81 FR 49139 - Federal Agricultural Mortgage Corporation Governance; Standards of Conduct; Risk Management; and Disclosure and Reporting
FARM CREDIT ADMINISTRATION Federal Register Volume 81, Issue 144 (July 27, 2016)
Federal Register Volume 81, Issue 144 (July 27, 2016)
| Page Range | 49139-49156 | |
| FR Document | 2016-17455 |
[Federal Register Volume 81, Number 144 (Wednesday, July 27, 2016)] [Rules and Regulations] [Pages 49139-49156] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-17455] ======================================================================== Rules and Regulations Federal Register ________________________________________________________________________ This section of the FEDERAL REGISTER contains regulatory documents having general applicability and legal effect, most of which are keyed to and codified in the Code of Federal Regulations, which is published under 50 titles pursuant to 44 U.S.C. 1510. The Code of Federal Regulations is sold by the Superintendent of Documents. Prices of new books are listed in the first FEDERAL REGISTER issue of each week. ======================================================================== Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Rules and Regulations [[Page 49139]] FARM CREDIT ADMINISTRATION 12 CFR Parts 650, 651, 653, and 655 RIN 3052-AC89 Federal Agricultural Mortgage Corporation Governance; Standards of Conduct; Risk Management; and Disclosure and Reporting AGENCY: Farm Credit Administration. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The Farm Credit Administration (FCA, we, or our) is finalizing new regulations related to the Federal Agricultural Mortgage Corporation's (Farmer Mac or Corporation) risk governance and making enhancements to existing disclosure and reporting requirements. The risk governance regulations require the Corporation to establish and maintain a board-level risk management committee and a risk officer, as well as risk management policies and internal controls. The changes to disclosure and reporting requirements remove repetitive reporting and allow for electronic filing of reports. We also finalize rules on the examination and enforcement authorities held by the FCA Office of Secondary Market Oversight (OSMO) over the Corporation. DATES: This regulation shall become effective no earlier than 30 days after publication in the Federal Register during which either or both Houses of Congress are in session. The FCA will publish a notice of the effective date in the Federal Register. FOR FURTHER INFORMATION CONTACT: Joseph Connor, Associate Director for Policy and Analysis, Office of Secondary Market Oversight, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4364, TTY (703) 883- 4056, or Laura McFarland, Senior Counsel, Office of General Counsel, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-4056. SUPPLEMENTARY INFORMATION: I. Objective The purpose of this final rule is to:Enhance risk governance at the Corporation to further its long-term safety and soundness and mission achievement; Remove repetitious disclosure and reporting requirements, given the dual reporting responsibilities of the Corporation to the FCA and the Securities and Exchange Commission (SEC); and Clarify the examination and enforcement authority of FCA. II. Background Farmer Mac is a stockholder-owned, federally chartered instrumentality that is an institution of the Farm Credit System (System) and a Government-sponsored enterprise (GSE). The Corporation was established and chartered by the Agricultural Credit Act of 1987 (1987 Act) \1\ to create a secondary market for agricultural real estate mortgage loans, rural housing mortgage loans, rural utility cooperative loans, and the guaranteed portions of USDA-guaranteed farm and rural development loans. Title VIII of the Farm Credit Act of 1971, as amended, (Act) governs the Corporation. --------------------------------------------------------------------------- \1\ Agricultural Credit Act of 1987 (Pub. L. 100-233, January 6, 1988). --------------------------------------------------------------------------- The Corporation has two classes of voting common stock: Class A and Class B. Class A voting common stock is owned by banks, insurance companies, and other financial institutions. Class B voting common stock is owned by System institutions. In addition, the Corporation has nonvoting common stock (Class C), the ownership of which is not restricted and is a means for the Corporation to raise capital. The Corporation may also issue nonvoting preferred stock. The Corporation is regulated by FCA through the Office of Secondary Market Oversight (OSMO). Congress charged us to issue regulations to ensure mission compliance and the safety and soundness of the Corporation. When issuing regulations for the Corporation, the Act requires FCA to consider: The purpose for which Farmer Mac was created; The practices appropriate to the conduct of secondary markets in agricultural loans; and The reduced levels of risks associated with appropriately structured secondary market transactions.\2\ --------------------------------------------------------------------------- \2\ Section 8.11(a)(2) of the Act (12 U.S.C. 2279aa-11(a)(2)). --------------------------------------------------------------------------- Farmer Mac, as a publicly traded company, is also subject to many of the governance requirements of Sarbanes-Oxley Act of 2002 (Sarbanes- Oxley),\3\ Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act),\4\ and Securities and Exchange Commission (SEC) disclosure regulations for publicly traded companies, all of which address reporting requirements and oversight for publicly held companies and financial institutions. Self-regulatory organizations (SROs), the New York Stock Exchange (NYSE) in the Corporation's case, have also issued requirements designed to enhance the accountability and transparency of corporate business operations. --------------------------------------------------------------------------- \3\ Public Law 107-204, July 30, 2002. \4\ Public Law 111-203, 124 Stat. 1376, (H.R. 4173), July 21, 2010. --------------------------------------------------------------------------- As a GSE, the Corporation has a public policy purpose embedded in its corporate mission. One aspect of this public policy mission includes financial services to customer-stakeholders (institutions that lend to farmers, ranchers, rural homeowners, and rural utility cooperatives) and the resulting flow-through benefits to rural borrowers. Another key aspect is the protection of taxpayer- stakeholders because the risk that the Corporation accepts in the course of business exposes both investors (debt and equity holders) and taxpayers to potential loss. The taxpayer's exposure arises in part from the Corporation's authority to issue debt to the Department of the Treasury to cover guarantee losses under certain adverse circumstances.\5\ Thus, an appropriately comprehensive approach to Board-level risk governance is essential to promote well-reasoned, risk-related decisions and promote public trust in the risk management of the Corporation. --------------------------------------------------------------------------- \5\ According to the 1987 Act, Farmer Mac may, in certain circumstances, borrow up to $1.5 billion from the U.S. Treasury to ensure timely payment of any guarantee obligations of the corporation. --------------------------------------------------------------------------- [[Page 49140]] III. Comments and Our Responses: Section-by-Section Analysis We issued a proposed rule to amend our standards of conduct, board governance, and reporting regulations for the Corporation on March 26, 2015 (80 FR 15931). The comment period for the proposed rule closed on June 24, 2015, and 77 comment letters were received. The comments submitted were from Farmer Mac, stockholders in Farmer Mac, a consultant to Farmer Mac,\6\ an agent of Farmer Mac,\7\ the Farm Credit Council (FCC) on behalf of its membership, and a member of the general public. Prior to the proposed rulemaking, we issued an Advanced Notice of Proposed Rulemaking (ANPRM) to solicit opinions and suggestions from investors, stockholders, and other interested parties on ways to enhance our regulation of the Corporation's governance activities.\8\ --------------------------------------------------------------------------- \6\ The consultant to Farmer Mac explained it had been hired by Farmer Mac to comment on the proposed rule. \7\ The agent of Farmer Mac explained it had been working as a consultant for Farmer Mac for over a year on specific projects. \8\ 79 FR 10426, February 25, 2014. The comment period for the ANPRM ended April 28, 2014, and seven comment letters were received. --------------------------------------------------------------------------- The 77 comments submitted in response to the proposed rule made various suggestions for changing what we had proposed. Of these commenters, 69 limited their remarks and suggestions to part 651, ``Standards of Conduct.'' Comments to the Standards of Conduct provisions involved both existing and proposed provisions.\9\ These comments were significantly different from what was proposed and lacked uniformity in the type of changes sought. --------------------------------------------------------------------------- \9\ We last issued regulations on Farmer Mac Board governance and standards of conduct on March 1, 1994 (59 FR 9622). --------------------------------------------------------------------------- As a GSE, the Corporation has certain strategic objectives that are public policy or ``mission'' oriented. Standards of conduct must be understood and interpreted not only in the context of the fiduciary responsibilities to the Corporation and its shareholders, but also in the context of the statutory duty to further the Congressional purposes the Corporation was chartered to achieve. We believe standards of conduct to be among the most potentially complex and nuanced areas of corporate governance. For this reason, and because of the variety of comments received to this area of the proposed rule, we believe it prudent to address proposed changes and related comments on the more complex components of standards of conduct and board governance regulations in a separate rulemaking. Thus, we are not finalizing in this rulemaking many of the proposed changes to part 651, but instead intend to revisit changes to part 651 in a separate rulemaking. Proposed changes to parts 650, 653, and 655 are finalized as proposed unless we say otherwise in this preamble. Included in finalized changes is the reorganization of our rules addressing the Corporation's operations through the addition of a new part 653 and organizational revisions to existing parts 650, 651, and 655. We make no changes to part 652 or reserved part 654. A. FCA Oversight and Rulemaking [Part 650] Existing part 650 contains general provisions, without subparts, on the supervision of the Corporation. We finalize adding a new subpart A, entitled ``Regulation, examination and enforcement,'' as well as moving existing provisions into a new subpart B, entitled ``Conservators, receivers, and liquidations.'' We finalize the redesignation of existing Sec. Sec. 650.1 and 650.5 on appointing and removing receivers or conservators as new Sec. Sec. 650.13 and 650.14, respectively. We make no other changes to these existing provisions. We discuss comments received to this part and any changes to the appropriate sections below. 1. Part 650 Definitions [New Sec. 650.1] We finalize as proposed all definitions in new Sec. 650.1. We received no comments objecting to the terms as proposed, but a stockholder-commenter requested we consolidate all proposed definitions for parts 650, 651, 653 and 655 into one section and asked for the term ``agent'' to be defined for part 650. We cannot accommodate either of these requests. We already maintain a global definition section for all our rules in part 619. Maintaining separate definition sections for use only in certain regulations eliminates confusion that may arise from placing terms having specific application for a secondary market along with terms applicable to Farm Credit banks and associations. We recognize that many of the terms for the definition sections we proposed in parts 650, 651, 652, and 655 are duplicative, but their location in the applicable sections avoids confusion with usage of the terms in other regulations. We also cannot accommodate the request to define in part 650 the term ``agent.'' The term ``agent'' as used in part 650 has two different applications: (1) Agents of the Corporation; and (2) agents of FCA. A single definition would not capture the two separate applications of the term, particularly in regards to the existing rules on liquidation and receivership. 2. Regulatory Authority [New Sec. 650.2] We finalize the addition of new Sec. 650.2, which provides clarity on the situation of the Corporation having FCA as its primary regulator, while also being subject to certain SEC regulatory disclosure requirements. The new Sec. 650.2 identifies FCA as the ``primary regulator'' of the Corporation, possessing examination, enforcement, conservatorship, liquidation, and receivership authority over the Corporation. We finalize this section with one clarifying change made based on comments received. In Sec. 650.2(b), we clarify that our supervisory authority to ensure the Corporation follows laws and regulations relates to compliance with applicable laws and regulations. There were four commenters to this section: Farmer Mac, the FCC, and two stockholders in Farmer Mac. The FCC expressed strong support for the section clarifying that the Corporation is a GSE with a public mission. The stockholder-commenters also supported the section addressing the public policy purpose of the Corporation. Farmer Mac objected to the provisions on FCA's authority over it, contending that FCA has no authority over compliance with all laws and regulations. Farmer Mac explained that instead FCA is to ensure a dependable source of credit through its examination of the Corporation and regulation of its safe and sound conduct. Farmer Mac also asked us to either remove Sec. 650.2(c) or specify the SEC regulations to which it is subject and exactly mirror language from the Act when describing our role. However, Farmer Mac added objections to our using the language of the Act to describe its relationship with the SEC. In that instance, Farmer Mac asked us to capture the ``nuances of Farmer Mac's regulation by the SEC.'' \10\ --------------------------------------------------------------------------- \10\ Farmer Mac explained it is not subject to complete regulation by SEC and, except for certain mortgage-backed securities, it is not subject to the 1933 Securities Act and must only file reports under the 1934 Securities Exchange Act. Farmer Mac comment letter, Appendix B, pages B-2 and B-27. --------------------------------------------------------------------------- We have clarified that the laws and regulations referenced are those applicable to the Corporation. We do not name those laws and regulations as they are subject to change. We also decline the request to include in the rule an analysis of the Corporation's relationship with both FCA and SEC, which is not the intent of the rule. The rule at Sec. 650.2 is identifying us as the primary regulator of the Corporation. As explained in the proposed rule, the [[Page 49141]] discussions Congress had surrounding passage of the Dodd-Frank Act recognized the long-standing situation where financial institutions are required to comply with various Federal financial laws and regulations issued and enforced by several banking regulators, although only one regulator is the primary regulator. We did modify the language of Sec. 650.2(c) to add clarity and removed reference to the NYSE based on the comments received. Farmer Mac asked that we add language in Sec. 650.2(a) for USDA- guaranteed loans sold into the secondary market. The Corporation has established a secondary market for the guaranteed portions of USDA-Farm Service Agency guaranteed Farm Ownership and Operating Loans and USDA- Rural Development Guaranteed Business and Industry, Community Facility and Water and Environmental Program loans.\11\ As noted by Farmer Mac, we are identifying the statutory purposes of the Corporation, we are not enumerating all of Farmer Mac's business programs. However, we have added language referencing USDA-guaranteed loans.\12\ --------------------------------------------------------------------------- \11\ Under the Farmer Mac 2 program, Farmer Mac's subsidiary, Farmer Mac II LLC, buys guaranteed portions directly from lenders. The original lenders retain the unguaranteed portions of these loans and continue to service the entire loan. \12\ Refer to section 8.0(9) of the Act, defining ``qualified loans''. --------------------------------------------------------------------------- 3. Supervision and Enforcement [New Sec. 650.3] We finalize adding a new Sec. 650.3 to incorporate into our regulations the supervision and enforcement authorities over the Corporation that are given us under the Act. Our enforcement authorities provide reasonable assurance that, among other things, the Corporation is adequately capitalized and operating safely. We finalize this section with clarifying changes made based on comments received. There were six commenters to this section: Farmer Mac, the FCC, three stockholders in Farmer Mac, and an agent of Farmer Mac. Three commenters objected to agents being subject to FCA's enforcement authorities. Sections 5.25 and 5.26 of the Act specify that agents of a System institution are subject to our enforcement authorities and Farmer Mac is identified as a System institution in section 8.1(a)(2) of the Act. It is these provisions we relied upon when proposing the provision so we decline to make changes based on the comments. Two of the stockholder-commenters remarked that financial safety and soundness oversight should include making the Corporation subject to the Basel III capital standards. We decline to make changes to our rules in response to these comments. The existing rules addressing the Corporation's capital requirements already incorporate appropriate Basel capital standards, as well as analogous standards of other U.S. regulators. Farmer Mac asked for the entire section identifying our enforcement authorities to be removed or that we directly quote the Act when identifying those authorities, using no further interpretation of the statutory language. We are directed by section 5.17(a)(9) of the Act to issue regulations necessary or appropriate for the implementation of the Act's provisions, which involves more than a recitation of the Act. Farmer Mac also asked that we provide a specific ``exhaustive list'' of our enforcement authorities. We likewise decline this request as our enumerated enforcement authorities may be amended by Congress or court interpretations. Further, we do not agree with Farmer Mac's interpretation of our authorities and decline to make changes to the rule based on its analysis. Farmer Mac also stated that our safety and soundness authority should not be viewed to include addressing board committees, director elections, or recordkeeping activities of the Corporation. Again, our oversight of the safe and sound operations of the Corporation necessitates that we consider the Corporation's board operations and the records of its decision-making analysis and financial condition.\13\ --------------------------------------------------------------------------- \13\ See section 8.11(a)(1)(B) of the Act authorizing OSMO ``general supervision of the safe and sound performance of the powers, functions, and duties vested in the Corporation''. --------------------------------------------------------------------------- Farmer Mac objected to Sec. 650.3(b) referencing when the Corporation engages in activities having ``excessive risk,'' arguing the term is undefined. Farmer Mac stated that all of its activities involve risk and the provision would allow FCA to restrict these activities and substitute our judgment on how to run the Corporation. However, Farmer Mac acknowledged section 8.37 of the Act uses the term ``excessive risk''. Farmer Mac also objected to separating risk from its impact on capital and suggested objective, measureable standards be set for risk levels. In Sec. 650.3(b), we clarify that risks having adverse impact to capital, which may lead to certain enforcement actions, generally refers to the adequacy of the Regulatory Capital level maintained by the Corporation. 4. Access to Records and Personnel [New Sec. 650.4] There were three comments objecting to the inclusion of agents in this section: Farmer Mac, a stockholder in Farmer Mac, and an agent of Farmer Mac. The agent who commented objected to classifying certain types of professional assistance received by the Corporation as an agency relationship, contending that FCA has no authority over certain types of agents (e.g. consultants, vendors), while the stockholder commented that the penalties were burdensome. Farmer Mac objected to being required to make its agents available to our examination staff. Farmer Mac contended that FCA does not have jurisdiction over all agents of the Corporation, as would be covered by the existing part 651 definition of ``agent.'' We finalize this section with one change based on comments received. In Sec. 650.4(b), we replace the word ``agents'' with a more detailed explanation of the personnel required to be available to us when requested, which includes those engaged by the Corporation to participate in the business conducted by the Corporation. For example, during an examination it may be necessary for our exam staff to speak with the External Auditor. The Act specifies that directors, officers, employees, agents, and ``other persons participating in the conduct of the affairs'' \14\ of a System institution are subject to our examination and enforcement authorities.\15\ We relied on this language when developing the clarification for this final rule. We believe the clarifying language addresses the comments regarding certain ``vendor- type'' service providers. We also point out that the part 651 definition of ``agent'' is restricted to the provisions in part 651 and does not carryover to part 650. Also, the stockholder-commenter objecting to the ``penalties'' listed in this section spoke in error, as there are no ``penalties'' identified in Sec. 651.4. Notwithstanding this, we believe this comment is adequately addressed in our earlier discussion of our enforcement authorities, which explains the ``penalties'' identified in Sec. 650.3 are derived from the Act. --------------------------------------------------------------------------- \14\ See, for example, section 5.32(a) of the Act. \15\ Refer to section 8.11(b)(3) of Act (12 U.S.C. 2279aa-11). --------------------------------------------------------------------------- Farmer Mac also asked us to limit our access to Corporation documents to non-confidential items. In addition, Farmer Mac asked that there be a materiality and document age threshold controlling which documents and personnel we could access during our [[Page 49142]] examination and enforcement activities. We decline Farmer Mac's suggestions regarding the scope of our access to corporate documents. As the safety and soundness regulator, we require full access to the Corporation's records.\16\ In accessing these records, our activities are already covered by confidentiality provisions in Federal law.\17\ Further, we view the act of our requesting the records or access to personnel as establishing the ``materiality'' to our oversight. We could not permit the Corporation to pre-screen records before release to us in order for Farmer Mac to, on its own, determine if a record is material or not for our purposes. Likewise, we cannot provide full oversight if we restrict our access to a finite period of time. It may be that the matter under review exceeds that period of time, or records within that time period make key reference to other, older records. --------------------------------------------------------------------------- \16\ See section 8.11(b)(3) of Act (12 U.S.C. 2279aa-11(b)(3)). \17\ Refer to 5 U.S.C. 552(b)(8). See also 12 CFR 602.2. --------------------------------------------------------------------------- 5. Reports of Examination and Criminal Referrals [New Sec. Sec. 650.5 and 650.6] We finalize as proposed the addition of new Sec. Sec. 650.5 and 650.6, containing cross-citations to existing regulatory provisions regarding access to FCA Reports of Examination and the Corporation's obligation to make criminal referrals in certain circumstances. We received no comments to these two sections. We believe these cross- cites clarify the applicability of these provisions to the Corporation, and thereby facilitate compliance with them. B. Farmer Mac Corporate Governance [Part 651] Part 651 contains the existing corporate governance provisions for Farmer Mac, without subparts. As explained earlier in this preamble, this final rule does not include many of the proposed changes to part 651 since we intend to revisit part 651 in the future. Although we received many comments on the contents of part 651, no comments opposing the proposed organizational changes were made and, therefore, we finalize them as proposed. Specifically, we finalize the addition of a new subpart A, entitled ``General,'' a new subpart B, entitled ``Standards of Conduct,'' and a new subpart C, entitled ``Board Governance.'' We also finalize as proposed the movement of the existing provisions of part 651 into the relevant subparts and adding new sections in reserve for future rulemaking. We discuss other final changes to part 651, and the comments received related to the changed provisions, in the appropriate sections below. 1. Part 651 Definitions [New Subpart A; Existing Sec. 651.1] We finalize the proposed revisions to our definitions in existing Sec. 651.1, with two changes based on comments received. We are changing the term ``potential conflict of interest'' to ``conflict of interest'', while finalizing the definition as proposed. Two stockholder-commenters pointed out the definition covered both material and potential conflicts of interest and that we had no general definition for the term ``conflict of interest.'' We agree with the commenters that the definition defined conflicts of interest in general so should be identified as such. We are also modifying the definition for ``reasonable person'' by removing the phrase ``based on societal requirements for the protection of the general interest.'' The proposed definition for the term ``reasonable person'' was based on general use of the term in conflict- of-interest proceedings and substantially resembled the legal meaning of the term. However, comments from Farmer Mac and a consultant of Farmer Mac objected to the phrase ``societal requirements'', arguing it was not part of the Model Business Code. One of these commenters also stated the term should be defined in a manner that directed attention to the Corporation's activities, not the public at large. We do not agree with the commenters in this regard. As one commenter acknowledged, corporate governance allows consideration of the public impact of corporate behavior. In addition, the Corporation is a GSE with a public policy purpose and has directors appointed by the President of the United States to represent the public's interests in the operations of the Corporation. While we disagree with the reasons given by the commenters, we are removing the phrase ``based on societal requirements for the protection of the general interest'' from the definition for ``reasonable person'' as we believe the remaining language allows for addressing public concerns; specifically, the use of ``average level of care.'' We recognize that these same two commenters also objected to using an average level of care measurement when defining ``reasonable person'', arguing it expanded the Corporation's activities to include consideration of the general public and not just stockholders. We agree that using an average level of care standard could involve consideration of the public, but unlike the commenters, we do not view that as a difficulty. We also do not agree with comments that the phrase ``average level of care'' in the definition for ``reasonable person'' under our conflict of interest rules expands the mission of the Corporation. Instead, we believe it emphasizes the scope of the Corporation's impact. As explained earlier, the Corporation has a statutory public policy purpose and public representatives on its board of directors. We believe retaining the ``average level of care'' language in the definition for ``reasonable person'' is appropriate. Farmer Mac and stockholders in Farmer Mac commented on the term ``material'', asking that we delete the definition. Farmer Mac commented that the definition was appropriate for most of part 651, but stated concerns with how the term would work with securities regulations, which have a different definition for the term. Farmer Mac specified its concern was focused on proposed Sec. 651.24. Stockholder-commenters remarked that the term ``material'' does not carry the same meaning or standard applied to other System institutions. These commenters made particular note of a separate proposed rulemaking affecting Farm Credit banks and associations, but not Farmer Mac.