principal shareholder or participant, a greater percentage of voting securities of a state bank or bank holding company than any other shareholder or participant. The Act, sec.4.002, provides for an application requesting approval of change of control consistent with the definition of control. Adopted sec.15.81(b) and (c) provide for the filing of an application pursuant to the above provisions. Subsection (c), as adopted, requires that each subject applicant file a fully completed verified application containing detailed biographical and financial information. Adopted subsection (h) sets out situations in which a notice in lieu of filing an application is authorized. The Act, sec.4.003, changes the time for approval or denial of the application for acquisition or change of control to 60 days from the 30 day period under former Article 342-401a(D), and describes the criteria for approval and the procedures for requesting a hearing by the commissioner, which are substantially unchanged from former law. The Act, sec.4.004, provides that the standard of review applicable to an appeal of a denial of change of control is the substantial evidence rule rather than the de novo standard required under former law. Adopted subsection (i) clarifies the Act in providing that an applicant may receive automatic approval should the commissioner fail to give the applicant written approval within the 60-day period, subject to the notification provisions in subsection (k) as proposed. In addition, the commissioner is specifically authorized to give conditional approval under adopted subsection (i) or may deem an application abandoned under adopted subsection (l). Adopted subsection (m) further clarifies the hearings process regarding applications, especially where conditional approval is warranted. The Act, sec.4.005, provides for exemptions from change of control provisions if the acquisition is to satisfy or compromise a bona fide preexisting debt; if the shares are acquired by one who already holds control and has been approved as a control person of the same bank and bank holding companies; or if the change of control is subject to the Act, Chapter 8, Subchapter D (relating to acquisitions of banks by bank holding companies subject to review and approval by the Board of Governors of the Federal Reserve System). Acquisition by inheritance is also exempt. Adopted sec.15.81(g) provides for additional exemptions from the application process which have been determined to be appropriate to the objectives of the Act. These adopted exemptions include acquisitions or changes of control which are inadvertent as a result of a stock redemption or repurchase if the potential control person had no input into the decision; which involve holdings by an employee stock ownership plan of less than 25% under certain conditions; or which are the result of distributions of a proportionate number of voting securities as a result of the liquidation of a bank holding company. The subsection as adopted also exempts acquisitions or changes of control as a result of gifts to close family members or to a limited partnership under certain conditions if neither the donor or donee is under an enforcement order and notice is given in lieu of the filing of an application. Finally, the Act of May 18, 1995, 74th Legislature, Chapter 914, sec.31(a), 1995 Texas Session Law Service 4451, 4552, contained certain transition provisions which clarified that a principal shareholder or participant is not required to file a change of control application if deemed in control solely by reason of changed standards in the Act as long as no additional voting securities are acquired. As adopted, sec.15.81(f) incorporates this provision. The department received two sets of written comments. Suggestions were made requesting changes to the proposed section, however, in general, commenters were in support of the section. The following comments resulted in changes to the adopted sections: 1. The Texas Bankers Association ("TBA") suggested deleting the comma after the first word "material" in sec.15.81(c)(5) for more clarity. This change has been made. TBA also suggested adding the word "following" in sec.15.81(g)(3) in the phrase "in a state bank the liquidation of a bank holding company". A word had been inadvertently dropped from this phrase in the section as proposed. Another commenter made a similar suggestion asking that the phrase "arising from" be used. After review, the change suggested by the second commenter was made for greater completeness and clarity. The phrase in the section as adopted, has been changed to "in a state bank arising from liquidation of a bank holding company". 2. Another commenter requested that sec.15.81(b) be changed to add the phrase "directly or indirectly" to the first sentence, to read, in part, that " a person or entity may not, directly or indirectly, acquire a legal or beneficial interest in voting securities of a state bank...." The department reviewed the Act and determined that the addition as requested was appropriate and has been made. 3. The same commenter also asked that grammatical changes be made to sec.15.81(c)(5). The department reviewed the suggested change and as corrected the third sentence of that paragraph reads as follows: "A material legal proceeding also includes a proceeding that resulted in a material unsatisfied judgment, or that may result in a judgment, against the acquiring person or entity and such loss contingency must be disclosed in the financial statements of the acquiring person or entity under generally accepted accounting principles, or is otherwise material." 4. The commenter also questioned why the exemption in sec.15.81(g)(6) is limited to gifts to limited partnerships. The purpose of this provision is to provide an exemption for certain estate planning devices. As a result of this question, this section has been clarified to include other "estate planning vehicle, if determined by the banking commissioner to have an equivalent effect." 5. This commenter made a last request that the phrase "notice is filed" in the last paragraph of sec.15.81(i), be changed to "notice is published". This change is accepted as consistent with the Act. A member of the staff of the department suggested that sec.15.81(g)(2) be changed to clarify the intent of the section as proposed that an application for change of control must be filed by the officer, director or principal shareholder or participant who controls the voting securities under certain circumstances and not by the ESOP. This change is also made in the section as adopted. The department received certain comments about the proposed section which, after thorough examination, are respectfully declined for the reasons stated: 1. The second commenter requested that all references in the proposed section to "a person or entity" be changed to "a person" since the Act, sec.1.002(a)(44), defines person to include an individual or legal entity. While the commenter is technically correct, the department is of the opinion that inclusion of both terms in the adopted section promotes better understanding by non-lawyers and no harm will result from the inclusion. 2. This commenter also asked that sec.15.81(c)(1) be changed to substitute an income statement in lieu of the required statement of changes in net worth, and further that the phase "subject to the Act and to this section" be changed to "which would result in the control of a state bank." Both of the suggestions were rejected. A statement of changes in net worth summarizes the financing and investing activities of a person, and also includes income generated and other income statement elements. For this reason, the department is of the opinion that the statement of changes in net worth is preferable. After considering the second suggestion, the department is also of the opinion that the reference to the Act and the section is more concise and should be retained in the section as adopted. 3. In addition, the same commenter queried whether the exemption in sec.15.81(g)(4), concerning acquisitions by virtue of pro-rata stock dividends or stock splits, was necessary since by definition such transactions should not have control implications. Again, while the commenter is technically correct, the department is of the opinion that one of the purposes in adopting the section is provide potential applicants and others with an easily understandable list of exemptions. In addition, whether this type of transaction is in fact exempt is a frequent question received by the department. 4. Finally, the commenter questioned why written agreements with the banking commissioner concerning conditional approval are enforceable against both the applicant and the bank under sec.15.81(l). The commenter argued that the bank should not be subject to the agreement unless the bank is involved. The department construes this provision to contemplate and require some involvement by the bank before enforcement against the bank would be pursued. As a result of applications for change of control and questions regarding such applications which have been received by the department after publication of this section as proposed, it is clear that some individuals have interpreted certain provisions of the Act dealing with change of control in a manner not consistent with the intent of the Act. Future amendment of this section may be appropriate at a later date to clarify additional issues. The new section is adopted under the Act, sec.1.012, which authorizes the commission to adopt rules to accomplish the purposes of the Act, to implement and clarify the Act, to preserve the safety and soundness of state banks, and to grant the same rights and privilege to state banks that are or may be granted to national banks domiciled in Texas. As required by the Act, sec.1.012(b), the commission considered, in adopting the section, the need to promote a stable banking environment, provide the public with convenient, safe, and competitive banking services, preserve and promote the competitive parity of state banks with national banks and other depository institutions in this state consistent with the safety and soundness of state banks and the state bank system, and allow for economic development within this state. sec.15.81. Application for Acquisition or Change of Control of State Bank. (a) Definitions. Words and terms used in this chapter that are defined in Texas Civil Statutes, Article 342-1.001 et seq (The Texas Banking Act, sec.1.001 et seq) (the Act), have the same meanings as defined in the Act. (b) General. Without the prior written consent of the banking commissioner, a person or entity may not, directly or indirectly, acquire a legal or beneficial interest in voting securities of a state bank or a corporation or other entity owning voting securities of a state bank if, after the acquisition, the person or entity would control the state bank. Except as otherwise provided in this section, an application must be filed with the banking commissioner for review and consideration of the proposed transaction. (c) Form of application. The applicant shall submit a fully completed, verified application on a form prepared and prescribed by the banking commissioner and simultaneously tender the required filing fee pursuant to sec.15.2 of this title (relating to Filing Fees and Cost Deposits). The application must, except to the extent expressly waived in writing by the banking commissioner, disclose the following information: (1) the identity, biographical data, business background, and experience relating to banking matters, and a current statement financial condition, a statement of changes in net worth and a statement of cash flows of each person by whom, or on whose behalf, the acquisition is to be made and by each person acting in concert with others seeking to acquire voting securities subject to the Act and to this section. Financial statements will be considered current if audited and dated within 180 days of the date of the application or will be considered current if unaudited and dated within 90 days of the date of the application. All financial statements must be accompanied by an affidavit of no material change dated as of the date of application; (2) a completed authorization to release employment, financial, credit, fingerprint information and criminal history records to the department; (3) a completed confirmation inquiry form; (4) the identity of each entity other than a natural person seeking to acquire control or working in concert with others to acquire control of a state bank or bank holding company and a copy of the entity's most recent audited financial statement. Financial statements will be considered current if audited and dated within 180 days of the date of the application or will be considered current if unaudited and dated within 90 days of the date of the application. All financial statements must be accompanied by an affidavit of no material change dated as of the date of application; (5) a description of all material, pending or adjudicated legal or administrative proceedings in which each acquiring person or entity is or was a party. A material legal proceeding includes a proceeding in which the person or entity has been charged with, cited for, or convicted under a state or federal law relating to banking or other financial institutions, securities or financial instrument reporting, or a felony or crime involving moral turpitude under the laws of a state, the United States, or another country. A material legal proceeding also includes a proceeding that resulted in a material unsatisfied judgment, or may result in a judgment, against the acquiring person or entity and such loss contingency must be disclosed in the financial statements of the acquiring person or entity under generally accepted accounting principles, or is otherwise material. A material administrative proceeding includes a proceeding in which the person or entity is or has been subject to a cease and desist, removal, enforcement, or other order, including an order of supervision or conservatorship issued by a state, federal, or foreign regulatory agency; (6) the terms and conditions of the proposed acquisition or change of control and the manner in which the acquisition or change of control is to be made; (7) the identity, source, and amount of the funds or other consideration used or to be used in making the acquisition or change of control; (8) if a portion of the funds or other consideration to be used in making the acquisition has been borrowed or is to be borrowed or otherwise obtained for the purpose of making the acquisition, a complete description of the transaction, the names of the parties to the transaction, and a summary of all arrangements, agreements, or understandings with such parties including terms of repayment; (9) the applicant's current or proposed business or strategic plan including amendments to a current plan; (10) plans or proposals to liquidate the state bank or bank holding company, to sell its assets or merge it with another bank or holding company, or to make other major changes in its business, corporate structure, or management; (11) plans or proposals to change officers and directors of the state bank or bank holding company and the related bank or financial institution management experience of proposed or current officers and directors; (12) the terms and conditions of an offer, invitation, agreement, or arrangement under which a voting security will be acquired and any contract affecting such security or its financing after it is acquired; (13) pro forma financial statements with projections indicating whether the acquired or controlled state bank or bank holding company will be adequately capitalized for a period of not less than two years from the date of acquisition; and (14) such other information that the banking commissioner requires to be included in the particular application as considered necessary to an informed decision to approve or reject the proposed acquisition. The applicant bears the burden to supply all material information necessary to enable the banking commissioner to make a fully informed decision regarding the application. (d) Public notice. Upon notification that an initial application is complete and accepted for filing pursuant to sec.15.4(b) of this title (relating to Required Information and Abandoned Filings), the applicant shall publish notice as required by the Act, sec.4.002(d), and sec.15.5 of this title (relating to Public Notice) in the county where the state bank's or bank holding company's home office is located. One publication under this subsection is adequate unless the banking commissioner expressly requires additional notice. (e) Confidentiality. Information obtained by the banking commissioner under this section is confidential and may not be disclosed by the banking commissioner or an officer or employee of the department, subject only to such disclosure as may be permitted by the