\18\ These commenters argued there is no reason for a different standard among System institutions. As we are not finalizing in this rulemaking the proposed contents of Sec. 651.24, we are not deleting the term ``material'' and note that the term is an existing term in our rules. We also do not consider it appropriate at this time to substitute the existing definition with one that has only been proposed in a separate rulemaking intended for Farm Credit banks and associations. --------------------------------------------------------------------------- \18\ 79 FR 9649 (April 3, 2014). --------------------------------------------------------------------------- Farmer Mac asked that we remove the existing definition of ``agent'' from Sec. 651.1, while three stockholder-commenters and an agent of Farmer Mac objected to agents being included in the rule at all, arguing that the existing definition was too broad in its application. Farmer Mac also stated the existing definition was too broad and exceeds the scope of FCA authority. We also received a call from a member of the general public asking about the definition and suggesting it may be problematic for dual compliance with both FCA and SEC requirements. The definition is an existing term that has been in our rules for over 20 years and we proposed no changes to it. Commenters offered no examples of difficulties that had been encountered in that time and did not express past [[Page 49143]] compliance difficulties with the existing rule. As we proposed no changes to the existing term ``agent,'' we decline to make any in this final rulemaking. However, we may reconsider the issue when revisiting part 651 in the future. A stockholder-commenter remarked that the term ``officer'' seemed to exclude risk officers and asked if that was intentional on our part. We reviewed the existing term ``officer'', to which we had proposed no changes, and agree that it could result in the risk officer not being included in the definition. However, that would depend on whether the Corporation makes the risk officer a vice president. If not, then the risk officer would be covered by the definition of ``employee'' instead of ``officer.'' 2. Standards of Conduct [New Subpart B] We finalize moving existing Sec. 651.4 to new subpart B and redesignating it as new Sec. 651.24. This section addresses director, officer, employee, and agent responsibilities. We finalize adding new Sec. Sec. 651.21 and 651.25 under subpart B, but with no content, in reserve for future rulemaking. a. Conflicts-of-Interest Policy [New Sec. 651.22, Existing Sec. Sec. 651.1(i) and 651.2] We finalize the proposed movement of the existing Sec. 651.2 contents, regarding conflict-of-interest policies, to new subpart B and redesignating it as new Sec. 651.22. We are reserving Sec. 651.2, with no content, for future rulemaking. Also, we finalize some amendments to the existing contents of redesignated Sec. 651.22 and make two clarifying changes. Other proposed changes to the contents of this section are not being finalized in this rulemaking. We finalize moving the list of imputed interests currently contained in the existing Sec. 651.1(i) definition of a ``potential conflict-of-interest'' to this section (thereby removing it from the definition) as we received no comments on this proposed action. We also finalize the proposed revisions to the list of imputed interest, as they also received no comments: removing highly specific relationships such as ``spouse'' and ``child'' and replacing them with language to address all persons residing in the household or who are otherwise legal dependents. These changes are premised on the ever-evolving understanding of what is considered a family, as well as intended to address non-residential dependents whose activities and interests may create a conflict-of-interest for a director, officer, or employee. We make two clarifying changes to the list of imputed interest: A person's general partner refers to a business partner and employment arrangements include both current and prospective employment. b. Conflicts-of-Interest Reporting and Disclosure [New Sec. 651.23, Existing Sec. 651.3] We finalize moving existing Sec. 651.3 to new subpart B and redesignating it as new Sec. 651.23. This section addresses implementation of the conflict-of-interest policy. Farmer Mac offered comments on the existing language of this section, asking that the separate disclosure categories be removed. The rule currently requires Farmer Mac to provide its conflict of interest policy to its shareholders, investors, and potential investors when requested. Farmer Mac posed that these parties can obtain the policy from the Corporation's Web site or SEC filings so the provision should be removed. Farmer Mac did not state that this service could not continue to be provided, nor assert that the volume of requests was so high as to create a burden. We decline to remove this existing requirement as we continue to believe the Corporation should strive to accommodate requests from its shareholders, investors and, most especially, potential investors for copies of the policy. c. Agents and Conflicts-of-Interest [Existing Sec. 651.1 Through 651.4] Farmer Mac, a stockholder in Farmer Mac, and an agent of Farmer Mac asked that we remove references to ``agents'' from the existing rule. Some of these commenters remarked that agents should not be treated the same as directors, officers, and employees. Others argued that monitoring agent conduct is burdensome, may deter agents from working for the Corporation, and was contrary to standard contractual agreements with agents. The agent stated that consultants and advisors were not intended by Congress to be subject to our regulatory or examination authority. The stockholder-commenter added that we should instead rely on the Corporation's existing practices regarding monitoring agent behavior. Congress gave us certain enforcement authorities for agents of Farm Credit institutions.\19\ We also note that agents have been a part of the existing conflict-of-interest rule for over 20 years. No commenter provided support to demonstrate that the Corporation has had difficulty in all those years obtaining the services of agents because of the existing standards of conduct regulations. We decline to remove agents from part 651 as part of this final rulemaking. However, we may reconsider the issue in the future when revisiting part 651. --------------------------------------------------------------------------- \19\ See sections 5.25, 5.26, and 5.32 of the Act. See also sections 5.17(a)(9) and (10), 5.19 and 8.11 of the Act. --------------------------------------------------------------------------- 3. Board Governance--Committees [New Subpart C] We finalize adding new Sec. Sec. 651.30, 651.35, and 651.40 under subpart C, but with no content, in reserve for future rulemaking. We also finalize adding a new Sec. 651.50 on board committees. The new Sec. 651.50 addresses the relationship between the entire board and its committees, requires certain committees, and establish minimum operational requirements for board committees (e.g., charters, meeting minutes). We received comments from Farmer Mac and its consultant on this section and make four changes based on those comments: (1) We specify charter requirements apply to required committees; (2) we clarify that charters are approved by the full board; (3) we are not finalizing the requirement that each type of director serve on each committee; and (4) we clarify that an agenda may be informal, such as a list of issues under discussion. a. Committee Charters [New Sec. 651.50] In general, Farmer Mac objected to any regulation of board committees. Farmer Mac asked that we change the requirement for all committees to be chartered, explaining often ad hoc committees are used in the Corporation's business and allowing committees to develop their own charters may be a transfer of board authority. The proposed provision stated that the Corporation's board is the body approving the charter, not the committee. However, we clarify in Sec. 651.50(c) that the committees develop the charters, but those charters are not effective unless approved by action of the full board. In addition, we intended the provision to apply to standing committees of the Corporation, so have modified the rule to clearly limit the charter requirements to those committees required to exist by regulation (i.e. audit, risk, compensation and corporate governance committees). We also made conforming changes elsewhere in this section to clarify that the committee provisions apply to these same ``required'' committees. Both commenters objected to the provision in Sec. 651.50(a) that use of a board committee does not relieve board members of their legal responsibilities. The commenters stated that delegations to committees are permitted and the [[Page 49144]] provision was unnecessary. In paragraph (a) of new Sec. 651.50, we proposed regulatory language clarifying that the entire board remains accountable for committee actions. In directing the Corporation, the board of directors may rely on reports from board committees, but doing so does not relieve the board of final responsibility. While activities and tasks may be delegated to a committee, the fact that a committee handles some board responsibilities does not relieve the board of its legal liabilities for such, nor does it relieve the board of the ultimate responsibility for those activities or tasks. Therefore, we decline to make changes to Sec. 651.50(a). b. Committee Composition We received comments from Farmer Mac and its consultant on Sec. 651.50, both objecting to the proposed requirement that each committee have representation from the three types of directors serving on the Corporation board (Class A elected, Class B elected, and appointed). The commenters stated the provision may result in conflicts of interest, unqualified directors serving on committees, and create division on the board. Commenters offered no support for the named concerns, but we consider this issue to be among those we plan to review when we revisit part 651 in the future. As a result, we are not finalizing in Sec. 651.50(c) the requirement that each committee have representation from the three types of directors serving on the Corporation board. In conformance with this, we also remove the proposed paragraph designations in paragraph (c). Farmer Mac and its consultant also objected to limiting the number of committees a director may chair. We proposed in Sec. 651.50(c) that no director may serve as chair of more than one committee. The commenters stated that this was an unnecessary restriction. We decline to change this limitation based on comments received. We believe this limitation is necessary, as it reasonably distributes responsibilities among individual members of the board. We also believe that too great a concentration of responsibilities among too few directors would detract from the board's overall effectiveness and may create potential, and unnecessary, safety and soundness concerns. c. Committee Agendas Farmer Mac objected to the Sec. 651.50(d) requirement that board committees have agendas for their meetings. Farmer Mac explained that some ad hoc meetings occur with no prior planning, making development of an agenda impossible. We appreciate that a situation like the one described may occur and have modified the rule to allow for an equivalent list of issues under discussion to be part of the meeting minutes in lieu of an agenda. C. Risk Management [Part 653, No Subparts] We finalize adding a part 653, with no subparts, to address risk management within the Corporation. In doing so, we remove proposed references to ``risk tolerance'' throughout part 653, while retaining references to risk-appetite, as we determined the term ``risk- appetite'' encompassed risk tolerance consideration. We received comments from Farmer Mac, stockholders of Farmer Mac, and the FCC to this part and discuss them, and any changes, in the appropriate sections below. 1. General [New Sec. 653.2] We received comments from Farmer Mac, the FCC, and stockholders in Farmer Mac on new Sec. 650.2, which addresses general board-level risk management matters. Farmer Mac expressed agreement with requiring its board to be actively involved in the Corporation's risk framework, but considered it unreasonable to expect it to ``ensure'' all risk-taking is safe and sound. Farmer Mac asked that it be allowed to address its ``risk appetite'' by areas, such as liquidity risk or operational risk, instead of one unified assessment, explaining that the risk committee's role represents the intersection of oversight of all risk areas. We generally expect functional area specialists (e.g., finance committee, credit committee, marketing committee) to evaluate risk in terms of the specialized responsibilities of those operational areas. While we view that as generally appropriate for day-to-day risk management, it is nevertheless important that the entire board consider risks from all areas when conducting its enterprise-wide monitoring and oversight. For that reason, the risk committee is expected to evaluate risks from the level of the Corporation, rather than the functional area. To borrow a description from the Treadway Commission,\20\ we believe the risk committee aims to strike an optimal balance between growth and return goals while attempting to optimize deployment of resources toward the entity's objectives. --------------------------------------------------------------------------- \20\ ``Enterprise Risk Management--Integrated Framework'', Executive Summary, Committee of Sponsoring Organizations of the Treadway Commission, September 2004. --------------------------------------------------------------------------- In the same way, we view the risk officer as playing a role that represents the intersection of risks across functional area managers. We view the risk officer's role to involve monitoring the balance of risk across all functional areas and, as needed, recommending adjustments to re-balance the enterprise-wide risk profile in a manner consistent with the board-approved risk appetite. This role does not eliminate risk management responsibility from other members of the Corporation's management team. If a functional area manager knows that his or her performance will be evaluated on the basis of the productivity of that area, the manager's focus on that area's performance could become out of proportion to the impact of that effort on the Corporation's enterprise-wide risk position. The risk officer would then serve as a means of alerting senior management and the board of the potential impact that functional area managers' activities and positions may have on the Corporation at the enterprise-wide level. This should enable appropriate actions and strategies to be evaluated and taken when functional area risk taking exceeds the overall risk appetite of the board. The FCC and two stockholder-commenters agreed with requiring the Corporation's board to be actively involved in the Corporation's risk framework, but wanted it expanded to include capital considerations. These stockholder-commenters added that the requirement was not preventative enough as the Corporation's board should be required to approve risk-bearing capacity and consider the Corporation's public policy mission as well as capital adequacy. A third stockholder- commenter remarked that the part 653 requirements were not unreasonable, but better suited to non-regulatory guidance. This stockholder-commenter explained that the science of risk management is an emerging area, subject to rapid changes, so placing risk management requirements within a rule may hinder the Corporation's ability to keep pace with best practices in risk management. We are replacing the term ``ensure'' with the phrase ``provide reasonable assurance'' when discussing risk-taking activities in response to comments. We also add as a clarifying change that the requirement to monitor risk activities is expected to be on a regular basis. We make no other changes to new Sec. 653.2. While we appreciate the comment regarding the evolving nature of risk management, we believe it appropriate to establish an essential risk management structure within regulation and then supplement the rules with the suggested informal guidance if [[Page 49145]] necessary. We also make no changes in response to comments asking that part 653 address risks associated with capital. We already address risks to capital in Sec. 652.61, where we require the Corporation's board to approve the annual capital plan, which must comply with the board's risk appetite. 2. Risk Management [New Sec. 653.3] We finalize, with changes, new Sec. 650.3, which contains the minimum required risk management program activities of the Corporation. We received comments to this section from Farmer Mac, the FCC, and three Farmer Mac stockholders. We discuss the comments, and any changes, in the appropriate sections below. a. Risk Management Program [New Sec. 653.3(a)] We are making the following changes to new Sec. 653.3(a), which requires the Corporation's board of directors to have a risk management program: Replacing the phrase ``in effect at all times'' in the introductory language of paragraph (a) with the more measurable standard ``establish, maintain, and periodically update'' the risk management program; Removing the language ``addresses the Corporation's exposure to credit, market, liquidity, business, and operational risks'' in paragraph (a)(3) as it is redundant of language contained Sec. 653.3(b)(2); Adding language in paragraph (a) to recognize that implementation of the risk management program may be handled by senior management; and Adding language to clarify that the list of requirements in new Sec. 653.3(a) are the minimum. In furtherance of these clarifications, we remove the proposed paragraph (a)(4) requirement that the risk management policy specify the independence of those carrying-out the program. We received comments to new Sec. 650.3(a) from the FCC agreeing with the provision, but expressing concern that there was insufficient distinction between risks in the System and risks faced by the Corporation. The FCC asked that ``casual'' references linking the Corporation to the System be eliminated and that we specify the Corporation is a separate GSE from the System. In response, we clarify in this preamble that the Corporation is an institution of the Farm Credit System, but is not liable for any debt or obligation of any other System institution, and the other System institutions have no liability for Farmer Mac's debt. Also, Farmer Mac is organized as an investor-owned corporation, not a member-owned cooperative as are other System institutions, and the Farm Credit System Insurance Corporation does not insure Farmer Mac's securities. Farmer Mac remarked that the board does not often involve itself in day-to-day risk decisions: That is more properly handled by senior management. As mentioned above, we have made clarifying changes to recognize that daily implementation of the risk management program may reside with senior management. Two stockholder-commenters stated agreement with the risk management provisions, but asked that we expand them to include risk-bearing capacity and require management of the Corporation's capital to be consistent with Basel III. We have previously responded to their comment. These commenters also asked that OSMO provide further guidance to the Corporation on specific risk tolerance measures and for OSMO to closely monitor the program to ensure it is implemented in an effective manner. As noted, FCA may provide for the guidance on risk management as part of its oversight of this area. These stockholder-commenters objected to the Sec. 653.3(a) provision requiring risk management to include consideration of compensation practices and asked for the provision to be removed. We believe the incentive structures related to functional area managers' performance and risk-taking activities, referred to in our earlier response to comments on Sec. 653.2, includes incentive compensation policies and practices and that the Corporation's enterprise-wide risk management oversight would be incomplete without such consideration. b. Risk Committee [New Sec. 653.3(b)] We received comments from Farmer Mac and two Farmer Mac stockholders on new Sec. 653.3(b), which addresses the responsibilities of the risk committee. The stockholder-commenters agreed in general with the provisions, but asked that they more closely resemble the requirements for other GSEs, including System institutions. We note that we do not currently require other System institutions to have risk committees and so cannot accommodate the request of those commenters asking for consistency among System institutions. Also, we note that the Corporation is of a different structure than other System institutions, necessitating some different risk management aspects. However, we did consider the provisions of the recent risk management rulemaking by the Federal Housing Finance Agency (FHFA).\21\ --------------------------------------------------------------------------- \21\ 80 FR 72327, December 21, 2015. --------------------------------------------------------------------------- Farmer Mac asked that we use the same experience requirement for the risk committee as is used for the risk officer since it could be difficult to ensure a risk expert is always elected to the board. For the same reason, Farmer Mac asked that we change the committee responsibilities to a level of understanding of risk rather than possession of expertise. We agree and substitute in new Sec. 653.3(b)(1) the phrase ``an understanding of'' and remove the proposed ``expertise'' requirement when talking about the requirement that the risk committee have at least one member who is familiar with risk management. We also make changes in new Sec. 653.3(b) to replace the requirement that the risk committee be responsible for the oversight of the risk management program, as that responsibility rightfully belongs to the entire Corporation board. In its place, we require the risk committee to assist the Corporation board in overseeing the risk management program. We believe it is essential that the tone of the Corporation's risk culture and its procedures for risk decision-making be set by the Board, even when based on management's recommendations. Further, the board of directors play a critical role in the ongoing oversight of, and cohesive implementation of, operational strategies and plans that conform to established risk appetites. We also replaced the proposed requirement in paragraph (b)(2)(i) that the risk committee oversee and document risk management activities with a requirement to periodically assess management's implementation of the risk management program. Similarly, we remove the proposed review requirement of paragraph (b)(2)(ii) and clarify that risk committee recommendations relate to changes to the risk management program. We also clarify in paragraph (b)(2)(iii) that the risk committee's receipt of reports from Corporation staff is not limited to the risk officer. We recognize that any personnel responsible for implementing the risk management program may be tasked by Farmer Mac with offering reports to the risk committee. We are making technical changes in new Sec. 653.3(b) to align language with that contained in other sections (e.g., replacing ``risk management practices'' with ``risk management program'', replacing ``risk profile'' with ``risk appetite''). We also remove language redundant of that contained in new [[Page 49146]] Sec. 651.50 regarding formation of the risk committee. As referenced in the discussion of Sec. 651.50 (preamble section III.B.3.), we are finalizing the requirement that the Corporation have a risk management committee so do not need to state in Sec. 653.3(b) that the risk committee must be formed. c. Management of Risk [New Sec. 653.3(c)] We received comments from Farmer Mac and two Farmer Mac stockholders on new Sec. 653.3(c), which requires the Corporation to have a risk officer. The stockholder-commenters agreed in general with the need for a risk officer, but stated that FCA should not require it as FCA should not make staffing decisions within a System institution. These commenters also contended that requiring a risk officer offers no assurance, from a safety and soundness perspective, of compliance with risk management policies. The stockholder-commenters asked that the entire paragraph be removed. Farmer Mac commented on the use of the term ``experience'' versus ``expertise'', asking for similar use for both the risk committee and the risk officer. Farmer Mac explained that using different terms implied different expectations regarding the background of the risk officer versus the risk committee expert. Farmer Mac also asked that the standard be an understanding of risk issues and not direct experience in risk issues to facilitate recruitment. Finally, Farmer Mac asked for a 1-year phase in to fill the position. We earlier addressed most of Farmer Mac's comment regarding the level of expertise required in Sec. 653.3(b). In response to remaining comments, we are changing the name of paragraph (c) from ``Risk Officer'' to ``Management of risk'' and making conforming changes to reference a ``risk officer, however styled'' so as to encompass other personnel responsible for implementing the risk management program. We also remove specific reporting requirements to ``the chief executive officer and board risk committee'' in new Sec. 653.3(c)(4) and (5) to recognize that Farmer Mac will exercise its own discretion in designing a risk management position(s). We decline to reduce the level of experience for risk officers to a mere understanding of risk and have retained the requirement for experience in risk management. We are not delaying the effective date of this rule as requested by Farmer Mac to facilitate the Corporation having a risk officer in place before the rule is effective. Should the Corporation encounter difficulties in having a risk officer in place after this rule is effective, Farmer Mac should contact the Director of OSMO. 3. Internal Controls [New Sec. 653.4] We received comments on new Sec. 653.4 from Farmer Mac and two Farmer Mac stockholders. Farmer Mac asked that we remove the entire section on internal controls, stating the Corporation's internal control activities under SEC regulations are sufficient. Farmer Mac then asked us to mirror SEC regulation if we retained the provision or make the following changes to it: remove the term ``ensure'', incorporate more flexibility, and avoid expanding the role of the directors. Farmer Mac also asked for clarification on paragraph (b)(6) regarding information reported to the board of directors, as it considered the provision to be vague. We decline the request to remove the entire section requiring internal controls. We continue to believe that the Corporation's board oversight of internal controls is a critical component of its responsibility for monitoring corporate activities and providing reasonable assurances that the controls will prevent excessive risk taking, mitigate operational risks, and minimize the potential for unsafe and unsound activities. The corporate environment is influenced by management's philosophy, operating style, integrity, ethical values, and commitment to competence. If this foundation is strong, if the corporate environment is positive, the overall system of internal controls will be more effective. Further, a sound system of comprehensive and integrated internal controls is vital to the operations of any organization and especially those whose business is taking financial risk. In the more than two decades since the Corporation was chartered, business and operational environments have become significantly more complex and technology-driven. A system of internal controls should dynamically respond to such changes in complexity--not just in business unit operations but also in compliance with increasingly complex laws, regulations, and industry standards. We also decline to rely solely on the internal control assessment the Corporation prepares for the SEC since that assessment is targeted at financial reporting issues, pursuant to provisions in the Sarbanes- Oxley Act.\22\ As a safety and soundness regulator, our interest in internal controls extends beyond preparation of financial report. While we believe effective financial controls reduce the risk of asset loss and help ensure that financial information is complete and accurate, and agree that financial statements need to be reliable and comply with laws and regulations, we also believe safety and soundness internal controls extend to the operations, programs, and resources of the Corporation. We are, however, making some changes based on the comments. We change paragraph (a) to clarify the expected internal controls are safety and soundness controls over the Corporation's operations, programs, and resources. We also remove the ``ensure'' language from paragraph (a), to which a commenter objected. Also, we are substituting the requirement in paragraph (b)(6) for ``transparency'' with the Corporation's board in response to a comment. We instead require that internal controls address ``the completeness and quality'' of information shared with the Corporation's board. --------------------------------------------------------------------------- \22\ The Sarbanes-Oxley Act stressed the importance of public companies maintaining internal controls when it comes to their financial reporting by requiring public companies to include details on the company's financial internal controls inside of their annual reports. Also, the SEC requires filers to include an attestation of ``internal controls over financial reporting'' in annual reports. --------------------------------------------------------------------------- Farmer Mac also asserted that requiring it to have internal controls would deviate from what FHFA requires of the only other secondary market GSEs (Fannie Mae and Freddie Mac).