Act, sec.sec.2.102-2.108 or 4.002(d), or by sec.3.111 of this title (relating to Confidential Information). (f) Grandfather clause. A person or entity considered to be in control solely as a result of changed standards in the Act as effective September 1, 1995, is exempt from filing an application under this section as long as such person was in compliance with applicable law immediately prior to the effective date of the Act and has not acquired additional shares of voting securities subsequent to the passage of the Act. This subsection specifically applies to a principal shareholder or principal participant of a state bank or bank holding company that directly or indirectly owns or has the power to vote a greater percentage of voting securities of the state bank or holding company than another shareholder or participant. (g) Exemptions. In addition to the acquisitions specifically exempted pursuant to the Act, sec.4.005, the following types of involuntary acquisitions of control do not require prior written approval of the banking commissioner pursuant to the Act, sec.4.001: (1) the inadvertent acquisition of control of a state bank or bank holding company by a shareholder as a result of a stock redemption or repurchase by the issuer if the potential controlling shareholder or participant of a state bank or bank holding company did not vote or have any direct or indirect input into the issuer's decision to repurchase or redeem the voting securities; (2) the acquisition and control by a qualified employee stock ownership plan (ESOP) of less than 25% of voting securities of a state bank or bank holding company unless an officer, director, or principal shareholder or participant directly or indirectly controls the voting securities held by the ESOP, in which event an application for acquisition of control must be filed by the officer, director or principal shareholder or participant, if as a result that person would control over 25% of the voting securities; (3) the acquisition of control of a state bank as a result of a shareholder receiving proportionate voting securities in a state bank arising from the liquidation of a bank holding company; (4) the acquisition of additional shares of voting securities of a state bank or bank holding company by virtue of a pro-rata stock dividend or stock split not resulting in increased ownership percentage; (5) the acquisition of control of a state bank or bank holding company as a result of a gift made in good faith, provided (A) the donee is related to the donor within the second degree of consanguinity or affinity, (B) neither the donor nor donee is under an enforcement order, and (C) notice of the gift is given to the banking commissioner pursuant to subsection (h) of this section; and (6) the acquisition of control of a state bank or bank holding company as a result of the transfer of voting securities by gift to a limited partnership or other estate planning vehicle, if determined by the banking commissioner to have an equivalent effect, if (A) the limited partnership owns no other voting securities other than the securities transferred, (B) the donor is the sole general partner of the limited partnership who retains sole voting authority over the voting securities, (C) neither the donor nor donee is under an enforcement order, and (D) notice of the gift is given to the banking commissioner pursuant to subsection (h) of this section. (h) Notices in lieu of filing. In the event that an application is not required because of exemption under the Act, sec.4.005, or subsection (g) of this section, but an application is required to be filed with a federal regulatory authority or a regulatory authority of another state, a copy of the application as filed with another agency must be filed with the banking commissioner within seven days of the date of such other filing or filings. A notice in lieu of filing is also required of a person claiming an exemption under the Act, sec.4.005 (1) or (3), or paragraph (5) or (6) of subsection (g) of this section. This notice must be filed before the securities acquired are voted and must be accompanied by a completed authorization pursuant to subsection (c)(2) of this section. No filing fees are required for notices filed under this section; however, should the banking commissioner determine that an application is required, the appropriate filing fee pursuant to sec.15.2 of this title (relating to Filing Fees and Cost Deposits) is required. (i) Approval. Automatic approval; conditional approval. If an application filed under this section is not approved by the banking commissioner or is not set for hearing on or before the 60th day after notice is published pursuant to the Act, sec.4.002(d), the transaction may be consummated. The commissioner may, before the expiration of the initial 60-day period, give the applicant written notice that the application has been approved, in which case the transaction may be immediately consummated on receipt of the notice. The banking commissioner may also, before the expiration of the initial 60-day period, give an applicant written notice that the application has been approved subject to certain conditions. The applicant shall enter into a written agreement with the banking commissioner concerning the conditions on or before the 30th day after the date of notification of conditional approval. An agreement entered into by the applicant and the banking commissioner concerning conditional approval is enforceable against the applicant and the bank and is considered for all purposes an agreement under the provisions of the Act. In the event that an applicant who has received conditional approval does not enter into an agreement with the banking commissioner as required by this subsection, the banking commissioner shall set the matter for hearing. (j) Consummation of an acquisition or change of control transaction. The acquisition or change of control of the voting securities must be consummated as proposed in the application, in the agreement concerning conditional approval as provided in subsection (i) of this section, or as provided in a final order pursuant to subsection (m) of this section. A transaction approved or conditionally approved under this section must be consummated within 12 months after the date of approval by the banking commissioner unless an extension is granted in writing. Until a transaction is consummated, the banking commissioner reserves the right to alter, suspend or withdraw approval should an interim development warrant such action. (k) Notification by banking commissioner. A notification by the banking commissioner under this section may be by registered or certified mail, return receipt requested, and is complete when the notification is deposited in the United States mail postage prepaid, return receipt requested, addressed to the address furnished in the application. (l) Abandoned filing. The banking commissioner may determine an application to be abandoned pursuant to sec.15.4 of this title (relating to Required Information and Abandoned Filings). (m) Hearing on application. The banking commissioner shall set an application for hearing on or before the 60th day after notice is published as required by the Act, sec.4.002(d), and subsection (i) of this section. The notice of hearing must comply with Government Code, sec.2001.051, and shall state that the purpose of the hearing is to give the applicant an opportunity to show all required qualifications for the banking commissioner's approval of the acquisition or change of control application have been met. The applicant has the burden of showing all such required qualifications by a preponderance of evidence. The hearing must comply with Government Code, Chapter 2001 (the Administrative Procedure Act). After the hearing, the banking commissioner shall grant or deny the application based solely upon the evidence presented at the hearing. An applicant may not appeal denial of an application or conditional approval of an application until a final order is issued. If after a hearing has been held, the banking commissioner has entered an order denying the application, and the order has become final, the applicant may appeal the final order by filing a petition for judicial review under the substantial evidence rule in the District Court of Travis County, Texas, and not elsewhere, as provided by the Act, sec.4.004, and the Government Code, Chapter 2001. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be within the agency's authority. Issued in Austin, Texas, on June 21, 1996. TRD-9608994 Everette D. Jobe General Counsel Texas Department of Banking Effective date: July 12, 1996 Proposal publication date: May 7, 1996 For further information, please call: (512) 475-1300 TITLE 16. ECONOMIC REGULATION PART VIII. Texas Racing Commission CHAPTER 321.Pari-mutuel Wagering SUBCHAPTER C.Simulcast Wagering General Provisions 16 TAC sec.321.204 The Texas Racing Commission adopts an amendment to sec.321.204, concerning the approval of wagering on simulcast races, without changes to the proposed text published in the April 16, 1996 issue of the Texas Register (21 TexReg 3303). The amendment is adopted to ensure that the commission's procedures for approving simulcast signals will operate efficiently and effectively. The amendment changes the deadline for filing a request for approval of a simulcast signal. No comments were received regarding adoption of the amendment. The amendment is adopted under the Texas Civil Statutes, Article 179e, sec.3.02, which authorize the commission to adopt rules for conducting racing with wagering and for administering the Texas Racing Act; sec.11.01, which authorizes the commission to adopt rules to regulate pari-mutuel wagering; and sec.11.011, which authorizes the commission to adopt rules to regulate pari-mutuel wagering on simulcast races. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 20, 1996. TRD-9608875 Paula Cochran Carter General Counsel Texas Racing Commission Effective date: July 11, 1996 Proposal publication date: April 23, 1996 For further information, please call: (512) 833-6699 Common Pool Wagering 16 TAC sec.321.276, sec.321.277 The Texas Racing Commission adopts amendments to sec.321.276 and sec. 321.277, concerning manual merge and failure to merge pari-mutuel wagers on simulcast races, without changes to the proposed text published in the April 23, 1996 issue of the Texas Register (21 TexReg 3493). The amendments are adopted to ensure pari-mutuel wagering on simulcast races will be fair to the patrons, cost-effective for the racetracks, effectively regulated, and of the highest integrity. The amendments change the procedures for merging common pools manually in the event of an equipment malfunction and for refunding wagers if the pools fail to merge. No comments were received regarding the proposal. The amendments are adopted under the Texas Civil Statutes, Article 179e, sec.3.02, which authorize the commission to adopt rules for conducting racing with wagering and for administering the Texas Racing Act; sec.6.06, which authorizes the commission to adopt rules on all matters relating to the operation of racetracks; sec.11.01, which authorizes the commission to adopt rules to regulate pari-mutuel wagering; and sec.11.011, which authorizes the commission to adopt rules to regulate pari-mutuel wagering on simulcast races. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 20, 1996. TRD-9608876 Paula Cochran Carter General Counsel Texas Racing Commission Effective date: July 11, 1996 Proposal publication date: April 23, 1996 For further information, please call: (512) 833-6699 TITLE 22. EXAMINING BOARDS PART XVI. Texas Board of Physical Therapy Examiners CHAPTER 321.Definitions 22 TAC sec.321.1 The Texas Board of Physical Therapy Examiners adopts an amendment to sec.321.1, concerning Definitions, without changes to the proposed text as published in the May 7, 1996 issue of the Texas Register (21 TexReg 3891). This section is being amended to clarify the procedure by which a physical therapist supervise physical therapy assistants. Comments in support were received on the proposed amended 321.1 Definitions from: The Texas Hospital Association, Integrated Health Services of Texoma at Sherman, Integrated Health Services of Keller at Mimosa, Maria Graciela Ibarra, Glorieta Justimbaste, Irene Mendez, Joe De Leon, Michal Ptak, Susan Dodson, Anastacia Gatmaitan, and Melody A Malone. No comments were received that opposed proposed changes. The amendment is adopted under the Physical Therapy Practice Act, Texas Civil Statutes, Article 4512e, which provides the Texas Board of Physical Therapy Examiners with the authority to adopt rules consistent with this Act to carry out its duties in administering the Act. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 21, 1996. TRD-9608945 John P. Maline Executive Director Texas Board of Physical Therapy Examiners Effective date: July 12, 1996 Proposal publication date: May 7, 1996 For further information, please call: (512) 305-6900 CHAPTER 325.Organization of the Board 22 TAC sec.325.7 The Texas Board of Physical Therapy Examiners adopts new sec.325.7, concerning the Organization of the Board, without changes to the proposed text as published in the February 27, 1996 issue of the Texas Register (21 TexReg 1474). This section is being adopted to establish a method to stagger board member expiration dates. This section informs the public when board member terms will expire. No comments were received regarding adoption of this section. The new section is adopted under the Physical Therapy Practice Act, Texas Civil Statutes, Article 4512e, which provides the Texas Board of Physical Therapy Examiners with the authority to adopt rules consistent with this Act to carry out its duties in administering the Act. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 21, 1996. TRD-9608944 John P. Maline Executive Director Texas Board of Physical Therapy Examiners Effective date: July 12, 1996 Proposal publication date: February 27, 1996 For further information, please call: (512) 305-6900 CHAPTER 329.Licensing Procedure 22 TAC sec.329.1 The Texas Board of Physical Therapy Examiners adopts an amendment to sec.329.1, concerning General Licensing Procedures, without changes to the proposed text as published in the May 7 1996 issue of the Texas Register (21 TexReg 3892). This section is being amended to explain the requirements to receive a license to practice physical therapy in Texas. No comments were received on the proposed amendment. The amendment is adopted under the Physical Therapy Practice Act, Texas Civil Statutes, Article 4512e, which provides the Texas Board of Physical Therapy Examiners with the authority to adopt rules consistent with this Act to carry out its duties in administering the Act. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 21, 1996. TRD-9608946 John P. Maline Executive Director Texas Board of Physical Therapy Examiners Effective date: July 12, 1996 Proposal publication date: May 7, 1996 For further information, please call: (512) 305-6900 22 TAC sec.329.2 The Texas Board of Physical Therapy Examiners adopts an amendment to sec.329.2, concerning License by Examination, without changes to the proposed text as published in the May 7 1996 issue of the Texas Register (21 TexReg 3892). This section is being amended to explain the requirements to receive a license to practice physical therapy in Texas. No comments were received on the proposed amendment. The amendment is adopted under the Physical Therapy Practice Act, Texas Civil Statutes, Article 4512e, which provides the Texas Board of Physical Therapy Examiners with the authority to adopt rules consistent with this Act to carry out its duties in administering the Act. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 21, 1996. TRD-9608947 John P. Maline Executive Director Texas Board of Physical Therapy Examiners Effective date: July 12, 1996 Proposal publication date: May 7, 1996 For further information, please call: (512) 305-6900 22 TAC sec.329.3 The Texas Board of Physical Therapy Examiners adopts an amendment to sec.329.3, concerning Temporary License for Examination Candidates, without changes to the proposed text as published in the May 7 1996 issue of the Texas Register (21 TexReg 3893). This section is being amended to explain the requirements to receive a temporary license to practice physical therapy in Texas. No comments were received on the proposed amendment. The amendment is adopted under the Physical Therapy Practice Act, Texas Civil Statutes, Article 4512e, which provides the Texas Board of Physical Therapy Examiners with the authority to adopt rules consistent with this Act to carry out its duties in administering the Act. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 21, 1996. TRD-9608948 John P. Maline Executive Director Texas Board of Physical Therapy Examiners Effective date: July 12, 1996 Proposal publication date: May 7, 1996 For further information, please call: (512) 305-6900 22 TAC sec.329.5 The Texas Board of Physical Therapy Examiners adopts an amendment to sec.329.5, concerning License Procedure for Foreign-Trained Applicants, without changes to the proposed text as published in the May 7 1996 issue of the Texas Register (21 TexReg 3893). This section is being amended to explain the requirements to receive a license to practice physical therapy in Texas. No comments were received on the proposed amendment. The amendment is adopted under the Physical Therapy Practice Act, Texas Civil Statutes, Article 4512e, which provides the Texas Board of Physical Therapy Examiners with the authority to adopt rules consistent with this Act to carry out its duties in administering the Act. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 21, 1996. TRD-9608949 John P. Maline Executive Director Texas Board of Physical Therapy Examiners Effective date: July 12, 1996 Proposal publication date: May 7, 1996 For further information, please call: (512) 305-6900 TITLE 25. HEALTH SERVICES PART II. Texas Department of Mental Health and Mental Retardation CHAPTER 408.Standards and Quality Assurance SUBCHAPTER D.Additional Mandatory Standards for Selected Providers of Community- based Mental Retardation Supports and Services 25 TAC sec.sec.408.101.-408.106 The Texas Department of Mental Health and Mental Retardation (TDMHMR) adopts new sec.sec.408.101-408.103 and sec.sec.408.105- 408.106 of Chapter 408, Subchapter D, concerning additional mandatory standards for selected providers of community-based mental retardation supports and services without changes to the text as proposed in the January 9, 1996, issue of the Texas Register (21 TexReg 249). Section 408.104 is adopted with changes. The new sections allow agencies certified by TDMHMR to satisfy the requirements for licensing by the Texas Department of Health (TDH) as home and community support services agencies. The requirements are outlined in Section IV, Paragraph 4 of a memorandum of understanding (MOU) between the TDMHMR, TDH, and other state agencies under the Texas Health and Human Services Commission (THHSC). The MOU is required by Texas Health and Safety Code, sec.142.009(k), which mandates that the department and other state agencies under the Texas Health and Human Services Commission (THHSC) execute an MOU establishing procedures to eliminate or reduce duplication and conflicts in standards as well as in surveys and complaint investigations. The state agencies affected are those that contract with or operate home and community support services agencies to deliver home health, hospice, or personal assistance services for which a license is required under the Texas Health and Safety Code, Chapter 142. In addition to TDMHMR, this includes TDH, Texas Department of Aging, Texas Department of Protective and Regulatory Services, Texas Rehabilitation Commission, Texas Commission for the Blind, and the Texas Department of Human Services. The additional standards referenced in the sections are TDH licensure standards described in TDH rules at 25 TAC sec.sec.115.1- 115.62 (relating to Home and Community Support Services Agencies Rules and Regulations) which have no counterparts in the 1988 TDMHMR Community Standards for Individuals with Mental Retardation or the outcome standards of the Home and Community- based Services (HCS) and Home and Community-Based Services -- OBRA (HCS--O) programs. The listing in sec.408.104(ii) of those standards with which HCS and HCS--O programs are expected to comply has been revised to include sec.408.104(w), concerning written contingency plans for continuity of client care to be implemented in the event of dissolution of the agency. A hearing was held to accept public testimony regarding the proposal. Testimony was offered by EduCare Community Living Corp. of Austin. Written comments were received from the Health Licensing Division of TDH in Austin and from the Private Providers Association of Texas (PPAT) in Austin. Written comments also were received from five HCS and HCS-O providers: Community Access, Inc., Tyler; Concept Six, Austin; EduCare Community Living Corp., Austin; Vita/Living, Inc., Houston; and Volunteers of America, Arlington. Four commenters stated that contrary to the department's statement in the preamble to the proposal, small businesses will experience a significant fiscal impact as a result of complying with the new sections. One commenter estimated that costs for an HCS provider will increase between $20,000 to $40,000 per 30 enrollments as a result of various provisions which require the involvement of one or more registered nurses. Another commenter stated that the full fiscal impact of the new standards, as interpreted by surveyors, has not yet been realized. The department acknowledges that some fiscal impact is expected as a result of the new standards. The full extent of that impact is impossible to determine at this time, but the department does not believe it will be significant. Further, the department continues to discuss with TDH the imposition of the additional standards to clarify how they should be interpreted in light of the non- medical model which characterizes the HCS environment. One commenter noted that department rules in sec.409.006 require that reimbursement rates be adjusted if new regulations affect costs, and states that the new rules will significantly affect costs. As described above, the department acknowledges that some fiscal impact is expected as a result of the new standards. While the full extent of that impact is impossible to determine at this time, the department does not believe it will be significant. If, after implementation of the new additional standards, the cost reports indicate that the fiscal impact of complying with these new standards is significant, the issue of reimbursement rate adjustment will be addressed. Six commenters recommended that the sections be withdrawn until a number of concerns are addressed including: (1) the inconsistency of the "medical model" described by the TDH licensure standards with the flexible community support approach of the HCS waiver program; (2) the additional standards' creation of a duplication of agency oversight which represents an unnecessary burden on HCS providers and violates the provisions of the MOU required by statute to eliminate duplication of standards and surveys; and (3) the additional standards violation of the spirit expressed in the Quality of Life principles adopted by the Texas MHMR Board, specifically those which support the reduction and/or elimination of overly prescriptive, burdensome, and duplicative requirements. The department agrees that the TDH licensure standards are indeed inconsistent with the flexible community support approach of the HCS waiver program, but notes that the statute does not permit the exclusion of these providers from licensure. The department continues to negotiate with TDH through an informal workgroup which is reviewing the licensure standards with a goal of modifying them to accommodate the flexible community support approach of the HCS waiver program. The department and interested stakeholders also are discussing the possibility of legislative relief. Regarding the second concern, the department disagrees and notes that the adoption of the sections permits the department to prevent duplicative surveys by complying with the MOU. Without the additional standards, HCS providers would be required to undergo surveys by both TDH for licensure and the department for compliance with the HCS principles; with the additional standards in place, the providers are surveyed only by the department, consistent with the provisions of the MOU. The department agrees with the commenters' third concern that compliance with the provision and the MOU, while statutorily necessary, unfortunately violates the spirit of the Quality of Life principles. As noted already, the department continues to work with an informal TDH workgroup, and to discuss the possibility of legislative relief with interested stakeholders. One commenter noted that the sections had not been presented before the Medical Care Advisory Committee (MCAC) as is required of all Medicaid related rules. The department responds that the Texas Commission on Health and Human Services has determined that because the standards set forth in the sections are essentially a restatement of provisions in a TDH rule which was presented before the commission, that these sections did not need to be