\23\ We believe that the current differences between the operating structures of the housing GSEs and Farmer Mac, in particular the conservatorships of the housing GSEs, makes comparison of their regulatory structures less useful. We believe internal controls are important for Farmer Mac regardless of whether another regulator adopted them for the housing GSEs. The overall purpose of an internal controls system is to help an entity achieve its mission and accomplish certain goals and objectives. An effective internal control system should promote orderly, economical, efficient and effective operations; safeguard resources against loss due to waste, abuse, mismanagement, errors and fraud; promote adherence to statutes, regulations, and operating procedures; as well as develop and maintain reliable financial and management data (and accurately report that data in a timely manner), all of which can help protect the Corporation's safe and sound operation and its reputation. --------------------------------------------------------------------------- \23\ See footnote 15, Appendix B, of the Farmer Mac comment letter to the proposed rulemaking. See also, 12 CFR 1236, Appendix A, ``Prudential Management and Operations Standard,'' containing some FHFA internal controls requirements for the secondary market housing GSEs (e.g., ``Standard 1--Internal Controls and Information Systems''). --------------------------------------------------------------------------- [[Page 49147]] We had proposed in paragraphs (c) and (d) that the Corporation establish a monitoring system for its internal controls and to report to us on the effectiveness of those controls. Stockholder-commenters objected to the requirement for annual reports on internal controls, explaining such reports would be burdensome and could reduce the attention given the issue during FCA examinations. The commenters instead stated that FCA should rely primarily on its examination authority for review of internal controls. We make changes to paragraphs (c) and (d) to address the comments objecting to annual reports on internal controls, but do so in a manner that also satisfies the underlying purpose of proposing an annual report on the effectiveness of internal controls. We are removing paragraph (d), which required the annual report to OSMO, in its entirety. In connection with this, we enhance the provision in paragraph (c) to require the monitoring of internal controls to include an identification and documentation of weaknesses in internal controls. We continue to believe the Corporation's internal control system needs to be monitored to assess whether controls are effective and operating as intended. On-going monitoring occurs through routine managerial activities such as supervision, reconciliations, checklists, comparisons, performance evaluations, and status reports. Monitoring may also occur through separate internal evaluations (e.g., internal audits/reviews) or from use of external sources (e.g., comparison to peer groups or industry standards, surveys, etc.). Deficiencies found during monitoring should then be documented and reported to those responsible for the function, with serious deficiencies being reported to top management or the board. To ensure this monitoring occurs, the rule requires the Corporation to document the process used to identify and resolve weaknesses in its internal controls, as well as document what weaknesses were found. This change, along with the internal controls over financial reporting made to SEC, should provide the necessary source documents for our examination of the Corporation's internal controls, similar to what would have resulted from the proposed annual report to OSMO. D. Disclosure and Reporting [Part 655] Part 655 contains the existing financial disclosure and reporting provisions for the Corporation. We received comments to part 655 from Farmer Mac, an agent of Farmer Mac, and a Farmer Mac stockholder. There were no comments opposing the proposed organizational changes and, therefore, we finalize them as proposed. We also finalize as proposed the movement of existing provisions into the relevant subparts. We discuss final changes to part 655, and the related comments received, in the appropriate sections below. 1. Definitions [New Subpart A: New Sec. 655.1] We received a comment from Farmer Mac on the definition for ``material'' in part 655, asking us to remove the definition or restate that used by the SEC. We proposed defining ``material'' as information required when ``there is a substantial likelihood that a reasonable person would attach importance in making investor decisions or determining the financial condition of the Corporation.'' We decline Farmer Mac's request as it did not argue that the term ``material,'' as used in part 655, presented any conflict with SEC reporting rules.\24\ Rather, we note that, like the SEC, our rule interprets the term in a manner similar to the Financial Accounting Standards Board (FASB) Concepts Statement No. 2 explanation of ``materiality.'' \25\ FASB, in turn, relied on the U.S. Supreme Court explanation that a fact is material under Federal securities laws if there is a ``substantial likelihood'' the fact would be ``viewed by the reasonable investor as having significantly altered the `total mix' of information made available.'' \26\ We also note that our rule substantially resembles the SEC Rule 405 definition,\27\ with adjustments made for financial safety and soundness considerations. We finalize the term ``material'' and its definition as proposed. However, we are not finalizing adding the term ``report'' and its accompanying definition to new Sec. 651.1 as the term is sufficiently explained in the relevant provisions of the rule. --------------------------------------------------------------------------- \24\ See SEC Staff Accounting Bulletin: No. 99--Materiality, 17 CFR part 211 (August 12, 1999), explaining the meaning of ``material'' as ``A matter is `material' if there is a substantial likelihood that a reasonable person would consider it important.'' \25\ FASB, Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information, 132 (1980). In this bulletin, FASB explained the concept of ``materiality'' as ``The omission or misstatement of an item in a financial report is material if, in the light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item.'' \26\ See TSC Industries v. Northway, Inc., 426 U.S. 438, 449-450 (1976), where the court noted that determining materiality required ``delicate assessments of the inferences a `reasonable shareholder' would draw from a given set of facts and the significance of those inferences to him . . .''. See also Basic, Inc. v. Levinson, 485 U.S. 224 (1988). \27\ 17 CFR 230.405. --------------------------------------------------------------------------- 2. Prohibitions [Proposed New Sec. 655.2] We received comments on new Sec. 655.2 from Farmer Mac and an agent of Farmer Mac. Farmer Mac asked that all references to ``agents'' be removed and that the provision include a materiality standard so as to limit FCA actions. Farmer Mac asserted that FCA has no authority to regulate non-System persons or entities, suggesting FCA limit itself to imposing an obligation on the Corporation to monitor its agents. Farmer Mac again stated that FCA should not intrude into areas under SEC jurisdiction. Farmer Mac also asked that we defer to the SEC for determining compliance, specifically mentioning the SEC rules on omissions and misstatements in reports filed with the SEC. The agent to Farmer Mac stated the regulation of agents was intrusive and burdensome, adding that Congress did not intend consultants and advisors to be subject to FCA authority. We proposed new Sec. 655.2 to prohibit directors, officers, employees, or agents of the Corporation from making misleading, inaccurate, or incomplete part 655 disclosures. The provision would have covered reports and disclosures made to FCA, stockholders of Farmer Mac, and the general public. Contrary to the remarks of some commenters, the provision did not assert direct regulatory authority over the general actions of an agent of Farmer Mac. Instead, the provision would have required Farmer Mac to control its agents, or issue corrections to disclosures made by the same if those disclosures were determined to be misleading, inaccurate, or incomplete. As explained in section 8.3(c)(4) of the Act, Farmer Mac has a statutory duty to take necessary precautions, including obtaining surety bonds, against any losses caused by the acts of its agents. Further, FCA has statutory authority to issue cease-and-desist orders to agents of the Corporation in appropriate circumstances. In addition, we reject the argument of Farmer Mac that misleading, inaccurate, or incomplete disclosures are the exclusive jurisdiction of the SEC. Not every report or disclosure made by Farmer Mac is in response to a requirement of the SEC, particularly those we require under our rules in part 655. Rather, activities of the Corporation extend beyond registered securities issued or guaranteed by Farmer Mac, and we have long had regulations addressing Farmer Mac disclosures related to securities not [[Page 49148]] registered under the Securities Act of 1933. All this notwithstanding, in response to the concerns expressed by commenters regarding dual compliance with SEC regulations, we are not finalizing the contents of Sec. 655.2 at this time. 3. Reports of Condition [New Subpart B: Existing Sec. 655.1; New Sec. Sec. 655.10 and 655.15] Our existing rule requires the Corporation to make annual reports to its shareholders, and we had proposed enhancements to this existing requirement. The enhancement included adding quarterly reports, increasing the information in the reports, reducing distribution timeframes, and requiring the reports to be signed and certified as accurate. We received comments on these proposed changes from Farmer Mac and a Farmer Mac stockholder. The stockholder-commenter only remarked that we should remove references to ``EDGAR'', the SEC Web site portal, as the name of the portal may change. We agree and have removed all references to ``EDGAR'' in part 655. Farmer Mac objected to our rules containing any different reporting or disclosure requirements than those required by the SEC. Farmer Mac stated reporting and disclosures are the jurisdiction of the SEC and FCA should reconsider any regulation of the matter. We reject the argument of Farmer Mac that financial reports and disclosures are the exclusive jurisdiction of the SEC and remind the Corporation that we have long had regulations addressing financial reports and disclosures made by the Corporation. Further, FCA may require disclosure necessary to the safety and soundness of the Corporation.\28\ In particular, we may require disclosures suitable to the purpose for which Farmer Mac was created, to follow disclosure practices appropriate to secondary market activities, and to aid in reducing risks in secondary market transactions.\29\ We also point out that SEC rules do not prohibit its filers from making financial reports to other Federal agencies.\30\ --------------------------------------------------------------------------- \28\ Sections 5.17(a)(8) and 8.11 of the Act (12 U.S.C. 2252(a)(8) and 2279aa-11). \29\ Section 8.11(a)(1) and (2) of the Act (12 U.S.C. 2279aa- 11). \30\ Refer to 17 CFR 240.12b-33. --------------------------------------------------------------------------- While we understand Farmer Mac's desire to only concern itself with one unified set of reporting and disclosure requirements, we cannot uniformly adopt SEC reporting and disclosure requirements. As explained in the proposed rulemaking, SEC requires certain reporting and disclosures to satisfy its role in ensuring listed companies provide sufficient information to the investing public. We, on the other hand, concern ourselves with ensuring disclosures and report made by the Corporation address safety and soundness concerns, which include all the activities of the Corporation. Where we can in this rule, we have allowed Farmer Mac to use SEC filings in satisfaction of our requirements. However, the SEC is a separate agency and can change its reporting and disclosure requirements without consulting FCA. For this reason, we limit the extent that SEC filing requirements may also satisfy our requirements and do so in a manner to avoid conflict with SEC requirements and unnecessary duplication of effort by Farmer Mac. a. Annual Reports Our existing rule requires the Corporation to make annual reports to its shareholders consistent with shareholder reports required by the SEC, and to submit copies of such to us. We note that the Corporation must also file annual and quarterly reports with the SEC (10Q and 10K, respectively), which may include additional information not part of the annual report to shareholders.\31\ Farmer Mac asked us to mirror SEC annual reporting requirements. Doing so would include removing the proposed quarterly reporting to shareholders.\32\ We finalize the proposed language that the annual reports to shareholders must be either equivalent in content to that required under the Securities Act or as we so instruct. However, we are not finalizing the proposed requirement in Sec. 655.10(a) that the Corporation make quarterly shareholder reports. Farmer Mac also asked that we remove the requirement to file any paper copies of reports with OSMO. We decline this request for reasons discussed in the proposed rulemaking preamble. --------------------------------------------------------------------------- \31\ The SEC requires registered entities to file an annual report on Form 10-K, which may contain more detailed information about the company's financial condition than the annual report to shareholders. The annual report on Form 10-K provides a comprehensive overview of the company's business and financial condition and includes audited financial statements. Although similarly named, the annual report on Form 10-K is distinct from the ``annual report to shareholders,'' which a company must send to its shareholders when it holds an annual meeting to elect directors. www.sec.gov/answers/form10k.htm. \32\ Currently, the SEC does not require registrants to issue a quarterly report to shareholders. However, the issuance of such a report might be required by the listing standards of a national securities exchange or association. In addition, communications about quarterly results are subject to Regulation FD, Fair Disclosure, as well as Form 8-K disclosure requirements. --------------------------------------------------------------------------- b. Certification of Reports Farmer Mac said that there was no need for requiring signatures and certifications on reports as the SEC already addresses how reports are to be signed and certified. Farmer Mac also asked that we define ``financially accurate'' as used in new Sec. 655.10(b), explaining it is not a term used in the SEC-required certification of reports. We finalize with changes the signature and certification requirements of new Sec. 655.10(b). Our proposed certification did not conflict with SEC laws or regulations, but may have caused compliance issues with SEC instructions. SEC rules Sec. Sec. 240.13a-14 and 240.15d-14 require certification of quarterly and annual reports filed with them, but SEC instructions for completing these certifications prohibit filers from making changes to the certification language provided in the SEC rules. Our proposed certification requirements captured most of the same information as the SEC certifications, without giving specific language that had to be used. To address the commenter's concern regarding compliance with both the SEC and FCA, we are changing our certification requirements to require the use of SEC certifications.\33\ We also clarify that the requirements of Sec. 655.10(b) apply to reports issued under new subpart B of part 655. --------------------------------------------------------------------------- \33\ SEC certifications are designed to be consistent with the certification requirements of section 302 of the Sarbanes-Oxley Act, which is intended to improve the quality of public financial disclosures that a company provides in its periodic reports to investors. --------------------------------------------------------------------------- c. Distribution Deadlines Farmer Mac objected to reducing distribution deadlines to 90 days, asking that we keep the current 120-day deadline so as to provide it greater flexibility. Farmer Mac added that the proposed 90-day timeframe ``deviates from SEC rules,'' but does not name the SEC rules being referenced. Farmer Mac also asserted the shorter timeframe could increase compliance burden. Absent a citation to the SEC rules, we do not see where the number of days FCA proposed created any compliance problems with SEC requirements. The SEC has a three-tiered deadline for annual reports filed with them that is based on the size of the filer: 60 days after fiscal year end for large accelerated filers, 75 days after fiscal year end for regular accelerated filers, and 90 days after fiscal year end for nonaccelerated [[Page 49149]] filers.\34\ Our proposed 90-day deadline did not conflict with any of these timeframes. The separate ``annual report to shareholders'' \35\ required by the SEC provides that a registered company must distribute the company's annual report to shareholders at least 40 days before the company holds its annual meeting or elections.\36\ Again, our proposed 90-day deadline did not conflict with this timeframe as the Corporation is not legally required to hold its annual meeting on any specific date. --------------------------------------------------------------------------- \34\ SEC Web site, www.sec.gov/answers/form10k.htm. See also Instructions to Form 10-K at section A.2, www.sec.gov. \35\ The SEC-required annual report to shareholders is usually includes an opening letter from the Chief Executive Officer, financial data, results of operations, market segment information, new product plans, subsidiary activities, and research and development activities on future programs. Companies sometimes elect to send their annual report on Form 10-K to their shareholders in lieu of, or in addition to, providing shareholders with a separate annual report to shareholders. SEC Web site, www.sec.gov/answers/annrep.htm. \36\ 17 CFR 240.14a-16. --------------------------------------------------------------------------- Our existing rule requires distribution of annual reports to shareholders within 120 days of the fiscal year end (i.e. April of each year). The SEC ties distribution of shareholder reports to the annual meeting date (or election date) and reports to the SEC are tied to fiscal year end. We use fiscal year end for both actions. This means to comply with both the SEC and FCA deadlines the Corporation currently must distribute its report to shareholders within 120 days of fiscal year end and may not hold its annual meeting (or elections) until 40 days after the report is distributed (approximately 160 days or June 9th of each year). We proposed reducing our deadline to 90 days, which would result in the Corporation being required to hold its annual meeting (and elections) no earlier than May 10th of each year (approximately 120 days from fiscal year end). As there is no compliance issue with SEC rules, we reject the request of Farmer Mac to follow the SEC in this regard. We prefer a date certain under which the Corporation must distribute its annual report to shareholders. However, we have restored the existing 120-day deadline for distribution of the annual report to shareholders. We continue to believe the Corporation is more than capable of issuing the report sooner, but agree that the additional time is beneficial to the director nomination process (due to the report's connection to holding annual meetings/elections under SEC rules). d. Interim Reports, Proxy Statements, and Notices We proposed in Sec. 655.15 that the Corporation provide us copies of interim reports (e.g., 8-K), proxy statements, and notices sent to SEC. We also proposed that this same information be posted on the Corporation's Web site for public viewing, but that links to the SEC electronic filings may be used to satisfy this requirement. Farmer Mac commented that these requirements were an unjustified regulatory burden. Farmer Mac then asked that we clarify the scope of notices, interim reports, and proxy statements required to be sent to OSMO under Sec. 655.15(a). Farmer Mac also asked that we remove the requirement to post on its Web site these same notices, interim reports, and proxy statements. Farmer Mac stated concern with the public posting requirement since these filings include all papers and documents made part of the filing, contending confidential communication with the SEC may be made public. We decline to remove the Sec. 655.15(a) requirement to provide these complete filings to OSMO as we continue to believe it is essential that communications between the Corporation and OSMO, its primary regulator, include the substantive communications the Corporation has with the SEC. We also fail to see how providing us copies of reports and filings already being prepared is a burden on the Corporation. We have clarified in Sec. 655.15(b) that the public Web site postings may be limited to the public aspects of the notices, interim reports, and proxy statements. 4. Reports Related to Securities Activities [New Subpart C: Existing Sec. 655.50; New Sec. 655.20] Farmer Mac objected to being required in Sec. 655.20 to send paper copies to us of reports on unregistered securities activities. We have removed the requirement for both electronic and paper copies, replacing it with a requirement for either a paper or electronic copy, whichever is most conducive to transmitting the information. We also added language to clarify the reports are to be sent to the Director of OSMO. Farmer Mac requested we clarify the types of documents covered by Sec. 655.20 and whether daily transactions (e.g., issuance of unregistered debt securities) needed to be filed with us. Farmer Mac explained that many documents and daily activities could be covered by the rule under some interpretations. If so, the burden of providing that information to us would be significantly increased. As we made little change to existing requirements in this area, we question the assertion that the rule could be misinterpreted or is a burden on Farmer Mac. Farmer Mac has made reports to us on its activities regarding securities not registered under the Securities Act under this regulatory requirement since 1993. As such, Farmer Mac should continue its current practices addressing daily activities for filings made under this requirement, unless we later advise them otherwise. The Corporation at a minimum must make special filings with us regarding those items specifically listed in the rule. We encourage the Corporation to contact us when questions arise as to whether a specific securities action requires a filing under Sec. 655.20. Farmer Mac requested we update existing terminology in Sec. 655.20(b)(2) regarding securities purchased by the Corporation under section 8.6(e) of the Act. We agree that the specific citation to the Act needed to be updated to reference the correct paragraph of section 8.6.\37\ The current reference predates Congress moving the relevant provision from section 8.6(g) to section 8.6(e) of the Act.\38\ We also revise the ``pooling and servicing agreements'' terminology as requested by Farmer Mac. The existing rule used this phrase to reference those documents employed in the exercise of the Corporation's authority to purchase and hold securities that are backed by pools of qualified loans (which loans are secured by a first lien on agricultural real estate, per section 8.0(9)(A) of the Act).\39\ The phrase ``pooling and servicing agreements'' is outdated as such documents are no longer a fundamental prerequisite to doing business with Farmer Mac. We replace this phrase with one that refers to those documents supporting issuances of these types of guaranteed securities and which are material to the transaction(s). --------------------------------------------------------------------------- \37\ 12 U.S.C. 2279aa-6(e). \38\ Public Law 104-105, 110 Stat. 164 (February 10, 1996). \39\ See former Sec. 621.20(b)(2)(ii) (58 FR 48786, September 20, 1993) referring to Farmer Mac I securities, relocated to existing Sec. 655.50(b)(2)(ii)(70 FR 40635, July 14, 2005). Farmer Mac I securities are those backed by pools of qualified loans as defined in section 8.0(9)(A) of the Act. --------------------------------------------------------------------------- 5. Correspondence Related to Securities Activities [New Subpart C: Existing Sec. 655.50; New Sec. 655.21] We proposed expanding the existing requirement to send us copies of substantive correspondence between Farmer Mac and the SEC or U.S. Treasury to cover all subject matters, instead of just those substantive communications related to securities activities and SEC compliance matters. We also proposed adding similar [[Page 49150]] communications with the NYSE and setting timeframes for providing the information to us. Farmer Mac asked for clarification on the types of correspondence between the Corporation and the SEC or NYSE that needed to be sent to us, adding that sending all substantive communique could be unworkably burdensome. Farmer Mac did acknowledge that the provision was within our oversight authority, but stated the scope of communication was too broad. Farmer Mac went on to equate ``substantive'' correspondence with ``routine'' communications received by many employees of the Corporation through subscriptions to NYSE market data. Material such as mass-produced market updates are not ``substantive correspondence between the Corporation and the SEC, U.S. Treasury, or NYSE'' nor would we expect to be sent SEC and NYSE communique provided to a subscriber list. However, to alleviate any confusion, we clarify that correspondence directly addressing the activities of the Corporation is what is covered by the provision. Further, we refer to past clarifications on this issue, explaining that non-substantive transmittal letters accompanying SEC filings, for example, would not be considered ``substantial'' and therefore not required to be filed with the FCA.\40\ On the other hand, we have particular interest in interpretive rulings of the NYSE, the SEC, or the Treasury Department bearing on Farmer Mac's ongoing business activities and expect such correspondence to be filed with us under this provision. --------------------------------------------------------------------------- \40\ See 58 FR 48786 (September 20, 1993), where FCA responded in 1993 to a similar comment of Farmer Mac regarding the meaning of ``substantive''. --------------------------------------------------------------------------- Farmer Mac asked that we exclude communications to NYSE that would be duplicative of official filings with the SEC. We agree and have changed the language of Sec. 655.21(a) accordingly. Farmer Mac also requested guidance on how to transmit to us communique issued via secure electronic portals. We encourage Farmer Mac to contact us when they have such communique, at which time we will provide instructions on how to provide us copies of such. In addition, Farmer Mac objected to being required in Sec. 655.21(c) to notify us of any exemption it obtained from the SEC. Farmer Mac asked that we limit the requirement to those SEC exemptions obtained under the Securities Act of 1934. In making this request, Farmer Mac explained it is not subject to complete regulation by SEC and, except for certain mortgage-backed securities, it is not subject to the 1933 Securities Act and must only file reports under the 1934 Securities Act. We decline the request to limit the rule by naming a specific securities law. The definition for ``securities'' contained in Sec. 655.1 explains that it means the securities law(s) appropriate to the context of the employing provision. However, we have changed the requirement to only require notice to us of those exemptions that are not generally available under SEC rules to similarly situated filers. E. Other Comments We received comments on portions of the proposed rule preamble language that do not address regulatory provisions and result in no change to the rule. These comments are discussed below. 1. Regulatory Flexibility Act Certification We received a comment from an agent of Farmer Mac regarding the Regulatory Flexibility Act (RFA).\41\ The commenter argued this rulemaking would impact a substantial number of small businesses, with whom Farmer Mac conducts business, and therefore would alter our assessment of the economic impact of the rulemaking. In the proposed rule, we certified that the rule would not have a significant economic impact on a large number of small entities, and that Farmer Mac did not qualify as a ``small entity'' as defined under the RFA. The RFA does not: (1) Seek preferential treatment for small entities; (2) require agencies to adopt regulations that impose the least burden on small entities; or (3) mandate exemptions for small entities. Rather, it requires agencies to examine public policy issues using an analytical process that identifies, among other things, barriers to small business competitiveness. Meaning, it requires agencies to analyze the economic impact of proposed regulations when there is likely to be a significant economic impact on a substantial number of small entities covered by the rulemaking, and to consider regulatory alternatives that will achieve the agency's goal while minimizing the burden on those same small entities. The rule is directed at Farmer Mac, which is not a small business. Further, we see nothing in this final rulemaking that creates significant economic barriers to small businesses. Those areas of the rule referencing agents of Farmer Mac expound upon existing regulations or statutory provisions and make no reference to the size of entity serving as an agent to Farmer Mac. --------------------------------------------------------------------------- \41\ Regulatory Flexibility Act, Pub. L. 96-354, 94 Stat. 1164 (codified at 5 U.S.C. 601). --------------------------------------------------------------------------- 2. Need for Rulemaking One stockholder-commenter expressed general concern with FCA regulating the corporate governance and disclosures for Farmer Mac given existing SEC rules in these areas. This commenter asked FCA to use caution as SEC rules are constantly changing. The commenter also stated FCA did not need to regulate governance behavior at Farmer Mac as the Corporation has a strong history of sophisticated corporate governance practices. Voluntary governance is valuable, but it does not replace the stability that rules provide in assuring stakeholders of the safety and soundness of the Corporation. Our governance rules set a minimum level of performance that is mandatory for the Corporation. While we believe it is important to preserve individual operating flexibility wherever and whenever possible, our responsibility as regulator requires us to issue regulations we determine appropriate for safety and soundness reasons. We believe the assurances derived from a regulatory minimum standard, combined with the Corporation's voluntary governance efforts, will increase stockholder, investor, and public confidence in Farmer Mac. Farmer Mac questioned the need for any regulatory changes, stating that insufficient recognition was given to its status as a public company. Farmer Mac also stated that it is unnecessary for FCA to regulate many corporate governance areas due to SEC requirements and thus we should remove those provisions. Farmer Mac explained that it is the mission of the SEC to protect investors, and the SEC provides sufficient regulation of board activities and corporate disclosures. Farmer Mac added that portions of the rule presented compliance concerns with other regulatory elements unrelated to FCA, but provided no specific citation to these other rules. Farmer Mac also asserted that the rulemaking would potentially harm the Corporation and those it serves in a material way instead of enhance safe and sound operations, but again offered no specifics. The FCA, acting through OSMO, examines and provides general supervision over the activities of Farmer Mac pursuant to section 8.11 of the Act. As discussed elsewhere in this preamble, the role the SEC plays in the disclosure and reporting aspects of the Corporation does not remove our [[Page 49151]] responsibility to regulate Farmer Mac's safe and sound operations. We have a responsibility to address corporate governance within the Corporation given its importance to the safe and sound operations of the Corporation and the current business climate in which Farmer Mac operates. As a GSE, the Corporation has strategic objectives that are both commercially and public policy oriented. Thus, governance of the Corporation must be understood and interpreted not only in the context of the fiduciary responsibilities to the Corporation and its shareholders, but also in the context of the statutory duty to further the Congressional purposes the Corporation was chartered to achieve. In addition, we explained in the proposed rule preamble that Farmer Mac, as a publicly traded company, is subject to many of the governance requirements of Sarbanes-Oxley, Dodd-Frank, and SEC disclosure regulations for publicly traded companies. However, with the recent events in the financial industry, increased sophistication in financial markets, and on-going scrutiny of GSE financial activities and related reporting practices, we believed it prudent to update our current regulatory standards related to Farmer Mac's Board governance, reporting, and disclosures. Farmer Mac stated that FCA did not publish its current concerns with the risk management and governance operations of the Corporation in support of the rulemaking. This rulemaking is intended to ensure that appropriate board governance and risk management practices are in place at Farmer Mac. We are not limited to issuing regulations only when there is an existing adverse risk or problem. Our responsibilities as a safety and soundness regulator requires us to be proactive and prudent in our rulemaking, as well as reactive by providing standards that help avert potential problems. Thus, we have flexibility to issue rules either in response to a problem or proactively to ensure the Corporation's continued safe and sound business operations. Farmer Mac also asserted FCA has in the past ``deferred'' to the oversight of the SEC and NYSE. We reject this assertion. The FCA, as an independent regulator of the Corporation, is not required to follow the actions of other regulators and we have never deferred our regulatory oversight to another agency. We do not view our past efforts to accommodate the Corporation's requests to modify our regulations in light of those issued by other regulators (whose regulations also affect the Corporation's operations) as a relinquishment of our safety and soundness authority. 3. Terminology Farmer Mac asked that we define an assortment of terms and phrases used throughout the rule, asserting that many of these terms and phrases are not ``established'' in a body of law. Most of the terms and phrases identified by Farmer Mac are derived from corporate case law, model codes, and the Act itself. As such, we do not believe it necessary to further define them. 4. Regulatory Burden Farmer Mac commented that it viewed many aspects of the rule as unnecessary and burdensome, making them inconsistent with the ``Congressional mandate'' that we eliminate unnecessary regulations. As we understand this comment, Farmer Mac is referring to the instructions of the Farm Credit System Reform Act of 1996 (1996 Act) \42\ to reduce regulatory burdens. Section 212(b) of the 1996 Act requires us to continuously review our regulations to eliminate rules that are unnecessary, unduly burdensome, costly, or not based on law. The 1996 Act specifies that we are to make these eliminations only if they would be consistent with law, safety, and soundness. As explained throughout this preamble, Congress charged us to issue regulations to ensure the safety and soundness of the Corporation and this rule is consistent with the law and safety and soundness concerns. --------------------------------------------------------------------------- \42\ Public Law 104-105, 110 Stat. 162 (February 10, 1996). --------------------------------------------------------------------------- IV. Regulatory Flexibility Act Pursuant to section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), FCA hereby certifies the final rule will not have a significant economic impact on a substantial number of small entities. The Corporation has assets and annual income over the amounts that would qualify it as a small entity. Therefore, the Corporation is not considered a ``small entity'' as defined in the Regulatory Flexibility Act. List of Subjects 12 CFR Part 650 Agriculture, Banks, banking, Credit, Reporting and recordkeeping requirements, Rural areas. 12 CFR Part 651 Agriculture, Banks, banking, Conduct standards, Conflict of interests, Elections, Ethical conduct, Rural areas. 12 CFR Part 653 Agriculture, Banks, banking, Capital, Conduct standards, Credit, Finance, Rural areas. 12 CFR Part 655 Accounting, Agriculture, Banks, banking, Accounting and reporting requirements, Disclosure and reporting requirements, Financial disclosure, Rural areas. For the reasons stated in the preamble, parts 650, 651, 653, and 655 of chapter VI, title 12 of the Code of Federal Regulations are amended as follows: PART 650--FEDERAL AGRICULTURAL MORTGAGE CORPORATION GENERAL PROVISIONS 0 1. The authority citation for part 650 is revised to read as follows: Authority: Secs. 4.12, 5.9, 5.17, 5.25, 8.11, 8.12, 8.31, 8.32, 8.33, 8.34, 8.35, 8.36, 8.37, 8.41 of Pub. L. 92-181, 85 Stat. 583 (12 U.S.C. 2183, 2243, 2252, 2261, 2279aa-11, 2279aa-12, 2279bb, 2279bb-1, 2279bb-2, 2279bb-3, 2279bb-4, 2279bb-5, 2279bb-6, 2279cc); sec. 514 of Pub. L. 102-552, 106 Stat. 4102; sec. 118 of Pub. L. 104-105, 110 Stat. 168. 0 2. Add subpart B, under the heading ``Conservators, Receivers, and Liquidations'' consisting of existing Sec. Sec. 650.1 through 650.80 as redesignated in the following table: ------------------------------------------------------------------------ Old section New section ------------------------------------------------------------------------ 650.1, no subpart......................... 650.13, subpart B 650.5, no subpart......................... 650.14, subpart B 650.10, no subpart........................ 650.10, subpart B 650.15, no subpart........................ 650.15, subpart B 650.20, no subpart........................ 650.20, subpart B 650.25, no subpart........................ 650.25, subpart B 650.30, no subpart........................ 650.30, subpart B 650.35, no subpart........................ 650.35, subpart B 650.40, no subpart........................ 650.40, subpart B 650.45, no subpart........................ 650.45, subpart B 650.50, no subpart........................ 650.50, subpart B 650.55, no subpart........................ 650.55, subpart B 650.60, no subpart........................ 650.60, subpart B 650.65, no subpart........................ 650.65, subpart B 650.70, no subpart........................ 650.70, subpart B 650.75, no subpart........................ 650.75, subpart B 650.80, no subpart........................ 650.80, subpart B ------------------------------------------------------------------------ 0 3. Add a new subpart A to read as follows: Subpart A--Regulation, Examination and Enforcement Sec. 650.1 Definitions. 650.2 Regulatory authority. 650.3 Supervision and enforcement. 650.4 Access to Corporation records and personnel. 650.5 Reports of examination. 650.6 Criminal referrals. [[Page 49152]] Subpart A--Regulation, Examination and Enforcement Sec. 650.1 Definitions. The following definitions apply to this part: Act or Authorizing statute means the Farm Credit Act of 1971, as amended. Business day means a day the Corporation is open for business, excluding the legal public holidays identified in 5 U.S.C. 6103(a). Corporation or Farmer Mac means the Federal Agricultural Mortgage Corporation and its affiliates. FCA means the Farm Credit Administration, an independent Federal agency of the executive branch. NYSE means the New York Stock Exchange, a listing exchange. OSMO means the FCA Office of Secondary Market Oversight, which is responsible for the general supervision of the safe and sound exercise of the Corporation's powers, functions, and duties and compliance with laws and regulations. Our or we means the FCA or OSMO, as appropriate to the context of the provision employing the term. SEC means the Securities and Exchange Commission. Securities Act means the Securities Act of 1933 (15 U.S.C. 77a et seq.) or the Exchange Act of 1934 (15 U.S.C. 78a et seq.), or both, as appropriate to the context of the provision employing the term. Signed, when referring to paper form, means a manual signature, and, when referring to electronic form, means marked in a manner that authenticates each signer's identity. Sec. 650.2 Regulatory authority. (a) General. The Corporation is a for-profit Government-sponsored enterprise developed to provide a secondary market for qualified agricultural, USDA-guaranteed, and rural utility loans, with public policy objectives included in its statutory charter. The Corporation is regulated by the FCA, operating through OSMO. The Corporation also lists securities on the NYSE, making it subject to certain SEC listing and disclosure requirements. (b) Primary regulator. The FCA, operating through OSMO, holds primary regulatory, examination, and enforcement authority over the Corporation. The FCA, operating through OSMO, is responsible for the general supervision of the safe and sound exercise of the Corporation's powers, functions, and duties and compliance with applicable laws and regulations. (c) Other regulatory authorities. The Corporation registers its common stock and certain offerings of Farmer Mac Guaranteed Securities under the Securities Act and related regulations so must comply with certain SEC reporting requirements. Sec. 650.3 Supervision and enforcement. The Act provides FCA, acting through OSMO, with enforcement authority to protect the financial safety and soundness of the Corporation and to ensure that the Corporation's powers, functions, and duties are exercised in a safe and sound manner. (a) General supervision. When we determine the Corporation has violated a law, rule, or regulation or is engaging in an unsafe or unsound condition or practice, we have enforcement authority that includes, but is not limited to, the following: (1) Issue an order to cease and desist; (2) Issue a temporary order to cease and desist; (3) Assess civil monetary penalties against the Corporation and its directors, officers, employees, and agents; and (4) Issue an order to suspend, remove, or prohibit directors and officers. (b) Financial safety and soundness of the Corporation. When we determine the Corporation is taking excessive risks that adversely impact the adequacy of Regulatory Capital, we have authority to address that risk. This includes, but is not limited to, requiring capital restoration plans, restricting dividend distributions, requiring changes in the Corporation's obligations and assets, requiring the acquisition of new capital and restricting those Corporation activities determined to create excessive risk to the Corporation's Regulatory Capital. Sec. 650.4 Access to Corporation records and personnel. (a) The Corporation must make its records available promptly upon request by OSMO, at a location and in a form and manner acceptable to OSMO. (b) The Corporation must make directors, officers, employees and other individuals or entities engaged by the Corporation to participate in the conduct of the Corporation's business available to OSMO during the course of an examination or supervisory action when OSMO determines it necessary to facilitate an examination or supervisory action. Sec. 650.5 Reports of examination. The Corporation is subject to the provisions in 12 CFR part 602 regarding FCA Reports of Examination. Sec. 650.6 Criminal referrals. The rules at 12 CFR part 612, subpart B, regarding ``Referral of Known or Suspected Criminal Violations'' are applicable to the Corporation. 0 4. Revise part 651 to read as follows: PART 651--FEDERAL AGRICULTURAL MORTGAGE CORPORATION GOVERNANCE Subpart A--General Sec. 651.1 Definitions. 651.2 [Reserved] Subpart B--Standards of Conduct 651.21 [Reserved] 651.22 Conflict-of-interest policy. 651.23 Implementation of policy. 651.24 Director, officer, employee, and agent responsibilities. Subpart C--Board Governance 651.30 [Reserved] 651.35 [Reserved] 651.40 [Reserved] 651.50 Committees of the Corporation's board of directors. Authority: Secs. 4.12, 5.9, 5.17, 8.3, 8.11, 8.14, 8.31, 8.32, 8.33, 8.34, 8.35, 8.36, 8.37, 8.41 of Pub. L. 92-181, 85 Stat. 583 (12 U.S.C. 2183, 2243, 2252, 2279aa-3, 2279aa-11, 2279aa-14, 2279bb, 2279bb-1, 2279bb-2, 2279bb-3, 2279bb-4, 2279bb-5, 2279bb-6, 2279cc); sec. 514 of Pub. L. 102-552, 106 Stat. 4102; sec. 118 of Pub. L. 104-105, 110 Stat. 168. Subpart A--General Sec. 651.1 Definitions. The following definitions apply to this part: Act or Authorizing statute means the Farm Credit Act of 1971, as amended. Agent means any person (other than a director, officer, or employee of the Corporation) who represents the Corporation in contacts with third parties or who provides professional services such as legal, accounting, or appraisal services to the Corporation. Affiliate means any entity established under authority granted to the Corporation under section 8.3(c)(14) of the Act. Appointed director means a member of the Corporation's board of directors who was appointed to the Corporation board by the President of the United States of America. Business day means a day the Corporation is open for business, excluding the legal public holidays identified in 5 U.S.C. 6103(a). Class A stockholders means holders of common stock in the Corporation that are insurance companies, banks, or other financial institutions or entities. [[Page 49153]] Class B stockholders means holders of common stock in the Corporation that are Farm Credit System institutions. Conflict-of-interest means a director, officer, or employee of the Corporation has an interest in a transaction, relationship, or activity that might adversely affect, or appear to adversely affect, the ability of the director, officer, or employee to perform his or her official duties on behalf of the Corporation in an objective and impartial manner in furtherance of the interest of the Corporation and its statutory purposes. Corporation means the Federal Agricultural Mortgage Corporation and its affiliates. Director elections mean the process of searching for director candidates, conducting director nominations, and voting for directors. Elected director means a member of the Corporation's board of directors who was elected by either Class A or Class B stockholders. Employee means any salaried individual working part-time, full- time, or temporarily for the Corporation. Entity means a corporation, company, association, firm, joint venture, partnership (general or limited), society, joint stock company, trust (business or otherwise), fund, or other organization or institution. FCA means the Farm Credit Administration, an independent Federal agency of the executive branch. Material means conflicting interests of sufficient magnitude or significance that a reasonable person with knowledge of the relevant facts would question the ability of the person having such interest to discharge official duties in an objective and impartial manner in furtherance of the interests and statutory purposes of the Corporation. Officer means the salaried president, vice presidents, secretary, treasurer, and general counsel, or other person, however designated, who holds a position of similar authority in the Corporation. OSMO means the FCA Office of Secondary Market Oversight, which is responsible for the general supervision of the safe and sound exercise of the Corporation's powers, functions, and duties and compliance with laws and regulations. Our or we means the FCA or OSMO, as appropriate to the context of the provision employing the term. Person means individual or entity. Reasonable person means a person under similar circumstances exercising the average level of care, skill, and judgment in his or her conduct. Resolved means an actual or potential material conflict-of-interest that has been altered so that a reasonable person with knowledge of the relevant facts would conclude that the conflicting interest would not adversely affect the person's performance of official duties in an objective and impartial manner and in furtherance of the interests and statutory purposes of the Corporation. Signed, when referring to paper form, means a manual signature, and, when referring to electronic form, means marked in a manner that authenticates each signer's identity. Sec. 651.2 [Reserved] Subpart B--Standards of Conduct Sec. 651.21 [Reserved] Sec. 651.22 Conflict-of-interest policy. The Corporation shall establish and administer a conflict-of- interest policy that will provide reasonable assurance that the directors, officers, employees, and agents of the Corporation discharge their official responsibilities in an objective and impartial manner in furtherance of the interests and statutory purposes of the Corporation. The policy shall, at a minimum: (a) Define the types of transactions, relationships, or activities that could reasonably be expected to give rise to potential conflicts of interest. For the purpose of determining whether a potential conflict of interest exists, the following interests shall be imputed to a person subject to this regulation as if they were that person's own interests: (1) Interests of any individual residing in that person's household; (2) Interests of any individual identified as a legal dependent of that person; (3) Interests of that person's general business partner; (4) Interests of an organization or entity that the person serves as officer, director, trustee, general partner or employee; and (5) Interests of a person, organization, or entity with which that person is negotiating for or has an arrangement concerning current or prospective employment. (b) Require each director, officer, and employee to report in writing, annually, and at such other times as conflicts may arise, sufficient information about financial interests, transactions, relationships, and activities to inform the Corporation of potential conflicts of interest; (c) Require each director, officer, and employee who had no transaction, relationship, or activity required to be reported under paragraph (b) of this section at any time during the year to file a signed statement to that effect; (d) Establish guidelines for determining when a potential conflict is material in accordance with this subpart; (e) Establish procedures for resolving or disclosing material conflicts of interest. (f) Provide internal controls to ensure that reports are filed as required and that conflicts are resolved or disclosed in accordance with this subpart. (g) Notify directors, officers, and employees of the conflict-of- interest policy and any subsequent changes thereto and allow them a reasonable period of time to conform to the policy. Sec. 651.23 Implementation of policy. (a) The Corporation shall disclose any unresolved material conflicts of interest involving its directors, officers, and employees to: (1) Shareholders through annual reports and proxy statements; and (2) Investors and potential investors through disclosure documents supplied to them. (b) The Corporation shall make available to any shareholder, investor, or potential investor, upon request, a copy of its policy on conflicts of interest. The Corporation may charge a nominal fee to cover the costs of reproduction and handling. (c) The Corporation shall maintain all reports of all potential conflicts of interest and documentation of materiality determinations and resolutions of conflicts of interest for a period of 6 years. Sec. 651.24 Director, officer, employee, and agent responsibilities. (a) Each director, officer, employee, and agent of the Corporation shall: (1) Conduct the business of the Corporation following high standards of honesty, integrity, impartiality, loyalty, and care, consistent with applicable law and regulation in furtherance of the Corporation's public purpose; (2) Adhere to the requirements of the conflict-of-interest policy established by the Corporation and provide any information the Corporation deems necessary to discharge its responsibilities under this subpart. (b) Directors, officers, employees, and agents of the Corporation shall be subject to the penalties of part C of title V of the Farm Credit Act of 1971, as amended, for violations of this regulation, including failure to adhere to the conflict-of-interest policy established by the Corporation. [[Page 49154]] Subpart C--Board Governance Sec. 651.30 [Reserved] Sec. 651.35 [Reserved] Sec. 651.40 [Reserved] Sec. 651.50 Committees of the Corporation's board of directors. (a) General. No committee of the board of directors may be delegated the authority of the board of directors to amend Corporation bylaws. No committee of the board of directors shall relieve the board of directors or any board member of a responsibility imposed by law or regulation. (b) Required committees. The board of directors of the Corporation must have committees, however styled, that address risk management, audit, compensation, and corporate governance. Neither the risk management committee nor the audit committee may be combined with any other committees. This provision does not prevent the board of directors from establishing any other committees that it deems necessary or useful to carrying out its responsibilities. (c) Charter. Each committee required by this section must develop a formal written charter that specifies the scope of the committee's powers and responsibilities, as well as the committee's structure, processes, and membership requirements. To be effective, the charter must be approved by action of the full board of directors. No director may serve as chairman of more than one of the board committees required by this section. (d) Frequency of meetings and records. Each committee of the board of directors required by this section must meet with sufficient frequency to carry out its obligations and duties under applicable laws, regulations, and its operating charter. Each of these committees must maintain minutes of its meetings. The minutes must record attendance, the agenda (or equivalent list of issues under discussion), a summary of the relevant discussions held by the committee during the meeting, and any resulting recommendations to the board. Such minutes must be retained for a minimum of 3 years and must be available to the entire board of directors and to OSMO. 0 5. Add part 653 to read as follows: PART 653--FEDERAL AGRICULTURAL MORTGAGE CORPORATION RISK MANAGEMENT Sec. 653.1 Definitions. 653.2 General. 653.3 Risk management. 653.4 Internal controls. Authority: Secs. 8.3, 8.4, 8.6, 8.8, and 8.10 of Pub. L. 92-181, 85 Stat. 583 (12 U.S.C. 2279aa-3, 2279aa-4, 2279aa-6, 2279aa-8, and 2279aa-10). Sec. 653.1 Definitions. The following definitions apply to this part: Corporation means the Federal Agricultural Mortgage Corporation and its affiliates. FCA means the Farm Credit Administration, an independent Federal agency of the executive branch. OSMO means the FCA Office of Secondary Market Oversight, which is responsible for the general supervision of the safe and sound exercise of the Corporation's powers, functions, and duties and compliance with laws and regulations. Sec. 653.2 General. The Corporation's board of directors must approve the overall risk- appetite of the Corporation and regularly monitor internal controls to provide reasonable assurance that risk-taking activities are conducted in a safe and sound manner. Sec. 653.3 Risk management. (a) Risk management program. The Corporation's board of directors must establish, maintain, and periodically update an enterprise-wide risk management program addressing how the Corporation's activities are exercised in a safe and sound manner. The implementation of the risk management program may reside with senior management. The risk management program at a minimum must: (1) Periodically assess and document the Corporation's risk profile. (2) Align the Corporation's risk profile with the board-approved risk appetite and the Corporation's operational planning strategies and objectives. (3) Specify management's authority to carry out risk management responsibilities. (4) Integrate risk management and control objectives into management goals and compensation structures. (5) Comply with all applicable FCA regulations and policies. (b) Risk committee. The Corporation's board-level risk committee assists the full board of directors in the oversight of the enterprise- wide risk management program of the Corporation. (1) The risk committee must have at least one member with an understanding of risk management commensurate with the Corporation's capital structure, risk profile, complexity, activities, size, and other appropriate risk-related factors. (2) The responsibilities of the risk committee include, but are not limited to: (i) Periodically assessing management's implementation of the enterprise-wide risk management program; (ii) Recommending changes to the risk management program to keep the program commensurate with the Corporation's capital structure, risk appetite, complexity, activities, size, and other appropriate risk- related factors; and (iii) Receiving and reviewing regular reports directly from personnel responsible for implementing the Corporation's risk management program. (c) Management of risk. The Corporation must have a risk officer, however styled, who is responsible for implementing and maintaining the enterprise-wide risk management practices of the Corporation. The risk officer must have risk management experience commensurate with the Corporation's capital structure, risk appetite, complexity, activities, and size. The responsibilities of the risk officer include, but are not limited to: (1) Identifying and monitoring compliance with risk limits, exposures, and controls; (2) Implementing risk management policies, procedures, and risk controls; (3) Developing appropriate processes and systems for identifying and reporting risks, including emerging risks; (4) Reporting on risk management issues, emerging risks, and compliance concerns; and (5) Making recommendations on adjustments to the risk management policies, procedures, and risk controls of the Corporation. Sec. 653.4 Internal controls. (a) The Corporation's board of directors must adopt an internal controls policy that provides adequate directions for, and identifies expectations in, establishing effective safety and soundness control over, and accountability for, the Corporation's operations, programs, and resources. (b) The internal controls system must address: (1) The efficiency and effectiveness of the Corporation's activities; (2) Safeguarding the assets of the Corporation; (3) Evaluating the reliability, completeness, and timely reporting of financial and management information; (4) Compliance with applicable laws, regulations, regulatory directives, and the policies of the Corporation's board of directors and senior management; [[Page 49155]] (5) The appropriate segregation of duties among the Corporation personnel so that personnel are not assigned conflicting responsibilities; and (6) The completeness and quality of information provided to the Corporation's board of directors. (c) The Corporation is responsible for establishing and implementing an effective system to identify internal controls weaknesses and taking action to correct detected weaknesses. The Corporation must document: (1) The process used to identify weaknesses, (2) Any found weaknesses, and (3) How identified weaknesses were addressed. 