presented to MCAC. Six commenters recommended that the department seek legislative relief to remove HCS providers from the licensure requirements of Texas Health and Safety Code, Chapter 142. As noted already, the department continues to work with an informal TDH workgroup which is studying the licensure standards, and is discussing the possibility of legislative relief with interested stakeholders. One commenter requested a definition of "health related tasks" as used in sec.408.108(gg), as well as clarification of what "supervised by an RN" entails. The department refers the commenter to an MOU between the Board of Nurse Examiners and TDH required in the Texas Health and Safety Code, sec.142.016, which details what are and are not "health related tasks" and further discusses the issue of delegation by RNs. One commenter stated that in the application section compliance by state schools and state hospitals is not required and asked if the definitions of "designated provider" and "local mental retardation authority" are intended to require state schools and state hospitals providing home health services to comply with the sections. The department responds that its state schools and state hospitals do not provide home health services. These facilities previously had community- based service (CBS) divisions which provided home health services, but those are now separate and apart from the facilities. The former CBS divisions of state schools are designated as "local mental retardation authorities" and, therefore, are required to comply with the new sections. The former CBS units of state hospitals do not provide services governed by this rule or the MOU. The same commenter stated that HCS and HCS-O providers should comply with sec.408.104(w), concerning written contingency plans for continuity of client care to be implemented in the event of dissolution, in addition to the other standards listed in sec.408.104(ii). The department agrees and has revised sec.408.104(ii) to reflect this. Additionally, the commenter stated that agencies which operate under the 1988 TDMHMR Community Standards for Individuals with Mental Retardation should also comply with sec.408.104(g) which requires those agencies to adopt, implement, and enforce a written policy to ensure compliance with the Texas Health and Safety Code, Chapter 85, Subchapter I, relating to the prevention of the transmission of human immunodeficiency virus and hepatitis B virus. The department responds that in a TDH document dated November 2, 1995, which compares the TDH licensure standards and the 1988 TDMHMR Community Standards for Individuals with Mental Retardation, TDH agreed that the department's community standard relating to this provision was acceptable; therefore, the department declines to make the change. A commenter noted that the standards reference a nursing care plan which would have staff assuming family responsibilities, contact physicians, and become much more medically-oriented. The commenter noted that such plans would become the program focus rather than a part of consumer's total service plan, and asked if individuals in the HCS program with no medical needs would be allowed to remain in the program. The department responds that the additional standards would have no effect on eligibility requirements. The sections are adopted under the Texas Health and Safety Code, sec.532.015, which provides the Texas Mental Health and Mental Retardation Board with broad rulemaking authority, and sec.534.052, which gives the board rulemaking authority for community-based mental health and mental retardation services provided by community centers and other contract providers. sec.408.104.Additional Mandatory Standards. (a) A person may not engage in the business of providing home health, hospice, or personal assistance services, or represent to the public that the person is a provider of home health, hospice, or personal assistance services for pay or other consideration without a license issued by the Texas Department of Health. (b) A license shall be displayed in a conspicuous place in the designed place of business and must show: (1) the name and address of the licensee; (2) the name and address of the owner or owners if different than the licensee; (3) the license expiration date; and (4) the categories of services authorized to be provided under the license. (c) A license may be transferred from one location to another without prior approval from the Texas Department of Health (TDH). If an agency is considering relocation, the agency shall notify TDH 30 calendar days prior to the intended relocation. TDH will provide written notification to the agency amending the annual license to reflect the new location. (d) An agency must notify TDH in writing of any change in its telephone number within 30 calendar days. (e) A license shall not be materially altered. (f) An agency shall implement and enforce the provisions of the Texas Human Resources Code, Chapter 102 (relating to Rights of the Elderly), for clients 55 years or older. (g) An agency shall adopt, implement, and enforce a written policy to ensure compliance of the agency and its employees and contractors with the Texas Health and Safety Code, Chapter 85, Subchapter I, relating to the prevention of the transmission of human immunodeficiency virus and hepatitis B virus. (h) An agency shall adopt, implement, and enforce a written policy to ensure compliance of the agency and its employees and contractors with the Texas Health and Safety Code, sec.161.091 et seq, relating to the prohibition of illegal remuneration for securing or soliciting clients or patronage. (i) An agency that provides laboratory services must meet the requirements of Federal Public Law 100-578, Clinical Laboratory Improvement amendments of 1988 (CLIA 1988). CLIA 1988 applies to all agencies with laboratories that examine human specimens for the diagnosis, prevention, or treatment of any disease or impairment of, or the assessment of the health of, human beings. (j) An agency shall adopt, implement, and enforce a written policy for publicly known natural disaster preparedness for clients receiving services. The written policy shall include a plan for the reasonable mechanism for triaging clients, the notification of appropriate personnel and clients in the event of a disaster if possible, the identification of appropriate community resources, and the identification of possible evacuation procedures. The plan need not require that the agency actually evacuate, transport, or triage the clients. (k) An agency shall adopt, implement, and enforce a policy on pronouncement of death if that function is carried out by an agency registered nurse. The policy shall be in compliance with Texas Health and Safety Code, sec.671.001. (l) If an agency provides skilled nursing psychoactive treatments under the direction of a psychiatrist, the registered nurse providing skilled nursing psychoactive treatments must: (1) have a master's degree in psychiatric or mental health nursing; (2) have a bachelor's degree in nursing with one full- time year of experience in an active treatment unit in a mental health facility or outpatient clinic; (3) have a diploma or associate degree with two full-time years of experience in an active treatment unit in a mental health facility or outpatient clinic; or (4) have been approved to meet the qualifications of psychiatric nurse under contract with the Health Care Financing Administration (HCFA). (m) An agency shall have written documentation of qualifications of a registered nurse providing skilled nursing psychoactive treatments under the direction of a psychiatrist, if the agency provides such services. (n) If an agency provides skilled nursing psychoactive treatments, the initial assessment of clients receiving such treatments shall include: (1) mental status including psychological and behavioral status; (2) sensory and motor function; (3) cranial nerve function; (4) language functions; and (5) other criteria established by an agency's policy. (o) An agency shall adopt, implement, and enforce a policy on a quality assurance program which provides for accountability and desired client outcomes. An agency shall conduct an ongoing, comprehensive, integrated, self-assessment of the quality and appropriateness of care provided, including services provided under arrangement. The findings are to be used by the agency to correct identified problems and to revise policies, if necessary. (p) Those responsible for the