0 6. Revise part 655 to read as follows: PART 655--FEDERAL AGRICULTURAL MORTGAGE CORPORATION DISCLOSURE AND REPORTING REQUIREMENTS Subpart A--General Sec. 655.1 Definitions. Subpart B--Report of Condition of the Federal Agricultural Mortgage Corporation 655.10 Reports of condition. 655.15 Interim reports, notices, and proxy statements. Subpart C--Reports Relating to Securities Activities of the Federal Agricultural Mortgage Corporation 655.20 Securities not registered under the Securities Act. 655.21 Filings and communications with the U.S. Treasury, the SEC and NYSE. Authority: Secs. 5.9, 8.3, 8.11, and 8.12 of Pub. L. 92-181, 85 Stat. 583 (12 U.S.C. 2243, 2279aa-3, 2279aa-11, 2279aa-12). Subpart A--General Sec. 655.1 Definitions. The following definitions apply to this part: Act or authorizing statute means the Farm Credit Act of 1971, as amended. Business day means a day the Corporation is open for business, excluding the legal public holidays identified in 5 U.S.C. 6103(a). Corporation means the Federal Agricultural Mortgage Corporation and its affiliates. FCA means the Farm Credit Administration, an independent Federal agency of the executive branch. Material, when used to qualify a requirement to furnish information as to any subject, means the information required for those matters to which there is a substantial likelihood that a reasonable person would attach importance in making investor decisions or determining the financial condition of the Corporation. NYSE means the New York Stock Exchange, a listing exchange. OSMO means the FCA Office of Secondary Market Oversight, which is responsible for the general supervision of the safe and sound exercise of the Corporation's powers, functions, and duties and compliance with laws and regulations. Our or us means the FCA or OSMO, as appropriate to the context of the provision employing the term. Person means individual or entity. SEC means the Securities and Exchange Commission. Securities Act means the Securities Act of 1933 (15 U.S.C. 77a et seq.) or the Exchange Act of 1934 (15 U.S.C. 78a et seq.), or both, as appropriate to the context of the provision employing the term. Signed, when referring to paper form, means a manual signature, and, when referring to electronic form, means marked in a manner that authenticates each signer's identity. Subpart B---Reports of Condition of the Federal Agricultural Mortgage Corporation Sec. 655.10 Reports of condition. (a) General. The Corporation must prepare and publish annual reports to its shareholders of its condition, including financial statements and related schedules, exhibits, and other documents that are part of the reports. The contents of each report must be equivalent in content to the annual report to shareholders required by the Securities Act unless we issue instructions otherwise. (b) Signatures and certification. Each report issued under this subpart must be signed. The Corporation must designate the representatives who will sign each report. The name and position title of each person signing the report must be printed beneath his or her signature. The signatories must certify the report by using the SEC rules on certifications for disclosures in annual reports to shareholders. (c) Distribution. The Corporation must distribute the signed annual report of condition to its shareholders within 120 days of its fiscal year-end. Within 5 days of signing, the Corporation must provide us one paper and one electronic copy of every signed report that is distributed to its shareholders. If the report is the same as that filed with the SEC, the Corporation may instead provide the signed reports to us only in electronic form and simultaneous with filing the report with the SEC. (1) The Corporation must publish on its Web site a copy of each annual report to shareholders within 3 business days of filing the report with us. The report must remain on the Web site until the next report is posted. When the reports are the same as those filed with the SEC, electronic links to the SEC filings Web site may be used in satisfaction of this requirement. (2) Upon receiving a request for an annual report of condition from a stockholder, investor, or the public, the Corporation must promptly provide the requester the most recent annual report issued in compliance with this section. Sec. 655.15 Interim reports, notices, and proxy statements. (a) The Corporation must provide to us one paper and one electronic copy of every interim report, notice, and proxy statement filed with the SEC within 1 business day of filing the item with the SEC, including all papers and documents that are a part of the report, notice, or statement. (b) The Corporation must publish a copy of each interim report, notice, and proxy statement on its Web site within 5 business days of filing the document(s) with the SEC. The Corporation may omit from these postings confidential, non-public information contained in the interim report, notice, or proxy statement. The interim report, notice, or proxy statement must remain on the Web site for 6 months or until the next annual report of condition is posted, whichever is later. Electronic links to the SEC filings Web site may be used in satisfaction of this requirement. Subpart C---Reports Relating to Securities Activities of the Federal Agricultural Mortgage Corporation Sec. 655.20 Securities not registered under the Securities Act. The Corporation must make special filings with the Director of OSMO for securities either issued or guaranteed by the Corporation that are not registered under the Securities Act. These filings include, but are not limited to: (a) Either one paper or one electronic copy of any offering circular, private placement memorandum, or information statement prepared in connection with the securities offering at or before the time of the securities offering. (b) For securities backed by qualified loans as defined in section 8.0(9)(A) of the Act, either one paper or one electronic copy of the following within 1 business day of the finalization of the transaction: (1) The private placement memoranda for securities sold to investors; and [[Page 49156]] (2) The final agreement and all supporting documents material to the Corporation's purchase of a security under section 8.6(e) of the Act. (c) For securities backed by qualified loans as defined in section 8.0(9)(B) of the Act, the Corporation must provide summary information on such securities issued during each calendar quarter in the form prescribed by us. Such summary information must be provided with each report of condition and performance (Call report) filed pursuant to Sec. 621.12, and at such other times as we may require. Sec. 655.21 Filings and communications with the U.S. Treasury, the SEC, and NYSE. (a) The Corporation must send us one paper and one electronic copy of every filing made with U.S. Treasury, the SEC, or NYSE, including financial statements and related schedules, exhibits, and other documents that are a part of the filing. Such items must be filed with us no later than 1 business day after the U.S. Treasury, SEC, or NYSE filing. For those filings with the NYSE that duplicate ones made to the SEC, the Corporation may send only the SEC filing to us. If the filing is one addressed in subpart B of this part, no action under this paragraph is required. (b) The Corporation must send us, within 3 business days and according to instructions provided by us, copies of all substantive correspondence between the Corporation and the U.S. Treasury, the SEC, or NYSE that are directed at the activities of the Corporation. (c) The Corporation must notify us within 1 business day if it becomes exempt or claims exemption from the filing requirements of the Securities Act. Notice is not required when the Corporation claims an exemption that is generally available under SEC rules and regulations to similarly situated filers. Date: July 20, 2016. Dale L. Aultman, Secretary, Farm Credit Administration Board. [FR Doc. 2016-17455 Filed 7-26-16; 8:45 am] BILLING CODE 6705-01-P
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III. Comments and Our Responses: rulemaking. Thus, we are not finalizing two separate applications of the term,
Section-by-Section Analysis in this rulemaking many of the particularly in regards to the existing
We issued a proposed rule to amend proposed changes to part 651, but rules on liquidation and receivership.
our standards of conduct, board instead intend to revisit changes to part
2. Regulatory Authority [New § 650.2]
governance, and reporting regulations 651 in a separate rulemaking.
Proposed changes to parts 650, 653, We finalize the addition of new
for the Corporation on March 26, 2015
and 655 are finalized as proposed unless § 650.2, which provides clarity on the
(80 FR 15931). The comment period for situation of the Corporation having FCA
we say otherwise in this preamble.
the proposed rule closed on June 24, as its primary regulator, while also
Included in finalized changes is the
2015, and 77 comment letters were being subject to certain SEC regulatory
reorganization of our rules addressing
received. The comments submitted were disclosure requirements. The new
the Corporation’s operations through the
from Farmer Mac, stockholders in § 650.2 identifies FCA as the ‘‘primary
addition of a new part 653 and
Farmer Mac, a consultant to Farmer regulator’’ of the Corporation,
organizational revisions to existing parts
Mac,6 an agent of Farmer Mac,7 the possessing examination, enforcement,
650, 651, and 655. We make no changes
Farm Credit Council (FCC) on behalf of conservatorship, liquidation, and
to part 652 or reserved part 654.
its membership, and a member of the receivership authority over the
general public. Prior to the proposed A. FCA Oversight and Rulemaking [Part Corporation. We finalize this section
rulemaking, we issued an Advanced 650] with one clarifying change made based
Notice of Proposed Rulemaking Existing part 650 contains general on comments received. In § 650.2(b), we
(ANPRM) to solicit opinions and provisions, without subparts, on the clarify that our supervisory authority to
suggestions from investors, supervision of the Corporation. We ensure the Corporation follows laws and
stockholders, and other interested finalize adding a new subpart A, regulations relates to compliance with
parties on ways to enhance our entitled ‘‘Regulation, examination and applicable laws and regulations.
regulation of the Corporation’s enforcement,’’ as well as moving There were four commenters to this
governance activities.8 existing provisions into a new subpart section: Farmer Mac, the FCC, and two
The 77 comments submitted in B, entitled ‘‘Conservators, receivers, and stockholders in Farmer Mac. The FCC
response to the proposed rule made liquidations.’’ We finalize the expressed strong support for the section
various suggestions for changing what redesignation of existing §§ 650.1 and clarifying that the Corporation is a GSE
we had proposed. Of these commenters, 650.5 on appointing and removing with a public mission. The stockholder-
69 limited their remarks and suggestions receivers or conservators as new commenters also supported the section
to part 651, ‘‘Standards of Conduct.’’ §§ 650.13 and 650.14, respectively. We addressing the public policy purpose of
Comments to the Standards of Conduct make no other changes to these existing the Corporation. Farmer Mac objected to
provisions involved both existing and provisions. the provisions on FCA’s authority over
proposed provisions.9 These comments We discuss comments received to this it, contending that FCA has no authority
were significantly different from what part and any changes to the appropriate over compliance with all laws and
was proposed and lacked uniformity in sections below. regulations. Farmer Mac explained that
the type of changes sought. instead FCA is to ensure a dependable
As a GSE, the Corporation has certain 1. Part 650 Definitions [New § 650.1]
source of credit through its examination
strategic objectives that are public We finalize as proposed all of the Corporation and regulation of its
policy or ‘‘mission’’ oriented. Standards definitions in new § 650.1. We received safe and sound conduct. Farmer Mac
of conduct must be understood and no comments objecting to the terms as also asked us to either remove § 650.2(c)
interpreted not only in the context of proposed, but a stockholder-commenter or specify the SEC regulations to which
the fiduciary responsibilities to the requested we consolidate all proposed it is subject and exactly mirror language
Corporation and its shareholders, but definitions for parts 650, 651, 653 and from the Act when describing our role.
also in the context of the statutory duty 655 into one section and asked for the However, Farmer Mac added objections
to further the Congressional purposes term ‘‘agent’’ to be defined for part 650. to our using the language of the Act to
the Corporation was chartered to We cannot accommodate either of these describe its relationship with the SEC.
achieve. We believe standards of requests. We already maintain a global In that instance, Farmer Mac asked us
conduct to be among the most definition section for all our rules in to capture the ‘‘nuances of Farmer Mac’s
potentially complex and nuanced areas part 619. Maintaining separate regulation by the SEC.’’ 10
of corporate governance. For this reason, definition sections for use only in We have clarified that the laws and
and because of the variety of comments certain regulations eliminates confusion regulations referenced are those
received to this area of the proposed that may arise from placing terms applicable to the Corporation. We do
rule, we believe it prudent to address having specific application for a not name those laws and regulations as
proposed changes and related comments secondary market along with terms they are subject to change. We also
on the more complex components of applicable to Farm Credit banks and decline the request to include in the
standards of conduct and board associations. We recognize that many of rule an analysis of the Corporation’s
governance regulations in a separate the terms for the definition sections we relationship with both FCA and SEC,
proposed in parts 650, 651, 652, and 655 which is not the intent of the rule. The
6 The consultant to Farmer Mac explained it had
are duplicative, but their location in the rule at § 650.2 is identifying us as the
been hired by Farmer Mac to comment on the applicable sections avoids confusion
proposed rule. primary regulator of the Corporation. As
7 The agent of Farmer Mac explained it had been with usage of the terms in other explained in the proposed rule, the
working as a consultant for Farmer Mac for over a regulations. We also cannot
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year on specific projects. accommodate the request to define in 10 Farmer Mac explained it is not subject to
8 79 FR 10426, February 25, 2014. The comment
part 650 the term ‘‘agent.’’ The term complete regulation by SEC and, except for certain
period for the ANPRM ended April 28, 2014, and ‘‘agent’’ as used in part 650 has two mortgage-backed securities, it is not subject to the
seven comment letters were received. 1933 Securities Act and must only file reports
9 We last issued regulations on Farmer Mac Board different applications: (1) Agents of the under the 1934 Securities Exchange Act. Farmer
governance and standards of conduct on March 1, Corporation; and (2) agents of FCA. A Mac comment letter, Appendix B, pages B–2 and B–
1994 (59 FR 9622). single definition would not capture the 27.
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discussions Congress had surrounding to the Basel III capital standards. We 4. Access to Records and Personnel
passage of the Dodd-Frank Act decline to make changes to our rules in [New § 650.4]
recognized the long-standing situation response to these comments. The There were three comments objecting
where financial institutions are required existing rules addressing the to the inclusion of agents in this section:
to comply with various Federal Corporation’s capital requirements Farmer Mac, a stockholder in Farmer
financial laws and regulations issued already incorporate appropriate Basel Mac, and an agent of Farmer Mac. The
and enforced by several banking capital standards, as well as analogous agent who commented objected to
regulators, although only one regulator standards of other U.S. regulators. classifying certain types of professional
is the primary regulator. We did modify assistance received by the Corporation
Farmer Mac asked for the entire
the language of § 650.2(c) to add clarity as an agency relationship, contending
and removed reference to the NYSE section identifying our enforcement
authorities to be removed or that we that FCA has no authority over certain
based on the comments received. types of agents (e.g. consultants,
Farmer Mac asked that we add directly quote the Act when identifying
those authorities, using no further vendors), while the stockholder
language in § 650.2(a) for USDA- commented that the penalties were
guaranteed loans sold into the interpretation of the statutory language.
We are directed by section 5.17(a)(9) of burdensome. Farmer Mac objected to
secondary market. The Corporation has being required to make its agents
established a secondary market for the the Act to issue regulations necessary or
appropriate for the implementation of available to our examination staff.
guaranteed portions of USDA-Farm Farmer Mac contended that FCA does
Service Agency guaranteed Farm the Act’s provisions, which involves
not have jurisdiction over all agents of
Ownership and Operating Loans and more than a recitation of the Act.
the Corporation, as would be covered by
USDA-Rural Development Guaranteed Farmer Mac also asked that we provide
the existing part 651 definition of
Business and Industry, Community a specific ‘‘exhaustive list’’ of our ‘‘agent.’’
Facility and Water and Environmental enforcement authorities. We likewise We finalize this section with one
Program loans.11 As noted by Farmer decline this request as our enumerated change based on comments received. In
Mac, we are identifying the statutory enforcement authorities may be § 650.4(b), we replace the word ‘‘agents’’
purposes of the Corporation, we are not amended by Congress or court with a more detailed explanation of the
enumerating all of Farmer Mac’s interpretations. Further, we do not agree personnel required to be available to us
business programs. However, we have with Farmer Mac’s interpretation of our when requested, which includes those
added language referencing USDA- authorities and decline to make changes engaged by the Corporation to
guaranteed loans.12 to the rule based on its analysis. Farmer participate in the business conducted by
3. Supervision and Enforcement [New Mac also stated that our safety and the Corporation. For example, during an
§ 650.3] soundness authority should not be examination it may be necessary for our
viewed to include addressing board exam staff to speak with the External
We finalize adding a new § 650.3 to
committees, director elections, or Auditor. The Act specifies that
incorporate into our regulations the
recordkeeping activities of the directors, officers, employees, agents,
supervision and enforcement authorities
Corporation. Again, our oversight of the and ‘‘other persons participating in the
over the Corporation that are given us
safe and sound operations of the conduct of the affairs’’ 14 of a System
under the Act. Our enforcement
Corporation necessitates that we institution are subject to our
authorities provide reasonable
consider the Corporation’s board examination and enforcement
assurance that, among other things, the authorities.15 We relied on this language
Corporation is adequately capitalized operations and the records of its
decision-making analysis and financial when developing the clarification for
and operating safely. We finalize this this final rule. We believe the clarifying
section with clarifying changes made condition.13
language addresses the comments
based on comments received. Farmer Mac objected to § 650.3(b) regarding certain ‘‘vendor-type’’ service
There were six commenters to this referencing when the Corporation providers. We also point out that the
section: Farmer Mac, the FCC, three engages in activities having ‘‘excessive part 651 definition of ‘‘agent’’ is
stockholders in Farmer Mac, and an risk,’’ arguing the term is undefined. restricted to the provisions in part 651
agent of Farmer Mac. Three commenters Farmer Mac stated that all of its and does not carryover to part 650. Also,
objected to agents being subject to FCA’s activities involve risk and the provision the stockholder-commenter objecting to
enforcement authorities. Sections 5.25 would allow FCA to restrict these the ‘‘penalties’’ listed in this section
and 5.26 of the Act specify that agents activities and substitute our judgment spoke in error, as there are no
of a System institution are subject to our on how to run the Corporation. ‘‘penalties’’ identified in § 651.4.
enforcement authorities and Farmer However, Farmer Mac acknowledged Notwithstanding this, we believe this
Mac is identified as a System institution section 8.37 of the Act uses the term comment is adequately addressed in our
in section 8.1(a)(2) of the Act. It is these ‘‘excessive risk’’. Farmer Mac also earlier discussion of our enforcement
provisions we relied upon when objected to separating risk from its authorities, which explains the
proposing the provision so we decline impact on capital and suggested ‘‘penalties’’ identified in § 650.3 are
to make changes based on the objective, measureable standards be set derived from the Act.
comments. Two of the stockholder- for risk levels. In § 650.3(b), we clarify Farmer Mac also asked us to limit our
commenters remarked that financial that risks having adverse impact to access to Corporation documents to
safety and soundness oversight should capital, which may lead to certain non-confidential items. In addition,
include making the Corporation subject enforcement actions, generally refers to Farmer Mac asked that there be a
materiality and document age threshold
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11 Under the Farmer Mac 2 program, Farmer
the adequacy of the Regulatory Capital
level maintained by the Corporation. controlling which documents and
Mac’s subsidiary, Farmer Mac II LLC, buys
guaranteed portions directly from lenders. The personnel we could access during our
original lenders retain the unguaranteed portions of 13 See section 8.11(a)(1)(B) of the Act authorizing
these loans and continue to service the entire loan. OSMO ‘‘general supervision of the safe and sound 14 See,
for example, section 5.32(a) of the Act.
12 Refer to section 8.0(9) of the Act, defining performance of the powers, functions, and duties 15 Refer
to section 8.11(b)(3) of Act (12 U.S.C.
‘‘qualified loans’’. vested in the Corporation’’. 2279aa–11).
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examination and enforcement activities. discuss other final changes to part 651, we do not view that as a difficulty. We
We decline Farmer Mac’s suggestions and the comments received related to also do not agree with comments that
regarding the scope of our access to the changed provisions, in the the phrase ‘‘average level of care’’ in the
corporate documents. As the safety and appropriate sections below. definition for ‘‘reasonable person’’
soundness regulator, we require full under our conflict of interest rules
1. Part 651 Definitions [New Subpart
access to the Corporation’s records.16 In expands the mission of the Corporation.
A; Existing § 651.1]
accessing these records, our activities Instead, we believe it emphasizes the
are already covered by confidentiality We finalize the proposed revisions to scope of the Corporation’s impact. As
provisions in Federal law.17 Further, we our definitions in existing § 651.1, with explained earlier, the Corporation has a
view the act of our requesting the two changes based on comments statutory public policy purpose and
records or access to personnel as received. We are changing the term public representatives on its board of
establishing the ‘‘materiality’’ to our ‘‘potential conflict of interest’’ to directors. We believe retaining the
oversight. We could not permit the ‘‘conflict of interest’’, while finalizing ‘‘average level of care’’ language in the
Corporation to pre-screen records before the definition as proposed. Two definition for ‘‘reasonable person’’ is
release to us in order for Farmer Mac to, stockholder-commenters pointed out the appropriate.
on its own, determine if a record is definition covered both material and Farmer Mac and stockholders in
material or not for our purposes. potential conflicts of interest and that Farmer Mac commented on the term
Likewise, we cannot provide full we had no general definition for the ‘‘material’’, asking that we delete the
oversight if we restrict our access to a term ‘‘conflict of interest.’’ We agree definition. Farmer Mac commented that
finite period of time. It may be that the with the commenters that the definition the definition was appropriate for most
matter under review exceeds that period defined conflicts of interest in general of part 651, but stated concerns with
of time, or records within that time so should be identified as such. how the term would work with
We are also modifying the definition securities regulations, which have a
period make key reference to other,
for ‘‘reasonable person’’ by removing the different definition for the term. Farmer
older records.
phrase ‘‘based on societal requirements Mac specified its concern was focused
5. Reports of Examination and Criminal for the protection of the general on proposed § 651.24. Stockholder-
Referrals [New §§ 650.5 and 650.6] interest.’’ The proposed definition for commenters remarked that the term
We finalize as proposed the addition the term ‘‘reasonable person’’ was based ‘‘material’’ does not carry the same
of new §§ 650.5 and 650.6, containing on general use of the term in conflict- meaning or standard applied to other
cross-citations to existing regulatory of-interest proceedings and substantially System institutions. These commenters
provisions regarding access to FCA resembled the legal meaning of the term. made particular note of a separate
However, comments from Farmer Mac proposed rulemaking affecting Farm
Reports of Examination and the
and a consultant of Farmer Mac objected Credit banks and associations, but not
Corporation’s obligation to make
to the phrase ‘‘societal requirements’’, Farmer Mac.18 These commenters
criminal referrals in certain
arguing it was not part of the Model argued there is no reason for a different
circumstances. We received no
Business Code. One of these standard among System institutions. As
comments to these two sections. We
commenters also stated the term should we are not finalizing in this rulemaking
believe these cross-cites clarify the
be defined in a manner that directed the proposed contents of § 651.24, we
applicability of these provisions to the
attention to the Corporation’s activities, are not deleting the term ‘‘material’’ and
Corporation, and thereby facilitate
not the public at large. note that the term is an existing term in
compliance with them. We do not agree with the commenters our rules. We also do not consider it
B. Farmer Mac Corporate Governance in this regard. As one commenter appropriate at this time to substitute the
[Part 651] acknowledged, corporate governance existing definition with one that has
allows consideration of the public only been proposed in a separate
Part 651 contains the existing impact of corporate behavior. In
corporate governance provisions for rulemaking intended for Farm Credit
addition, the Corporation is a GSE with banks and associations.