quality assurance program shall: (1) implement and report on activities and mechanisms for monitoring the quality of care; (2) identify and when possible resolve problems; and (3) make suggestions for improving care. (q) Organizational structure and operational policies of the agency must be clearly stated in writing. An agency shall adopt, implement, and enforce its operational policies. The policies must include the lines of authority and delegation of responsibilities down to the client care level and services provided. (r) A personnel record shall be maintained on each employee. A personnel record shall include, but not be limited to, the following: job description; qualifications; application for employment; verification of license, permits, reference(s), job experience, and educational requirements as appropriate; performance evaluations and disciplinary actions; and letters of commendation. All information shall be kept current. In lieu of the job description and qualifications for employment, the personnel record may include a statement signed by the employee that the employee has read the job description and qualifications for the position accepted. (s) If an agency utilizes independent contractors, there shall be a written agreement between such independent contractors (i.e., per hour, per visit) and the agency. The agreement shall be enforced by the agency and clearly designate: (1) that clients are accepted for care only by the primary agency; (2) the services to be provided; (3) the necessity to conform to all applicable agency policies, including personnel qualifications; (4) the plan of care, care plan, or individualized service plan to be carried out; (5) the manner in which services will be coordinated and evaluated by the primary agency; (6) the procedures for submitting information and documentation regarding the client's needs and services, including clinical and progress notes, if required, the scheduling of visits; and periodic client evaluation for supervision; and (7) the procedures for determining charges and reimbursement. (t) Services provided by an agency under arrangement with another agency or organization must be subject to a written agreement conforming with the requirements of agreements for independent contractors as described in subsection (s) of this section. (u) Clinical notes are to be written the day the service is rendered and incorporated into the clinical record on a timely basis. An agency shall adopt, implement, and enforce a policy on incorporation of clinical notes into the clinical record. (v) The agency must have the financial ability to carry out its functions. (w) The agency must have a written contingency plan which is implemented in the event of dissolution for continuity of client care. All records shall be retained even if the agency discontinues operation. (x) The agency shall accept a client for home health services on the basis of a reasonable expectation that the client's medical, nursing, and social needs con be met adequately in client's residence. The agency shall start providing licensed home health services to a client within a reasonable time from acceptance of the client. The initiation of licensed home health services shall be based on the client's health service needs. An agency shall adopt, implement, and enforce a policy on the time frame for the initiation of home health services. (y) An initial assessment shall be performed in the client's residence by the appropriate health care professional prior to or at the time that licensed home health services are initially provided to the client. The assessment shall determine whether the agency has the ability to provide the necessary services. (z) If a practitioner orders skilled treatment, then the appropriate health care professional shall prepare a plan of care. The plan of care must be signed and approved by the practitioner in a timely manner. The plan of care shall be developed in conjunction with agency staff and shall cover all pertinent diagnosis, including mental status, types of services and equipment required, frequency of visits at the time of admission, prognoses, functional limitations, activities permitted, nutritional requirements, medications and treatments, any safety measures to protect against injury, and any other appropriate items. The appropriate health care personnel shall perform services as specified in the plan of care. The plan of care shall be revised as necessary, but it shall be reviewed and updated at least every six months. An agency shall adopt, implement, and enforce a policy on the time frame for the timely countersignature of a practitioner's verbal orders. (aa) An agency shall provide at least one home health service. All services shall be rendered and supervised by qualified personnel. The appropriate health professional shall be available to supervise as needed, when services are provided. If nursing services is provided, a registered nurse shall be employed by or under contract with the agency to provide services or supervision. (bb) If services are provided by unlicensed personnel, a qualified person shall be employed by or under contract with the agency to provide the service and a registered nurse shall be employed by or under contract with the agency to perform the initial assessment, prepare the clients care plan, as appropriate, and supervise the unlicensed personnel. (cc) Personal assistance services may be performed by an unlicensed person who is at least 18 years of age and is competent to perform the tasks assigned by the supervisor. (dd) The following tasks may be performed under a personal assistance services category: (1) health related tasks which may be delegated by an RN in accordance with the agency's policy except for nursing tasks that may not be delegated and nursing tasks that may not be routinely delegated; and (2) health related tasks that are not the practice of professional nursing under the memorandum of understanding between the TDH and the Board of Nurse Examiners. (ee) A person who meets the qualifications of an administrator shall be authorized in writing by the administrator to act in his or her absence. (ff) Supervisors must be licensed nurses or have completed two years of full- time study at an accredited college or university. Individuals with a high school diploma or general equivalence diploma (GED) may substitute one year of full-time employment in a supervisory capacity in a health care facility, agency, or community-based agency for each required year of college. (gg) Unlicensed persons performing health related tasks that fall within the practice of professional nursing shall be supervised by an RN. (hh) An agency must comply with Texas Health and Safety Code, Chapter 250, Nurse Aide Registry and Criminal History Checks of Employees and Applicants for Employment in Certain Facilities Serving the Elderly or Persons with Disabilities. Failure to comply shall be grounds for denial, suspension, or revocation of the agency's license. (ii) Agencies which are providers in the Home and Community- based Services (HCS) and Home and Community-Based Services -- OBRA (HCS--O) programs must comply with subsections (a)-(t), (w)- (y), and (aa)-(hh) of this section. (jj) Agencies which operate under the 1988 TDMHMR Community Standards for Individuals with Mental Retardation must comply with subsections (a)-(f), (h), (i), (k)-(n), (q), (r), (t)-(x), (z), (aa), (cc), (ee), and (gg) of this section. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 21, 1996. TRD-9608996 Ann K. Utley Chairman, Texas Mental Health and Mental Retardation Board Texas Mental Health and Mental Retardation Effective date: September 1, 1996 Proposal publication date: January 9, 1996 For further information, please call: (512) 206-4516 PART VI. Texas Department of Criminal Justice CHAPTER 163.Community Justice Assistance Division Standards 37 TAC 163.43 The Texas Board of Criminal Justice adopts an amendment to 37 TAC sec.163.43, Funding and Financial Management, concerning the eligibility of community supervision and corrections departments (CSCDs) for state aid under Government Code, sec.509.011, with changes to the proposed text as published in the January 23, 1996, issue of the Texas Register (21 TexReg 579). The effect of the proposed amendment is to require the judges who manage CSCDs to hold open meetings when deliberating on the management of the CSCD in order to be eligible for state aid. The purpose of the change from the original proposal is to reflect Attorney General Opinion Number DM-395. The original proposal was discussed at a March 7, 1996, meeting of the Judicial Advisory Council to the Board of Criminal Justice, and the Board of Criminal Justice was briefed on the results of that discussion by Judge Larry Gist at its March 15,1996, meeting. The Board tabled the proposal and requested that further explanation of the proposal be given to the judiciary, and further reaction from the judiciary solicited. A revised proposal was developed and sent to all judges trying criminal cases; it provided specific notice and hearing requirements rather than referring to compliance with the Open Meetings Act. Since the March 15, 1996, meeting several comments have been received that oppose the proposed amendment and seem to be in full agreement with the Senior Criminal District Court Judge of Jefferson County by adopting the following statements from his comment "...such a rule is unnecessary to insure accountability and would be an unfair infringement on judicial autonomy, discretion, and independence." As of May 2, 1996, the following Judges sent comments opposed to the amendment of sec.163.43: 259th District Court Judge, Jones and Shackelford Counties; 329th Judicial District Court Judge, Wharton, Texas; Presiding Judge, Seventh Administrative Judicial Region of Texas, Sweetwater, Texas; 78th Judicial District Court Judge, Wichita County; District Judge, Bell County; 146th Judicial District Court Judge, Bell County; 235th Judicial District Court Judge, Cooke County; 90th Judicial District Court Judge, Young and Stephens Counties; 340th Judicial District Court Judge, Tom Green County; 132nd Judicial District Court Judge, Scurry and Borden Counties; Senior Criminal District Court Judge, Jefferson County; 39th Judicial District Court Judge, Haskell, Stonewall, Throckmorton, and Kent Counties; 287th Judicial District Court Judge, Muleshoe, Texas; 87th Judicial District Court Judge, Anderson, Freestone, Leon, and Limestone Counties; 104th District Court Judge, Taylor County; 349th Judicial District Court Judge, Palestine, Texas; 361st Judicial District Court Judge, Brazos County; 13th Judicial District Court Judge, Navarro County; 174th District Court Judge, Houston, Texas; 366th District Court Judge; 278th Judicial District State Judge, Walker, Madison, Grimes, and Leon Counties; 138th Judicial district Court Judge, Cameron County; 268th Judicial District Judge, Richmond, Texas; 328th Judicial District Presiding Judge, Richmond, Texas; 240th Judicial District Presiding Judge, Richmond, Texas; County Court at Law #1, Presiding Judge, Richmond, Texas; County Court at Law #2, Presiding Judge, Richmond, Texas; County Court at Law #3, Presiding Judge, Richmond, Texas; 223rd Judicial District Court Judge, Gray County; 135th Judicial District Court Judge, Calhoun, Dewitt, Goliad, Jackson, Refugio, and Victoria Counties; 282nd Judicial District Court Judge, Dallas, Texas; 222nd Judicial District Court Judge, Deaf Smith and Oldham Counties; 213th Judicial District Court Judge, Fort Worth, Texas; 217th Judicial District Judge Court Judge, Lufkin, Texas; 5th Judicial District Court Judge, Bowie and Cass Counties; 38th Judicial District Court Judge, Medina, Uvalde, and Real Counties; 36th Judicial District Court Judge, Sinton, Texas; 83rd Judicial Court Judge, Pecos, Reagan, and Upton Counties; 24th Judicial District Judge, Calhoun, Dewitt, and Goliad Counties; and 64th Judicial District Court Judge, Hale County. A comment was received from the Administrative Judge of Harris County explaining the procedures used by the judges of Harris County. The commenter states the following "...Board meetings and their agendas are published and posted, and the meetings are also open when matters of state aid are under consideration. In addition, we will make an audio recording of these proceedings." Commenting in favor of the amendment and deletion of reference to the Open Meetings Act were the following: 354th Judicial District Court Judge, Hunt and Rains Counties; and 170th District Court Judge, McLennan County. On May 17, 1996, while preparing for adoption of the amendment, Attorney General Opinion No. DM-395 was issued stating in summary the following: "The meeting of judges to perform statutory functions with respect to the management of a Community Supervision and Corrections Department are subject to the Open Meetings Act, Chapter 551, Government Code." In accordance with this opinion the rule proposal has been redone, abandoning the language that states that district judges must hold public meetings in order to receive grant funds, and instead stating that district judges must comply with the Open Meetings Act, Chapter 551, Government Code, when meeting with respect to the management of the CSCD. The adoption of the amendment and new subsection will mean the encouragement of open governmental action regarding the expenditure of state funds for community corrections programs. The amendment is adopted under the Government Code, sec.509.011, governing eligibility for state aid, and under sec.492.013, giving the Board general rulemaking authority. sec.163.43.Funding and Financial Management. (a) Funding. (1) Qualifying for TDCJ-CJAD funding. CSCDs qualify for TDCJ-CJAD state aid by: (A) being in substantial compliance with CJAD standards; (B) having a community justice council that serves the jurisdiction as required by law; (C) having a TDCJ-CJAD approved community justice plan with related budgets; (D) the district judge(s) appointing a director to administer all CSCD funds; (E) the district judge(s) designating a fiscal officer to account for, disburse, and report on all CSCD funds; and (F) the district judges complying with the Open Meetings Act, Chapter 551, Government Code, when meeting to perform statutory functions with respect to the management of the CSCD. (2)- (4) (No change.) (b)- (e) (No change.) This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 24, 1996. TRD-9609014 Effective date: July 15, 1996 Proposal publication date: January 23, 1996 For further information, please call: (512) 463-9693 PART XI. Texas Juvenile Probation Commission CHAPTER 343.Standards for Juvenile Detention Standards 37 TAC sec.343.13 The Texas Juvenile Probation Commission the adopts the amendment to sec.343.13, concerning the standards for Juvenile Detention Facilities without changes to the proposed text as published in the Texas Register (21 TexReg 3689). The rule is adopted in order to comply with state law. Adoption of this rule provides the Texas Juvenile Probation Commission with the authority to promulgate standards for juvenile detention facilities. No comments were received regarding the adoption of the amendment. The amendment is adopted under the Texas Human Resource Code sec.141.001 which provides the Texas Juvenile Probation Commission with the authority to promulgate standards for juvenile detention facilities. No other statutes, articles or codes are affected by the proposed amendment. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 18, 1996. TRD-9608891 Vicki Wright Executive Director Texas Juvenile Probation Commission Effective date: July 11, 1996 Proposal publication date: April 30, 1996 For further information, please call: (512) 424-6682 CHAPTER 345.Community Corrections Assistance Program 37 TAC sec.345.1, sec.345.2 The Texas Juvenile Probation Commission adopts amendments to sec.345.1, and sec.345.2, concerning rules for the Community Corrections Assistance Program without changes to the proposed text as published in the April 30, 1996, issue of the Texas Register (21 TexReg 3689). These rules are being adopted to redefine the Community Corrections Assistance Program to reflect statutory changes. Adoption of these rules will allow the Texas Juvenile Probation Commission with the authority to set minimum standards for juvenile boards. No comments were received regarding the adoption of the amendments. The amendments are adopted under the Texas Human Resources Code, sec.141.001 which provides the Texas Juvenile Probation Commission with the authority to set minimum standards for juvenile boards. No other statutes, articles or codes are affected by the adoption of these amendments. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on June 18, 1996. TRD-9608892 Vicki Wright Executive Director Texas Juvenile Probation Commission Effective date: July 11, 1996 Proposal publication date: April 30, 1996 For further information, please call: (512) 424-6682