Farmer Mac, without subparts. As a public policy purpose and has
explained earlier in this preamble, this Farmer Mac asked that we remove the
directors appointed by the President of existing definition of ‘‘agent’’ from
final rule does not include many of the the United States to represent the
proposed changes to part 651 since we § 651.1, while three stockholder-
public’s interests in the operations of commenters and an agent of Farmer Mac
intend to revisit part 651 in the future. the Corporation. While we disagree with
Although we received many comments objected to agents being included in the
the reasons given by the commenters, rule at all, arguing that the existing
on the contents of part 651, no we are removing the phrase ‘‘based on definition was too broad in its
comments opposing the proposed societal requirements for the protection application. Farmer Mac also stated the
organizational changes were made and, of the general interest’’ from the existing definition was too broad and
therefore, we finalize them as proposed. definition for ‘‘reasonable person’’ as we exceeds the scope of FCA authority. We
Specifically, we finalize the addition of believe the remaining language allows also received a call from a member of
a new subpart A, entitled ‘‘General,’’ a for addressing public concerns; the general public asking about the
new subpart B, entitled ‘‘Standards of specifically, the use of ‘‘average level of definition and suggesting it may be
Conduct,’’ and a new subpart C, entitled care.’’ We recognize that these same two problematic for dual compliance with
‘‘Board Governance.’’ We also finalize as commenters also objected to using an both FCA and SEC requirements. The
proposed the movement of the existing average level of care measurement when definition is an existing term that has
provisions of part 651 into the relevant defining ‘‘reasonable person’’, arguing it been in our rules for over 20 years and
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subparts and adding new sections in expanded the Corporation’s activities to we proposed no changes to it.
reserve for future rulemaking. We include consideration of the general Commenters offered no examples of
16 See section 8.11(b)(3) of Act (12 U.S.C. 2279aa–
public and not just stockholders. We difficulties that had been encountered
11(b)(3)). agree that using an average level of care in that time and did not express past
17 Refer to 5 U.S.C. 552(b)(8). See also 12 CFR standard could involve consideration of
602.2. the public, but unlike the commenters, 18 79 FR 9649 (April 3, 2014).
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compliance difficulties with the existing A person’s general partner refers to a obtaining the services of agents because
rule. As we proposed no changes to the business partner and employment of the existing standards of conduct
existing term ‘‘agent,’’ we decline to arrangements include both current and regulations. We decline to remove
make any in this final rulemaking. prospective employment. agents from part 651 as part of this final
However, we may reconsider the issue rulemaking. However, we may
b. Conflicts-of-Interest Reporting and
when revisiting part 651 in the future. reconsider the issue in the future when
A stockholder-commenter remarked Disclosure [New § 651.23, Existing revisiting part 651.
that the term ‘‘officer’’ seemed to § 651.3]
exclude risk officers and asked if that We finalize moving existing § 651.3 to 3. Board Governance—Committees
was intentional on our part. We new subpart B and redesignating it as [New Subpart C]
reviewed the existing term ‘‘officer’’, to new § 651.23. This section addresses We finalize adding new §§ 651.30,
which we had proposed no changes, implementation of the conflict-of- 651.35, and 651.40 under subpart C, but
and agree that it could result in the risk interest policy. Farmer Mac offered with no content, in reserve for future
officer not being included in the comments on the existing language of rulemaking. We also finalize adding a
definition. However, that would depend this section, asking that the separate new § 651.50 on board committees. The
on whether the Corporation makes the disclosure categories be removed. The new § 651.50 addresses the relationship
risk officer a vice president. If not, then rule currently requires Farmer Mac to between the entire board and its
the risk officer would be covered by the provide its conflict of interest policy to committees, requires certain
definition of ‘‘employee’’ instead of its shareholders, investors, and potential committees, and establish minimum
‘‘officer.’’ investors when requested. Farmer Mac operational requirements for board
posed that these parties can obtain the committees (e.g., charters, meeting
2. Standards of Conduct [New Subpart minutes). We received comments from
B] policy from the Corporation’s Web site
or SEC filings so the provision should Farmer Mac and its consultant on this
We finalize moving existing § 651.4 to be removed. Farmer Mac did not state section and make four changes based on
new subpart B and redesignating it as that this service could not continue to those comments: (1) We specify charter
new § 651.24. This section addresses be provided, nor assert that the volume requirements apply to required
director, officer, employee, and agent of requests was so high as to create a committees; (2) we clarify that charters
responsibilities. We finalize adding new burden. We decline to remove this are approved by the full board; (3) we
§§ 651.21 and 651.25 under subpart B, existing requirement as we continue to are not finalizing the requirement that
but with no content, in reserve for believe the Corporation should strive to each type of director serve on each
future rulemaking. accommodate requests from its committee; and (4) we clarify that an
a. Conflicts-of-Interest Policy [New shareholders, investors and, most agenda may be informal, such as a list
§ 651.22, Existing §§ 651.1(i) and 651.2] especially, potential investors for copies of issues under discussion.
We finalize the proposed movement of the policy. a. Committee Charters [New § 651.50]
of the existing § 651.2 contents, c. Agents and Conflicts-of-Interest In general, Farmer Mac objected to
regarding conflict-of-interest policies, to [Existing § 651.1 Through 651.4] any regulation of board committees.
new subpart B and redesignating it as Farmer Mac, a stockholder in Farmer Farmer Mac asked that we change the
new § 651.22. We are reserving § 651.2, Mac, and an agent of Farmer Mac asked requirement for all committees to be
with no content, for future rulemaking. that we remove references to ‘‘agents’’ chartered, explaining often ad hoc
Also, we finalize some amendments to from the existing rule. Some of these committees are used in the
the existing contents of redesignated commenters remarked that agents Corporation’s business and allowing
§ 651.22 and make two clarifying should not be treated the same as committees to develop their own
changes. Other proposed changes to the directors, officers, and employees. charters may be a transfer of board
contents of this section are not being Others argued that monitoring agent authority. The proposed provision
finalized in this rulemaking. conduct is burdensome, may deter stated that the Corporation’s board is the
We finalize moving the list of body approving the charter, not the
agents from working for the
imputed interests currently contained in committee. However, we clarify in
Corporation, and was contrary to
the existing § 651.1(i) definition of a § 651.50(c) that the committees develop
standard contractual agreements with
‘‘potential conflict-of-interest’’ to this the charters, but those charters are not
agents. The agent stated that consultants
section (thereby removing it from the effective unless approved by action of
and advisors were not intended by
definition) as we received no comments the full board. In addition, we intended
Congress to be subject to our regulatory
on this proposed action. We also the provision to apply to standing
or examination authority. The
finalize the proposed revisions to the committees of the Corporation, so have
stockholder-commenter added that we
list of imputed interest, as they also modified the rule to clearly limit the
should instead rely on the Corporation’s
received no comments: removing highly charter requirements to those
existing practices regarding monitoring
specific relationships such as ‘‘spouse’’ committees required to exist by
agent behavior.
and ‘‘child’’ and replacing them with Congress gave us certain enforcement regulation (i.e. audit, risk, compensation
language to address all persons residing authorities for agents of Farm Credit and corporate governance committees).
in the household or who are otherwise institutions.19 We also note that agents We also made conforming changes
legal dependents. These changes are elsewhere in this section to clarify that
have been a part of the existing conflict-
premised on the ever-evolving the committee provisions apply to these
of-interest rule for over 20 years. No
understanding of what is considered a same ‘‘required’’ committees.
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commenter provided support to
family, as well as intended to address Both commenters objected to the
demonstrate that the Corporation has
non-residential dependents whose provision in § 651.50(a) that use of a
had difficulty in all those years
activities and interests may create a board committee does not relieve board
conflict-of-interest for a director, officer, 19 See sections 5.25, 5.26, and 5.32 of the Act. See members of their legal responsibilities.
or employee. We make two clarifying also sections 5.17(a)(9) and (10), 5.19 and 8.11 of The commenters stated that delegations
changes to the list of imputed interest: the Act. to committees are permitted and the
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![49144 Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Rules and Regulations
provision was unnecessary. In that a situation like the one described functional area managers. We view the
paragraph (a) of new § 651.50, we may occur and have modified the rule risk officer’s role to involve monitoring
proposed regulatory language clarifying to allow for an equivalent list of issues the balance of risk across all functional
that the entire board remains under discussion to be part of the areas and, as needed, recommending
accountable for committee actions. In meeting minutes in lieu of an agenda. adjustments to re-balance the enterprise-
directing the Corporation, the board of wide risk profile in a manner consistent
C. Risk Management [Part 653, No
directors may rely on reports from board with the board-approved risk appetite.
Subparts]
committees, but doing so does not This role does not eliminate risk
relieve the board of final responsibility. We finalize adding a part 653, with no management responsibility from other
While activities and tasks may be subparts, to address risk management members of the Corporation’s
delegated to a committee, the fact that within the Corporation. In doing so, we management team. If a functional area
a committee handles some board remove proposed references to ‘‘risk manager knows that his or her
responsibilities does not relieve the tolerance’’ throughout part 653, while performance will be evaluated on the
board of its legal liabilities for such, nor retaining references to risk-appetite, as basis of the productivity of that area, the
does it relieve the board of the ultimate we determined the term ‘‘risk-appetite’’ manager’s focus on that area’s
responsibility for those activities or encompassed risk tolerance performance could become out of
tasks. Therefore, we decline to make consideration. We received comments proportion to the impact of that effort on
changes to § 651.50(a). from Farmer Mac, stockholders of the Corporation’s enterprise-wide risk
Farmer Mac, and the FCC to this part position. The risk officer would then
b. Committee Composition and discuss them, and any changes, in serve as a means of alerting senior
We received comments from Farmer the appropriate sections below. management and the board of the
Mac and its consultant on § 651.50, both potential impact that functional area
1. General [New § 653.2]
objecting to the proposed requirement managers’ activities and positions may
that each committee have representation We received comments from Farmer have on the Corporation at the
from the three types of directors serving Mac, the FCC, and stockholders in enterprise-wide level. This should
on the Corporation board (Class A Farmer Mac on new § 650.2, which enable appropriate actions and
elected, Class B elected, and appointed). addresses general board-level risk strategies to be evaluated and taken
The commenters stated the provision management matters. Farmer Mac when functional area risk taking
may result in conflicts of interest, expressed agreement with requiring its exceeds the overall risk appetite of the
unqualified directors serving on board to be actively involved in the board.
committees, and create division on the Corporation’s risk framework, but The FCC and two stockholder-
board. Commenters offered no support considered it unreasonable to expect it commenters agreed with requiring the
for the named concerns, but we consider to ‘‘ensure’’ all risk-taking is safe and Corporation’s board to be actively
this issue to be among those we plan to sound. Farmer Mac asked that it be involved in the Corporation’s risk
review when we revisit part 651 in the allowed to address its ‘‘risk appetite’’ by framework, but wanted it expanded to
future. As a result, we are not finalizing areas, such as liquidity risk or include capital considerations. These
in § 651.50(c) the requirement that each operational risk, instead of one unified stockholder-commenters added that the
committee have representation from the assessment, explaining that the risk requirement was not preventative
three types of directors serving on the committee’s role represents the enough as the Corporation’s board
Corporation board. In conformance with intersection of oversight of all risk areas. should be required to approve risk-
this, we also remove the proposed We generally expect functional area bearing capacity and consider the
paragraph designations in paragraph (c). specialists (e.g., finance committee, Corporation’s public policy mission as
Farmer Mac and its consultant also credit committee, marketing committee) well as capital adequacy. A third
objected to limiting the number of to evaluate risk in terms of the stockholder-commenter remarked that
committees a director may chair. We specialized responsibilities of those the part 653 requirements were not
proposed in § 651.50(c) that no director operational areas. While we view that as unreasonable, but better suited to non-
may serve as chair of more than one generally appropriate for day-to-day risk regulatory guidance. This stockholder-
committee. The commenters stated that management, it is nevertheless commenter explained that the science of
this was an unnecessary restriction. We important that the entire board consider risk management is an emerging area,
decline to change this limitation based risks from all areas when conducting its subject to rapid changes, so placing risk
on comments received. We believe this enterprise-wide monitoring and management requirements within a rule
limitation is necessary, as it reasonably oversight. For that reason, the risk may hinder the Corporation’s ability to
distributes responsibilities among committee is expected to evaluate risks keep pace with best practices in risk
individual members of the board. We from the level of the Corporation, rather management.
also believe that too great a than the functional area. To borrow a We are replacing the term ‘‘ensure’’
concentration of responsibilities among description from the Treadway with the phrase ‘‘provide reasonable
too few directors would detract from the Commission,20 we believe the risk assurance’’ when discussing risk-taking
board’s overall effectiveness and may committee aims to strike an optimal activities in response to comments. We
create potential, and unnecessary, safety balance between growth and return also add as a clarifying change that the
and soundness concerns. goals while attempting to optimize requirement to monitor risk activities is
deployment of resources toward the expected to be on a regular basis. We
c. Committee Agendas entity’s objectives. make no other changes to new § 653.2.
Farmer Mac objected to the In the same way, we view the risk While we appreciate the comment
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§ 651.50(d) requirement that board officer as playing a role that represents regarding the evolving nature of risk
committees have agendas for their the intersection of risks across management, we believe it appropriate
meetings. Farmer Mac explained that to establish an essential risk
20 ‘‘Enterprise Risk Management—Integrated
some ad hoc meetings occur with no Framework’’, Executive Summary, Committee of
management structure within regulation
prior planning, making development of Sponsoring Organizations of the Treadway and then supplement the rules with the
an agenda impossible. We appreciate Commission, September 2004. suggested informal guidance if
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![Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Rules and Regulations 49145
necessary. We also make no changes in corporation, not a member-owned Federal Housing Finance Agency
response to comments asking that part cooperative as are other System (FHFA).21
653 address risks associated with institutions, and the Farm Credit System Farmer Mac asked that we use the
capital. We already address risks to Insurance Corporation does not insure same experience requirement for the
capital in § 652.61, where we require the Farmer Mac’s securities. risk committee as is used for the risk
Corporation’s board to approve the Farmer Mac remarked that the board officer since it could be difficult to
annual capital plan, which must comply does not often involve itself in day-to- ensure a risk expert is always elected to
with the board’s risk appetite. day risk decisions: That is more the board. For the same reason, Farmer
properly handled by senior Mac asked that we change the
2. Risk Management [New § 653.3] committee responsibilities to a level of
management. As mentioned above, we
We finalize, with changes, new have made clarifying changes to understanding of risk rather than
§ 650.3, which contains the minimum recognize that daily implementation of possession of expertise. We agree and
required risk management program the risk management program may substitute in new § 653.3(b)(1) the
activities of the Corporation. We reside with senior management. Two phrase ‘‘an understanding of’’ and
received comments to this section from stockholder-commenters stated remove the proposed ‘‘expertise’’
Farmer Mac, the FCC, and three Farmer agreement with the risk management requirement when talking about the
Mac stockholders. We discuss the provisions, but asked that we expand requirement that the risk committee
comments, and any changes, in the them to include risk-bearing capacity have at least one member who is
appropriate sections below. and require management of the familiar with risk management. We also
a. Risk Management Program [New Corporation’s capital to be consistent make changes in new § 653.3(b) to
§ 653.3(a)] with Basel III. We have previously replace the requirement that the risk
responded to their comment. These committee be responsible for the
We are making the following changes oversight of the risk management
to new § 653.3(a), which requires the commenters also asked that OSMO
provide further guidance to the program, as that responsibility rightfully
Corporation’s board of directors to have belongs to the entire Corporation board.
a risk management program: Corporation on specific risk tolerance
measures and for OSMO to closely In its place, we require the risk
• Replacing the phrase ‘‘in effect at committee to assist the Corporation
all times’’ in the introductory language monitor the program to ensure it is
implemented in an effective manner. As board in overseeing the risk
of paragraph (a) with the more management program. We believe it is
measurable standard ‘‘establish, noted, FCA may provide for the
guidance on risk management as part of essential that the tone of the
maintain, and periodically update’’ the Corporation’s risk culture and its
risk management program; its oversight of this area. These
stockholder-commenters objected to the procedures for risk decision-making be
• Removing the language ‘‘addresses set by the Board, even when based on
the Corporation’s exposure to credit, § 653.3(a) provision requiring risk
management to include consideration of management’s recommendations.
market, liquidity, business, and Further, the board of directors play a
operational risks’’ in paragraph (a)(3) as compensation practices and asked for
critical role in the ongoing oversight of,
it is redundant of language contained the provision to be removed. We believe
and cohesive implementation of,
§ 653.3(b)(2); the incentive structures related to
operational strategies and plans that
• Adding language in paragraph (a) to functional area managers’ performance
conform to established risk appetites.
recognize that implementation of the and risk-taking activities, referred to in We also replaced the proposed
risk management program may be our earlier response to comments on requirement in paragraph (b)(2)(i) that
handled by senior management; and § 653.2, includes incentive the risk committee oversee and
• Adding language to clarify that the compensation policies and practices document risk management activities
list of requirements in new § 653.3(a) and that the Corporation’s enterprise- with a requirement to periodically
are the minimum. wide risk management oversight would assess management’s implementation of
In furtherance of these clarifications, we be incomplete without such the risk management program.
remove the proposed paragraph (a)(4) consideration. Similarly, we remove the proposed
requirement that the risk management b. Risk Committee [New § 653.3(b)] review requirement of paragraph
policy specify the independence of (b)(2)(ii) and clarify that risk committee
those carrying-out the program. We received comments from Farmer recommendations relate to changes to
We received comments to new Mac and two Farmer Mac stockholders the risk management program. We also
§ 650.3(a) from the FCC agreeing with on new § 653.3(b), which addresses the clarify in paragraph (b)(2)(iii) that the
the provision, but expressing concern responsibilities of the risk committee. risk committee’s receipt of reports from
that there was insufficient distinction The stockholder-commenters agreed in Corporation staff is not limited to the
between risks in the System and risks general with the provisions, but asked risk officer. We recognize that any
faced by the Corporation. The FCC that they more closely resemble the personnel responsible for implementing
asked that ‘‘casual’’ references linking requirements for other GSEs, including the risk management program may be
the Corporation to the System be System institutions. We note that we do tasked by Farmer Mac with offering
eliminated and that we specify the not currently require other System reports to the risk committee.
Corporation is a separate GSE from the institutions to have risk committees and We are making technical changes in
System. In response, we clarify in this so cannot accommodate the request of new § 653.3(b) to align language with
preamble that the Corporation is an those commenters asking for that contained in other sections (e.g.,
institution of the Farm Credit System, consistency among System institutions. replacing ‘‘risk management practices’’
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but is not liable for any debt or Also, we note that the Corporation is of with ‘‘risk management program’’,
obligation of any other System a different structure than other System replacing ‘‘risk profile’’ with ‘‘risk
institution, and the other System institutions, necessitating some different appetite’’). We also remove language
institutions have no liability for Farmer risk management aspects. However, we redundant of that contained in new
Mac’s debt. Also, Farmer Mac is did consider the provisions of the recent
organized as an investor-owned risk management rulemaking by the 21 80 FR 72327, December 21, 2015.
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![49146 Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Rules and Regulations
§ 651.50 regarding formation of the risk rule is effective, Farmer Mac should regulator, our interest in internal
committee. As referenced in the contact the Director of OSMO. controls extends beyond preparation of
discussion of § 651.50 (preamble section financial report. While we believe
3. Internal Controls [New § 653.4]
III.B.3.), we are finalizing the effective financial controls reduce the
requirement that the Corporation have a We received comments on new risk of asset loss and help ensure that
risk management committee so do not § 653.4 from Farmer Mac and two financial information is complete and
need to state in § 653.3(b) that the risk Farmer Mac stockholders. Farmer Mac accurate, and agree that financial
committee must be formed. asked that we remove the entire section statements need to be reliable and
on internal controls, stating the comply with laws and regulations, we
c. Management of Risk [New § 653.3(c)] Corporation’s internal control activities also believe safety and soundness
We received comments from Farmer under SEC regulations are sufficient. internal controls extend to the
Mac and two Farmer Mac stockholders Farmer Mac then asked us to mirror SEC operations, programs, and resources of
on new § 653.3(c), which requires the regulation if we retained the provision the Corporation. We are, however,
Corporation to have a risk officer. The or make the following changes to it: making some changes based on the
stockholder-commenters agreed in remove the term ‘‘ensure’’, incorporate comments. We change paragraph (a) to
general with the need for a risk officer, more flexibility, and avoid expanding clarify the expected internal controls are
but stated that FCA should not require the role of the directors. Farmer Mac safety and soundness controls over the
it as FCA should not make staffing also asked for clarification on paragraph Corporation’s operations, programs, and
decisions within a System institution. (b)(6) regarding information reported to resources. We also remove the ‘‘ensure’’
These commenters also contended that the board of directors, as it considered language from paragraph (a), to which a
requiring a risk officer offers no the provision to be vague. commenter objected. Also, we are
assurance, from a safety and soundness We decline the request to remove the substituting the requirement in
perspective, of compliance with risk entire section requiring internal paragraph (b)(6) for ‘‘transparency’’ with
management policies. The stockholder- controls. We continue to believe that the the Corporation’s board in response to a
commenters asked that the entire Corporation’s board oversight of internal comment. We instead require that
paragraph be removed. Farmer Mac controls is a critical component of its internal controls address ‘‘the
commented on the use of the term responsibility for monitoring corporate completeness and quality’’ of
‘‘experience’’ versus ‘‘expertise’’, asking activities and providing reasonable information shared with the
for similar use for both the risk assurances that the controls will prevent Corporation’s board.
committee and the risk officer. Farmer excessive risk taking, mitigate
operational risks, and minimize the Farmer Mac also asserted that
Mac explained that using different terms requiring it to have internal controls
implied different expectations regarding potential for unsafe and unsound
activities. The corporate environment is would deviate from what FHFA requires
the background of the risk officer versus of the only other secondary market GSEs
the risk committee expert. Farmer Mac influenced by management’s
philosophy, operating style, integrity, (Fannie Mae and Freddie Mac).23 We
also asked that the standard be an believe that the current differences
understanding of risk issues and not ethical values, and commitment to
competence. If this foundation is strong, between the operating structures of the
direct experience in risk issues to housing GSEs and Farmer Mac, in
facilitate recruitment. Finally, Farmer if the corporate environment is positive,
the overall system of internal controls particular the conservatorships of the
Mac asked for a 1-year phase in to fill housing GSEs, makes comparison of
the position. will be more effective. Further, a sound
system of comprehensive and integrated their regulatory structures less useful.
We earlier addressed most of Farmer internal controls is vital to the We believe internal controls are
Mac’s comment regarding the level of operations of any organization and important for Farmer Mac regardless of
expertise required in § 653.3(b). In especially those whose business is whether another regulator adopted them
response to remaining comments, we taking financial risk. In the more than for the housing GSEs. The overall
are changing the name of paragraph (c) two decades since the Corporation was purpose of an internal controls system
from ‘‘Risk Officer’’ to ‘‘Management of chartered, business and operational is to help an entity achieve its mission
risk’’ and making conforming changes to environments have become significantly and accomplish certain goals and
reference a ‘‘risk officer, however more complex and technology-driven. A objectives. An effective internal control
styled’’ so as to encompass other system of internal controls should system should promote orderly,
personnel responsible for implementing dynamically respond to such changes in economical, efficient and effective
the risk management program. We also complexity—not just in business unit operations; safeguard resources against
remove specific reporting requirements operations but also in compliance with loss due to waste, abuse,
to ‘‘the chief executive officer and board increasingly complex laws, regulations, mismanagement, errors and fraud;
risk committee’’ in new § 653.3(c)(4) and industry standards. We also decline promote adherence to statutes,
and (5) to recognize that Farmer Mac to rely solely on the internal control regulations, and operating procedures;
will exercise its own discretion in assessment the Corporation prepares for as well as develop and maintain reliable
designing a risk management the SEC since that assessment is financial and management data (and
position(s). We decline to reduce the targeted at financial reporting issues, accurately report that data in a timely
level of experience for risk officers to a pursuant to provisions in the Sarbanes- manner), all of which can help protect
mere understanding of risk and have Oxley Act.22 As a safety and soundness the Corporation’s safe and sound
retained the requirement for experience operation and its reputation.
in risk management. We are not
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22 The Sarbanes-Oxley Act stressed the
delaying the effective date of this rule as importance of public companies maintaining 23 See footnote 15, Appendix B, of the Farmer
requested by Farmer Mac to facilitate internal controls when it comes to their financial Mac comment letter to the proposed rulemaking.
the Corporation having a risk officer in reporting by requiring public companies to include See also, 12 CFR 1236, Appendix A, ‘‘Prudential
details on the company’s financial internal controls Management and Operations Standard,’’ containing
place before the rule is effective. Should inside of their annual reports. Also, the SEC some FHFA internal controls requirements for the
the Corporation encounter difficulties in requires filers to include an attestation of ‘‘internal secondary market housing GSEs (e.g., ‘‘Standard 1—
having a risk officer in place after this controls over financial reporting’’ in annual reports. Internal Controls and Information Systems’’).
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We had proposed in paragraphs (c) were no comments opposing the its accompanying definition to new
and (d) that the Corporation establish a proposed organizational changes and, § 651.1 as the term is sufficiently
monitoring system for its internal therefore, we finalize them as proposed. explained in the relevant provisions of
controls and to report to us on the We also finalize as proposed the the rule.
effectiveness of those controls. movement of existing provisions into
2. Prohibitions [Proposed New § 655.2]
Stockholder-commenters objected to the the relevant subparts.
requirement for annual reports on We discuss final changes to part 655, We received comments on new
internal controls, explaining such and the related comments received, in § 655.2 from Farmer Mac and an agent
reports would be burdensome and could the appropriate sections below. of Farmer Mac. Farmer Mac asked that
reduce the attention given the issue all references to ‘‘agents’’ be removed
1. Definitions [New Subpart A: New and that the provision include a
during FCA examinations. The
§ 655.1] materiality standard so as to limit FCA
commenters instead stated that FCA
should rely primarily on its examination We received a comment from Farmer actions. Farmer Mac asserted that FCA
authority for review of internal controls. Mac on the definition for ‘‘material’’ in has no authority to regulate non-System
We make changes to paragraphs (c) and part 655, asking us to remove the persons or entities, suggesting FCA limit
(d) to address the comments objecting to definition or restate that used by the itself to imposing an obligation on the
annual reports on internal controls, but SEC. We proposed defining ‘‘material’’ Corporation to monitor its agents.
do so in a manner that also satisfies the as information required when ‘‘there is Farmer Mac again stated that FCA
underlying purpose of proposing an a substantial likelihood that a should not intrude into areas under SEC
annual report on the effectiveness of reasonable person would attach jurisdiction. Farmer Mac also asked that
internal controls. We are removing importance in making investor we defer to the SEC for determining
paragraph (d), which required the decisions or determining the financial compliance, specifically mentioning the
annual report to OSMO, in its entirety. condition of the Corporation.’’ We SEC rules on omissions and
In connection with this, we enhance the decline Farmer Mac’s request as it did misstatements in reports filed with the
provision in paragraph (c) to require the not argue that the term ‘‘material,’’ as SEC. The agent to Farmer Mac stated the
monitoring of internal controls to used in part 655, presented any conflict regulation of agents was intrusive and
include an identification and with SEC reporting rules.24 Rather, we burdensome, adding that Congress did
documentation of weaknesses in note that, like the SEC, our rule not intend consultants and advisors to
internal controls. We continue to interprets the term in a manner similar be subject to FCA authority.
believe the Corporation’s internal to the Financial Accounting Standards We proposed new § 655.2 to prohibit
control system needs to be monitored to Board (FASB) Concepts Statement No. 2 directors, officers, employees, or agents
assess whether controls are effective and explanation of ‘‘materiality.’’ 25 FASB, of the Corporation from making
operating as intended. On-going in turn, relied on the U.S. Supreme misleading, inaccurate, or incomplete
monitoring occurs through routine Court explanation that a fact is material part 655 disclosures. The provision
managerial activities such as under Federal securities laws if there is would have covered reports and
supervision, reconciliations, checklists, a ‘‘substantial likelihood’’ the fact disclosures made to FCA, stockholders
comparisons, performance evaluations, would be ‘‘viewed by the reasonable of Farmer Mac, and the general public.
and status reports. Monitoring may also investor as having significantly altered Contrary to the remarks of some
occur through separate internal the ‘total mix’ of information made commenters, the provision did not
evaluations (e.g., internal audits/ available.’’ 26 We also note that our rule assert direct regulatory authority over
reviews) or from use of external sources substantially resembles the SEC Rule the general actions of an agent of Farmer
(e.g., comparison to peer groups or 405 definition,27 with adjustments made Mac. Instead, the provision would have
industry standards, surveys, etc.). for financial safety and soundness required Farmer Mac to control its
Deficiencies found during monitoring considerations. We finalize the term agents, or issue corrections to
should then be documented and ‘‘material’’ and its definition as disclosures made by the same if those
reported to those responsible for the proposed. However, we are not disclosures were determined to be
function, with serious deficiencies being finalizing adding the term ‘‘report’’ and misleading, inaccurate, or incomplete.
reported to top management or the As explained in section 8.3(c)(4) of the
board. To ensure this monitoring occurs, 24 See SEC Staff Accounting Bulletin: No. 99—
Act, Farmer Mac has a statutory duty to
the rule requires the Corporation to Materiality, 17 CFR part 211 (August 12, 1999), take necessary precautions, including
document the process used to identify explaining the meaning of ‘‘material’’ as ‘‘A matter obtaining surety bonds, against any
is ‘material’ if there is a substantial likelihood that losses caused by the acts of its agents.
and resolve weaknesses in its internal a reasonable person would consider it important.’’
controls, as well as document what 25 FASB, Statement of Financial Accounting
Further, FCA has statutory authority to
weaknesses were found. This change, Concepts No. 2, Qualitative Characteristics of
issue cease-and-desist orders to agents
along with the internal controls over Accounting Information, 132 (1980). In this of the Corporation in appropriate
financial reporting made to SEC, should bulletin, FASB explained the concept of circumstances. In addition, we reject the
‘‘materiality’’ as ‘‘The omission or misstatement of argument of Farmer Mac that
provide the necessary source documents an item in a financial report is material if, in the
for our examination of the Corporation’s light of surrounding circumstances, the magnitude
misleading, inaccurate, or incomplete
internal controls, similar to what would of the item is such that it is probable that the disclosures are the exclusive
have resulted from the proposed annual judgment of a reasonable person relying upon the jurisdiction of the SEC. Not every report
report would have been changed or influenced by or disclosure made by Farmer Mac is in
report to OSMO. the inclusion or correction of the item.’’
26 See TSC Industries v. Northway, Inc., 426 U.S.
response to a requirement of the SEC,
D. Disclosure and Reporting [Part 655] particularly those we require under our
438, 449–450 (1976), where the court noted that
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Part 655 contains the existing determining materiality required ‘‘delicate rules in part 655. Rather, activities of
financial disclosure and reporting assessments of the inferences a ‘reasonable the Corporation extend beyond
provisions for the Corporation. We shareholder’ would draw from a given set of facts registered securities issued or
and the significance of those inferences to him
received comments to part 655 from . . .’’. See also Basic, Inc. v. Levinson, 485 U.S. 224 guaranteed by Farmer Mac, and we have
Farmer Mac, an agent of Farmer Mac, (1988). long had regulations addressing Farmer
and a Farmer Mac stockholder. There 27 17 CFR 230.405. Mac disclosures related to securities not
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![49148 Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Rules and Regulations
registered under the Securities Act of certain reporting and disclosures to reasons discussed in the proposed
1933. All this notwithstanding, in satisfy its role in ensuring listed rulemaking preamble.
response to the concerns expressed by companies provide sufficient
b. Certification of Reports
commenters regarding dual compliance information to the investing public. We,
with SEC regulations, we are not on the other hand, concern ourselves Farmer Mac said that there was no
finalizing the contents of § 655.2 at this with ensuring disclosures and report need for requiring signatures and
time. made by the Corporation address safety certifications on reports as the SEC
and soundness concerns, which include already addresses how reports are to be
3. Reports of Condition [New Subpart B:
all the activities of the Corporation. signed and certified. Farmer Mac also
Existing § 655.1; New §§ 655.10 and
Where we can in this rule, we have asked that we define ‘‘financially
655.15]
allowed Farmer Mac to use SEC filings accurate’’ as used in new § 655.10(b),
Our existing rule requires the in satisfaction of our requirements. explaining it is not a term used in the
Corporation to make annual reports to However, the SEC is a separate agency SEC-required certification of reports. We
its shareholders, and we had proposed and can change its reporting and finalize with changes the signature and
enhancements to this existing disclosure requirements without certification requirements of new
requirement. The enhancement consulting FCA. For this reason, we § 655.10(b). Our proposed certification
included adding quarterly reports, limit the extent that SEC filing did not conflict with SEC laws or
increasing the information in the requirements may also satisfy our regulations, but may have caused
reports, reducing distribution requirements and do so in a manner to compliance issues with SEC
timeframes, and requiring the reports to avoid conflict with SEC requirements instructions. SEC rules §§ 240.13a–14
be signed and certified as accurate. We and unnecessary duplication of effort by and 240.15d–14 require certification of
received comments on these proposed Farmer Mac. quarterly and annual reports filed with
changes from Farmer Mac and a Farmer them, but SEC instructions for
Mac stockholder. The stockholder- a. Annual Reports
completing these certifications prohibit
commenter only remarked that we Our existing rule requires the filers from making changes to the
should remove references to ‘‘EDGAR’’, Corporation to make annual reports to certification language provided in the
the SEC Web site portal, as the name of its shareholders consistent with SEC rules. Our proposed certification
the portal may change. We agree and shareholder reports required by the SEC, requirements captured most of the same
have removed all references to and to submit copies of such to us. We information as the SEC certifications,
‘‘EDGAR’’ in part 655. note that the Corporation must also file without giving specific language that
Farmer Mac objected to our rules annual and quarterly reports with the had to be used. To address the
containing any different reporting or SEC (10Q and 10K, respectively), which commenter’s concern regarding
disclosure requirements than those may include additional information not compliance with both the SEC and FCA,
required by the SEC. Farmer Mac stated part of the annual report to we are changing our certification
reporting and disclosures are the shareholders.31 Farmer Mac asked us to requirements to require the use of SEC
jurisdiction of the SEC and FCA should mirror SEC annual reporting certifications.33 We also clarify that the
reconsider any regulation of the matter. requirements. Doing so would include requirements of § 655.10(b) apply to
We reject the argument of Farmer Mac removing the proposed quarterly reports issued under new subpart B of
that financial reports and disclosures reporting to shareholders.32 We finalize part 655.
are the exclusive jurisdiction of the SEC the proposed language that the annual
and remind the Corporation that we c. Distribution Deadlines
reports to shareholders must be either
have long had regulations addressing equivalent in content to that required Farmer Mac objected to reducing
financial reports and disclosures made under the Securities Act or as we so distribution deadlines to 90 days, asking
by the Corporation. Further, FCA may instruct. However, we are not finalizing that we keep the current 120-day
require disclosure necessary to the the proposed requirement in § 655.10(a) deadline so as to provide it greater
safety and soundness of the that the Corporation make quarterly flexibility. Farmer Mac added that the
Corporation.28 In particular, we may shareholder reports. Farmer Mac also proposed 90-day timeframe ‘‘deviates
require disclosures suitable to the asked that we remove the requirement from SEC rules,’’ but does not name the
purpose for which Farmer Mac was to file any paper copies of reports with SEC rules being referenced. Farmer Mac
created, to follow disclosure practices OSMO. We decline this request for also asserted the shorter timeframe
appropriate to secondary market could increase compliance burden.
activities, and to aid in reducing risks in 31 The SEC requires registered entities to file an Absent a citation to the SEC rules, we
secondary market transactions.29 We annual report on Form 10–K, which may contain do not see where the number of days
also point out that SEC rules do not more detailed information about the company’s
financial condition than the annual report to
FCA proposed created any compliance
prohibit its filers from making financial shareholders. The annual report on Form 10–K problems with SEC requirements. The
reports to other Federal agencies.30 provides a comprehensive overview of the SEC has a three-tiered deadline for
While we understand Farmer Mac’s company’s business and financial condition and annual reports filed with them that is
desire to only concern itself with one includes audited financial statements. Although
similarly named, the annual report on Form 10–K
based on the size of the filer: 60 days
unified set of reporting and disclosure is distinct from the ‘‘annual report to shareholders,’’ after fiscal year end for large accelerated
requirements, we cannot uniformly which a company must send to its shareholders filers, 75 days after fiscal year end for
adopt SEC reporting and disclosure when it holds an annual meeting to elect directors. regular accelerated filers, and 90 days
requirements. As explained in the www.sec.gov/answers/form10k.htm.
after fiscal year end for nonaccelerated
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32 Currently, the SEC does not require registrants
proposed rulemaking, SEC requires
to issue a quarterly report to shareholders.
However, the issuance of such a report might be 33 SEC certifications are designed to be consistent
28 Sections 5.17(a)(8) and 8.11 of the Act (12 required by the listing standards of a national with the certification requirements of section 302 of
U.S.C. 2252(a)(8) and 2279aa–11). securities exchange or association. In addition, the Sarbanes-Oxley Act, which is intended to
29 Section 8.11(a)(1) and (2) of the Act (12 U.S.C.
communications about quarterly results are subject improve the quality of public financial disclosures
2279aa–11). to Regulation FD, Fair Disclosure, as well as Form that a company provides in its periodic reports to
30 Refer to 17 CFR 240.12b–33. 8–K disclosure requirements. investors.
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filers.34 Our proposed 90-day deadline interim reports (e.g., 8–K), proxy could be misinterpreted or is a burden
did not conflict with any of these statements, and notices sent to SEC. We on Farmer Mac. Farmer Mac has made
timeframes. The separate ‘‘annual report also proposed that this same reports to us on its activities regarding
to shareholders’’ 35 required by the SEC information be posted on the securities not registered under the
provides that a registered company must Corporation’s Web site for public Securities Act under this regulatory
distribute the company’s annual report viewing, but that links to the SEC requirement since 1993. As such,
to shareholders at least 40 days before electronic filings may be used to satisfy Farmer Mac should continue its current
the company holds its annual meeting this requirement. Farmer Mac practices addressing daily activities for
or elections.36 Again, our proposed 90- commented that these requirements filings made under this requirement,
day deadline did not conflict with this were an unjustified regulatory burden. unless we later advise them otherwise.
timeframe as the Corporation is not Farmer Mac then asked that we clarify The Corporation at a minimum must
legally required to hold its annual the scope of notices, interim reports, make special filings with us regarding
meeting on any specific date. and proxy statements required to be sent those items specifically listed in the
Our existing rule requires distribution to OSMO under § 655.15(a). Farmer Mac rule. We encourage the Corporation to
of annual reports to shareholders within also asked that we remove the contact us when questions arise as to
120 days of the fiscal year end (i.e. April requirement to post on its Web site whether a specific securities action
of each year). The SEC ties distribution these same notices, interim reports, and requires a filing under § 655.20.
of shareholder reports to the annual proxy statements. Farmer Mac stated Farmer Mac requested we update
meeting date (or election date) and concern with the public posting existing terminology in § 655.20(b)(2)
reports to the SEC are tied to fiscal year requirement since these filings include regarding securities purchased by the
end. We use fiscal year end for both all papers and documents made part of Corporation under section 8.6(e) of the
actions. This means to comply with the filing, contending confidential Act. We agree that the specific citation
both the SEC and FCA deadlines the communication with the SEC may be to the Act needed to be updated to
Corporation currently must distribute its made public. reference the correct paragraph of
report to shareholders within 120 days We decline to remove the § 655.15(a) section 8.6.37 The current reference
of fiscal year end and may not hold its requirement to provide these complete predates Congress moving the relevant
annual meeting (or elections) until 40 filings to OSMO as we continue to provision from section 8.6(g) to section
days after the report is distributed believe it is essential that 8.6(e) of the Act.38 We also revise the
(approximately 160 days or June 9th of communications between the ‘‘pooling and servicing agreements’’
each year). We proposed reducing our Corporation and OSMO, its primary terminology as requested by Farmer
deadline to 90 days, which would result regulator, include the substantive Mac. The existing rule used this phrase
in the Corporation being required to communications the Corporation has to reference those documents employed
hold its annual meeting (and elections) with the SEC. We also fail to see how in the exercise of the Corporation’s
no earlier than May 10th of each year providing us copies of reports and authority to purchase and hold
(approximately 120 days from fiscal filings already being prepared is a securities that are backed by pools of
year end). As there is no compliance burden on the Corporation. We have qualified loans (which loans are secured
issue with SEC rules, we reject the clarified in § 655.15(b) that the public by a first lien on agricultural real estate,
request of Farmer Mac to follow the SEC Web site postings may be limited to the per section 8.0(9)(A) of the Act).39 The
in this regard. We prefer a date certain public aspects of the notices, interim phrase ‘‘pooling and servicing
under which the Corporation must reports, and proxy statements. agreements’’ is outdated as such
distribute its annual report to documents are no longer a fundamental
4. Reports Related to Securities
shareholders. However, we have prerequisite to doing business with
Activities [New Subpart C: Existing
restored the existing 120-day deadline Farmer Mac. We replace this phrase
§ 655.50; New § 655.20]
for distribution of the annual report to with one that refers to those documents
shareholders. We continue to believe Farmer Mac objected to being
supporting issuances of these types of
the Corporation is more than capable of required in § 655.20 to send paper
guaranteed securities and which are
issuing the report sooner, but agree that copies to us of reports on unregistered
securities activities. We have removed material to the transaction(s).
the additional time is beneficial to the
director nomination process (due to the the requirement for both electronic and 5. Correspondence Related to Securities
report’s connection to holding annual paper copies, replacing it with a Activities [New Subpart C: Existing
meetings/elections under SEC rules). requirement for either a paper or § 655.50; New § 655.21]
electronic copy, whichever is most We proposed expanding the existing
d. Interim Reports, Proxy Statements, conducive to transmitting the
and Notices requirement to send us copies of
information. We also added language to substantive correspondence between
We proposed in § 655.15 that the clarify the reports are to be sent to the Farmer Mac and the SEC or U.S.
Corporation provide us copies of Director of OSMO. Treasury to cover all subject matters,
Farmer Mac requested we clarify the instead of just those substantive
34 SEC Web site, www.sec.gov/answers/
types of documents covered by § 655.20 communications related to securities
form10k.htm. See also Instructions to Form 10–K at and whether daily transactions (e.g.,
section A.2, www.sec.gov. activities and SEC compliance matters.
35 The SEC-required annual report to issuance of unregistered debt securities) We also proposed adding similar
shareholders is usually includes an opening letter needed to be filed with us. Farmer Mac
from the Chief Executive Officer, financial data, explained that many documents and 37 12 U.S.C. 2279aa–6(e).
results of operations, market segment information, daily activities could be covered by the 38 Public Law 104–105, 110 Stat. 164 (February
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new product plans, subsidiary activities, and
research and development activities on future rule under some interpretations. If so, 10, 1996).
programs. Companies sometimes elect to send their the burden of providing that 39 See former § 621.20(b)(2)(ii) (58 FR 48786,
annual report on Form 10–K to their shareholders information to us would be significantly September 20, 1993) referring to Farmer Mac I
in lieu of, or in addition to, providing shareholders securities, relocated to existing § 655.50(b)(2)(ii)(70
with a separate annual report to shareholders. SEC increased. As we made little change to FR 40635, July 14, 2005). Farmer Mac I securities
Web site, www.sec.gov/answers/annrep.htm. existing requirements in this area, we are those backed by pools of qualified loans as
36 17 CFR 240.14a–16. question the assertion that the rule defined in section 8.0(9)(A) of the Act.
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![49152 Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Rules and Regulations
Subpart A—Regulation, Examination and certain offerings of Farmer Mac § 650.6 Criminal referrals.
and Enforcement Guaranteed Securities under the The rules at 12 CFR part 612, subpart
Securities Act and related regulations so B, regarding ‘‘Referral of Known or
§ 650.1 Definitions. must comply with certain SEC reporting Suspected Criminal Violations’’ are
The following definitions apply to requirements. applicable to the Corporation.
this part:
Act or Authorizing statute means the § 650.3 Supervision and enforcement. ■ 4. Revise part 651 to read as follows:
Farm Credit Act of 1971, as amended. The Act provides FCA, acting through
Business day means a day the PART 651—FEDERAL AGRICULTURAL
OSMO, with enforcement authority to MORTGAGE CORPORATION
Corporation is open for business, protect the financial safety and
excluding the legal public holidays GOVERNANCE
soundness of the Corporation and to
identified in 5 U.S.C. 6103(a). ensure that the Corporation’s powers, Subpart A—General
Corporation or Farmer Mac means the
functions, and duties are exercised in a Sec.
Federal Agricultural Mortgage 651.1 Definitions.
safe and sound manner.
Corporation and its affiliates. 651.2 [Reserved]
FCA means the Farm Credit (a) General supervision. When we
Administration, an independent Federal determine the Corporation has violated Subpart B—Standards of Conduct
agency of the executive branch. a law, rule, or regulation or is engaging 651.21 [Reserved]
NYSE means the New York Stock in an unsafe or unsound condition or 651.22 Conflict-of-interest policy.
Exchange, a listing exchange. practice, we have enforcement authority 651.23 Implementation of policy.
OSMO means the FCA Office of that includes, but is not limited to, the 651.24 Director, officer, employee, and
Secondary Market Oversight, which is following: agent responsibilities.
responsible for the general supervision (1) Issue an order to cease and desist; Subpart C—Board Governance
of the safe and sound exercise of the (2) Issue a temporary order to cease 651.30 [Reserved]
Corporation’s powers, functions, and and desist; 651.35 [Reserved]
duties and compliance with laws and 651.40 [Reserved]
regulations. (3) Assess civil monetary penalties
651.50 Committees of the Corporation’s
Our or we means the FCA or OSMO, against the Corporation and its board of directors.
as appropriate to the context of the directors, officers, employees, and
agents; and Authority: Secs. 4.12, 5.9, 5.17, 8.3, 8.11,
provision employing the term. 8.14, 8.31, 8.32, 8.33, 8.34, 8.35, 8.36, 8.37,
SEC means the Securities and (4) Issue an order to suspend, remove, 8.41 of Pub. L. 92–181, 85 Stat. 583 (12
Exchange Commission. or prohibit directors and officers. U.S.C. 2183, 2243, 2252, 2279aa–3, 2279aa–
Securities Act means the Securities (b) Financial safety and soundness of 11, 2279aa–14, 2279bb, 2279bb–1, 2279bb–2,
Act of 1933 (15 U.S.C. 77a et seq.) or the the Corporation. When we determine 2279bb–3, 2279bb–4, 2279bb–5, 2279bb–6,
Exchange Act of 1934 (15 U.S.C. 78a et the Corporation is taking excessive risks 2279cc); sec. 514 of Pub. L. 102–552, 106
seq.), or both, as appropriate to the that adversely impact the adequacy of Stat. 4102; sec. 118 of Pub. L. 104–105, 110
context of the provision employing the Stat. 168.
Regulatory Capital, we have authority to
term. address that risk. This includes, but is
Signed, when referring to paper form, Subpart A—General
not limited to, requiring capital
means a manual signature, and, when restoration plans, restricting dividend § 651.1 Definitions.
referring to electronic form, means distributions, requiring changes in the
marked in a manner that authenticates The following definitions apply to
Corporation’s obligations and assets, this part:
each signer’s identity. requiring the acquisition of new capital Act or Authorizing statute means the
§ 650.2 Regulatory authority. and restricting those Corporation Farm Credit Act of 1971, as amended.
(a) General. The Corporation is a for- activities determined to create excessive
risk to the Corporation’s Regulatory Agent means any person (other than a
profit Government-sponsored enterprise director, officer, or employee of the
developed to provide a secondary Capital.
Corporation) who represents the
market for qualified agricultural, USDA- § 650.4 Access to Corporation records and Corporation in contacts with third
guaranteed, and rural utility loans, with personnel. parties or who provides professional
public policy objectives included in its services such as legal, accounting, or
statutory charter. The Corporation is (a) The Corporation must make its
records available promptly upon request appraisal services to the Corporation.
regulated by the FCA, operating through
by OSMO, at a location and in a form Affiliate means any entity established
OSMO. The Corporation also lists
and manner acceptable to OSMO. under authority granted to the
securities on the NYSE, making it
(b) The Corporation must make Corporation under section 8.3(c)(14) of
subject to certain SEC listing and
directors, officers, employees and other the Act.
disclosure requirements.
(b) Primary regulator. The FCA, individuals or entities engaged by the Appointed director means a member
operating through OSMO, holds primary Corporation to participate in the of the Corporation’s board of directors
regulatory, examination, and conduct of the Corporation’s business who was appointed to the Corporation
enforcement authority over the available to OSMO during the course of board by the President of the United
Corporation. The FCA, operating an examination or supervisory action States of America.
through OSMO, is responsible for the when OSMO determines it necessary to Business day means a day the
general supervision of the safe and facilitate an examination or supervisory Corporation is open for business,
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sound exercise of the Corporation’s action. excluding the legal public holidays
powers, functions, and duties and identified in 5 U.S.C. 6103(a).
§ 650.5 Reports of examination. Class A stockholders means holders of
compliance with applicable laws and
regulations. The Corporation is subject to the common stock in the Corporation that
(c) Other regulatory authorities. The provisions in 12 CFR part 602 regarding are insurance companies, banks, or
Corporation registers its common stock FCA Reports of Examination. other financial institutions or entities.
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Class B stockholders means holders of Resolved means an actual or potential section at any time during the year to
common stock in the Corporation that material conflict-of-interest that has file a signed statement to that effect;
are Farm Credit System institutions. been altered so that a reasonable person (d) Establish guidelines for
Conflict-of-interest means a director, with knowledge of the relevant facts determining when a potential conflict is
officer, or employee of the Corporation would conclude that the conflicting material in accordance with this
has an interest in a transaction, interest would not adversely affect the subpart;
relationship, or activity that might person’s performance of official duties (e) Establish procedures for resolving
adversely affect, or appear to adversely in an objective and impartial manner or disclosing material conflicts of
affect, the ability of the director, officer, and in furtherance of the interests and interest.
or employee to perform his or her statutory purposes of the Corporation. (f) Provide internal controls to ensure
official duties on behalf of the Signed, when referring to paper form,
that reports are filed as required and
Corporation in an objective and means a manual signature, and, when
that conflicts are resolved or disclosed
impartial manner in furtherance of the referring to electronic form, means
in accordance with this subpart.
interest of the Corporation and its marked in a manner that authenticates
each signer’s identity. (g) Notify directors, officers, and
statutory purposes.
employees of the conflict-of-interest
Corporation means the Federal
§ 651.2 [Reserved] policy and any subsequent changes
Agricultural Mortgage Corporation and
thereto and allow them a reasonable
its affiliates. Subpart B—Standards of Conduct period of time to conform to the policy.
Director elections mean the process of
searching for director candidates, § 651.21 [Reserved] § 651.23 Implementation of policy.
conducting director nominations, and (a) The Corporation shall disclose any
§ 651.22 Conflict-of-interest policy.
voting for directors. unresolved material conflicts of interest
Elected director means a member of The Corporation shall establish and
administer a conflict-of-interest policy involving its directors, officers, and
the Corporation’s board of directors who employees to:
was elected by either Class A or Class that will provide reasonable assurance
that the directors, officers, employees, (1) Shareholders through annual
B stockholders.
and agents of the Corporation discharge reports and proxy statements; and
Employee means any salaried
individual working part-time, full-time, their official responsibilities in an (2) Investors and potential investors
or temporarily for the Corporation. objective and impartial manner in through disclosure documents supplied
Entity means a corporation, company, furtherance of the interests and statutory to them.
association, firm, joint venture, purposes of the Corporation. The policy (b) The Corporation shall make
partnership (general or limited), society, shall, at a minimum: available to any shareholder, investor,
(a) Define the types of transactions, or potential investor, upon request, a
joint stock company, trust (business or
relationships, or activities that could copy of its policy on conflicts of
otherwise), fund, or other organization
reasonably be expected to give rise to interest. The Corporation may charge a
or institution.
potential conflicts of interest. For the nominal fee to cover the costs of
FCA means the Farm Credit
purpose of determining whether a reproduction and handling.
Administration, an independent Federal
potential conflict of interest exists, the (c) The Corporation shall maintain all
agency of the executive branch.
following interests shall be imputed to reports of all potential conflicts of
Material means conflicting interests of
a person subject to this regulation as if interest and documentation of
sufficient magnitude or significance that
they were that person’s own interests: materiality determinations and
a reasonable person with knowledge of (1) Interests of any individual residing
the relevant facts would question the resolutions of conflicts of interest for a
in that person’s household; period of 6 years.
ability of the person having such (2) Interests of any individual
interest to discharge official duties in an identified as a legal dependent of that § 651.24 Director, officer, employee, and
objective and impartial manner in person; agent responsibilities.
furtherance of the interests and statutory (3) Interests of that person’s general
purposes of the Corporation. (a) Each director, officer, employee,
business partner; and agent of the Corporation shall:
Officer means the salaried president, (4) Interests of an organization or
vice presidents, secretary, treasurer, and entity that the person serves as officer, (1) Conduct the business of the
general counsel, or other person, director, trustee, general partner or Corporation following high standards of
however designated, who holds a employee; and honesty, integrity, impartiality, loyalty,
position of similar authority in the (5) Interests of a person, organization, and care, consistent with applicable law
Corporation. or entity with which that person is and regulation in furtherance of the
OSMO means the FCA Office of negotiating for or has an arrangement Corporation’s public purpose;
Secondary Market Oversight, which is concerning current or prospective (2) Adhere to the requirements of the
responsible for the general supervision employment. conflict-of-interest policy established by
of the safe and sound exercise of the (b) Require each director, officer, and the Corporation and provide any
Corporation’s powers, functions, and employee to report in writing, annually, information the Corporation deems
duties and compliance with laws and and at such other times as conflicts may necessary to discharge its
regulations. arise, sufficient information about responsibilities under this subpart.
Our or we means the FCA or OSMO, financial interests, transactions, (b) Directors, officers, employees, and
as appropriate to the context of the relationships, and activities to inform agents of the Corporation shall be
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provision employing the term. the Corporation of potential conflicts of subject to the penalties of part C of title
Person means individual or entity. interest; V of the Farm Credit Act of 1971, as
Reasonable person means a person (c) Require each director, officer, and amended, for violations of this
under similar circumstances exercising employee who had no transaction, regulation, including failure to adhere to
the average level of care, skill, and relationship, or activity required to be the conflict-of-interest policy
judgment in his or her conduct. reported under paragraph (b) of this established by the Corporation.
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Subpart C—Board Governance 653.3 Risk management. (2) The responsibilities of the risk
653.4 Internal controls. committee include, but are not limited
§ 651.30 [Reserved] to:
Authority: Secs. 8.3, 8.4, 8.6, 8.8, and 8.10
§ 651.35 [Reserved] of Pub. L. 92–181, 85 Stat. 583 (12 U.S.C. (i) Periodically assessing
2279aa–3, 2279aa–4, 2279aa–6, 2279aa–8, management’s implementation of the
§ 651.40 [Reserved] and 2279aa–10). enterprise-wide risk management
program;
§ 651.50 Committees of the Corporation’s § 653.1 Definitions. (ii) Recommending changes to the risk
board of directors. The following definitions apply to management program to keep the
(a) General. No committee of the this part: program commensurate with the
board of directors may be delegated the Corporation means the Federal Corporation’s capital structure, risk
authority of the board of directors to Agricultural Mortgage Corporation and appetite, complexity, activities, size,
amend Corporation bylaws. No its affiliates. and other appropriate risk-related
committee of the board of directors shall FCA means the Farm Credit factors; and
relieve the board of directors or any Administration, an independent Federal (iii) Receiving and reviewing regular
board member of a responsibility agency of the executive branch. reports directly from personnel
imposed by law or regulation. OSMO means the FCA Office of responsible for implementing the
(b) Required committees. The board of Secondary Market Oversight, which is Corporation’s risk management
directors of the Corporation must have responsible for the general supervision program.
committees, however styled, that of the safe and sound exercise of the (c) Management of risk. The
address risk management, audit, Corporation’s powers, functions, and Corporation must have a risk officer,
compensation, and corporate duties and compliance with laws and however styled, who is responsible for
governance. Neither the risk regulations. implementing and maintaining the
management committee nor the audit enterprise-wide risk management
§ 653.2 General.
committee may be combined with any practices of the Corporation. The risk
other committees. This provision does The Corporation’s board of directors
officer must have risk management
not prevent the board of directors from must approve the overall risk-appetite of
experience commensurate with the
establishing any other committees that it the Corporation and regularly monitor Corporation’s capital structure, risk
deems necessary or useful to carrying internal controls to provide reasonable appetite, complexity, activities, and
out its responsibilities. assurance that risk-taking activities are size. The responsibilities of the risk
(c) Charter. Each committee required conducted in a safe and sound manner. officer include, but are not limited to:
by this section must develop a formal § 653.3 Risk management. (1) Identifying and monitoring
written charter that specifies the scope compliance with risk limits, exposures,
(a) Risk management program. The
of the committee’s powers and and controls;
Corporation’s board of directors must
responsibilities, as well as the (2) Implementing risk management
establish, maintain, and periodically
committee’s structure, processes, and policies, procedures, and risk controls;
update an enterprise-wide risk (3) Developing appropriate processes
membership requirements. To be
management program addressing how and systems for identifying and
effective, the charter must be approved
the Corporation’s activities are exercised reporting risks, including emerging
by action of the full board of directors.
in a safe and sound manner. The risks;
No director may serve as chairman of
implementation of the risk management (4) Reporting on risk management
more than one of the board committees
program may reside with senior issues, emerging risks, and compliance
required by this section.
(d) Frequency of meetings and management. The risk management concerns; and
records. Each committee of the board of program at a minimum must: (5) Making recommendations on
(1) Periodically assess and document adjustments to the risk management
directors required by this section must
the Corporation’s risk profile. policies, procedures, and risk controls
meet with sufficient frequency to carry (2) Align the Corporation’s risk profile
out its obligations and duties under of the Corporation.
with the board-approved risk appetite
applicable laws, regulations, and its and the Corporation’s operational § 653.4 Internal controls.
operating charter. Each of these planning strategies and objectives. (a) The Corporation’s board of
committees must maintain minutes of (3) Specify management’s authority to directors must adopt an internal
its meetings. The minutes must record carry out risk management controls policy that provides adequate
attendance, the agenda (or equivalent responsibilities. directions for, and identifies
list of issues under discussion), a (4) Integrate risk management and expectations in, establishing effective
summary of the relevant discussions control objectives into management safety and soundness control over, and
held by the committee during the goals and compensation structures. accountability for, the Corporation’s
meeting, and any resulting (5) Comply with all applicable FCA operations, programs, and resources.
recommendations to the board. Such regulations and policies. (b) The internal controls system must
minutes must be retained for a (b) Risk committee. The Corporation’s address:
minimum of 3 years and must be board-level risk committee assists the (1) The efficiency and effectiveness of
available to the entire board of directors full board of directors in the oversight the Corporation’s activities;
and to OSMO. of the enterprise-wide risk management (2) Safeguarding the assets of the
■ 5. Add part 653 to read as follows: program of the Corporation. Corporation;
(1) The risk committee must have at (3) Evaluating the reliability,
ehiers on DSK5VPTVN1PROD with RULES
PART 653—FEDERAL AGRICULTURAL least one member with an completeness, and timely reporting of
MORTGAGE CORPORATION RISK understanding of risk management financial and management information;
MANAGEMENT commensurate with the Corporation’s (4) Compliance with applicable laws,
Sec. capital structure, risk profile, regulations, regulatory directives, and
653.1 Definitions. complexity, activities, size, and other the policies of the Corporation’s board
653.2 General. appropriate risk-related factors. of directors and senior management;
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![49156 Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Rules and Regulations
(2) The final agreement and all DEPARTMENT OF TRANSPORTATION and locating Docket No. FAA–2015–
supporting documents material to the 8435; or in person at the Docket
Corporation’s purchase of a security Federal Aviation Administration Management Facility between 9 a.m.
under section 8.6(e) of the Act. and 5 p.m., Monday through Friday,
14 CFR Part 39 except Federal holidays. The AD docket
(c) For securities backed by qualified
[Docket No. FAA–2015–8435; Directorate contains this AD, the regulatory
loans as defined in section 8.0(9)(B) of
Identifier 2015–NM–049–AD; Amendment evaluation, any comments received, and
the Act, the Corporation must provide other information. The street address for
39–18594; AD 2016–15–03]
summary information on such securities the Docket Office (telephone 800–647–
issued during each calendar quarter in RIN 2120–AA64 5527) is Docket Management Facility,
the form prescribed by us. Such U.S. Department of Transportation,
summary information must be provided Airworthiness Directives; Bombardier,
Docket Operations, M–30, West
with each report of condition and Inc. Airplanes
Building Ground Floor, Room W12–140,
performance (Call report) filed pursuant AGENCY: Federal Aviation 1200 New Jersey Avenue SE.,
to § 621.12, and at such other times as Administration (FAA), Department of Washington, DC 20590.
we may require. Transportation (DOT). FOR FURTHER INFORMATION CONTACT:
ACTION: Final rule. Cesar A. Gomez, Aerospace Engineer,
§ 655.21 Filings and communications with
Airframe and Mechanical Systems
the U.S. Treasury, the SEC, and NYSE.
SUMMARY: We are adopting a new Branch, ANE–171, FAA, New York
(a) The Corporation must send us one airworthiness directive (AD) for certain Aircraft Certification Office (ACO), 1600
paper and one electronic copy of every Bombardier, Inc. Model BD–700–1A10 Stewart Avenue, Suite 410, Westbury,
filing made with U.S. Treasury, the SEC, and BD–700–1A11 airplanes. This AD NY 11590; telephone 516–228–7318; fax
or NYSE, including financial statements was prompted by reports of operator 516–794–5531.
and related schedules, exhibits, and inability to open the main passenger SUPPLEMENTARY INFORMATION:
other documents that are a part of the door following severe hot soak
conditions. This AD requires the Discussion
filing. Such items must be filed with us
no later than 1 business day after the incorporation of a new configuration to We issued a notice of proposed
the passenger door external handle rulemaking (NPRM) to amend 14 CFR
U.S. Treasury, SEC, or NYSE filing. For
detent to enhance the performance part 39 by adding an AD that would
those filings with the NYSE that
across the full range of the airplane apply to certain Bombardier, Inc. Model
duplicate ones made to the SEC, the BD–700–1A10 and BD–700–1A11
operating temperatures. We are issuing
Corporation may send only the SEC airplanes. The NPRM published in the
this AD to prevent thermal expansion
filing to us. If the filing is one addressed and permanent deformation at severe Federal Register on January 13, 2016
in subpart B of this part, no action hot soak conditions, creating high (81 FR 1584) (‘‘the NPRM’’). The NPRM
under this paragraph is required. friction between the spring pot housing was prompted by reports of operator
(b) The Corporation must send us, and the slider that could result in inability to open the main passenger
within 3 business days and according to inability to open the main passenger door following severe hot soak
instructions provided by us, copies of door and impede evacuation in the conditions. The NPRM proposed to
all substantive correspondence between event of an emergency. require the incorporation of a new
the Corporation and the U.S. Treasury, DATES: This AD is effective August 31,
configuration to the passenger door
the SEC, or NYSE that are directed at 2016. external handle detent to enhance the
the activities of the Corporation. The Director of the Federal Register performance across the full range of the
approved the incorporation by reference airplane operating temperatures. We are
(c) The Corporation must notify us issuing this AD to prevent thermal
within 1 business day if it becomes of certain publications listed in this AD
as of August 31, 2016. expansion and permanent deformation
exempt or claims exemption from the at severe hot soak conditions, creating
filing requirements of the Securities Act. ADDRESSES: For service information
high friction between the spring pot
Notice is not required when the identified in this final rule, contact housing and the slider that could result
Corporation claims an exemption that is Bombardier, Inc., 400 Côte-Vertu Road in inability to open the main passenger
generally available under SEC rules and West, Dorval, Québec H4S 1Y9, Canada; door and impede evacuation in the
regulations to similarly situated filers. telephone 514–855–5000; fax 514–855– event of an emergency.
7401; email Transport Canada Civil Aviation
Date: July 20, 2016. thd.crj@aero.bombardier.com; Internet (TCCA), which is the aviation authority
Dale L. Aultman, http://www.bombardier.com. You may for Canada, has issued Canadian
Secretary, Farm Credit Administration Board. view this referenced service information Airworthiness Directive CF–2015–03,
[FR Doc. 2016–17455 Filed 7–26–16; 8:45 am] at the FAA, Transport Airplane dated March 13, 2015 (referred to after
BILLING CODE 6705–01–P
Directorate, 1601 Lind Avenue SW., this as the Mandatory Continuing
Renton, WA. For information on the Airworthiness Information, or ‘‘the
availability of this material at the FAA, MCAI’’), to correct an unsafe condition
call 425–227–1221. It is also available for certain Bombardier, Inc. Model BD–
on the Internet at http:// 700–1A10 and BD–700–1A11 airplanes.
www.regulations.gov by searching for The MCAI states:
and locating Docket No. FAA–2015–
ehiers on DSK5VPTVN1PROD with RULES
8435. There have been reports where operators
experienced an inability to open the main
Examining the AD Docket passenger door following severe hot soak
conditions.
You may examine the AD docket on Investigation determined that the nylon
the Internet at http:// slider in the plunger assembly of the door
www.regulations.gov by searching for handle is susceptible to thermal expansion
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Document Created: 2018-02-08 08:02:39
Document Modified: 2018-02-08 08:02:39
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Rules and Regulations | |
| Action | Final rule. | |
| Dates | This regulation shall become effective no earlier than 30 days after publication in the Federal Register during which either or both Houses of Congress are in session. The FCA will publish a notice of the effective date in the Federal Register. | |
| Contact | Joseph Connor, Associate Director for Policy and Analysis, Office of Secondary Market Oversight, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4364, TTY (703) 883- 4056, or Laura McFarland, Senior Counsel, Office of General Counsel, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-4056. | |
| FR Citation | 81 FR 49139 | |
| RIN Number | 3052-AC89 | |
| CFR Citation | 12
CFR
650 12 CFR 651 12 CFR 653 12 CFR 655 | |
| CFR Associated | Agriculture; Banks; Banking; Credit; Reporting and Recordkeeping Requirements; Rural Areas; Conduct Standards; Conflict of Interests; Elections; Ethical Conduct; Capital; Finance; Accounting; Accounting and Reporting Requirements; Disclosure and Reporting Requirements and Financial Disclosure |
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